TMI Blog2009 (1) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the nature of a sham and collusive transaction and that ratio of Supreme Court decision in McDowell Co. Ltd. vs. CTO (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC) fully applied to the facts of the case. 4. On the facts and circumstances of the case, the learned CIT(A) has wrongly deleted the addition of Rs. 21,000 from assessee's income without properly appreciating the facts as mentioned in para 6.5 of assessment order. 5. On the facts and circumstances of the case, the order of learned CIT(A) is perverse and deserves to be cancelled." 2. The facts of the case are that the assessee is a director in M/s Gyan Securities Press (P) Ltd. During the course of assessment proceedings, the AO noted that a sum of Rs. 6 lakhs and another sum of Rs. 7,40,000 were credited in the bank account of the assessee on 7th Sept., 1993 and 1st Oct., 1993 respectively. It was explained to the AO vide assessee's letter dt. 12th March, 1997 that a sum of Rs. 6 lakhs was received vide cheque No. 493080 dt. 3rd Sept., 1993 drawn on NRE account No. 6730 with Punjab National Bank, Nehru Crossing, Lucknow while Rs. 7,40,000 was received vide cheque No. 750563 dt. 20th Aug., 1993 on NRE account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ib-ur-Rehman. (xiii) In answer No. 32, Shri Gautam stated that he did not know whether Shri Habib-ur-Rehman could read/write Arabic. (xiv) In answer No. 34, Shri Gautam stated that Shri Hanfi has no contact telephone number at Lucknow. (xv) Shri Gautam admitted in answer No. 37 that he did not give any gift of Rs. 5,00,000 or more to anybody. (xvi) In answer No. 21, Shri Gautam did not tell the name of Shri Rehman's father-in-law. 4. The AO also did not rely on the alleged certificates issued by the donors for the following reasons: (i) Both the letters are undated. (ii) The letters of Rs. 6,00,000 was allegedly given by Shri Habib-ur Hassan but it was falsely signed by his wife Smt. Bajrul Nisan Hanfi. When the letter was sent from Saudi Arabia and Shri Hanfi was there, why did it bear the false signature of his wife. (iii) Both the letters lack the elements of gifts to be made for love and affection without any consideration and the acceptance by the donees. (iv) Shri Hanfi's letter (Annex. B) left the place of his NRE account number as blank while Shri Rehman's account number was not correct as confirmed by his banker. (v) The signature of Mrs. Hanfi on the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69 could not be invoked to the facts of the case. As per s. 69, if an assessee had made investment which are not recorded in the books of account, if any, maintained by him and assessee offers no explanation about the nature and source of the investment or the explanation offered by him is found to be unsatisfactory, then the value of investment could be deemed to be the income of the assessee. In the present case, though the assessee did not maintain any books of account but, he had offered an explanation regarding the nature and source of the investment of the deposits in his bank account, therefore, the question of treating it as unexplained and taxable under s. 69 of the Act could not arise. Further there is no reason to reject the explanation of the assessee. 8. Regarding addition of Rs. 21,000, the learned CIT(A) held that it is explainable out of the sum of Rs. 35,000. 9. Against this, the learned Departmental Representative submitted that the burden to prove the nature and source of the deposit in the bank account lay on the assessee and the AO had clearly asked the assessee to prove the investment made by him in the bank account. The question to be decided here is whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is also not established because it is not explained as to how the money has come into the NRE account from where cheques were issued for gift. Merely because, according to the learned Departmental Representative, money could come only from abroad in NRE account does not prove that the money was, in fact, transferred by the donors. So far as genuineness of the gifts are concerned, the learned Departmental Representative submitted that it is not proved because it is not established by the assessee that bondage between the assessee and donors is so strong that they could give away their money to the assessee and not to their own relatives who are living in India. Even if assessee's version is accepted that he has developed a relationship with Shri Sirajul Hassan Hanfi, who was a composer contractor of the assessee, but it could not lead to the inference that there could be any emotional bondage