SECTION 68 OF THE INCOME TAX ACT,1961—CASH CREDIT—AMOUNTS OF GIFTS TO BE ADDED TO ASSESSEE’S INCOME UNDER SECTION 68 IF CERDITWORTHINESS OF DONOR WAS NOT PROVED-SAT PAL JOHN v. INCOME TAX OFFICER [2013] 143 ITD 668 (Amritsar-Trib)

FACTS: Assessee received gifts of Rs.2,34,000 and Rs. 2,35,000 from his sister-in-law who was settled along with his brother in the UK. During the assessment proceedings of M/s Gupta Brothers, where assessee is a partner, these gifts totaling Rs.4,69,000 were credited to his capital account were added on protective basis as the A.O. was of the opinion that these gifts were not genuine. Since the A.O. was of the opinion that the addition should be made primarily in the hands of the assessee and not of the firm. Assessment of the assessee was reopened u/s 147. A.O. held that assessee was not able to discharge his onus of proving the capacity and creditworthiness of the donor, and the sources from where the funds were alleged to have been gifted was not clarified. He noted that during the assessment proceedings in the case of M/s Gupta Bros; it was contended by Smt. Amarjit Kaur that she had given the gift from her own sources whereas a different stand was taken now that the money was taken from Sh. Jatinder Kumar Sidhu to give the gifts. He held that this was an afterthought and just to prove the genuineness of the gift. The A.O held the gifts to be not genuine. Being aggrieved, assessee went on appeal before CIT (Appeals). CIT (Appeals) confirmed the action of A.O. Being aggrieved, assessee went on appeal before Tribunal.

Held, that the alleged donor is certainly not shown to be creditworthy since she had no independent sources of income and even the allowance received from UK Government was not sufficient to cover the alleged gifts. The claim of taking a loan from Sh. Jatinder Kumar Sidhu is doubtful since the transaction was admittedly in cash and the claim has also been made at a very late stage. The transaction is also not verifiable. The claim of making the gift out of borrowed money is against normal human probability. The contention that  the assessee had no other source of income is not relevant as far as addition u/s 68 of the Act is concerned, since this is a deeming provision which treats unexplained cash credit as the assessee’s income. There is no infirmity in the order of Ld. CIT (Appeals) who has rightly confirmed the action of the A.O. Accordingly the appeal of the assessee is dismissed. In the result, the appeal of the assessee is dismissed.

ITAT AMRITSAR BENCH

IT Appeal No. 92 (Asr.) of 2011
[ASSESSMENT YEAR 2006-07]

Sat Pal John......................................................................................Appellant.
v.
Income-tax Officer, Nakodar ...........................................................Respondent

H.S. SIDHU, JUDICIAL MEMBER
AND B.P. JAIN, ACCOUNTANT MEMBER

Date : APRIL  30, 2013 

Appearances
Parveen Jain for the Appellant.
Tarsem Lal for the Respondent.

ORDER

1. This appeal of the assessee arises from the order of the CIT(A), Jalandhar, dated 18.01.2011 for the assessment year 2006-07. The assessee has raised following grounds of appeal:

2. The brief facts in the grounds of appeal of the assessee are that the assessee had received gifts of various sums during the relevant previous year including a sum of Rs.2,34,000/- on 10.10.2005 and Rs.2,35,000/- on 03.11.2005, which were stated to be gifts from his sister in law Smt. Amarjit Kaur, who was settled alongwith his brother Ram Gopal in the UK. The assessee's brother Sh. Ram Gopal had also gifted sums of Rs.1,93,800/-, Rs.1,97,242/- and Rs.1,97,242/- of different dates in the month of March, 2006 to him. The gifts from Sh. Ram Gopal had been given from Sh. Ram Gopal's bank account No.13539 in Bank of India whereas the gifs from Smt. Amarjit had come from Canara Bank, Nakodar Branch NRE A/c No.40439 and Bank of Baroda, Birmingham, UK Branch respectively. In the assessment in the case of M/s. Gupta Brothers, where the assessee is a partner, these gifts totaling Rs.4,69,000/- received from Mrs. Amarjit were credited to his capital account were added on protective basis as the AO was of the opinion that these gifts were not genuine. Since the AO was of the opinion that the addition should be made primarily in the hands of the assessee and not of the firm. The assessment of the assessee was reopened u/s 147. In the assessment proceedings, the assessee submitted that his brother Sh. Ram Gopal was doing barber business in the UK and his sister-in-law was assisting him in his business. The income tax computation sheet of Sh. Ram Gopal in the UK showing income of Rs.17003/- pounds was submitted and it was also contended that Smt. Amarjit Kaur had received 2241 pounds as allowance from the UK government. The sum of Rs.2,35,000/- stated to be gift from Smt. Amarjit was stated to be given from her NRE Account/Cheque No.289801 in Canara Bank, Nakodar and the source of this sum was stated to be remittance by draft by Sh. Ram Gopal in UK. The other gift of Rs.2,34,000/- was also stated to be a cheque purchased by his brother Sh. Ram Gopal. Copies of the cheques were submitted before the AO as also the confirmation of all the gifts filed during the assessment proceedings. It was pointed out that Smt. Amarjit Kaur had also appeared before the AO and had admitted that these gifts were made by her. It was stated that she did not give the amount of gift or date in reply to a question during the statement since she was illiterate, but the same was reflected in her bank pass book.. Further, the A.O. asked the assessee to give the bank account of Smt. Amarjit Kaur from where the remittances were made but the same were not submitted. The assessee stated before the AO that a sum of 6000 pounds was advanced by Sh. Jatinder Kumar Sidhu, cousin of Sh. Satpal John on 06.10.2005 to Smt. Amarjit Kaur and thereafter Smt. Amarjit Kaur made the gifts to the assessee. The assessee also furnished a copy of bank account of Sh. Jatinder Kumar Sidhu with Barclays Bank alongwith his confirmation for advancing 6000 pounds.

2.1 The AO also noted that Smt. Amarjit Kaur had received only Rs.1,74,085/- from the UK Govt. between 06.04.2005 to 05.04.2006 and she had no other independent source of income. He was, therefore, not satisfied of the credit-worthiness of Smt. Amarjit Kaur, more so since the utilization of the money received from UK Govt. was not submitted. The AO noted that in the statement of Smt. Amarjit Kaur recorded during the assessment proceedings in the case of M/s. Gupta Bros, she could not give details of the bank account in which she had bank account at Nakodar or the amount deposited in the bank. She admitted that she had never given any type of gift whether in cash or kind to her parental relatives who were doing labour job in the village. Though she claimed to have operated her bank accounts herself, she was not aware of the bank deposits in her bank account. She expressed her inability to state the nature of the money she had given to the assessee: whether it was a loan or a gift and further admitted that all the transactions were between her husband and the assessee. She was also not aware that the money given to the assessee had been received back or not. No gift deed in respect of amounts advanced to assessee by her was executed either in India or in the UK. The AO, therefore, held that the assessee was not able to discharge his onus of proving the capacity and creditworthiness of the donor, and the sources from where the funds were alleged to have been gifted was not clarified. He noted that the occasion for making a gift was not established and no other instance of reciprocal gifts given by the assessee to his relatives or to the donor were informed. He also noted that the gifts were stated to be made out of funds of Sh. Ram Gopal and not of the donor Smt. Amarjit Kaur. He noted that during the assessment proceedings in the case of M/s. Gupta Bros; it was contended by Smt. Amarjit Kaur that she had given the gift from her own sources whereas a different stand was taken now that the money was taken from Sh. Jatinder Kumar Sidhu to give the gifts. He held that this was an after-thought and just to prove the genuineness of the gift. The AO held the gifts to be not genuine. He relied on the decision in the case of Ram Lal Agarwal v. CIT [2006] 280 ITR 547/[2005] 149 Taxman 342 (All.) and the judgment of the Hon'ble Delhi Court in CIT v. Kamdhenu Steel & Alloys Ltd. [2012] 206 Taxman 254/19 taxmann.com 26 (Delhi).

3. The Ld. CIT(A) confirmed the action of the Assessing Officer.

4. The Ld. counsel for the assessee, Mr. Parveen Jain, Advocate reiterated the submissions as made before the ld. CIT(A) by the Ld. AR before him.

