9911796707
TMI Blog2008 (11) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... bhu Agrawal, Rs. 2,00,000 and Shri Prateek Agrawal S/o Shri Prem Prakash Agrawal Rs. 4,00,000 on the basis of deposit received by the assessee in his personal name but he failed to appraise the fact that assessee is not required to prove the source of source in any case when the depositors are regular assessee. 5.Because the addition of Rs. 15,770 out of Telephone and Vehicle Expenses is upheld by the CIT Appeal as per order of Ld. Assessing Officer which is remissive and against facts. 6.Because the order of Ld. CIT (Appeal) is against the facts, provisions of statute and contrary to law of equity and natural justice." 2. The main issue involved in this appeal is that the Ld. CIT(A) has confirmed an addition of Rs. 2 lakhs made by the Assessing Officer being gifts received by the assessee, and not treated as genuine by the Assessing Officer and that he has also confirmed an addition of Rs. 8 lakhs being loan received by the assessee from his grandsons who have received gift from different ladies. The facts of the case are as under : 3. The assessee declared income of Rs. 2,66,209 for the assessment year 2002-03. The return was processed under section 143(1) on 29-11-2002. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the income was below taxable limit. She had stated that she gave gift to assessee amounting to Rs. 70,000 on 10-7-2001 through banker's cheque in the financial year 2001-02. Source was claimed as past savings kept in almirah. Gift was given without any occasion. She did not have any relationship with the donee. She did not have any bank account either singly or in joint name. She did not own any movable or immovable property. For doing the above work, her husband owns a house. She has two sons. She did not give any gift to either her sons or to the husband or to her brother. It was also stated that her husband is working in office of Shri Virendra Kumar Gupta, who is counsel of the assessee. He is getting a salary of Rs. 36,000 per year. Her household expenditure is claimed at Rs. 60,000. Smt. Suman Srivastava - She had stated that she is doing embroidery, tailoring, painting and tuition. She filed return of income for the assessment years 1998-99 to 2001-02 in which income was declared at Rs. 41,400, Rs. 51,150, Rs. 51,200 and Rs. 80,800 respectively from above sources. She did not file return of income thereafter on the ground that income is below taxable limit. She claimed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eas here the alleged gifts had been given without any occasion and without any motive. The donor did not have any relationship with the donee. Besides assessee who are well educated and well settled in business and having substantial income and have sound economic position in the society had not given any gift to any of the alleged donors and their family." 6. The Assessing Officer gave show-cause notice to the assessee against which assessee explained as under : "(a )All the above three ladies are Income-tax assessees. (b )The gifts had been received through account payee banker's cheque. (c )Copy of gift deed are filed already with acceptance letter. (d )All the above ladies were summoned by Income-tax Officer for statement. (e )All the ladies were cross examined by the Income-tax Officer and they stated following facts : (i )They confirmed that they are Income-tax assessees. (ii )They confirmed that they have made gift to Shri KM. Agarwal. (iii)They stated their source of income and stated that they have filed their Income-tax return to the Income-tax Office, Lakhimpur Kheri. (iv)They stated that they had made gifts through account payee cheque. (v )They stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly when there is no bank account nor any books of account or documents to indicate the correct state of affairs. The ITI's report as well as statements recorded by the Assessing Officer placed on file reveal that these ladies are from one family and residing in the house of Shri K.K. Srivastava who is assistant of Shri Krishna Mohan Agarwal, the assessee. The annual income of the ladies is nominal. The language of section 68 shows that it is general in nature and applies to all credit entries in whomsoever names they may stand that is whether in the name of the assessee or a third party. It is a long accepted principle of law that an assessee is obliged to explain the nature and source of cash credits in his accounts and in the absence of satisfactory explanation on his part, the Assessing Officer can proceed to treat the amount of cash credits/gifts in question as representing the tax payer's income. The three ladies who have gifted substantial amount, have no bank account, but gifted the amount through the banker's cheques. There is no evidence of the source of income, genuineness of transaction. The capacity of the ladies to give such a large amount has also not been establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ladies are relatives of Shri K.K. Srivastava, Assistant of Shri Virendra Kumar Gupta, counsel of the assessee. All these ladies had filed return of income showing the sources of income as embroidery, knitting, tailoring, painting and tuition. Returns of income were filed at nominal income to build up capital and to transfer money to the assessee. The donors are persons from very poor family whereas the assessee is rich man having turnover of nearly Rs. 5 crores whereas the ladies are from family having meager income, husbands of the ladies are employed at very low salary, they do not own any movable or immovable property, they had not given any gift to their own family members. There is no occasion for giving such gifts to the assessee. Further there is no reciprocity proved i.e. the donee has not given any gift to any of the donor's family members. Acquaintance is also not proved. There is no evidence of any love and affection or bondages which could prompt anybody to give gift. On the above basis, the ld. DR submitted that order of the ld. CIT(A) should be confirmed. 