Sec 68, Source of Source not to be proved -Copies of Tax return of NR donor can not be demanded

By | March 22, 2017
(Last Updated On: March 22, 2017)

Issue

Assessing Officer noted that the assessee had received gifts amounting to Rs. 45 lacs from her brothers namely Shri Tarsem Kumar, son of late Shri Amar Nath, resident of Evergreen Way Hayes, United Kingdom, amounting to Rs. 33 lacs and Shri Pirthi Chand, son of late Shri Amar Nath, resident of 6A, Cremonia No. 84, Crema Cap 26013, Prov. Cremona, Italy amounting to Rs. 12 lacs.

The Assessing Officer, therefore, treated the said gifts as unexplained money of the assessee u/s. 68 of the Act and made an addition of Rs. 45 lacs to the income of the assessee.

Assessee Contention

The assessee stated that she had discharged her onus of explaining the gifts received by her by way of filing

  • confirmations of the donors,
  • bank statements
  • copies of the passport of the donors,
  • confirmation letters from the bank that the said gifts were made from NRE accounts of the donors.

CIT (Appeals) rejected the contention of the assessee and stated that the said amount was not in the nature of a gift since no such gifts had been made to the assessee by her brothers in the past, nor had the brothers given any such gift to any other person and also for the reason that there was no occasion to give the gift and even the assessee had never gifted anything to her brothers. The Ld. CIT (Appeals) stated that based on these facts, it was highly improbable that without any occasion the brothers could advance such a huge amount to the assessee in the nature of gift.Therefore, The learned CIT (Appeals) held that the assessee had failed to prove the genuineness of the nature of the transactions and found the explanation of the assessee to be unsatisfactory and, therefore, upheld the action of the Assessing Officer in treating the said gifts as unexplained under section 68 of the Act

Held by ITAT

The bank accounts from which the stated gifts have been given are NRE accounts. All deposits in the said accounts can be made only out of the earnings made outside the country. In any case, no cash deposits have been found in the said accounts. Further there are enough deposits in the said accounts to make the impugned gifts. When the availability of funds has been adequately proved, the capacity of the donors to make the gifts also stands proved. By asking the assessee to file copies of the Income Tax Returns and also their bank statements in their country of residence, the Revenue is indulging in the exercise of verifying the source of the source which is settled law, cannot be done in this case. The onus to explain the credit being on the assessee, reflects the general rule of law of evidence codified in section 106 of the Evidence Act, 1872, ,as per which the source of income is a matter with the exclusive knowledge of the assessee which he has to prove and demonstrate. It is for this reason only that the source of source, which is not within the knowledge of the assessee at all, is not required to be proved by the assessee.

IN THE ITAT CHANDIGARH BENCH

Nirmal Rani

v.

Deputy Commissioner of Income-tax, Ambala City

BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER

IT APPEAL NO. 1075 (CHD.) OF 2013
[ASSESSMENT YEAR 2010-11]

FEBRUARY  22, 2017

Rohit Goel for the Appellant. S.K. Mittal, DR for the Respondent.

ORDER

 

Annapurna Gupta, Accountant Member – The appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals), Panchkula dated 25.09.2013, relating to assessment year 2011-12.

2. The assessee has raised the following grounds of appeal :

‘1.That in the facts and circumstances of the case, the ld. CIT (A) is not justified in upholding the addition of Rs. 45,00,000/- u/s. 68 without appreciating the fact that both the donors, real brothers of the assessee, covered by the definition of relative u/s. 56(l)(vi) of the Act, duly confirmed having given the gifts.
2.That in the facts and circumstances of the case, the Id. CIT (A)is not justified while concluding that “there is no evidence before me even to substantiate the relationship of the donor” ignoring the documentary evidence already on record.
3.That in the facts and circumstances of the case, the Id. CIT (A) is not justified in upholding the addition of Rs. 45,00,000/- u/s. 68 by concluding that “the assessee has not discharged its onus of providing explanation of the genuineness of the amount credited in the bank account of the appellant” ignoring the fact that the impugned amounts were transferred from NRE account of her real brothers.
4.That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard and disposed off.’

3. The only issue in the present appeal pertains to addition made u/s. 68 of the Income Tax Act, 1961 (in short ‘the Act’) on account of gifts received by the assessee amounting in all to Rs. 45 lacs.