between the two. If at all, there could be an acquaintance, it could be only with Shri Sirajul Hassan but it could not be with Habib-ur-Rehman. There is no reason why Shri Habib-ur Rehman would part away his money as gift to the assessee. Even in the case of Shri Sirajul Hassan Hanfi, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -ud-din Sons vs. CIT (1980) 17 CTR (Del) 211 : (1981) 129 ITR 703 (Del) on the elaboration of the concept of preponderance of probabilities, Khopade Kisanrao Manikrao vs. Asstt. CIT (2000) 69 TTJ (Pune)(TM) 135 : (2001) 250 ITR 18 (Pune)(TM) on the issue that AO is not fettered by technical rules of evidence and the like. He may act on material which may not, strictly speaking, be accepted as evidence in a Court of law. He relied on the decision of Hon'ble Supreme Court in the case of CIT vs. Durga Prasad More 1973 CTR (SC) 500 : (1971) 82 ITR 540 (SC) on the importance of surrounding circumstances, on the Hon'ble Delhi High Court decision in the case of Bhagat Construction Co. (P) Ltd. vs. CIT (2001) 165 CTR (Del) 181 : (2001) 250 1TR 291 (Del), on the proposition as to what is colourable device. He also referred to the Tribunal, Mumbai Bench, decision in the case of Mid East Pori Folio Management Ltd. vs. Dy. CIT (2003) 81 TTJ (Mumbai)(SB) 37 : 271 ITR 87 (Mumbai)(SB)(AT) on the proposition that entirety of transactions should be taken into consideration. He finally referred to the decision from House of Lords in the case of Regina vs. IRC (1995) 215 ITR 487 (HL), for the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that there are decisions of the Tribunal and Court wherein it is held that for the purposes of establishing the genuineness of the gifts, the existence of relationship or occasion is not required. He referred to the decision of the Allahabad Bench of the Tribunal dt. 11th Feb., 2008 in the case of Anand Prakash Agarwal vs. Asstt. CIT in ITA No. 389/All/2007 for asst. yr. 2002-03. [reported at (2008) 6 DTR (All)(Trib) 191-Ed.] and CIT vs. Padam Singh Chouhan (2008) 215 CTR (Raj) 303. He then referred to the decision in the case of CIT vs. Kulwant Industries (2008) 214 CTR (P H) 223 for the proposition that occasion is not relevant for proving the gift. He further referred to the decision of the Hon'ble Delhi High Court in the case of CIT vs. R.S. Sibal (2004) 187 CTR (Del) 291 : (2004) 269 ITR 429 (Del) for the proposition that if capacity is not doubted the gift should be held as genuine. The learned Authorised Representative sought to distinguish various decisions referred to by the learned Departmental Representative by saying that they stand on different set of facts. In most of those cases, the source of money for gift was not proved and therefore, gifts were held non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given even a thought of acceptance. In spite of repeated requests by the AO to produce the donors for examination, the assessee failed to do so. If the donors had any acquaintance with the assessee, or they had any semblance of love or affection with the assessee, which was claimed to be existing as they have given a sum of Rs. 6 lakhs or Rs. 7,40,000 to the assessee by way of gift, they could have come forward to bail out the assessee by producing themselves before the AO in support of alleged transaction of gifts. Now, we come to the basic ingredients required to be proved under s. 68. So far as identity of donors is concerned, we are not convinced as to who has given gifts to the assessee. Copies of their passports which could have been used to verify the signatures of the donors on the letters of gift were not produced. It was also not explained as to how the money into the NRE accounts claimed to be belonging to the donors was transferred and whether such transfer was actually done by the alleged donors as the linkage between transfer from the accounts of donors to the NRE account in India was not established. The claim of the assessee that in the NRE account of the donors on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to family functions for long time, which could indicate that donors and donee had physically as well as emotionally lived apart for long. If AO is able to show this with evidence then presumption of love and affection could be rebutted and onus will shift back to the assessee to show by other evidence that gifts were still genuine though natural love and affection cannot be established. 18. In case of any other set of donors and donee, not related by blood, or not close friends, not close relatives or no such intimate bondages are shown, then presumption of natural love and affection cannot be raised. The onus will remain on the assessee to show as to what prompted the donors to give gift to the donees. 