Addition for Cash Gift valid on failure of Assessee to substantiate cash gift

Shri M.Y. Jahabar Sadique Vs ITO (ITAT Chennai)

Introduction: The ITAT Chennai recently pronounced its decision on the case involving Shri M.Y. Jahabar Sadique and the Income Tax Officer (ITO). The dispute revolves around the substantiation of a cash gift of Rs.6 Lacs received by the assessee from Shri N. Mohamad Najib. The ITAT upheld the AO’s stand on this matter, emphasizing the onus on the assessee to prove the source of the cash deposit.

Detailed Analysis: The primary contention in this case was the inability of the assessee to substantiate a cash gift of Rs.6 Lacs received from Shri N. Mohamad Najib. The AO’s decision on this issue was confirmed by the ITAT, stating that the onus to prove the source of the cash deposit rested on the assessee.

Furthermore, discrepancies in business advances from JBS Ventures were noted. The AO’s stand on this matter was confirmed by the ITAT, with a partial acceptance of the assessee’s explanation. The ITAT, however, maintained the factual findings in the impugned order.

Regarding rental advances, the ITAT found unsatisfactory responses from several creditors. Two creditors’ addresses were untraceable, and two others lacked PAN and earned meager incomes. One creditor, Sh. Mohammed Ismail, successfully confirmed the advances and appeared during appellate proceedings. The ITAT accepted his explanation, leading to the deletion of the addition related to his advances.

An alternative plea regarding the sale of vehicles and additional grounds about the non-maintenance of books of accounts were dismissed by the ITAT.

Conclusion: The ITAT’s decision underscores the importance of the assessee’s responsibility to substantiate cash transactions, especially gifts. In this case, the inability to provide satisfactory explanations resulted in confirmations of the AO’s stand. The detailed analysis delves into the nuances of the dispute, providing clarity on each aspect.

The assessee could not substantiate the cash gift of Rs.6 Lacs stated to be received from Shri N. Mohamad Najib and the stand of Ld. AO, in that regard, was confirmed.

We are of the considered opinion that the onus to prove the source of cash deposit was on assessee. However, this onus could not be fully discharged by the assessee. So far as the conclusion that the gifts of Rs.6 Lacs is concerned, we find that no interference would be required in the impugned order since the factual findings remain undisturbed before us.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. Aforesaid appeal by assessee for Assessment Year (AY) 2014-15 arises out of the order of learned Commissioner of Income Tax (Appeals)-4, Chennai [CIT(A)] dated 09-03-2018 in the matter of assessment framed by Ld. Assessing Officer [AO] u/s. 143(3) of the Act on 30-12-2016. The grounds raised by the assessee are as under:

1) The additions/enhancements/confirmation by the Ld CIT (A), is opposed to law, facts and circumstances of the case.

2.1) Ld CIT (A) lacks jurisdiction for enhancing the items during the appellate stage that were already allowed by the AO at the time of assessment.

2.2) Ld CIT (A) overstepped in the guise of enhancement of assessment, which is actually a review of the work of AO, pertaining to the Rent deposits accepted as genuine at the time of assessment.

2.3) Ld CIT (A) erred in not accepting the Rental Deposits confirmed by 4 tenants by asking source for source. These 4 confirmations were accepted by the AO at the time of assessment.

3)  Ld CIT (A) erred in not considering the fact that the Business Advance from M/s. JBS Ventures was only Rs.13 Lakhs, whereas CIT (A) has taken Rs. 15 Lakhs advance. The actual advance of Rs.13 Lakhs was confirmed by M/s. JBS Ventures.

4.1) The Ld. CIT (A) erred in not considering the sale of vehicles with evidence as source for cash deposit and the explanation for all credits (Cash and Cheques) in the bank a/cs.

4.2) Ld CIT (A) erred in not appreciating the fact that there is sufficient source for cash deposit even after not considering the rental deposit from tenant Mr. Jitesh Nair.

5) Ld CIT (A) erred in not considering the confirmation letter from the Maternal Uncle Shri. Mohammed Najeeb, who is an NRI, by asking source for source and the addition, is incorrect.

The assessee has filed additional ground which is admitted since the same do not require appreciation of new facts. The ground read as under: –

Additions made by the Assessing Officer and confirmed by the Commissioner of Income Tax (Appeals) u/s 69A is in opposition of law as it does not satisfy the requirements of Sec.69A of the Income Tax Act, 1961. No books of accounts have been maintained and therefore, praying for the deletion of the entire additions made to the income returned.

As evident, the assessee is aggrieved by confirmation of certain additions of cash deposit in bank accounts.

