Income Tax Appellate Tribunal - Mumbai
Atmaram J. Manghirmalani (Huf) vs Income Tax Officer on 5 December, 1997
Equivalent citations: [1998]67ITD289(MUM)
ORDER
T.V. Rajagopala Rao, President
1. This is an assessee's appeal for asst. yr. 1981-82 filed against the order of the CIT(A)-XI, Mumbai, dt. 26th May, 1995. The assessee is an HUF. 31st March, 1981, is the end of the previous year relevant to asst. yr. 1981-82.
2. On 31st August, 1981, the assessee filed a return showing income of Rs. 37,920. The income disclosed was said to have been derived from house property, capital gains on sale of jewellery and lottery. The capital account of the assessee filed along with the return disclosed that the assessee received gifts of Rs. 60,000 from the following parties :
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Sl. No. Name of donor Amount received as gift
(Rs.)
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(1) Mrs. P. C. Udani 5,000 (2) Rajiv Sharadchandra Tipnis 5,000 (3) Ganeshdas H. Punjabi 5,000 (4) Deomal T. Talreja 5,000 (5) Purshottam Gulabani 10,000 (6) Mrs. Kamle Purshottam Gulabani 10,000 (7) Poonam B. Ahuja 5,000 (8) Niram Laxmandas Chawla 10,000 (9) Pahlaj L. Chawla 5,000
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The earlier income-tax records of the assessee relating to the assessee showed that during the asst. yrs. 1978-79 and 1979-80 also the assessee had received gifts of varying sums of Rs. 90,500 and Rs. 95,000 respectively. Thus, with the gifts said to have been received by it the accounting year in question the total gifts received by the assessee-HUF upto 31st March, 1981, amounted to Rs. 2,45,000. Out of the six donors, the assessee filed gift declarations from 5 donors. Some of the donors were near relatives of the assessee. The relationship of the donors to the donee was revealed and duly recorded by the ITO in his first assessment order, dt. 11th October, 1985. The gifted amounts were received through accountpayee cheques from the donors. Further, the donors, who had gifted Rs. 10,000 each to the assessee, filed GT returns and they were also assessed to gift-tax. The donors, who had gifted only Rs. 5,000 each, were not liable to pay any gift-tax and, therefore, they did not file their GT returns nor were any gift-tax assessments made against them. Out of the donors, Mrs. P. C. Udani, the first of the persons amongst the names mentioned in the above furnished list, was examined under s. 131 of the IT Act and the particulars of her examination were extracted in the first assessment orders, dt. 11th October, 1985. The gift declarations were all attested by Spl. Executive Magistrate, Mrs. Kamini K. Bathija. The ITO disbelieved the total gifts of Rs. 60,000 and for the reasons given by him in his assessment order, dt. 11th October, 1985, considered the whole amount of Rs. 60,000 as income of the assessee from undisclosed sources and thus completed the assessment on a total income of Rs. 97,920.
3. Aggrieved against the said assessment, the assessee went in appeal before the AAC, O-Range, Mumbai, who, by his order, dt. 8th July, 1985, accepted the gifts to the extent of Rs. 30,000. The gifts accepted represented the gifts made by the following persons in the amounts shown against each of them :
Rs.
(1.) Purshottam Gulabani 10,000 (2.) Kamla Purshottam Gulabani 10,000 (3.) Niren Laxmandas Chawla 10,000
The AAC held that the gifts made by the above parties were valid gifts and the ITO had secured no material to come to the conclusion that they represented compensatory payments. Thus, he deleted the addition of Rs. 30,000.
As regards the remaining addition of Rs. 30,000 representing gifts from 6 parties of Rs. 5,000 each, the AAC observed as follows in para 6 of his order, a copy of which was filed at the time of hearing before me :
"6. As regards the other gifts from six parties of Rs. 5,000 each, the ITO has not collected any material in support of his allegation that these gifts are arranged ones. He has simply acted on a pure conjecture and presumption. Presumption however strong cannot be a substitute for fact. Even the statement of Smt. P. C. Udani recorded under s. 131 has not been put to the appellant for rebuttal. In fact, the ITO has gone against the due process of law by not giving a right of cross-examination to the appellant with regard to the statement of Smt. P. C. Udani. The other donors have admittedly not been examined owing to certain confusion arising out of improper issue of summons where the language of the terms of summons has not been made clear to indicate that the personal attendance of the witnesses was intended, although this has been mentioned on the back of the summons. Having regard therefore to the totality of the facts and circumstances of the case and for proper dispensation of justice, I am inclined to setaside the assessment on this point with instructions to the ITO to redo the same after examining these six parties who made the gifts of Rs. 5,000 each. In case, the ITO is able to collect material to establish beyond reasonable doubt that such gifts are arranged gifts, he is free to do so, but he will give a definite finding with reference to the material in his possession. If he is unable to gather such material, he will verify the financial credentials of these six donors in an attempt to find out if they were financially capable of making the gifts without questioning the validity of the gifts in view of the documentary evidence filed on his record. The ITO is also directed to allow a right of cross-examination to the appellant before taking any adverse view of the statement of the witnesses. The ITO will also allow a reasonable opportunity of being heard to the appellant before making reassessment as directed above".