19. In our considered view, the gift flows from the rich person to a person of lesser worth whereas the present flows from the person of lesser worth to a person of higher worth. A present is out of respect and reverence and is generally given by persons of equal status or person of lower status to higher status. Even though money has flown from the bank account in the present case, but that is not sacrosanct unless it is proved that money was actually transferred by the do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly raise a presumption in favour of gifts being genuine and it is for the AO to rebut such presumption. But where no such occasion is present, then onus will remain on the assessee to prove that gift was still genuine. In the present case, there is no evidence that there was any occasion to give gifts. Further, there is nothing on record to show that the donors i.e. Smt. Badrun-nisan Hanfi and Shri Habib-bur Rehman, maternal son-in-law of Shri Sirajul Hassan Hanfi had any contact with the assessee. Even if for the sake of argument we accept that Shri Sirajul Hassan Hanfi had some contacts with the assessee as he was a composer contractor in late 70s or early 80s, but that does not prove that Smt Badrun-nisan Hanfi or Shri Habib-bur Rehman had any contact with the assessee unless the two are prompted by Shri Sirajul Hassan Hanfi to give gifts. 22. The relevant question now arises as to why not Shri Sirajul Hassan Hanfi himself came forward to give gift if he had any actionable acquaintance with the assessee. But in our view, that will also not establish that Shri Sirajul Hassan Hanfi had any love and affection for the assessee. There is vast difference between acquaintance and lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king gift. (iii) There is no evidence that there was any love and affection or friendship between the donors and donee. (iv) There is no evidence that there was any business transaction between the donors and the assessee and therefore, it could not be believed that how a stranger would part away his savings to give gifts to any unknown person sacrificing his chances of bettering his living conditions with that money. (v) There is no evidence that assessee or his family members has given gift to the members of donors family at any time. (vi) In fact, the two belonged to different faiths/religion. The entire transaction of gift is apparently unusual as behaviour of the donors is queer. (vii) The gifts are apparently bogus because they have been given to an assessee of means and having multiple sources of income. 24. In this context, it would be pertinent to refer to the comments of Hon'ble Madras High Court in the case of Addl. CIT vs. G.R. Ranganathan Chetty Ors. (1987) 61 CTR (Mad) 105 : (1985) 153 ITR 456 (Mad) as under: "Look at the way the gifts were made. Not only were they made by the other people's children, but some of them were made to other people's wives. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case, assessee had established the identity of - the creditors and amount received by him by way of cheques. Assessee must be taken to have proved that creditor had creditworthiness. Failure of creditor to show creditworthiness of his sub-creditors will not entitle the AO to make addition. The present case, is however, in respect of gifts where onus is heavier on the assessee than simply in respect of cash credits. In cash credits, the creditor has right to recover the money and therefore, he may retain evidence of giving credit to the assessee but in the case of gifts, money of the donor is lost forever in favour of the donees and therefore, onus to establish the genuineness of the gifts is heavier. We have already observed that we are not convinced either about the identity or about creditworthiness of the creditors and also about genuineness of the transaction for the reasons mentioned above. (v) Dy. CIT vs. Rohini Builders (2003) 182 CTR (Guj) 373 : (2002) 256 ITR 360 (Guj): This is a case of cash credit wherein the Hon'ble Gujarat High Court held that source of credits need not be proved. The creditors in those cases had complete addresses, GIR Nos., PANs and the copie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en reciprocity between them regarding exchange of gifts remained absent. Further, the question has to be answered, as to why a person not related to the donee and earned money abroad in foreign exchange would give gift to a person who is not related to him or when there was no occasion to give such gift to the donees. (iv) ITO