4. Brief facts relating to the issue are that during the course of assessment proceedings, the Assessing Officer noted that the assessee had received gifts amounting to Rs. 45 lacs from her brothers namely Shri Tarsem Kumar, son of late Shri Amar Nath, resident of Evergreen Way Hayes, United Kingdom, amounting to Rs. 33 lacs and Shri Pirthi Chand, son of late Shri Amar Nath, resident of 6A, Cremonia No. 84, Crema Cap 26013, Prov. Cremona, Italy amounting to Rs. 12 lacs. These gifts were received through NRE accounts maintained by the above persons in Indian Bank, Ambala Cantt. The assessee filed confirmations on plain paper alongwith copies of passport from these persons during the course of assessment proceedings. The Assessing Officer asked the assessee to further furnish the following information in respect of the persons from whom the alleged gifts were received :

(i)Copies of the returns of income of the persons from whom the so called gifts were received.
(ii)The sources of income of the donor abroad.
(iii)Capacity of the donor to give the gift.
(iv)Copy of bank account maintained by the donor abroad.

5. No documentary evidence was filed by the assessee. The Assessing Officer, therefore, treated the said gifts as unexplained money of the assessee u/s. 68 of the Act and made an addition of Rs. 45 lacs to the income of the assessee.

6. During the appellate proceedings, the assessee stated that she had discharged her onus of explaining the gifts received by her by way of filing confirmations of the donors, bank statements and copies of the passport of the donors, confirmation letters from the bank that the said gifts were made from NRE accounts of the donors. The assessee stated that the donors were her real brothers and in view of the fact that all necessary evidences to prove that the said amounts had been received from her brothers by way of gifts from their sources of income were filed by the assessee, no addition u/s. 68 of the Act could be made. The assessee also explained the source of income of her two brothers, as the elder brother Shri Tarsem Kumar, being in the business of construction, earning 2000 pounds per month and another brother Shri Pirthi Chand doing job with a dairy milk company since last 13 years earning 2000 Euro per month. The assessee further stated that the said amount having been received by way of gift from brothers, the same were exempt u/s. 56 of the Act. The Ld. CIT (Appeals) rejected the contention of the assessee and stated that the said amount was not in the nature of a gift since no such gifts had been made to the assessee by her brothers in the past, nor had the brothers given any such gift to any other person and also for the reason that there was no occasion to give the gift and even the assessee had never gifted anything to her brothers. The Ld. CIT (Appeals) stated that based on these facts, it was highly improbable that without any occasion the brothers could advance such a huge amount to the assessee in the nature of gift. The Ld. CIT (Appeals) further stated that in fact, there was no evidence to substantiate the relationship of the donors with the assessee. The Ld. CIT (Appeals) further stated that four documentary evidences required by the Assessing Officer had never been filed by the assessee and further no evidence in regard to the capacity of the donor had been produced. Therefore, The learned CIT (Appeals) held that the assessee had failed to prove the genuineness of the nature of the transactions and found the explanation of the assessee to be unsatisfactory and, therefore, upheld the action of the Assessing Officer in treating the said gifts as unexplained under section 68 of the Act. The learned CIT (Appeals) relied on a numbers of decisions in this regard as follows :

(1)Sumati Dayal v. CIT [1995] 214 ITR 801 (SC)
(2)Chain Sukh Rathi v. CIT [2004] 270 ITR 368  (Raj.)
(3)CIT v. Smt. Kamlesh Rani [2013] 219 Taxman 185 (Punj. & Har.)

7. Aggrieved by the same, the assessee has now come up in appeal before us. During the course of hearing the Ld. counsel of the assessee vehemently argued that the onus cast on the assessee to explain the gifts received, had been duly discharged by way of filing the following documents :

(i)Passports of the donors placed at Paper Book page Nos.16 & 17 proving the identity of the donors.
(ii)Copies of bank accounts of the donors from which the gift was given, being NRE accounts, placed at Paper Book page Nos.20 & 21 showing the genuineness of the gift and capacity of the donors.
(iii)Certificate from Indian Bank certifying transfer from NRE account placed at Paper Book page Nos. 18 & 19 again proving the genuineness and capacity of the donors.
(iv)Confirmation of the said gifts from the donors placed at Paper Book page no. 14 &15.

8. The Ld. counsel of the assessee further stated that the source and capacity of the donors had been duly proved by the balance appearing in their NRE bank accounts. The Ld. counsel of the assessee also pointed out that in the case of Shri Tarsem Kumar his NRE account shows a opening balance of Rs. 33,40,059/- which was enough to make the gift of Rs. 33 lacs to his sister, the assessee and also pointed out that there were no deposits during the year in this account of Shri Tarsem Kumar. Therefore, in view of these facts, the Ld. counsel of the assessee stated that the gifts having been made from the balances relating to preceding years, no addition could be made on account of the income of the assessee for the current year. Further, the Ld. counsel of the assessee distinguished the case laws relied on by the Revenue while supporting the order of the learned CIT (Appeals). The Ld. counsel of the assessee relied upon the order of the Calcutta High Court in the case of CIT v. J.J. Development (P.) Ltd. [IT Appeal No. 519 of 2008, dated 16-6-2016] in support of its contention that the gifts given from opening balances appearing in the bank accounts cannot be treated as undisclosed income of the current year.