4. In pursuance of the directions contained in the above order of the AAC, the 9th ITO, BSD(S), Mumbai, passed an order giving effect to the appellate order of the AAC. From this order of the ITO, dt. 30th March, 1986, it can be gathered that summons were issued under s. 131 to all the six donors. However, in pursuance of the summons, three of the donors, whose names are given below, only appeared :
(1.) Mrs. Pushpa C. Udani;
(2.) Shri Ganeshdas H. Punjabi; and (3.) Shri Rajiv S. Tipnis.
Mrs. Udani had not only appeared but also produced her bank statement. A perusal of her bank statement showed that immediately prior to the date of gift her bank balance was only Rs. 2,016 and on the date of gift one cash deposit of Rs. 5,000 was made and for an identical amount account payee cheque was given by the donor in favour of the donee. Holding that neither the source of this deposit on the date of the gift had been satisfactorily explained nor her credit-worthiness was proved, the genuineness of her gift of Rs. 5,000 was not accepted by the ITO and it was held to be an arranged gift. As regards the gift made by Ganeshdas H. Punjabi, since his GIR number as well as his bank statement were filed along with his letter, dt. 18th February, 1988, the gift of Rs. 5,000 made by him to the donee was accepted by the ITO. As regards the gift made by Rajiv S. Tipnis, it is said that though he responded to the summons and he also made a statement that he gave a gift of Rs. 5,000 before the ITO in his statement under s. 131, he failed to establish this with necessary evidence such as bank statement, etc. The other donors had not turned up. The fact of the absence of other donors was intimated to the assessee by the ITO's letter dt. 17th March, 1988, and the assessee was asked to produce the other donors on 23rd March, 1988. The assessee was also requested to produce such evidence which would prove their financial credentials. However, the assessee is said to have failed to comply with the directions in the summons. By the date the consequential order giving effect to the AAC's order was passed, a second appeal was said to be pending before the Tribunal with regard to the gifts. However, the order of the ITO giving effect to the AAC's order was passed in order to save limitation and under this order, dt. 30th March, 1986, the revised total income of the assessee was determined at Rs. 62,920. That means, out of the total gifts of Rs. 60,000 claimed by the assessee, only Rs. 35,000 worth of gifts were accepted and the remaining sum of Rs. 25,000 representing gifts from 5 parties was rejected. While passing the order, dt. 30th March, 1986, the ITO observed that a second appeal with regard to the gifts of Rs. 30,000 was pending with the Tribunal. This appeal is said to be a Departmental appeal in ITA No. 5345/Mum/85, whereby the Department questioned the legality of the deletion of Rs. 30,000 from out of the total gifts of Rs. 60,000. The order of E-Bench of the Tribunal dt. 22nd December, 1989, relating to the disposal of the said appeal is furnished at pp. 14-15 of the paper compilation filed on behalf of the assessee. As can be seen from that order, the Tribunal had dismissed the Departmental appeal and thus the genuineness of the gifts for Rs. 30,000 stood confirmed. It is not the case of the Department that the Tribunal's order was taken in reference to the High Court or that the Tribunal's order did not reach finality.
5. Now, against the order, dt. 30th March, 1986, passed by the ITO, the assessee went in appeal before the CIT(A)-XI, Mumbai. The learned CIT(A), by his order, dt. 26th May, 1995, dismissed the appeal and confirmed the addition of Rs. 25,000 made by the ITO. Against this order of the CIT(A), the present second appeal is filed before this Tribunal and thus the matter stands for my consideration.
6. In this appeal, the gifts of the following 5 persons form the subject-matter of the appeal :
Rs.
(1) Mrs. P. C. Udani. 5,000 (2) Rajiv S. Tipnis 5,000 (3) Deomal T. Talreja 5,000 (4) Poonam D. Ahuja 5,000 (5) Pahlaj L. Chawla 5,000
7. It may be mentioned here that this appeal was disposed of by the learned Vice President, Mumbai, by his order, dt. 7th February, 1996, treating this appeal as unadmitted following CWT vs. Multiplan India Ltd. (1991) 38 ITD 320 (Del). However, in the said order, it is stated that the assessee, if so advised, shall be free to move this Tribunal praying for recalling the said order after explaining the reasons for non-compliance, and if the Bench is so satisfied about the reasons, then the said order may be recalled. The assessee filed M.A. No. 100/Mum/1996 to recall the Tribunal's order and the E Bench, by its order dt. 26th August, 1996, held that it was a fit case for recalling the order of the Tribunal, dt., 7th February, 1996, and thus it recalled its earlier order and the registry was directed to fix the appeal for fresh hearing. Thus, the appeal is posted before me for fresh hearing and hence the matter stands for my consideration.
