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2006 (3) TMI 119 - HC - Income TaxIncome from an undisclosed source - Gift from NRI - banking channels - burden of proof - identity of the creditor - genuineness of the transaction - credit worthiness of the creditor - Whether the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse? - HELD THAT:- It is seen from the materials available on record that the donor was brought up by the assessees as their family member. It stands established that the name Ariavan Thotan and Suprotoman are the nick names of the donor and it is an alias name. It has also come out on record that those names relate to the donor. There is nothing on record to show that the gifts received by the assessees were sent by any person other than the donor in his own name. Simply because the donor writes letters in his alias name, namely, letters dated December 8, 1994, and May 27, 1994, cannot mean that there is a dispute regarding the identity of the donor, especially when the donor appeared pursuant to the notice issued by the income-tax authorities and affirmed his gifts. The donor is shown to be an income-tax assessee not only in the United Kingdom but also in India. In addition to the above, it is not in dispute that the proceedings initiated against the donor under the provisions of the Foreign Exchange Regulation Act were not taken to their logical end by the Department. This means, the donor had not violated any provisions of the Foreign Exchange Regulation Act. In Nemi Chand Kothari [2003 (9) TMI 62 - GAUHATI HIGH COURT] held that in order to establish the receipt of a cash credit as required u/s 68 of the Income-tax Act, 1961, the assessee must satisfy three conditions namely, (1) identity of the creditor (2) genuineness of the transaction and (3) credit worthiness of the creditor. Once this is established, then, it is held that the assessee has discharged his burden. The assessees in the present appeals had done that. As we have noted, in this case, the donor had shown his love and gratitude for the family of the assessees; he wanted to reciprocate by showing his gratitude by making the gift ; he has channellised the transaction through banking channels and he had confirmed in his declaration that he had made the gifts. In the said circumstances, it is not for the income-tax authorities to go one step further and read his mind as to why he has decided to make a substantial gift. Simply because close relatives are not shown as the beneficiaries of such gift, the gift itself would not be invalidated in law, is the settled position in law. Now, if we apply our mind to the various reasons, which we have extracted in the earlier portion of this judgment and which had entered the mind of the authorities under the Act to reject the explanation, we have no doubt at all that the authorities were in the realm of imagination, surmises and conjectures. On the facts of this case, when the assessees have established all the requirements of section 68 of the Income-tax Act as referred to above, rejection of those explanations is definitely due to arbitrary and unreasonable exercise of power. From the facts, the reasons which entered the mind of the authorities to reject the explanation offered by the assessee in each case, we have no doubt at all that the explanation offered by the assessee in each case has been arbitrarily and unreasonably rejected. All the reasons, we have no doubt at all, are in the realm of surmises, conjectures and suspicions, which approach stands totally prohibited by the decided case law referred to above. We are fully conscious that the Appellate Tribunal is the final fact finding body. But on the facts established, the authorities under the Act have failed to draw the only conclusion that is possible legally and logically. Therefore, such a decision definitely raises a question of law warranting consideration at our hands. Accordingly, all the questions of law, on which the tax appeals are admitted, are answered in favour of the assessee and against the Revenue.
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