Income Tax Appellate Tribunal - Allahabad
Smt. Ishrawati Devi, Prop. Chaurasia ... vs The I.T.O. on 2 March, 2007
Equivalent citations: [2008]298ITR313(ALL), (2008)114TTJ(ALL)541
ORDER
D.C. Agrawal, Accountant Member
1. This is an appeal filed by the assessee against the order of the ld. CIT(A) where in he has confirmed the additions of Rs. 80,000, Rs. 50,000 and Rs. 2,50,000 being gifts received by the assessee from three different persons during the accounting year.
2. The facts of the case are that the assessee is deriving income from dealing in zarda and cigarettes on wholesale basis. During the year under consideration, the assessee has shown to have received the gifts from the following persons:
1. Smt. Sharda Devi Rs. 2,00,000
2. Sri Deonath Mishra Rs. 50,000
3. Janjardan Prasad Chaurasia Rs. 2,50,000 The AO while examining these gifts noted that gifts were given by Smt. Sharda Devi to the assessee on 19.3.2001 through cheque No. 051262 of Central Bank of India, Deoria. The AO recorded the statement of Smt. Sharda Devi wherein she had admitted that gift was given by her. She had received money after the death of her husband, who was an employee of Sales-tax department. He died in December, 2000. The AO noted that on the same date i.e. 19.3.2001, a sum of Rs. 80,000 was deposited in cash in the account of Smt. Sharda Devi. This made the cash balance at Rs. 2,01,088 and out of this a cheque of Rs. 2 lakh was issued as a gift to the assessee. The AO noted that money had come back to the assessee. The sum of Rs. 80,000 deposited in cash belonged to the assessee and since it is unexplained, it was added under Section 69.
3. In the Case of Sri Deonath Mishra, who is an employee of U.P. Police and had worked on the post of constable, the AO noted that a sum of Rs. 50,000 was deposited in cash on 19.3.2001 out of which a cheque No. 965728 was issued to the assessee as gift on the same date. The AO held that the gift of Rs. 50,000 was not found explained and the same was issued by him on the deposit made by the assessee out of her own funds which remained unexplained and hence he made addition under Section 69.
4. In respect of Sri Janardan Prasad Chaurasia, he is shown to have given gift of Rs. 2,50,000 to the assessee through draft No. 577916. The AO noted that cash was deposited on the same day and draft was purchased. Since source of deposit is not explained by Sri Janardan Prasad Chaurasia and the money had come back to the assessee, it was treated as unexplained deposit by the assessee and was added under Section 69.
5. The AO also made an addition of Rs. 18,500 as unexplained deposit received from Sri Ramesh Kumar Mishra. This person was not assessed to tax and he was not a man of means. Therefore, the AO added the same into the income of the assessee. This addition was also made under Section 69 as there was a deposit into the account of Sri Rajesh Kumar Mishra by the assessee as per ld. A.O. and it had come up to the assessee.
6. The ld. CIT(A) noted in the case of Smt. Sharda Devi that she is a widow whose husband had died probably as a Class IV employee of Sales-tax Department in December, 2000. Her only son is employed as a Class IV official and she also has a married daughter. She has a meager pension from the Government department. It is claimed that she gave all the gratuity and provident fund of her deceased husband to the assessee, who runs a business with a turnover of Rs. 2.25 Crores The ld. CIT(A) noted that the whole situation smacks of dubious tax planning. Smt.Sharda Devi is not doing any business land it was not believable that she could have saved a sum of Rs. 80,000 to be deposited in cash and gifting it on the same day. The ld. CIT(A), this, confirmed the addition of Rs. 80,000.
7. In the case of Sri Deonath Mishra, the ld. CIT(A) noted that he is a police constable posted at Kushinagar. He is aged 47 years and has wife, one college going son and four daughters out of which two were married in Financial years 2000 and 2003 respectively. He claims to have given a gift of Rs. 50,000 by depositing in the bank and issue the cheque on the same day. It was claimed that Rs. 50,000 is past savings. The ld. CIT(A) also did not believe that how a Government employee being a constable could deposit cash of Rs. 50,000 and thereafter give a gift. There was neither any occasion nor any family relationship. The explanation that Sri Deonath Mishra had balance of Rs. 1,03,148 prior to the issue of cheque was not believed by the ld. CIT(A) on the ground that photo copy of the passbook submitted before him was completely illegible. He, thus, confirmed the addition of Rs. 50,000.