13. Before we consider arguments of the parties and draw our conclusions, we prefer to discuss the facts of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gift of Rs. 1 lakh on 10-10-2001 to Shri Gaurav Agarwal through cheque from her past savings. She has one son and her husband is working in a private firm on a salary of Rs. 3,000 per month. She has five brothers and two sisters. They too have their children. She did not give any gift to anyone of them except gift below Rs. 500 on marriage or birthdays. She does not own any movable or immovable property. Her husband also does not own any such property. She is living in a rented house at Rs. 700 per month. She claimed that she has bank account in Allahabad Bank, Lakhimpur Kheri. Smt. Munni Mishra - She stated that she is doing the work of embroidery, knitting, tailoring and tuition earning annual income of Rs. 12,000 from this work and Rs. 8,000 from tuition. She filed return of income for the assessment years 2000-01 and 2001-02 on an income of Rs. 48,950 and Rs. 82,210 respectively. Subsequently, return of income was not filed being below taxable limit. She stated that she has given a gift of Rs. 1 lakh through cheque to Shri Gaurav Agarwal on 17-10-2001. She had a bank account in Bank of Baroda. Her husband is working in a private shop in Lakhimpur Kheri on a salary of Rs. 3,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also not received any gift from Shri Mohit Agarwal or his family members. (c) Smt. Beena Saxena - She stated that she is doing work of tailoring, embroidery and knitting. Annual income is Rs. 40,000 to Rs. 45,000. She declared income of Rs. 49,400 and Rs. 81,660 respectively for assessment years 2000-01 and 2001-02. She did not file return thereafter as income was below taxable limit. It is claimed that she gave gift of Rs. 1 lakh to Shri Mohit Agarwal through account payee cheque on 10-10-2001 out of her past savings. She had a bank account in her name. She did not own any movable or immovable property in her name. She has two sons and one daughter who are studying. She also has brothers and sisters. She did not give any gift to either of them. She also did not receive any gift from the family members of Shri Mohit Agarwal. Her husband is working in a private shop on a salary of Rs. 3,000 to Rs. 3,500 per month. (d) Smt. Urmila Devi - In her statement, she stated that she is doing tailoring, embroidery and dairy business. Annual income is Rs. 20,000 to Rs. 25,000. She filed return of income for the assessment years 2000-01 and 2001-02. Return was not filed subsequently as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 5,000 per month. Smt. Geeta Rastogi - She stated that she is doing work of tailoring, knitting, embroidery and earning annual income of Rs. 30,000 to Rs. 40,000. She filed return of income for the assessment years 2000-01 and 2001-02 and declared income of Rs. 49,130 and Rs. 81,460 respectively. For subsequent assessment years returns were not filed as income was below taxable limit. Her household expenditure was Rs. 40,000 per annum. She stated to have given gift of Rs. 1 lakh to Shri Prateek Agarwal on 25-8-2001. She has two children, husband, father-in-law, mother-in-law, two brothers and two sisters to whom she never gave any gift. Her husband is working in a private shop getting salary of Rs. 2,000 per month. She stated that she has a joint family of six members. None of them received any gift from the family members of Shri Prateek Agarwal. Smt. Meera Mishra - She stated that her source of income is embroidery, knitting and tailoring. Her income is Rs. 1,000 per month. She filed return of income for the assessment years 1995-96 and 1996-97 and also for assessment years 2000-01 and 2001-02 and declared income of Rs. 35,800, Rs. 40,700, Rs. 49,820 and Rs. 81,910 respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81,840 respectively. Subsequently, returns were not filed as income was below taxable limit. She gave a gift of Rs. 32,000 on 9-7-2001 to Shri Prateek Agarwal and another gift of Rs. 1 lakh to Shri Arpit Agarwal. She claims that she knew the assessee and his family for about 10-12 years. There is no relationship. There was no occasion for gift. She had two sons and one daughter and five brothers but did not give any gift to them. Her husband is working in a private firm on a salary of Rs. 2,000 per month. She did not have any movable or immovable property in her name. She is uneducated. She did not receive any gift from the family of the donees. 