2. The Ld. AR advanced arguments assailing the impugned additions which have been controverted by Ld. DR. Having heard rival submissions and after due consideration of material facts, our adjudication would be as under.

3. The assessee being non-resident was scrutinized u/s 143(3) for the year under consideration for the reason that it made cash deposit of Rs.63.03 Lacs which include deposit of Rs.29.42 Lacs in ICICI Bank and deposits of Rs.33.61 Lacs in Axis Bank. Accordingly, the assessee was required to establish the source of the same. The Ld. AO, after considering assessee’s reply, tabulated the addition as under: –

Accordingly, the balance amount of Rs.24.33 Lacs was added to the income of the assessee.

4. Upon further appeal, Ld. CIT(A) not only confirmed the impugned addition but also made an enhancement. The same was upon perusal of various documents furnished by the assessee during the course of assessment proceedings. The assessee received rental advances of Rs.27.90 Lacs from various persons. However, upon perusal of receipt, it was noted that the same do not mention whether the amount was received in cash or otherwise. No other details were furnished by the assessee. The address of the creditor was that of the assessee only. Similar discrepancies were noted in all the rental advance receipts furnished by the assessee. Though Ld. AO issued letter seeing confirmation of the creditors, however, AO did not ask for source of such advance payments and the purpose of such advances. The proof of identity was not called for. The reply of the creditors did not mention the date of payment and no details of source of payment were furnished. Similar were the replied received from other creditors. Considering the same, notice u/s 133(6) was again issued to all the creditors which were the address of the assessee only. In the letter, detailed information was asked from the creditors. However, notice issued to two of the creditors returned back unserved and the assessee failed to provide the address of these creditors. One of the persons Sh. Mohammed Ismail was not filing Income Tax Returns and he could not establish the source of cash advance made to the assessee. Another two creditors Sh. S. Murugan and Sh. K. Devadas did not have PAN and drawing meagre incomes. On the basis of above analysis, the amount of Rs.27.90 Lacs was held to be unexplained cash credit.

5. The assessee could not substantiate the cash gift of Rs.6 Lacs stated to be received from Shri N. Mohamad Najib and the stand of Ld. AO, in that regard, was confirmed. The assessee received business advance of Rs.15 Lacs from JBS Ventures. In support, financial statements of that firm were produced. After examination, Ld. CIT(A) concurred that there was discrepancy only to the extent of Rs.2 Lacs and accordingly, the stand of Ld. AO, to that extent was confirmed.

6. Finally, the income of Rs.29.84 Lacs as determined by Ld. AO was enhanced to Rs.41.40 Lacs. Aggrieved, the assessee is in further appeal before us.

7. We are of the considered opinion that the onus to prove the source of cash deposit was on assessee. However, this onus could not be fully discharged by the assessee. So far as the conclusion that the gifts of Rs.6 Lacs and discrepancy in the business advance for Rs.2 Lacs is concerned, we find that no interference would be required in the impugned order since the factual findings remain undisturbed before us.

8. So far as the rental advances are concerned, we find that the assessee has received these advances from as many as five persons. Out of these five creditors, notice sent u/s 133(6) with respect to two of the creditors i.e., Shri Surendra Prasad and Shri Jithesh Nair have returned back unserved and the assessee could not furnish the addresses of these persons despite the fact that he received rental advances from these two persons. Therefore, no interference is required for these two creditors. Two of the creditors i.e., Sh. S. Murugan and Sh. K. Devadas confirmed the advances. However, these two persons were earning very meagre monthly salary of less than Rs.20,000/- per month. Both the persons did not have PAN or bank account. Therefore, the explanation of these two depositors have rightly been rejected. The last creditor i.e., Sh. Mohammed Ismail advanced sum of Rs.5.85 Lacs to the assessee. This creditor has confirmed the advances and also appeared during appellate proceedings. This creditor earned income of Rs.6.66 Lacs and is stated to be relative of the assessee. Considering the factual background, the explanation of this creditor has to be accepted. In other words, the impugned order stand confirmed except to the extent of addition of Rs.5.85 Lacs which stand deleted.

9. The Ld. AR made alternative plea that the assessee sold vehicles during the year and received cash against the same. This is altogether a new plea which we reject since this is nothing but a mere after-thought. This is particularly to be rejected since the assessee is a non-resident. In the additional ground, Ld. AR has submitted that no books of accounts were maintained and therefore the impugned additions are unsustainable. This plea is also to be rejected outrightly since the assessee is under an obligation to explain the credit in the bank accounts whether it is obligated to maintain books of accounts or not. The additional ground stand dismissed.

10. Resultantly, the appeal stands partly allowed in terms of our above order.

Order pronounced on 15^th June, 2022.