8. In respect of Sri Janardan Prasad Chaurasia, the ld. CIT(A) noted that he is a retired Hawaldar and drawing pension from 1st August, 2000 of Rs. 3,750. His family consists of self, wife, one married daughter and two school going sons. He claimed to have owned six acres of land in the name of his father and self. He also claimed that he received retirement and pensionary benefits out of which he gave a gift of Rs. 2,50,000. The AO noted that a sum of Rs. 2,50,000 was deposited in cash on 20.3.2001 and on the same day a draft was purchased. Sri Chaurasia could not submit the source of cash deposits. The ld. CIT(A) noted that on 19.3.200, balance in the passbook of the donor was Rs. 68,237. It was not explained to him as to from where this amount of Rs. 2,50,000 was deposited. The explanation of the assessee that the retirement benefits withdrawn in cash were deposited back was not accepted by the ld. CIT(A) on the ground that such correlation is far-fetched. On retirement a person has several obligations for which money is withdrawn and utilized. Further the amount of retirement benefits did not equal the amount of gift so given.
9. Thus, the ld. CIT(A) observed that there is a systematic design by the assessee in obtaining these so called gifts. The assessee is well placed and has a turnover of more than Rs. 2 Crores in a city like Deoria. All the donors are persons of small means. In all the cases, gifts have been made out of deposits, sources of which are not explained. Even though identities of these persons are established but the capacity and genuineness to the extent of disallowance remained unproved. Thus, the ld. CIT(A) confirmed the addition.
10. Regarding the addition of Rs. 18,500, the ld. CIT(A) noted that a sum of Rs. 18,500 was deposited on 7.9.2000. There is no evidence of agricultural land and it is also not known where and in what capacity Sri Ramesh Kumar Mishra was employed. His capacity to advance loan remained doubtful. He confirmed this addition also.
11. Before us, the ld. A.R. submitted that Smt. Sharda Devi had three bighas of agricultural land. Her statement was recorded. She has accepted to have given gift. It was out of pension funds received on the death of her husband. The assessee is a friend of the donor. The AO had called her and recorded her statement. She has confirmed to have given gift. There is no necessity of any occasion or any relationship. What is relevant is availability of money and giving of gift by the donor and acceptance thereof by the donee. Regarding Sri Deonath Mishra, the ld. A.R. submitted that he is getting a salary of Rs. 7,000 per month. He gets salary in cash. He had a balance of Rs. 1,03,148 before the date of gift. He has agricultural holding in the family. The AO has doubted the creditworthiness but not the genuineness as well as capacity of the donor. In case of Janardan Prasad Chaurasia, the ld. A.R. submitted that genuineness of the transaction has not been doubted. He had agricultural holdings of 6 acres in the family. He gets pension of Rs. 3750 per month. He had received Rs. 63,376 and Rs. 1,23,086 in July, 2000, which was deposited in his bank account. His statement was recorded on oath and he has accepted the fact of giving gift to the assessee. Similarly a sum of Rs. 18,500 was accepted to have been given by Sri Ramesh Kumar Mishra to the assessee.