9. The learned D.R., on the other hand relied upon the order of the learned CIT (Appeals) and stated that the capacity of the donor had not been proved in the present case. The learned D.R. pointed out that the assessee had not supplied the copies of bank statements of the donors in their countries of residences as also copies of their Income Tax Returns filed there, which was specifically asked to the assessee to prove the genuineness of the transactions as also the capacity of the donors. The learned D.R., therefore, stated that the assessee had not discharged its onus as contemplated under section 68 of the Act and, therefore, the addition made by the Assessing Officer had been rightly upheld by the learned CIT (Appeals). The learned D.R. relied upon the order of the Hon’ble Jurisdictional High Court in the case of Jaspal Singh v. CIT [2007] 290 ITR 306  (Punj. & Har.) and the decision of the Chandigarh Bench of the ITAT in the case of Smt. Anita Aggarwal v. ITO [2015] 155 ITD 692 (Chd. – Trib.). The learned D.R. also pointed out that the assessee had also not proved the relationship with the donors and, therefore, the said transaction could not be stated to be in the nature of gifts received from brothers.

10. The Ld. counsel of the assessee, in rejoinder, stated that the copies of passport placed before the Assessing Officer which showed the names of parents of the donors ,adequately proved that they were brothers of the assessee. The Ld. counsel of the assessee further relied upon the order of the Jurisdictional High Court in the case of CIT v. Jawahar Lal Oswal [2016] 382 ITR 453 (Punj. & Har.).

11. We have heard the contentions of both the parties, perused the documents produced before us as also the orders of the authorities below. The issue before us in the present appeal pertains to addition being made under section 68 of the Act, which requires the assessee to satisfactorily explain the nature and source of any sum found credited in the books of the assessee. The onus is on the assessee to offer a satisfactory explanation of the credits and it is well settled that in order to discharge the onus the assessee must prove the following :

(i)Identity of the creditor
(ii)Capacity of the creditor to advance money and
(iii)Genuineness of the transaction

12. In the present case, the explanation offered by the assessee relating to the cash credit of Rs. 45 lacs is that they were gifts received from her two brothers S/Shri Tarsem Kumar and Pirthi Chand. As evidence of the same the assessee filed the following documents :

(i)Copies of the passports of the donors
(ii)Copies of NRE accounts of donors from which the gifts were given.
(iii)Certificate from bank stating that the said amount was transferred from NRE accounts of the donors.
(iv)Confirmations from the donors that they had given the gifts of the said amounts to their sister, the assessee.

13. It is the contention of Ld. counsel of the assessee that the onus cast on the assessee to explain the aforesaid cash credit has been duly discharged by way of filing the above explanation and documents since they adequately prove that the said amount were gifts received by the assessee from her brothers through their bank accounts. The Ld. Counsel has contended that the fact that the said amount was received from Shri Tarsem Kumar and Pirthi Chand is not disputed. The identity of the donors is proved by their copies of passports placed before the lower authorities. The relationship of the donors with the assessee of being brothers is proved by the name of parents appearing in their respective copies of passports, which is identical and also the confirmation of the donors which states so. That the said amount was given by way of gift is proved by the fact that the donors confirmed so, which is further corroborated by the fact that the donors were her brothers and in such a relationship the gifts are given in the normal course. Further the genuineness of the transaction and the capacity of the donors to make the gifts, is proved by the fact that the amount has been given through banking channels ,being NRE accounts and bank accounts of the donors had adequate balance in it to given the stated gift.

14. We find merit in the contention of the Ld. counsel of the assessee and are in complete agreement that the assessee has duly explained the sum received by her as also the nature and source of the amount received. The identity of the creditor/donor, we find is not in dispute in the present case. The relationship with the donors is proved by the identical name of parents reflected in their respective copies of passports and further corroborated by the confirmations filed by the donors. The nature of the amount also cannot be called in question since it is absolutely normal for brothers to give gifts to sisters and there is no reason at all to disbelieve the same merely because no gifts were given in the past. The only aspect remaining is regarding the capacity of the donors to make the impugned gift as also the genuineness of the said gift having not been adequately proved by the assessee and the reason given by the Revenue for the same is that the assessee did not file the copies of Income Tax Returns of the donors and also the copies of the bank statements of the donors maintained in the countries of their residences i.e. U.K and Italy where the two brothers stayed.

