TMI Blog2006 (3) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principle of preponderance of probabilities in holding that the claim of the appellant that the sum of Rs. 15,62,500 received by him by way of gifts through normal banking channels was not genuine and that it was liable to be assessed under section 68 of the Income-tax Act, 1961? (b) Whether in the light of the law established and based on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal is legally justified in concluding that the burden of proof cast on the appellant under section 68 of the Income-tax Act, 1961 has not been discharged and the ingredients for invoking section 68 of the Income-tax Act are present? (c) Whether, on the facts and circumstances of the case, the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse? 2. T. C. Nos. 78 to 82 of 2002 stand admitted on the following questions of law: (a) Whether, on the facts and circumstances, the Income-tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the claim of the appellant that the sum of Rs. 15,62,500 received by him by way of gifts thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t credited to their respective account is a gift from a NRI and proceeded to add it as the income of the assessee from an undisclosed source. There were assessment orders for each of the assessees for the assessment years referred to earlier. The assessment order in each case is dated March 27, 1998, March 31, 1999, March 27, 1998, March 27, 1998, March 31, 1999, March 27, 1998, March 27, 1998 and March 31, 1999 respectively. Each of the assessee filed an appeal before the Commissioner of Income-tax (Appeals), Coimbatore, who, by separate order dated March 31, 2000, passed in each case, dismissed the appeal thereby affirming the order of the Assessing Officer. Thereafter, each assessee filed a separate appeal before the Income-tax Appellate Tribunal, Chennai. All the appeals were disposed of by a common order dated August 3, 2001. The accountant member affirmed the order of the lower authorities, while the judicial member did not agree and therefore, wrote a dissenting judgment. Therefore, the points in controversy were referred by the President of the Appellate Tribunal to the Senior Vice President of the Appellate Tribunal, who, by order dated February 20, 2002, agreed with the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnels, foreign exchange to the value of US$ 61,06,000, which includes the amounts made by way of gifts in India. 6. Mr. Aravind P. Datar learned senior counsel appearing for the appellant in all these appeals would contend that the hierarchy of authorities under the Act had acted only on surmises and conjectures in rejecting the explanation offered by the assessee in each case. According to learned senior counsel, the assessee had established the following facts namely, who the donor is ; what his capacity is ; all the transactions are through bank; the respective receipts have been credited into the books of account of the assessee; the donor is an income-tax assessee in the United Kingdom as well as in India; the donor has every good reason to make gifts and if these facts are established, then the Assessing Officer has no right to go behind this and probe further as to why the donor has gifted such huge sums of money. Motivation to make such a large gift would be totally extraneous when the explanation offered by the assessee is found acceptable. In considering the explanation, though the Assessing Officer and the hierarchy of authorities have a right to probe, such a probe shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, while dealing with section 34 of the Indian Income-tax Act, 1922 (which corresponds to section 68 of the current Act), held that (headnote) if the explanation shows that the receipt was not of an income nature, the Department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the Department can reject and draw the inference that the amount represents income etc.,. . . . Therefore, the principle that can be deduced from the above judgment is, if the explanation of the assessee shows that the receipt was not of an income nature, the Department cannot act unreasonably in rejecting the explanation. In Sumati Dayal v. CIT [1995] 214 ITR 801, the Supreme Court again reiterated that, while considering the explanation offered by the assessee for the amount credited in his account, the Department cannot, however, act unreasonably. For such a conclusion, the Supreme Court relied upon its earlier judgment namely, Sreelekha Banerjee v. CIT [1963] 49 ITR (SC) 12. In CIT v. Durga Prasad More [1971] 82 ITR 540, the Supreme Court held as hereunder: It is true that an apparent must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Shri Sampathkumar used to stay with him on his visits in India, his wife and son stated that he used to stay in Hotel Surya. Although all the donees claim to be close friends of Shri Sampathkumar, none knows the name of his parents or the parents of his wife. Shri Rajendran and Shri Sampathkumar are not related and belong to different