5. The Ld. DR, on the other hand, relied upon the orders of both the authorities below.

6. We have heard the rival contentions and perused the facts of the case. The assessee has received two amounts of Rs.2,35,000/- on 03.11.2005 and Rs.2,34,000/- on 10.10.2005. We find no infirmity in the order of the ld. CIT(A), who has given the findings against the assessee in para 4.1 to 6 of his order that the sum of Rs.2,34,000/- was draft issued by Birmingham UK Branch whereas the sum of Rs.2,35,000/- is stated to be issued from NRE account of Canara Bank, Nakodar Branch by Smt. Amarjit Kaur. Sh. Ram Gopl is brother of the assessee and Smt. Amarjit Kaur is the wife of Sh. Ram Gopal. However, the source of both the remittances is not shown to be from Smt. Amarjit Kaur's bank accounts in the UK. In fact, no copy of her bank account in the UK has been submitted. It was contended before the AO in the assessment proceedings in the case of M/s. Gupta Bros. that since the money came from abroad and Smt. Amarjit Kaur had admitted having gifted these amounts to the assessee, the onus of the assessee was discharged in respect of the cash credits. Even during the assessment proceedings in the case of the assessee, the same contention was raised on 20th October, 2009. It is only on 7th December, 2009 that the assessee claimed that the sources of the funds gifted to the assessee was the money advanced by Sh. Jatinder Kumar Sidhu to the assessee after the AO asked for the production of bank statement of Smt. Amarjit Kaur. The copy of the bank account of Sh. Jatinder Kumar Sidhu shows a cash withdrawal of 6000 pounds in October, 2005, which is stated to have been given to Smt. Amarjit Kaur. Sh. Jatinder Kumar Sidhu is claimed to be a cousin of the assessee. These facts clearly show hat the money stated to have been gifted by Smt. Amarjit Kaur to the assessee was not her own, even if the loan from Sh. Jatinder Kumar Sidhu is accepted to be genuine. This is a significant factor as far as the genuineness of the gift is concerned. A gift normally connotes a transaction where a person parts his own property to another without consideration and for love and affection. It is rare to come across a person who makes a gift of money to another out of the borrowed funds. Moreover, Smt. Amarjit Kaur as not a person of substantial means. The assistance from the Govt. of UK which is stated to have been received by her is on account of child tax credit amounting to Rs.2241.10 pounds vide intimation dated 30.01.2006 (after the gifts were remitted) and she admits that she had no other independent source of income. Since she had no other independent source of income, it is not clear as to how she proposed to repay the loan of 6000 pounds taken from Sh. Jatinder Kumar Sidhu. More importantly, it is not clear as to why the "gift" was made out of the borrowed funds. It is claimed that the money was received by the assessee so as to remove the other partners from the partnership firm M/s. Gupta Bros. and to bring his brother Sh. Ram Gopal and his sister-in-law Smt. Amarjit Kaur into the same partnership firm. If it is so, the claim of "gift" does not appear to be genuine. Quid pro quo is apparently involved in the entire transaction. In case the money has genuinely come from Smt. Amarjit Kaur, it would imply a consideration for taking a share in the partnership firm. Nevertheless the important point is that the credit-worthiness of Smt. Amarjit Kaur is certainly not proved since she had no independent source of income and she certainly did not have enough money of her own to advance a gift to the assessee. Both the remittances sent to the assessee through banking channels were transactions entered into by Sh. Ram Gopal by purchase of drafts and the only source of the same is stated to be a loan taken in cash from Sh. Jatinder Kumar Sidhu, which being a late claim as also being in cash, is not verifiable and is quite doubtful. A gift through a loan is apparently not a genuine gift. There is no immediate occasion for giving the gift and the stated purpose for the gift appears to be a business consideration. A perusal of the statement of Smt. Amarjit Kaur recorded by the AO on 20th August, 2008 in the presence of the assessee's Chartered Accountant is also quite revealing. She admitted that she was uneducated and could not read or write any language and spoke in Punjabi only. Her brothers were stated to be doing labour job in India. She stated that she had no independent source of income and she only helped her husband in his business who was running a barber shop. She had 3 children, out of which one was married about 4 years ago and the rest were school/college going. She stated that she received some allowance from the UK Govt. and did not remember the exact details. The allowance was stated to have been remitted to her bank account directly and withdrawn when she visited India. She stated that she operated her own bank