12. On legal front, the ld. A.R. submitted that the AO made the addition under Section 69, which legally wrong. The assessee is maintaining books of account and therefore, provision of Section 69 would no be applicable. The AO has not invoked Section 68, therefore, the additions cannot be considered under Section 68. Once Section 69 fails, then no question of any addition arises. Even otherwise on merits as submitted above, no addition is called for. There is no material available with the AO that the assessee had made deposit in the bank account. The AO has made such inferences without any basis. On the other hand, the donors have themselves accepted that it is their own money. If it is not explained, then addition could be made only in their hands. The AO has not treated the gifts as non-genuine. Further the ld. A.R. has submitted that even the ld. CIT(A) has not invoked Section 68 and therefore, the addition could not be considered under Section 68. Provisions of Section 292B would not be applicable because there is no error as such. The AO had consciously considered the addition under Section 69 treating the cash deposit in the bank accounts of the donors as assessee's money for which there is no evidence. The ld. A.R. relied on various decisions, such as, Dy. CIT v. Rohini Builders 256 ITR 360 (Guj.) for the proposition that if the capacity of the creditors is proved by showing that amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors, then the assessee was not expected to prove the genuineness of the cash deposited in the bank account of those creditors because under the law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. He then relied on the decision of Hon'ble Rajasthan High Court in Nek Kumar v. ACIT (2004) 191 CTR (Raj.) 207 for the proposition that where there is no material evidence whatsoever to show that the money was deposited by the assessee or by any relative in the bank account from where it came back to the assessee as a gift, then gift cannot be treated as non-genuine by mere conjectures and surmises. He then referred to the decision of the I.T.A.T., Amritsar Bench in ACIT v. Manoj Kumar Sekhri 142 Taxman 15 in I.T.A. No. 619 (ASR) of 1997 decided on 13.11.2003 for the proposition that where there is nothing to prove that money received by the assessee by way of gifts is in fact assessee's own money which is routed to his account by way of gifts, then no addition could be made and further for the proposition that the occasion for making gifts or relationship of the donor with the donee is not relevant. It was held in that case that once a particular explanation is furnished by the assessee and evidence is adduced, then onus is shifted to the department to falsify such material. The ld. A.R. then referred to the decision of the I.T.A.T., Allahabad Bench in ITO v. Uttam Kumar Agrawal (2004) (4) MTC 117 (Trib.) in I.T.A. No. 754 (Alld.) of 1998 decided on 16.10.2003 for the proposition that in case of gifts received from close relatives and friends, if prima facie evidence is filed, then initial onus of the assessee is discharged. The AO was not justified in rejecting the gifts without further enquiries. The ld. A.R. then referred to the decision of the I.T.A.T., Allahabad Bench in the case of I.T.O. v. Matadin Snehlata (HUF) 90 ITD 203 for the proposition that where in respect of gifts received by the assessee, the assessee not only produced sortie donors as required by the AO but also filed affidavits of confirmations and other supporting documents in all cases, then by treating the gifts to be non-genuine additions could not be made. The assessee had proved the identity of the donors and financial status of those persons. All the gifs were made through bank drafts which have been shown in the Income-tax returns and gift-tax returns and thus the assessee had discharged the initial onus to prove the genuineness of the gifts. A reference was then also made to the decision of I.T.A.T. Amritsar S.M.C Bench in ITO v. M.S. Advance (P.) Ltd. 93 TTJ 82 for the proposition that it is not material to keep money at home by the creditors and deposit the same in banks just before issuing the cheques. He then derived support from the latest decision of I.T.A.T., Delhi Bench in Smt. Latesh Gupta v. ITO 2006 (7) MTC 304 (Trib.) for the proposition that where gifts are received by draft from donees bank accounts and gift deeds were filed and donors were produced, then initial onus is discharged by the assessee. The fact that donor is not related to the assessee or he has no capacity to make gifts is not sufficient for holding the gifts to be non-genuine.
