Identification of donor and receipt of gift by cheque not sufficient to prove genuineness of gift

CASE LAW DETAILS

Decided by: HIGH COURT OF PUNJAB AND HARYANA,  In The case of: Yash Pal Goel v. Commissioner of Income-tax (Appeals), Chandigarh,  Appeal No.: [2009] 181 TAXMAN 175 (PUNJ. & HAR.) , IT APPEAL NO. 389 OF 2008 ( Decided on: January 20, 2009

RELEVENT PARAGRAPH

section 68 of the Income-tax Act, 1961 – Cash credits – Assessment year 1999-2000 – Whether opinion formed by Assessing Officer for not accepting assessee’s explanation as regards sums found credited in books maintained by him constitutes a prima facie evidence against assessee relating to receipt of money, and if assessee fails to rebut said evidence, same can be used against him by holding that it was a receipt of an income nature – Held, yes – Whether where claim of gift is made by assessee, onus lies on him not only to establish identity of person making gift but also his capacity to make a gift, and that it has actually been received as a gift from donor – Held, yes – Whether a simple identification of donor and showing movement of gift amount through banking channels is not sufficient to prove genuineness of a gift – Held, yes
Facts
An amount of Rs. 98,000 was found credited in the assessee’s books of account. The assessee claimed that said amount was received by him as gift by two drafts of Rs. 49,000 each from `M’. The assessee was asked to prove the genuineness of the gift, but he did not lead any evidence except a letter written by his counsel to the Assessing Officer that `M’ had gifted said amount to the assessee on account of love and affection between him (donor) and the assessee (donee). The Assessing Officer issued summons to the donor under section 131 to appear before him for the purpose of recording his statement to prove the genuineness of the gift, but he failed to respond to the said summons. Therefore, the Assessing Officer held that the assessee had failed to prove the genuineness of the gift made by `M’ and treated said amount as income of the assessee from undisclosed sources. On appeal, the Commissioner (Appeals) as also the Tribunal upheld the order of the Assessing Officer.
On appeal to the High Court :

Held

A plain reading of section 68 shows that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessee offers no explanation about the nature and source of such credit found in the books or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory. It is only then that the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The expression `the assessee offers no explanation’ means that the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. [Para 8]

In the instant case, the assessee claimed that an amount of Rs. 98,000 was received by him as gift from `M’ on account of love and affection by two drafts. Indeed, the amount of Rs. 98,000 was credited in the account books of the assessee for the previous year. `M’ appeared before the Commissioner (Appeals) and his statement was recorded. He had stated (i) that he was owner of 11-12 acres of agriculture land; (ii) that his income was Rs. 2 lakhs per annum; (iii) that his family consisted of his wife, son, son’s wife and three grand children; (iv) that an amount of Rs. 60,000 was spent by him on household expenses; (v) that he knew the assessee because the assessee’s father was running a coal depot; (vi) that he was not aware of the age of the assessee and names of the members of the assessee’s family; (vii) that he never visited the house of the assessee at Chandigarh; (viii) that he had no bank account; (ix) that he had never made any gift to his family members or any one else except the assessee. That statement of `M’ raised questions as to whether `M’ had the capacity to make a gift of Rs. 98,000 to the assessee, who was not in his relation and he only knew him through his father; and whether the gift was on account of love and affection. The answer was inevitably in negative. A simple identification of the donor and showing the movement of the gift amount through banking channels is not sufficient to prove the genuineness of the gift. Since the claim of gift was made by the assessee, the onus lay on him not only to establish the identity of that person making the gift but also his capacity to make a gift; and that it had actually been received as a gift from the donor. Financial position of the donor suggested that he was neither in the capacity to make gift nor was having the source from where the gift was made. No reason whatsoever had been assigned for gifting such a huge amount by the donor to the assessee. The donor never visited home of the assessee. Where was the love and affection ? It was nothing but a subterfuge to avoid income-tax. Therefore, the transactions were not genuine ones. [Para 10]

Section 68 provides that where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of the previous year if the explanation offered by the assessee about the nature and source of such sums found credited in the books of the assessee is, in the opinion of the Assessing Officer, not satisfactory. Such opinion formed itself constitutes a prima facie evidence against the assessee relating to the receipt of money, and if the assessee fails to rebut the said evidence, the same can be used against the assessee by holding that it was a receipt of income nature. [Para 11]

The so-called gifts set up by the assessee were not bona fide transactions. [Para 17]

Therefore, no question of law had arisen for consideration in the instant appeal and, accordingly, the same was liable to be dismissed.

Per Court
The unscrupulous persons use every gimmick to avoid payment of income-tax. If the State exchequer is made the target of deceit and the revenue comes down, the development of the country will be a casualty. It is reprehensible that some citizens spend on litigation and unnecessarily bring matters before the Courts than to pay tax on their income. The tendency needs to be discouraged and curbed. [Para 17]

Case review
Sumati Dayal v. CIT [1995] 2 SCC 453/80 Taxman 89 (SC) [Para 11] followed,
Murlidhar Lahorimal v. CIT [2006] 280 ITR 512/153 Taxman 451 (Guj.) [Para 15] and Sikri & Co. (P.) Ltd. v. CIT [1977] 106 ITR 682 (Cal.) [Para 16] distinguished.

Cases referred to
Murlidhar Lahorimal v. CIT [2006] 280 ITR 512/153 Taxman 451 (Guj.) [Para 6], Sikri & Co. (P.) Ltd. v. CIT [1977] 106 ITR 682 (Cal.) [Para 6] and Sumati Dayal v. CIT [1995] 2 SCC 453/80 Taxman 89 (SC) [Para 9].

Puneet Kansal for the Appellant.

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