Addition U/s. 68 justified if Assessee failed to establish creditworthiness of donors

Pandit Vijay Kant Sharma Vs. CIT (Allahabad High Court)

Unexplained deposits a huge amount of Rs. 19,02,000 allegedly/ stated to have been received as gift by the appellant. The assessing authority has examined the alleged gifts by calling for the record from the bank namely relevant passbooks as well as has also issued the notices to the persons allegedly gifted the money to the appellant. The assessing authority has concluded that the gifts were not found genuine as the donors were very petty persons having no source to gift such a heavy amount to the appellant. The assessing authority has further inquired into the matter with regard to the gift of Rs. 10 lacs by Smt. Dropati Devi and it is found that the return of about one lac has been filed by the heirs of the alleged donor Dropati Devi after a gap of about 10 months from her death.

According to the assessing authority it is clearly a case of ‘cash credit’ and the same therefore, is covered under section 68 of the Act.

We have noticed and perused the orders passed by the assessing authority as well as the impugned order of the Tribunal and we find that there is no illegality in coming to the conclusion that the present case is fully covered within the parameter of section 68 of the Act.

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-

The brief facts of the case are that the appellant has filed the return of income showing the total income of Rs. 4,89,385. The return of the assessee was processed under section 143(1) of the Income Tax Act 1961 (hereinafter referred to as ‘Act’). The case of the assessee was selected under scrutiny and accordingly, a notice under section 143(2) and 142(1) of the Act along with questionnaire was issued and served.

In response to the notices the assessee has participated in the proceedings and has filed the details. The assessing authority has noticed that the assessee has shown receipts that gift in the statement of incoming and outgoing details. For the ready reference the relevant extract of the aforesaid statement of receipts of gifts is quoted herein below :

It is noticed by the assessing authority that the appellant has simply filed the copy of the statement of incoming and outgoing of the gifts. It is further noticed that Smt. Dropati Devi has shown the opening cash balance in hand is on 1-4-2000 as Rs. 9,32,000 and the receipt from the sale of potato has been shown as Rs. 4,40,960. Out of the aforesaid amount Smt. Dropati Devi has gifted a sum of Rs. 10,00,000 (Ten Lacs) to the appellant/assessee. It is also noticed by the assessing authority that Smt. Dropati Devi expired on 11-7-2002 as per death certificate placed by the assessee/appellant. The copy of the return of Smt. Dropati Devi is also placed by the appellan claiming that the return on behalf of the late Dropati Devi has been filed by the legal heirs on 19-5-2003 (much after the death of Dropati Devi) showing the total income of Rs. 1,03,432.

On enquiry by the assessing authroity it is found that late Dropati Devi in her saving bank account deposited very petty amount throughout during the period 11-8-1998 till 4-6-2000. However, it is noticed that on 3-10-2000 a sum of Rs. 10 lacs has been deposited by Smt. Dropati Devi in her saving bank account as cash. This cash deposit of Rs. 10 lacs has been deposited at one time on the same date namely on 3-10-2000 and the same is withdrawn on the same day, which is gifted to the appellant at once.

With regard to other gifts the assessing authority has noticed that the creditworthiness of the donors was totally doubtful and in this regard the notices were sent to the alleged donors through the registered post but envelop containing the notice has been received back with the report “not known”. Subsequently, the income tax inspector attached with the office of the assessing officer has been deputed to get the notice served, who has reported that there are no such persons namely Veerpal Singh and Sundar Sahai on the giving address.

In view of the aforesaid report, the assessing authority has observed that there are no persons as claimed who has gifted the money and therefore, the assessing authority reached to the conclusion that the gifts are not genuine as such has rejected the claim.

With regard to the other persons namely Munees Saxena, the assessing authority has reached to the conclusion that though he has shown that the amount was given by the crossed check of an amount of Rs. 2,00,000, it is transpired that the same was credited in the appellant’s account by transfer and it is not by clearing. Thus the fact clearly indicates that the admission by the Munees Saxena is different than the actual transaction.

Similarly the creditworthiness of other persons namely Phool Singh and Raju Sharma were also disbelieved by the assessing authority as the gifts were not found genuine as such the same were unexplained deposit of the appellant and accordingly the assessing authority vide its order dated 29-3-2004 has added the said amount as cash credits under section 68 of the Act for the assessment year 2001-02 in the hands of the appellant.

Aggrieved by the order of assessment an appeal has been filed by the assessee before the Commissioner (Appeals). The Commissioner (Appeals) vide order dated 6-5-2004 has allowed the appeal and has deleted the addition made by the assessing authority under section 68 of the Act.

Aggrieved by the order of the Commissioner (Appeals) the department has preferred an appeal before the ITAT which has been registered as ITA No. 3391/Del/2004, which has been allowed in part by the ITAT. The ITAT has observed in its judgment in para 13, which is quoted herein below :–

“In the instant case from the order of the assessing officer, it is clear that the assessee has failed in establishing the creditworthiness of the donors, occasion for making the gifts and why and donors who were strangers and not men of means gifted such huge amounts to the assessee HUF out of love and affection. Accordingly, we hold that the Commissioner (Appeals) without examining these aspects in the instant case of the assessee in his order has wrongly deleted the impugned amount received by the assessee as gifts and, therefore, the order of Commissioner (Appeals) in this regard is set-aside and order of assessing officer making the impugned addition of Rs. 19,02,000 is upheld. Ground Nos. 1,2 and 3 of the revenue’s appeals is allowed.”

We have heard learned counsel for the appellant and learned counsel representing the revenue.

We have noticed that the unexplained deposits a huge amount of Rs. 19,02,000 allegedly/ stated to have been received as gift by the appellant. The assessing authority has examined the alleged gifts by calling for the record from the bank namely relevant passbooks as well as has also issued the notices to the persons allegedly gifted the money to the appellant. The assessing authority has concluded that the gifts were not found genuine as the donors were very petty persons having no source to gift such a heavy amount to the appellant. The assessing authority has further inquired into the matter with regard to the gift of Rs. 10 lacs by Smt. Dropati Devi and it is found that the return of about one lac has been filed by the heirs of the alleged donor Dropati Devi after a gap of about 10 months from her death.

According to the assessing authority it is clearly a case of ‘cash credit’ and the same therefore, is covered under section 68 of the Act.

We have noticed and perused the orders passed by the assessing authority as well as the impugned order of the Tribunal and we find that there is no illegality in coming to the conclusion that the present case is fully covered within the parameter of section 68 of the Act.

Learned counsel for the appellant has partly accepted that the appellant has not adduced any evidence with regard to the alleged gifts by different persons whose creditworthiness was doubted by the department, however, he has submitted that so far as the gift by Smt. Dropati Devi for a sum of Rs. 10 lacs. is concerned, there is some material which suggests that the said amount has been gifted by Smt. Dropati Devi to the appellant.

On the other hand, the learned counsel for the revenue has assailed the orders passed by the assessing authority as well as by the Tribunal.

We see no error in the order of the ITAT and the findings recorded by the ITAT are concluded by finding of fact, hence we decline to interfere in the matter.

The appeal, therefore is dismissed.