13. On the other hand, the ld.D.R. submitted that entire arrangement is for conversion of unaccounted money into accounted money through the route of gifts. The persons who have claimed to have given gifts are men of very humble means. Smt. Sharda Devi has claimed to have given gifts out of the pensionary benefits which were received by her on the death of her husband Who was class IV employee in Sales-tax department. It is not expected that a widow would part away her precious money to a rich person without any rhyme or reason. In fact, she needed that money very dearly for her own future. Similarly in the case of Deonath Mishra,who is a constable having a big family of seven persons including four daughters, it is not expected that such a lowly placed person would part away his dear money to a rich person. The ld.D.R. also expressed similar sentiments in respect of the third donor i.e. Shri Janardan Chaurasia,who was a retired Hawaldar and drawing a meager salary of Rs. 3,750. Though he claimed that he has agricultural land but neither evidence of agricultural land nor its production was given. In addition to this, the ld.D.R. submitted that in all the cases cash was deposited on the same day in their account and cheque/draft was issued for transferring the money as gift to the assessee. One has to go by human probabilities to find out whether the gifts are genuine or not. The ld. D.R. also submitted that even though the AO has not made the addition under Section 68 and he has only invoked Section 69 but the CIT(A) has coterminous power with the AO and he has in fact, considered the identity, creditworthiness and genuineness of gifs and therefore, addition under Section 68 was elaborately considered by him. The error, if any, can be covered by Section 292B. The AO intended to make addition under Section 68. Even otherwise, if addition can be sustainable under any other provision of the Act, then the CIT(A) is duty bound to consider that addition under different provision and which he has rightly considered. In addition to this, there is no occasion for giving gift; there is no relationship between the donor and donee; there is no evidence to show that there was any love and affection between donor and donee. He relied on the decision of Hon'ble Delhi High Court in Sajan Dass and Sons v. CIT 264 ITR 435 (Del.), Kanodia Metal 180 CTR 166 (Raj.), Ram Lal Agrawal v. CIT 280 ITR 547 (All.), and also a decision of Hon'ble Supreme Court in Sunit Siddharthbhai v. CIT 156 ITR 509 for the proposition that it is open to the AO to go behind the transaction for finding out whether transaction is genuine or not. He then referred to the decision in K. Ramasamy v. CIT 261 ITR 358 (Mad.) that colourable devices cannot be accepted.
14. We have considered the rival submissions and perused the material on record. The first issue raised by the ld. A.R. is that the AO has not made the addition under Section 68 and therefore, we have to only confine ourselves as to whether the addition can be sustained under Section 69 or not. According to the ld. A.R., the assessee is maintaining books of account and therefore provisions of Section 69 would not be applicable in a case of an assessee, who is maintaining books of account. So far as this proposition is concerned, we agree with the ld. A.R. that the provisions of Section 69 would not be applicable in a case where the assessee is maintaining books of account. This fact is undisputed. However, the ld. CIT(A) has clearly considered the addition under Section 68 as he has given finding about identity of the donor, their creditworthiness and genuineness of the gifts. Even though he has not clearly mentioned Section 68, once he discusses these three attributes elaborately then he has really meant to consider addition under Section 68. To this extent, Section 292B would help the Revenue. But the question is whether the CIT(A) can considered alternatively an addition under Section 68 though the AO has made the addition under Section 69. In our considered view, the ld. CIT(A) can do so because he has powers coterminous with that of the AO. What the AO can do, the CIT(A) can do. He can direct latter to do what the latter failed to do. Unless there are specific fetters placed upon the powers of C.I.T.(A) by express words, he exercises the same powers as does the original court or authority. In fact, entire assessment is thrown open before him. He can travel outside the record i.e. the return made by the assessee and assessment order passed by the AO. If the first appellate authority cannot confine itself only to the material on record at the time of assessment, then there is no reason as to why he cannot consider the addition made by the O under different section. It is also the duty of the first appellate authority to correct all the errors which have crept in the order of the AO. It is also the duty of the first appellate authority to consider the matter placed before him in its all aspects. This is all the more required when the AO has failed to consider a matter in detail or in a proper manner. He is competent to conduct a detailed examination of any aspect dealt with summarily or briefly by the AO.
15. In CIT v. Kanpur Coal Syndicate , the Hon'ble Supreme Court had held as under:
The AAC has obligatory powers in disposing of an appeal. The scope of his powers is coterminous with that of the AO. He can do what the ITO can do and can also direct him to what he has failed to do.
16. On the question whether the ld. CIT(A) can direct the AO to refer a property for valuation to District Valuation Officer under Section 16A, which was not done by the AO, the Hon'ble Madras High Court in CIT v. Prasad Products (P.) Ltd. (2000) 259 ITR 88 (Mad.) held that he can do so. The relevant head notes are as under:
No restriction or limitation has been placed on the appellate power of the Commissioner (Appeals) in Section 23 of the Wealth-tax Act, 1957. When he entertains an appeal under the provisions of the Wealth-tax Act, the Commissioner (Appeals) is as competent as the AO is in relation to all maters concerning the assessment which are within the scope of the Assessing Officer while making the assessment.