vs. Dr. K. Mittal (9) MTC 658 (Trib)-In this case it was held that where donors had meagre income and large family to support and there is no relationship with the assessee and there was no occasion for making gift then gift will not be held as genuine. (v) Asstt. CIT vs. Ashok Kumar Jaiswal (9) MTC 773-In this case it was held that where in spite of repeated requests the donors were not produced and donors are not regular income-tax assessees. donors and donee are not related, there is no occasion for making gift source of money in the bank account not explained. then addition of the amount of gift as undisclosed income would be justified. (vi) Ram Lal Agarwal vs. CIT (2006) 201 CTR (All) 44 : (2005) 149 Taxman (All) 342-Where donors and donee had no direct relation. the donors had no source and capacity to make payment of the amount of gifts, and thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 ITR 294 (Del)-Mere identification of the donor and showing movement of the gift amount through banking channels is not sufficient to prove the genuineness of the gift. Since the claim of the gift is made by the assessee, the onus lies on him to establish not only the identity of the person making the gift but also his capacity to make such gift. (xi) Sanjeev Batra vs. Asstt. CIT (1999) 65 TTJ (Del) 799 : (1999) 69 ITD 23 (Del)-In this case, assessee failed to prove the genuineness of the gifts as well as financial capacity of the donors during assessment proceedings. It was argued that gift of big amount of Rs. 25 lakhs is against normal human conduct and against all probabilities specially when donor is admittedly not related to the assessee. It was further held that the gifted amount was isolated in nature, only one way, between persons who are not related, made in utter haste and at a time when assessee and his family had to make huge investments. The assessee failed to establish creditworthiness of the donors and genuineness of the gifts and thus fan d to discharge onus which lay on him. The gifts were held as non-genuine and treated as income" of the assessee. (xii) ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of the person making the gift and also his capacity to make such a gift. There was nothing on record to show that donors had financial capacity, what kind of relationship the donors had with the assessee, what were the immediate source of funds gifted to the assessee and whether the donors were produced before the AO. It was held that addition of gifted amount was justified. (xvii) Smt. Ishrawati Devi vs. ITO (2008) 114 TTJ (All) 541 : (2008) 298 ITR 313 (All)(AT): It was held that the individual factors like relationship, occasion, non-giving gifts by the donors to the kith and kin of donees, gift by the assessee and vice versa, donee not giving any help to the donors at any time, donors being men of petty means, donors had meagre withdrawals, may not be relevant if seen in isolation but when put together they leave no doubt that gift transactions are unusual and against all human probabilities. (xviii) Tirath Ram Gupta vs. CIT (2008) 304 ITR 145 (P H): Where there was no occasion for making gift of huge amount to the assessee, the assessee could not establish the relationship with the donor, the creditworthiness of the donor having been not established, the gift was treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifted amounts with the donors, had no relationship with the donors, not even acquaintance which was only with Shri Sirajul Hassan Hanfi. had no occasion for making the gift, gifted amount having been immediately utilized in the construction of the property and Rs. 12.40 lakhs thereof into the business, assessee had no knowledge about the relations of the donors, had not attended any social ceremonies of the donors, had no contact for almost ten years before the time of gifted amount to the assessee and other similar factors elaborated by the AO. Therefore, it could not be said that assessee had discharged the onus and therefore, the AO is not only supposed but also duty-bound to treat the gifted amount as assessee's income from undisclosed sources. 28. Where gifts are not genuine, they are only pretence and only scheme for avoidance of tax. In some cases they are part of tax evading schemes. The IT authorities are well within their powers to look into the veil and find out the realities. In this regard, we may refer to the quote in Regina vs. IRC as under: "Every tax avoidance scheme involves a trick and a pretence. It is the task of the Revenue to unravel the trick and the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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