8. I have heard S. S. Phadkar, the learned counsel for the assessee, and Shri V. G. Gore, the learned Departmental Representative. The assessee filed a paper book of 25 pp. on the date of hearing. Reference to the paper-book will be made during the course of this order as and when it is required.
9. Out of the 5 gifts which stand for my consideration, let me examine the acceptability or otherwise of the gifts one after the other. The first of the donors is Mrs. P. C. Udani. She was examined under s. 131 of the Act not only at the time of original assessment but she was also present in pursuance of the summons issued to her and filed her bank statement second time before the ITO as is mentioned in his order, dt. 30th March, 1986. She stated mainly in her statement that she is a housewife and there is no regular source of income to her, that she was having account No. 14214 with Bank of India, Sion Branch, Mumbai, that her husband C. N. Udani, was working as accountant in the said bank and the account held by her was a joint account. To a question that on 25th March, 1981, a cash deposit of Rs. 5,000 was made in her account and when she was called upon to explain the source of such income, she stated that it represented her personal savings. She admitted to have given a gift to Atmaram, the head of the assessee-family. She stated that she gave the gift in the month of March, 1981. She does not know the names of the wife or children of A. J. Manghirmalani. She stated that Manghirmalani is her husband's friend and he also used to give gifts to her children on various occasions and, therefore, she gave a gift of Rs. 5,000 to him. She also stated that she has three children and her husband was drawing a salary of Rs. 2,500 p.m. and she did not see Manghirmalani at any time. The only reason for rejecting her evidence was that either on the date of the gift or one day before the gift the sum of Rs. 5,000 was deposited in her bank account. But for this deposit there would not be any sufficient balance in her account to make a gift to the assessee-HUF. The ITO expected that Mrs. Udani should be able to produce the source of her income. She already stated that she was a housewife, that her husband is a bank employee drawing Rs. 2,500 p.m. and the amount of gift represents her savings. This is a statement made by her on oath which cannot be simply brushed aside especially when there is no material to discredit her version. In fact, the AAC, while giving directions to the ITO, held that unless the ITO is able to gather such material which would establish beyond reasonable doubt that such gifts are arranged gifts and unless such evidence which he has gathered is mentioned in his order, the gift should not be disbelieved. Further, in his remand order, it is said that on his gathering definite material to show that the gifts are arranged gifts, then only the ITO has to verify the financial credentials of the donors in an effort to find out whether they are financially capable of making the gifts. Further, the remand order also discloses that he should not question the validity of the gifts.
10. It is clear that the ITO did not gather any evidence worth the name to show that the gifts, which include the gift of Mrs. P. C. Udani, as arranged gifts. Under the circumstances, I should hold that his finding that it is an arranged gift is only ipse dixit not supported by any evidence whatsoever and his finding is contravening the clear directions given by the AAC, whose order he is said to be implementing by means of passing the impugned order, dt. 30th March, 1986. He cannot disregard the directions of the appellate order [See Lakshman Prakash vs. CIT (1963) 48 ITR 705 at (All) (FB)]. See also CIT vs. S. V. Divakar (1993) 201 ITR 914 (Ori).
11. Next, let me take up the gift of Rajiv S. Tipnis. As far as he is concerned, copy of his gift declaration is provided at p. 17 of the paper book and the account-payee cheque issued by him on 19th March, 1981, in favour of A. J. Manghirmalani is provided at p. 16 of the paper compilation. The bank statement was, no doubt, not filed. But, no evidence whatsoever was gathered by the ITO to the effect that either he had no bank account or the account payee cheque was not given by him and it was only an arranged gift. In the absence of any definite evidence in the possession of the ITO in that regard, according to the directions of the AAC, his gift must be accepted, especially in view of the fact that he had turned up in pursuance of the summons issued to him under s. 131 and had stated in his statement that he had given a sum of Rs. 5,000 to the assessee.
12. Now, let me consider the gifts said to have been proceeded from the following 3 donors :
(1) Deomal T. Talreja;
(2) Pahlaj L. Chawla; and (3) Poonam D. Ahuja.
No doubt, each of them made a gift declaration and their declarations are furnished at pp. 19, 21 and 23 and the accountpayee cheques issued on 19th March, 1981, on Bank of India, on Punjab National Bank on 10th March, 1981 and on Bank of India on 19th March, 1981 are furnished at pp. 18, 20 and 22 respectively of the paper-book. However, none of the three donors made their appearance, even though summons were issued several times both at the time of the original assessment and also at the time when the matter came up again for consideration in pursuance of the AAC's order.