The Assessing Officer did not accept the valuation of certain properties given by the assessee and made an estimate of the value for the purposes of wealth-tax. The assessee preferred appeals to the Commissioner (Appeals) contending that the AO should not have made an estimate but should have referred the matter of valuation to the valuation cell. Accepting the contention of the assessee, the Commissioner (Appeals) held that the valuation of the properties ought to have been referred to the valuation cell in accordance with the provisions of Section 16A of the Wealth-tax Act, 1957 read with Rule 3B of the Wealth-tax Rules, 1957 and directed the AO to recompute the value of the properties after obtaining reports from the valuation cell. But on further appeal, the appellate Tribunal held that the Commissioner (Appeals) could not have directed the AO to refer the matter to the valuation Celt. On a reference:
Held, reversing the decision of the Appellate Tribunal, that there was no error of jurisdiction in the Commissioner (Appeals) giving the direction that he gave. The discretion vested in the original authority with relation to the assessment was a matter in regard to which it was open to the Commissioner (Appeals) to give suitable directions.
17. Where the AO did not consider the audited accounts and past assessment records and determined the income at nil in a best judgment assessment, the CIT(A) has power to compute the loss on the basis of the audited accounts and past assessment records. It was so held by Hon'ble Calcutta High Court in CIT v. Ranhicherra Tea Co. Ltd. :
In disposing of an appeal from an assessment under Section 144 of the Income-tax Act, 1961, the first appellate authority need not confine itself only to the materials on record at the time of assessment. It may make such enquiries as it thinks fit. The first appellate authority has all the powers which the original authority may have. In the absence of any statutory provisions to the contrary, the appellate authority is vested with all the plenary powers which the subordinate authority has in the matter.
18. In CIT v. T.T. Krishnamachari and Co. , Hon'ble Madras High Court held that AAC can consider the addition on different basis and different ground. The Hon'ble Madras High Court held in this regard as under:
The Appellate Assistant Commissioner has plenary powers in an appeal filed before him. The entire assessment is thrown open. The Appellate Assistant Commissioner cannot travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer. The first appellate authority need not confine itself only to the materials on record at the time of assessment. It may make such enquiries as it thinks fit. The first appellate authority has all the powers which the original authority may have. However, there must be something in the assessment order to show that the Income-tax Officer applied his mind to the particular subject matter or the particular source of income with a view to its taxability or its non-taxability and not to any incidental connection.
19. In Inderal Natwarlal v. CIT 166 ITR 494 (M.P.), Hon'ble Madhya Pradesh High Court held that the AAC has powers to examine all maters covered by Assessment order and he has to correct assessment in respect of such matters to the prejudice of the assessee. In this regard, relevant Head Notes are as under:
Having heard learned Counsel for the parties, we have come to the conclusion that this reference must be answered in the affirmative and against the assessee. The powers of the Appellate Assistant Commissioner in deciding an appeal under Section 251 of the Act are wide enough to include the power to examine all matters covered by the assessment order and even to correct the assessment in respect of such mattes to the prejudice of the assessee. The Appellate Assistant Commissioner by his order of remand has not introduced any new course of income not processed by the Income-tax Officer. The question as to whether any expenditure could not be deductible in view of the provisions of Section 40A(3) of the Act, was a matter which directly arose in the course of assessment and as the Income-tax Officer had failed to examine that aspect of the matter, the Appellate Assistant Commissioner had directed him to do so. In these circumstances, the Tribunal, in our opinion, was justified in holding that the Appellate Assistant Commissioner had not exceeded his jurisdiction in passing the remand order ion question.
20. Thus, in our considered view, the CIT(A) is well within his powers and jurisdiction to consider the addition of alleged gifts under Section 68 even thought the AO had only invoked Section 69. Therefore, this part of the argument of the ld. A.R. of the assessee fails.
After having held that impugned additions can also be considered under Section 68, we proceed to examine whether all the attributes of that section are gathered by the authorities below. So far as the identity of the donors is concerned, it seems that there is no dispute. These persons were produced before the AO, who had recorded their statements and the ld. CIT(A) had also accepted the identity of the alleged donoRs. The ld. D.R. has also not challenged this aspect as there is no material contrary to the finding of the ld. CIT(A) on this aspect.