15. As for the capacity of the donors to make the gift, it is not disputed that the said gifts have been made from NRE account of the donors in Indian Bank, Ambala. On going through the bank accounts, we find that there was enough balance in both the accounts to make the said gifts to their sister. In the case of Shri Tarsem Kumar, we find that there was an opening balance of Rs. 33,40,059/- in the beginning of the year. The gift given by Shri Tarsem Kumar to the assessee is Rs. 33 lacs. Further there are no deposit in this bank account during the year. What emerges, therefore, is that the gift has been made from the opening balance, in the NRE account of the donor meaning thereby that in the first place there was sufficient balance with the donor to make the gift as at the beginning of the year itself which adequately proves the capacity of the donor to make the gift. Coupled with it, the fact that no sum was credited in the said account during the year, we agree with the Ld. counsel of the assessee that no addition on account of undisclosed income in any case can be made in the impugned year since the said gifts received cannot by any stretch of imagination be attributed to any income earned during the year.

16. As for gift received from Sh.Pirthi Chand, perusal of his bank account placed at Paper Book page No. 20 shows that there was an opening balance of Rs. 9531/- during the year, which increased to Rs. 12,97,493/-, before the gifts were made, by way of four deposits made in the said account, and none of which were cash deposits. It was out of this balance of Rs. 12,97,493/- that the gift of Rs. 12 lacs was given to the assessee. Even thereafter, we find that there has been deposits amounting approximately to Rs. 30 lacs in the said account during the year, none of which are cash deposits. Clearly, the availability of Rs. 12,97,493/- in the said bank account, before the gift was made being established and none of which can be attributed to any cash deposits in the said account and also the fact that none of the credits in the said account have even remotely been linked to the assessee in any way, we hold that the entire amount in the said account can safely be said to belong to the donor, thus, proving his capacity to make the said gift, as also the genuineness of the transaction.

17. In view of the above, the identity of the donors not being in dispute and the genuineness of the gift as also the capacity of the donors to make the said gifts having been proved by the assessee and further there being no tangible material with the Revenue which may cast any doubt on the genuineness of the gifts, no addition u/s. 68 could be made in the hands of the assessee. In this regard, The reliance placed by the Ld. Counsel for the assessee on the decision of the Hon’ble Rajasthan High Court in the case of CIT v. Ram Dev Kumar Chitlangia [2009] 315 ITR 435, we find is apt, wherein the High Court has held as follows:

“The question, as to whether it is established on record, that the gift given is genuine, would essentially be a question of fact. May be, that if in arriving at a conclusion either way, on this aspect, any relevant material is ignored, or irrelevant material is considered, or there is misreading, or non-reading of record, then it may, of course, give rise to substantial question of law. In the present case, identity of all the donors is not in dispute, the transactions have been channelized through bank, and four of the gifts are by the blood relations, apart from the fact, that blood relationship is not necessary. There is no tangible material, collected by the AO, to show anything, which may cast any doubt on the genuineness of the gifts, or to establish, that the purported transactions of gifts, were otherwise transactions of money laundering, or the like. In that view of the matter, since the authorities below, i.e. CIT(A) and the Tribunal, have examined the matter on correct parameters, and have arrived at a conclusion, in favour of the assessee, the findings do not require any interference.”

18. The decision of the Hon’ble Delhi High Court in the case of CIT v. Suresh Kumar Kakar [2010] 324 ITR 231, relied upon by the Ld. Counsel for the assessee, reiterates the above proposition as follows at para 3 & 4 of the order:

“3.Insofar as the identity is concerned, that is an admitted position that the gifts were made by the mother to the son. With regard to the creditworthiness, the assessee has been able to discharge the onus cast upon him by furnishing the bank statement of his mother (donor) as also the confirmation certificate from the mother confirming the said gifts. Once the assessee has discharged the primary onus, which was cast upon the assessee, it was incumbent upon the AO to prove on the basis of a cogent evidence that the transaction was not genuine. There is no such evidence forthcoming. We find that the conclusions of the AO and the CIT(A) with regard to the genuineness of the transactions are merely conjectural and are based on surmises and assumptions. Such conjectures and assumptions cannot take the place of proof, once the assessee has discharged the primary burden which had been cast upon him.
4.The Tribunal has correctly concluded that the authorities below had ignored the fact that there was a blood relationship (mother-son) between the donor and the donee; that the gifts are normally made by parents to children through love and affection and do not necessarily require any particular occasion; that the gifts in the present case were all made by cheques and through banking channels. The Tribunal held that when the identity and the capacity are proved beyond doubt and the source of the gifts was the mother, there was no question of making the addition under s. 68 of the said Act.”