account herself. She stated that she had not extended any help to her brothers or their children for her marriage. In response to question no.13, she stated she never gifted any amount to any of her in-laws in the past, though some gifts in the nature of cloth, telephone or domestic use were given. She confronted that she had not made any gift in cash either to Sh. Sat Pal or any family member. Though she was aware of bank account in UK, she did not know the amount deposited therein. She was also aware of the bank account in Nakodar but did not remember the name of the bank or the amount deposited in the said bank account. In reply to question no.18 she stated that she had given some money to Sh. Sat Pal many times but did not remember the amount or the number of times the money was given, or whether it was a gift or a loan. When informed that Sh. Sat Pal had claimed to have received Rs.2,34,000/- and Rs.2,35,000/- from her and asked to confirm and give evidence for the same.She stated that she did not know the exact date and year of gift and had no evidence with her at that time. The aforesaid statement reveals that Smt. Amarjit Kaur was certainly not a person of means or knowledgeable about her financial affairs and her finances were being managed by Sh. Ram Gopal. Initially she denied having given any gift to the assessee in cash, but later on stated that some gift was given, but again, she was unable to tell the amount or date or mode of gift. Her statement, coupled with the fact that she had no independent source of income; the fact that the money was not given from her own bank account or her sources, but stated to have been given out of a loan, leads to uphold the AO's conclusion that the creditworthiness of the donor is not proved. In the case of a gift, it is necessary not only to establish the identity of the donor, but also the creditworthiness of the donor also needs to be established to show that the money belongs to the donor. In the case of Tirath Ram Gupta v. CIT [2008] 304 ITR 145/[2009] 177 Taxman 294 (Punj & Har.) the Hon'ble High Court have held that a gift could not be accepted as such to be genuine merely because the amount had been given by way of cheque or draft through banking channels, unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion was proved. It was further held by the Hon'ble Court that unless the receipts were proved to be genuine, the same could very well be treated to be an accommodation entry of the assessee's own money which was not disclosed for the purposes of taxation. It was further held that the above considerations for testing the genuineness of the gift were not exhaustive as there may be other reasons also which should be appropriate for considering the genuineness of the gift. In the case of Yash Pal Goel v. CIT (Appeals) [2009] 310 ITR 75/181 Taxman 175 (Punj & Har) the Hon'ble High Court held that the onus was on the assessee not only to establish the identity of the person making the gift, but his capacity to give gift and that it had actually been received as a gift from the donor. In the case of Subhash Chand Verma v. CIT [2009] 311 ITR 239 [2007] 164 Taxman 401 (Punj & Har) the Hon'ble High Court noted that there was no occasion for the donor to make gift and the assessee had failed to establish the financial capacity of the alleged gifts as unexplained cash credits was upheld. The aforesaid decisions by the Hon'ble Jurisdictional High Court clearly convey that merely because a gift has come through banking channels and from identifiable sources would not be sufficient to discharge the burden of the assessee in respect of cash credit shown to be a gift, unless inter-alia, the credit-worthiness of the donor was also proven. In the present case, the alleged donor, Smt. Amarjit Kaur, is certainly not shown to be credit worthy since she had no indepdent sources of income and even the allowance received from the UK Govt. was not sufficient to cover the alleged gifts. The claim of taking a loan from Sh. Jatinder Kumar Sidhu is doubtful since the transaction was admittedly in cash and the claim has also been made at a very late stage. The transaction is also not verifiable. Further, as noted earlier, the claim of making gift out of the borrowed money is against normal human probability. The contention that the assessee had no other source of income is not relevant as far as addition u/s 68 of the Act is concernd, since this is a deeming provision which treats unexplained cash credit as the assessee's income.

7. In the facts and circumstances of the case and in view of the decisions of Hon'ble Punjab & Haryana High Court mentioned hereinabove, we find no infirmity in the order of the Ld. CIT(A), who has rightly confirmed the action of the Assessing Officer. Accordingly, the appeal of the assessee is dismissed.

8. In the result, the appeal of the assessee in ITA No.92(Asr)/2011 is dismissed.

[2013] 143 ITD 668 (AMRITSAR)