2007 (11) TMI 328 - AT - Income Tax

Genuineness of the transaction of gifts received by the family members - Applicability of s. 68 - income from undisclosed sources - survey u/s 133A - Disallowance of standard deduction - HELD THAT - It is a settled legal position that for claiming the benefits of gifts the assessee is required to satisfy the following conditions (1) Identity of the donors. (2) Creditworthiness of the donors. (3) Genuineness of the transactions of the gifts. Identity of the donors All the three donors appeared before the AO and their statements were recorded. Two of them appeared before the Addl. Director of IT (Inv.). All the three are assessed to tax. Donors appeared before three different authorities which confirms their identity. Creditworthiness of the donors AO has held them to be non-creditworthiness only on the basis of surmises or guesswork. In fact at the time of making assessment he made no enquiry about their wealth and net worth which he subsequently made while submitting the remand report to CIT(A) and in which he found them to be creditworthy. Thus in absence of any enquiry or any material about their creditworthiness the AO was not justified in holding that the donors creditworthiness was in doubt. Genuineness of the transaction of gifts Mere fact that the gift was made of huge amount or of valuable property in absence of any other material to doubt the genuineness of the gift will not be sufficient to treat the gift as non-genuine. Lack of blood relationship or family relationship or absence of occasion for making gift are again not the only considerations for treating the gift as non-genuine. Although these may at times be relevant corroborative considerations to establish the non-genuineness of the transactions but by itself none of such factors can be sufficient considerations for treating the gift as non-genuine. In the instant case there is no evidence on record to show that the assessee had in any way at any time financially or otherwise helped the donors to gain in any manner by misusing her position as a public servant. There is no proof that the donee made any investment in the property gifted lo her before the same was gifted. Smt. Veena Jain and Sh. Ashok Jain borrowed funds for purchasing the property gifted to the donee. There is no evidence that the donee had made arrangement of the loan or paid any part of them or interest thereon either prior to the purchase of the property or subsequently. In all the three gifts in question the entire investment made was from the source of donors and not from the donee. We are of the opinion that all the three gifts are not only genuine but also the identity and capacity of the donor to make the gift stands duly and fully established. Hence we uphold the findings of the learned CIT(A) in holding that the assessee has fully discharged not only her onus but also the burden cast on her by proving the identity of the donors and their creditworthiness as well as the genuineness of the gift. Accordingly we uphold the findings of the learned CIT(A) deleting the additions made on account of the said gifts by the AO. Applicability of s. 68 - We are also of the opinion that s. 68 has no applicability to the facts of present case as the assessee is not maintaining any books of account. If that be so s. 68 does not apply in her case for the simple reason that the cheque received from Sh. Pankaj Jain has been deposited in her bank account. In this regard we are also of the opinion that balance sheet/statements of affairs cannot be equated to books of accounts because in traditional terms books means a collection of sheets of paper bound together with the intention that such binding shall be permanent and papers used are kept collectively in one volume. It can also be assumed that it connotes the contention that it should serve as a permanent record. This is the finding of the Hon ble judges of the Bombay High Court in Sheraton Apparels vs. Asstt. CIT In the instant case neither the gifts relating to immovable properties can be covered under s. 68 nor the gift of Rs. 2, 00, 000 received by the assessee can be covered under that provision. Nextly in view of our findings recorded above all the gifts satisfied the requirement of a valid and genuine gift. The assessee has fully explained the same and therefore it cannot be said that the addition can be sustained even under s. 69 of the IT Act as held by the AG because the source of investment in the properties in question stand fully explained by the assessee in the form of gifts which are found to be genuine by us for the reasons given above. Consequently the grounds taken by the Revenue are rejected. In the result Revenue s appeal is dismissed. Claim of standard deduction u/s 16(1) amounting to Rs. 30, 000 we are of the view that the assessee is not entitled to claim deduction under s. 16(1). We hold so because there is no relationship of employer and employee existing in the facts of the recent case. The position has also been further clarified by CBDT in Circular. The mistake of claiming this standard deduction may not be intentional or deliberate as submitted by assessee s counsel but in our opinion since it is not legally admissible it cannot be allowed as a deduction. Keeping in view the same we uphold the finding of the CIT(A) that the assessee is not entitled to standard deduction under s. 16(1) amounting to Rs. 30, 000. The assessee fails on this ground. Hence the grounds taken by the assessee in her appeal stand rejected. Consequently this appeal is also dismissed. In the result both the appeals filed by the assessee as well as the Revenue stand dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 2,00,000 on account of a gift from Shri Pankaj Jain.
2. Deletion of addition of Rs. 40,68,450 and Rs. 22,03,850 on account of gifts of property from Shri Ashok Jain and Veena Jain, respectively.
3. Claim of standard deduction under section 16(1).

Detailed Analysis:

1. Deletion of Addition of Rs. 2,00,000 on Account of Gift from Shri Pankaj Jain:
The Revenue challenged the deletion of the addition of Rs. 2,00,000 on the grounds that the gift from Shri Pankaj Jain was not genuine. The Assessing Officer (AO) argued that the gift was an arranged accommodation entry, citing the lack of occasion and relationship between the donor and donee. However, the CIT(A) found that the donor, a chartered accountant, had confirmed the gift through affidavit, bank statements, and personal testimony, establishing the genuineness of the transaction. The Tribunal upheld CIT(A)'s findings, emphasizing that the identity and creditworthiness of the donor were established, and the gift was made through an account payee cheque.

2. Deletion of Addition of Rs. 40,68,450 and Rs. 22,03,850 on Account of Gifts of Property from Shri Ashok Jain and Veena Jain:
The Revenue also challenged the deletion of additions related to gifts of immovable properties. The AO had argued that these gifts were not genuine, citing the donors' financial transactions and lack of direct relationship with the assessee. However, the CIT(A) found that the gifts were made through registered deeds, with stamp duty paid, and the donors had confirmed the gifts through affidavits and personal testimonies. The Tribunal upheld these findings, noting that the donors' identities, creditworthiness, and the genuineness of the transactions were established. The Tribunal emphasized that the AO's conclusions were based on irrelevant considerations and lacked tangible evidence to prove that the gifts were not genuine.

3. Claim of Standard Deduction under Section 16(1):
The assessee's appeal regarding the claim of standard deduction under section 16(1) amounting to Rs. 30,000 was dismissed. The Tribunal held that there was no employer-employee relationship in the present case, as clarified by CBDT Circular No. 40/29/67/ITA-1, dated 22nd May 1967. Consequently, the assessee was not entitled to the standard deduction claimed.

Conclusion:
The Tribunal dismissed both the Revenue's and the assessee's appeals. The Tribunal upheld the CIT(A)'s findings that the gifts in question were genuine, the donors' identities and creditworthiness were established, and the transactions were made voluntarily and without consideration. The Tribunal also confirmed that the assessee was not entitled to the standard deduction under section 16(1).