21. Now we proceed to examine whether there is enough material to come to the conclusion that alleged donors have creditworthiness for giving these gifts. Regarding first donor i.e. Smt. Sharda Devi, we notice that a sum of Rs. 1,20,563 was credited in her bank account on 27.2.2001 and thereafter, a sum of Rs. 80,000 was credited in cash on 19.3.20901. On the same date, a cheque No. 18,315 for Rs. 2 lacs was issued as a gift. Before crediting these two amounts, she had a balance of Rs. 525 and a balance of Rs. 510 as on 1.1.2001, she continued to have more or less similar balance thereafter. It is not disputed that she received a sum of Rs. 1,20,565 as retirement benefits on the death of her husband, who was an employee in the Sales-tax department. He expired in December, 2000. It is claimed that the assessee is a friend of donor and the assessee was also a friend of the husband of the donor. But no such evidence has been produced so as to show the alleged acquaintance, friendship or inter-personal relationship, which could have prompted the donor to part away the lifetime savings she got on the death of her husband, which would have been so useful to her after his death when she lost all sources of income on the death of her husband. She could not explain as to from where she received a sum of Rs. 80,000 for depositing in cash in her bank account on the same day when she allegedly gifted the money. Even though she has given a confirmatory letter and also a gift deed to the same effect but in our considered view they are merely paper formalities to justify the transactions. But once one looks at the background of the donor and evaluates the transactions on the scale of human probability one finds it difficult to believe as to how a widow of a class IV employee would part away pensionary benefits received on the death of her husband to a person who is extremely rich and having turnover of over Rs. 2 Crores.
22. Similar is the position in respect of the gift allegedly given by Deo Nath Mishra. He was a constable and has a large family to support. He claims that he and his father had together for 8 bighas of agricultural land, but no evidence thereof or the income earned therefrom have been submitted. Thus, this fact remains merely a bald assertion and no more. Even though his statement is recorded, he has filed a confirmation and he has also filed a gift deed, we are unable to believe that a person of such a humble means serving as a class IV employee would part away Rs. 50,000, which is apparently so dear to him. The story of gift also becomes unbelievable because cash was deposited on the same day when the cheque for gift was issued. The alleged donor could not show the source of such money and what was the hurry in issuing the cheque on the same day when cash was given. Though the paper work is complete in this case also but in our considered view, the donor did not have any creditworthiness and it is not explained from where he received the money. There is also no evidence as to whether alleged transaction was reported by him to his employer i.e. State Government alongwith necessary evidence as to the source of money of Rs. 50,000, which is required to be furnished when a transaction above certain limit is entered into by an employee. Thus, neither the creditworthiness of the donor nor the genuineness of the transaction is believable.
23. In respect of third donor i.e. Sri Janardan Prasad Chaurasia, it is noted that he is a pensioner receiving pension of Rs. 3,750 since 1st August,2000 and claims that he is presently doing agriculture. He has large family to support as shown by the ld. CIT(A). He claims that he has 7 acres of agricultural land. His statement was recorded wherein he has confirmed having given the gift. He has filed gift deed and also confirmatory letters. The Paper work in this case is also apparently complied with. It is noticed in this case that a sum of Rs. 2,50,000 was deposited in cash in his bank account and draft of Rs. 2,50,000 was issued on the same day i.e. 30th March, 2001. Apart from this, he had a balance of Rs. 68,237. He continues to have a balance of similar amount. Thus for giving gift a cash of Rs. 2,50,000 deposited. He could not explain from where he saved Rs. 2,50,000 and where this money was kept. It is claimed that the assessee is maternal aunt of the donor. Be it may, the assessee stands on a higher level of relationship as compared to the donor. Therefore, it is unbelievable that gifts should flow from nephew or niece to the uncle or aunty unless donors are shown to be men of considerable high worth as compared to the uncle and aunty and in order to help them or otherwise such gift flows. In the present case, the donor is man of humble of means and therefore it is unlikely that money was transferred as gift to help the donee.