13. On behalf of the assessee, it was strongly contended that the donee has no duty to prove the credit worthiness of the donors. In support of this contention, he strongly relied upon the following decisions :
(1) Orient Trading Co. Ltd. vs. CIT (1963) 49 ITR 723 (Bom);
(2) Nanak Chandra Laxman Das vs. CIT (1983) 140 ITR 151 (All);
(3) Shankar Indra vs. CIT (1978) 114 ITR 689 (Cal); and (4) Sriram Jhabarmall (Kalimpong) Ltd. vs. CIT (1967) 64 ITR 314 (Cal).
In (1963) 49 ITR 723 (Bom) (supra), their Lordships of the Bombay High Court were called upon to decide on whom the burden of proof lies if the cash credit entry in the books of account of the assessee stands in the name of a third party who had no relation or connection with the assessee and he is quite an independent party. In that connection, the ratio of the Bombay High Court is duly extracted in the headnote of the decision at pp. 723 & 724, which is as follows :
"If the entry stands not in the name of any such person having a close relation or connection with the assessee, but in the name of an independent party, the burden will still lie upon him to establish the identity of that party and to satisfy the ITO that the entry is real and not fictitious. When, however, in a case where the entry stands in the name of a third party the assessee satisfies the ITO as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious, the initial burden which lies on him can be said to be discharged by him. It will not thereafter for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the money with the assessee. The burden will then shift on to the Department to show why the assessee's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the Department has to be in possession of sufficient and adequate material".
In Sriram Jhabarmall (Kalimpong) Ltd. vs. CIT (supra), Their Lordships of the Calcutta High Court have the following to say about the burden of proof in cases of cash credit :
"The burden of proving that a cash credit entry appearing in the assessee's account books does not represent income of the assessee is on the assessee and, though the burden may shift to the Department in some circumstances, it is not correct to say that the ITO is not entitled to reject the explanation of the assessee without some other positive evidence falsifying the assessee's case. The true view is that, while the ITO is not bound to accept as true any possible explanation which the assessee may put forth, he cannot also arbitrarily reject the assessee's explanation".
In Nanak Chandra Laxman Das vs. CIT (supra), the Allahabad High Court surveyed the position in law as to burden of proof in cases of cash credits and their Lordships held the following ratio as can be seen from part of the head note obtaining at pp. 151 & 152 :
"Where any sum is found credited in the books of the assessee the initial onus is on the assessee to offer an explanation of the nature and source of a cash credit. If the explanation is not found satisfactory or reasonable, the ITO can treat such money as the assessee's income from undisclosed sources. It is not necessary for the ITO to locate the exact source of the credits. The assessee can prove the genuineness of the credits by establishing from some plausible evidence the identity of the creditor and his credit worthiness.
Irrespective of the fact that a credit entry is in the name of a third party, the burden lies upon the assessee to explain the credit entry. In certain circumstances the onus might shift to the ITO. For instance, if the assessee succeeds in showing that entries regarding cash credits in a third party's account are genuine and the sums were in fact received from the third party as loans or deposits, he has discharged the onus and in such a case it will be for the third party to explain the source of the moneys and that cannot be charged as the assessee's income in the absence of any material to indicate that they belong to the assessee".
The learned counsel for the assessee strongly contended that he was able to produce plausible and acceptable evidence to show the identity of the donors as well as the sources of the donors. It is significant that each donor had passed an accountpayee cheque in favour of the donee-assessee. It is nobody's case that the accountpayee cheque so issued were not genuine. In fact, it is the case of the Department that the gifted amounts were all received by the assessee. In the face of the affidavits sworn in by the donors before the Spl. Executive Magistrate confirming the gifts and in the face of the account-payee cheques under which donations were received by the assessee-donee, argued the assessee's counsel, it must be held that the assessee was able to establish means of plausible evidence the identity of the creditors and their credit-worthiness. Under the circumstances, the donated amounts cannot be held to represent the assessee's income in the absence of any material to indicate that they belong to the assessee. The Department never produced any evidence whatsoever to prove that the gifted amounts, in fact, represent the assessee's income relating to the accounting year in question. Therefore, the learned counsel for the assessee argued that even in the cases of the other donors who did not appear in pursuance of the summons issued under s. 131, the amounts cannot be held to represent the assessee's undisclosed income. The learned Departmental Representative, in an attempt to counter the arguments advanced on behalf of the assessee, merely relied upon the orders of the lower authorities.
14. After hearing both sides and also after going through the ratios of the decisions cited above, which clearly support the case of the assessee, I hold that there is no evidence in the possession of the Department to hold that the gifted amounts from these three parties represent the assessee's undisclosed income. Therefore, the total of the gifted amounts from these three parties cannot be added as the undisclosed income of the assessee. Thus, the whole addition is to be deleted.
15. In the result, the appeal succeeds and is allowed.