17. On the basis of the above facts, the Assessing Officer inferred the following : (i)Donors did not have sufficient income to save such huge amounts. (ii)They did not have any house either in their own name or in the name of their husband. Most of them live in rented house or with the in-laws. (iii)No other movable or immovable property is owned by them or their husband. Their husbands are generally working in small shop on a petty salary of Rs. 2,000 to Rs. 4,000 per month. (iv)They have daughters, sons, brothers, sister-in-laws, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of gift of Rs. 2 lakhs, confirmed the order of the Assessing Officer in treating the gifts to grandsons and then loan to assessee as not genuine. His final judgment is as under : "I have heard the counsel for the appellant, considered the written submission filed by the counsel, report of the Assessing Officer and have gone through the assessment order. I have considered the issue of credit entries, while deciding the grounds of appeal bearing Nos. 1 and 2. For the same reasons as has been mentioned in the order in above paragraphs, I find no case to interfere with the findings of the Assessing Officer. The grounds of appeal as raised by the appellant fail." 21. In respect of loan of Rs. 8 lakhs from the grandsons of the assessee, the ld. AR submitted that if at all gifts are not genuine, then they should be considered as income of the minor sons or may be clubbed in the hands of their father. So far as loan is concerned, it should be treated as genuine because once gift is treated as income of the minor sons or of their father then loans would be treated as explained. 22. In addition, the ld. AR submitted that all the donors have accepted to have given gifts. They are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by Hon'ble Supreme Court. He also referred to the decision of Hon'ble Supreme Court in CIT v. P. Mohanakala [2007] 291 ITR 278 , on the issue of genuineness of transactions and for taking into consideration surrounding circumstances before drawing conclusion whether transaction of gift would be genuine or not. He then referred to the decision of Allahabad Bench of the Tribunal in the case of Ishrawati Devi v. ITO [2008] 298 ITR (AT) 313 wherein the issue of genuineness of gifts was described in detail. Following these judgments, the ld. DR submitted that gifts in the present case could not be held as genuine and so the loans in the hands of assessee. 24. In the rejoinder, the ld. AR sought to distinguish the authorities cited by the ld. DR as under : "1. Income-tax Officer v. Hindustan Wire Products (and vice) 2006 (8) MTC 630 (Trib.) (All.). The said case law is being given without considering any ruling, moreover in case the creditor could not able to furnish any proof regarding source of income claimed by him but in my case the source have been given and even verified by Income-tax Inspector of department deputed for the inquiry. 2.Assistant Commissioner of Income-tax v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h identity of the donors is proved, but creditworthiness is not established. Creditworthiness is established by showing the balance sheet and capital account filed by them in the Income-tax return. It has to be shown how the capital was lying with the donors and what is immediate source of money gifted and after giving gift or loan, how much was left with them. In addition to identity and creditworthiness, the assessee is also required to show relationship, occasion and reciprocity. The three additional elements are discussed by Hon'ble Delhi High Court in the case of Rajeev Tandon (supra ) which was affirmed by the Hon'ble Supreme Court subsequently by dismissing the SLP of the assessee. In nutshell, we find following common factors in the cases of all these gifts : (i)All the donors are ladies. All of them are claiming of doing work of knitting, embroidery, tailoring and tuition. (ii)All of them have practically filed their return for the assessment years 2000-01 to 2001-02 on nominal income. In the first year income is shown just below taxable limit. In the second year income is shown about Rs. 80,000 plus. In case of genuine people having taxable income, such coincidence is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r own sons and daughters or their parents or parents-in-law, none of them having creditworthiness of any extent to create semblance of belief that they could give gift. 27. In our considered view, under section 68 what is required to be seen in addition to identity and creditworthiness, the genuineness of the transaction which is a judgment to be arrived at by looking into all the surrounding circumstances and considering the very crucial test whether such transaction could happen in real life. Merely because assessee has been able to file documents showing the form of the transactions such as affidavits, deeds, statements and transactions of gift through banking channels, it cannot be said that in substance, the gifts are acceptable. 28. Our view in ignoring the form and treating the substance as reality is supported by various authorities. The Hon'ble Calcutta High Court in CIT v. L.N. Dalmiya [1994] 207 ITR 89 observed as under : "In the context of determining whether a transaction is sham or illusory or a device or a ruse, the income-tax authorities are entitled to penetrate the veil covering it and ascertain the truth. The taxing authorities are not required to put on blink ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt must be considered real until it was shown that there were reasons to believe that the apparent was not the real, in a case where a party relied on self-serving recitals in documents, it was for that party to establish the truth of those recitals: the taxing authorities were entitled to look into the surrounding circumstances to find out the reality of such recitals." In CWT v. Arvind Narottam [1988] 173 ITR 479 , the Hon'ble Supreme Court has observed as under : "It is true that tax avoidance in an underdeveloped or developing economy should not be encouraged on practical as well as ideological grounds. One would wish, as noted by Reddy