24. In our view the gift is given out of compassion and obligation. The gift flows from the rich person to a person of lesser worth, whereas present flows from a 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. What is presently termed as gift is, in fact, not a gift but it has attributes of present. In any way, the transaction from all the three donors to the donee i.e. the assessee is unusual and against all human probabilities. There is no explanation of the immediate source of money for gift. There is no explanation from where cash had come. Even though money has flown through bank account, but that is not sacrosanct unless donors are men of worth. In all the three cases, money is deposited in cash in their bank account. It is deposited only on the same day when cheques/drafts are issued. All the gifts are taken on the same day as if there was some programme or function on the date of the gift at the premises of the assessee. All the three persons are of humble means. If the donors had any real savings they could have utilised it for the welfare of their own family or to augment their income. It is not expected from the persons having practically no capital left to part away their precious money to a person who is already very rich as compared to the donoRs. Thus, we cull out the following relevant factors in the case of the three gifts:
1. There is no relationship between the donors and donee. The donors are strangers to the assessee. No evidence is filed as to how they are known to each other. Only in one case, the assessee is stated to be maternal aunt of the donor and a distant relation.
2. There is no occasion for making gifts.
3. There is no evidence that there was any love and affection or friendship between the donors and donee so that it could motivate the person to gift practically his entire capital, like precious money received as retirement benefit of the husband.
4. There is no evidence that there was any business transaction between the donors and the assessee as it is not believable that a stranger would part away his lifetime savings by giving gifts to unknown person sacrificing his chances of improving his living conditions with that money.
5. Most of the donors had given gifts of their entire capital.
6. All the persons had meager withdrawals to support their large family. They had very nominal income. None of them are assessed to tax whereas donee has turnover of Rs. 2 crores and more. Thus gifts are flowing from persons of humble means to the rich assessee.
7. There is no evidence that the assessee or his family has given gifts to the members of the donors' family at any time. The entire transaction of gifts is apparently unusual as behaviour of the donors is queer.
8. In one case, friendship is claimed. In another case, a relationship is claimed. According to us, it is only an alibi to show a motive for giving gift. It could happen only in the income-tax world where capital and source of income of persons of humble means are transferred to rich persons 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 undoubtedly bogus. In this context, it would be pertinent to refer to the comments of Hon'ble Madras High Court in Addl. CIT v. 456 (Mad.):
Look at the way the gifts were made. Not only were they 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 raise a host of questions and not a few eye-brows, excepting when there is an understanding nod, "Ah, it is all for purposes of income-tax". The ITO saw the facts with a layman's eyes, which was the correct way to look at them. The Tribunal, for their part, however, got involved in the convolutions of the Mitakshara Law of gifts and brought to bear a dry and unreal legalistic approach to the application of Section 64, which the provision does not call for, if we understand Kothari's case (1963) 49 ITR (SC) 107 aright.
25. Now we will deal with the authorities relied upon by the parties:
26. The ld. A.R. of the assessee relied on the following decisions:
(i) Dy. CIT v. Rohini Builders 256 ITR 360 (Guj.) 256 ITR 360 (Guj.) This is a case of cash credit wherein Hon'ble Gujarat High Court held that source of credits need not be proved. The creditors in those cases had complete addresses, GIR Nos., Permanent Account Nos. and the copies of assessment orders. In the present case, the donors are men of humble means. They are not assessed to tax. The capacity of the donors could not be proved. These facts are different.
(ii) Nek Kumar v. ACIT (2004) 191 CTR (Raj.) 207.
In that case, there was no material on record to hold that gift was not genuine. However, it is not true in the present case. There is enough material on record, to show that gift of money by three persons was not probable as they were persons of humble means.
(iii) ACIT v. Manoi Kumar Sekhri 142 Taxman 15 In that case there was no material on record to hold that money was not genuine. However, it is not true in the present case. There is not enough material on record to show that gift of money by three persons was not provable as tiey were persons of humble means.
(iv) ITO v. Uttam Kumar Agrawal 2004 (4) MTC 117 (Trib.) In this case gift was rejected without carrying out necessary enquiries. It is not so in the present case. The AO had carried out enquiries, recorded statements of donors and found hat they are not in a capacity to make gifts. The ld. CIT(A) had also applied his mind, gave reasons for holding that creditworthiness of the donors is not established and the gifts are also not found genuine.