19. We find no merit in the contention of the Revenue that for proving the capacity of the donor it is essential to file income tax returns of the donors as also copy of the bank accounts maintained in their countries of residences. As stated above, the bank accounts from which the stated gifts have been given are NRE accounts. All deposits in the said accounts can be made only out of the earnings made outside the country. In any case, no cash deposits have been found in the said accounts. Further there are enough deposits in the said accounts to make the impugned gifts. When the availability of funds has been adequately proved, the capacity of the donors to make the gifts also stands proved. By asking the assessee to file copies of the Income Tax Returns and also their bank statements in their country of residence, the Revenue is indulging in the exercise of verifying the source of the source which is settled law, cannot be done in this case. The onus to explain the credit being on the assessee, reflects the general rule of law of evidence codified in section 106 of the Evidence Act, 1872, ,as per which the source of income is a matter with the exclusive knowledge of the assessee which he has to prove and demonstrate. It is for this reason only that the source of source, which is not within the knowledge of the assessee at all, is not required to be proved by the assessee. The Hon’ble Punjab and Haryana High Court, while dealing with an identical issue in the case of Jawahar Lal Oswal (supra), has categorically held at pg 27 of its order:,

“An arrangement between a donor and another is an arrangement between the donor and his source of money. The onus to probe and prove this aspect lies upon the Revenue and not upon the assessee, particularly where the income is being dealt with under a deeming provision. A person who receives a gift, is not required to prove the source of the money of his donor”

20. The addition we find has been made merely on the basis of suspicion, without any iota of evidence to even lead to the fact that the amount received as gifts were actually the assessees income only. This cannot be the basis of making an addition under a deeming provision, section 68 in the present case. The Hon’ble Punjab and Haryana High Court in the case of Jawahar Lal Oswal (supra) has dealt with the said issue as follows:

“A deeming provision requires the Assessing Officer to. collect relevant facts and then confront the assessee, who is thereafter, required to explain incriminating facts and in case he fails to proffer a credible information, the Assessing Officer may validly raise an inference of deemed income under section 69-A of the Act. As already held, If the assessee proffers an explanation and discloses all relevant facts within his knowledge, the onus reverts to the revenue to adduce evidence and only thereafter, may an inference be raised, based upon relevant facts, by invoking the deeming provisions of Section 69-A of the Act. It is true that inferences and presumptions are integral to an adjudicatory process but cannot by themselves be raised to the status of substantial evidence or evidence sufficient to raise an inference. A deeming provision, thus, enables the revenue to raise an inference against an assessee on the basis of tangible material and not on mere suspicion, conjectures or perceptions. It would also be necessary to reiterate that it is not perceptions but concrete facts that underline quasi judicial determinations and where concrete facts are not available, relevant facts, as would raise a credible inference of culpability requiring an assessee to rebut the inference so raised. More often than- not, revenue authorities, for want of relevant material, institute “inquisitions”, as opposed to inquiries and by addressing questions that the more inculpatory in nature, seek to build their case, from answers proffered by an assessee.”

21. The reliance placed by the Ld. DR on the decision of the Jurisdictional High Court in the case of Jaspal Singh (supra), is distinguishable since in the said case there was no relationship between the donor of the gift and the assessee and even the identity of the donor was not found to have been proved. The case of Smt. Anita Aggarwal (supra), relied upon by the Ld. DR, we find is also distinguishable on facts since in the said case the assessee had failed to produce the donors for verification and the summons issued to them had been received back unserved. Also the assessee in the said case had expressed her inability to file confirmation of the donors and it was also found that there was no relation of the donors with the donee nor any occasion to make the gifts.

22. Therefore, we reject the contention of the learned D.R. that the assessee has failed to prove the capacity and genuineness of the transaction by not filing the copies of income tax returns as also copies of bank statements of the donors in their countries of residences.

23. In view of the above, we hold that the assessee has adequately discharged its onus of proving identity of the donor, capacity of the donor as also the genuineness of the transaction being in the nature of gift received from brothers and, therefore, there is no reason to make any addition under section 68 on account of unexplained credit. The addition so made of Rs. 45,00,000/-, is therefore, deleted.

24. In the result, the appeal of the assessee is allowed.

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