communities. Shri Rajendran is not even aware of the fact that Shri Sampathkumar has two daughters while he stated that Shri Sampathkumar has one son and one daughter. The gifts received were in the name of Ariavan Thotan or Suprotoman. Only after enquiry by the Department, it transpires that they were aliases of Shri Sampathkumar. The nickname was Suprotoman or Toto. Why the alias Ariavan Thotan was used? The letters of the donor express reciprocation from the donees during his stay in India. The hon'ble Supreme Court in Durga Prasad More case [1971] 82 ITR 540 has observed that the Assessing Officer is not supposed to put on blinkers while examining documents produced before him. Although Sampathkumar has a brother, no gifts were made to him and he was working as a driver in Indian Bank, Coimbatore. The, Commissioner of Income-tax (Appeals), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 11. The Senior Vice-President of the Appellate Tribunal-Third Member had recorded in his order that, in the course of that hearing, the assessee had given the details and filed copies of the bank drafts or cheques issued by the donor on various dates. However, it appears from his order that he had started the discussion with a pre-conceived notion that clandestine transactions in a good number of cases had emerged out of Coimbatore, namely, by engaging agents, by paying them commissions for arranging remittances from foreign countries to India. He had also found in his order that the Accountant Member had noted that the donor is well placed financially; he is an industrialist in Great Britain; established some industries in Coimbatore and building properties. Then, going by the reasons which entered the mind of the Assessing Officer, which again went into the mind of the Commissioner of Income-tax (Appeals) and the Accountant Member, the Senior Vice-President of the Appellate Tribunal-Third Member also agreed with the finding of the Accountant Member by concluding that giving donation of such a large sum of money does not sound to be an action of any reasonable man, especially w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and spread his wings to Indonesia first and then to United Kingdom, where he is now permanently by settled. The donor had obtained a degree in Bachelor of Engineering. The orders impugned show that the donor is worth about Rs. 20 crores and during the relevant time, he had brought about US$ 61,60,000 into India through proper channel. The donor had stated that as a gratitude for the help rendered by one of the assessees to his father, which enabled him to come up in life and that too, to such an exalted position, he had made the gift. All the gifts have come through proper banking channels and there is no hanky panky about it. In fact, the donor appeared on summons by the Income-tax Department and gave all the details. The Senior Vice- President, in his concurring order with the Accountant Member, had stated that at least by that time, the donor had produced all the materials in proof of his claim. Therefore it is clear that the assessees have established the identity of the donor namely, the source, the solvency of the donor and his love and gratitude for the family of the assessees, which made him to make the gift. In fact, the Assessing Officer himself had referred to a letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions 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. Then, going by the Delhi High Court judgment referred to supra, something more tangible than suspicion would be necessary to reject the explanation offered by each of the assessees. In Murlidhar Lahorimal [2006] 280 ITR 512, the Gujarat High Court found fault with the Tribunal, after the assessee satisfactorily explained the reasons, that motivation for making the gift having not been established, the explanation must be rejected. The Gujarat High Court held that, once the assessee discharges his burden of proving the relevant facts, then motivation for making the gift is irrelevant. As we have already 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Tribunal would give rise to a question of law, the court must read the order of the Tribunal as a whole to determine whether every material fact, for and against the assessee, had been considered fairly and with due care; whether the evidence pro and con had been considered in reaching the final conclusion; and whether the conclusion reached by the Tribunal had been coloured by irrelevant considerations or matters of prejudice. It was further held in Homi jehangir Gheesta v. CIT [1961] 41 ITR 135 (SC) that in considering probabilities properly arising from the facts alleged or proved, the Tribunal did not indulge in conjectures, surmises or suspicions. 17. In the light of the facts available in this case; the reasons which entered the mind of the authorities to reject the explanation offered by the assessee in each case and in the context of the case law referred to by us above, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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