J., that one could get the enthusiasm of justice Holmes that taxes are the price of civilization and one would like to pay that price to buy civilization. But the question which many ordinary taxpayers very often, in a country of shortages with ostentatious consumption and deprivation for the large masses, ask is, does he with taxes buy civilization or does he facilitate the waste and ostentation of the few. Unless waste and ostentation in Government spending are avoided or eschewed, no amount of moral sermons would change people's attitude to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for the alleged acquaintance for which there is no evidence. The assessee is not reported to have given any gift or help to these donors or to their family, either in the past or even in future, even though the donors have claimed to have gifted their practically entire capital to the assessee. The claim of acquaintance by some donors is only an alibi to show a motive for giving gift. 30. It can happen only in the Income-tax world where capital and source of income of low income group people are transferred to capital rich people with multiple source of income. The flight of capital from rags to riches in the form of such gifts can happen only to save income-tax. There is nothing in these transactions to inspire confidence about their genuineness. The gifts are visibly bogus. In this context it would be pertinent to refer to the comments of Hon'ble Madras High Court in Addl. CIT v. C.R. Ranganathan Chetty [1985] 153 ITR 456 : "Look at the way the gifts were made. Not only were made to other people's children, but some of them were made to other people's Wives. In any place, excepting in a tax court, gifts to other people's wives, even if they are wives of co-partners, would rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and viewed as a whole then one discovers the reality. 32. Picture that emerges is that it is only a make-belief affair. All these factors put together leave no doubt in our mind that it is a fit case where form has to be ignored and one has to go into the substance of the whole transaction." 32. In Rajeev Tandon's case (supra), it was held by the Tribunal that unless bank statements are supported by other corroborative evidence to establish financial capacity of donors, the bank statements do not prove creditworthiness of donors. Further, genuineness of transactions cannot be determined without looking into the aspect of human probabilities, relationship of donor and donee, occasion for making the gifts and existence of reciprocity if any. In this regard, we refer to paras 15, 16 and 18 from that order as under : "15. Thus, from the above decisions ( supra) for accepting the gift amounts received by the assessee to be genuine the ingredients required to be taken into consideration by us are that the assessee must establish the identity of the donor, his financial capacity to make such gift, as well as, the genuineness of the gift transaction. The genuineness of the gift transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 was confirmed by the Hon'ble Delhi High Court, wherein the Court appreciated the fact that donors had no connection with the assessee and gifts were made to the assessee because he needed money to buy house. This was not only quite unusual but also unnatural. It was incredible that a complete stranger would want to gift lakhs of rupees to a person only because that person wanted the amount for purchasing house. The taxing authorities are entitled to look into the surrounding circumstances to come to the conclusion that the gifts are genuine or not. The reasons offered by the assessee did not appear reasonable, much less acceptable. 34. The Hon'ble Allahabad High Court in the case of Ram Lal Agarwal (supra), held in the context of section 68 as under : "Under section 68 of the Income-tax Act, 1961, if any amount is found credited in the books of account of the assessee, the burden lies upon the assessee to prove its nature and source. While proving the same the assessee has to prove the identity of the person, genuineness of the transactions and creditworthiness of the person, who has given the money. Held, that in the present case though the identity of the person, who had giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grandsons out of the gifts received by them. Once gifts are not genuine, question of lending money to the grandfather as genuine does not arise. In this regard, we refer to certain decisions stated by ld. AR. 37. Ms. Mayawati's case (supra) - In that case also donors were apparently strangers. They had taken loan to give gift to Ms. Mayawati. That case could not be compared to the facts of the present case because Ms. Mayawati is a public figure of high repute and gifts received by her from her followers cannot be equated with the gift received by the assessee from strangers. Assessee is not at all a public figure and does not stand anywhere in comparison to Ms. Mayawati. 38. Tarun Alum (P.) Ltd.'s case (supra) - In that case, deposits were received by a company from the Director, deposits were received by cheque - Director was examined. He claimed the source to be gifts as received by bank drafts credited to his bank account. The onus of the company is held discharged. The facts of the case cannot be compared to the facts of the present case. In that case the Assessing Officer has not examined the donors to find out the genuineness of the gifts and their financial capacity. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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