(v) ITO v. M.S. Advance (P.) Ltd.
In this case it was held that it is immaterial where the amounts were kept at home by the creditors and deposited in bank just before issuing the cheques. In that case, creditors were men of means. They had enough withdrawals and out of that money was deposited in bank. The Tribunal held that they could do so out of the cash available with them. The facts, in the present case, are different. The source of cash in the hands of the donors could not be proved.
(vi) Smt. Latesh Gupta v. ITO 2006 (7) MTC 30 (Trib.) In this case, the creditworthiness of the donor was proved. In the present case, the capacity of the donors was not proved. Hence this decision is not applicable.
27. The ld. D.R. has relied upon the following decisions:
(i) Sajan Dass and Cons v. CIT. 264 ITR 435 (Del.) In this case, the Hon'ble Delhi High Court held that mere identification and showing movement through banking channels is not sufficient. In the present case also, it is, not established that donors had money to deposit in the bank. Therefore, the ld. CIT(A) was justified in holding that the amount claimed as gift, was assessee's own money.
(ii) Ram Lal Agrawal v. CIT In this case, the Hon'ble Allahabad High Court that where there is a finding given by I.T. authorities that creditworthiness of depositors was not proved, the amount could be assessed as income of the assessee.
(iii) Sunil Siddkarthbhai v. CIT It was held by the Hon'ble Supreme Court that it is the right of the Income-tax authorities to consider genuineness of the transactions and to penetrate the veil and ascertain the truth. It is within their power to consider whether a particular transaction was to evade tax.
(iv) K. Ramaswamy v. CIT. (2003) 261 ITR 358 (Mad.) It was held that veil can be pierced in exceptional circumstances. The Income-tax Authorities are entitled to look at the reality of the transaction.
28. The following decisions are relevant on the point at issue:
1. ITO v. Diza Holdings (P.) Ltd.
2. Raunaq Ram Nand Lal v. CIT ,
3. Smt. v. Gogoi v. CIT (2002) 254 ITR 576 (Gauhati),
4. CIT v. Precision Finance Pvt. Ltd. ,
5. Rajshree Synthetics Pvt. Ltd. v. CIT 256 ITR 331 (Raj.),
6. R.B. Mittal v. CIT ,
7. 187 ITR 596,
8. M.A. Unneeri Kutty v. CIT .
9. Nemi Chand Kothari v. CIT ,
10. Hindustanm Tea Trading Co. Ltd v. CIT 263 ITR 289 (Cal.).
29. From above decisions, it is clear that Tax authorities are entitled to penetrate into the veil to ascertain the truth. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in the documents. It is the duty of the Court to go behind the smoke-screen and discover the true state of affaiRs. The court is not to be satisfied with the form but with the substance of the transactions Similar views were expressed by Hon'ble Supreme Court in Workmen v. Associated Rubber Industries Ltd. . A credit could not be held to be satisfactorily explained if depositor did no have resources to make deposits. Our view is supported by the decision of Hon'ble Calcutta High Court in ITO v. Diza Holdings P. Ltd. . The mere fact that the transactions were through bank is not conclusive. Further where AO is satisfied that the creditor is not telling the truth, the onus is shifted back to the assessee. It is not for the AO to find put the exact source of the money belonging to any other person. It is for that person to prove such source.
30. Though the individual factors, like, relationship, occasion, non-giving gifts by the donors to the kiths and kins or by the donors to the kiths and kins, donee not giving any help to the donors at any time or the donors are men of petty means may not carry enough weight individually but when they are put together and viewed as a whole then one discovers the reality. 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. The substance is that the gifts are not genuine but it is the unaccounted money of the assessee, Which has flown in the form of the gifts. As the assessee is the beneficiary of this money, it is safely inferred that it was her unaccounted money which has come back to her in the form of gifts to inflate the capital without paying taxes.
31. As a result, we uphold the order of the ld. CIT(A) and hold that the gifts are not genuine and that creditworthiness of the donors is not proved and therefore, additions have to be made under Section 68 of the Act.
32. The appeal filed by the assessee is, therefore, dismissed.
33. The order pronounced in the open Court on 2.3.2007.