Gift cannot be treated as unexplained cash credit u/s 68 merely based on doubts

Tapasi Singh Vs ITO (ITAT Kolkata)

It is observed that all the four donors who had given the gifts in question to the assessee during the year under consideration were engaged in the business and in the returns of income filed regularly for the year under consideration, the business income earned by them was duly declared as is evident from the photocopies of their IT return acknowledgement placed at page no. 32 & 33 of the Paper Book. Moreover all the gifts in question were given to the assessee by the four donors by account payee cheques and their declarations confirming the gifts given to the assessee were also furnished on record giving all the relevant particulars including the Permanent Account Number of the donors. As rightly contended by the learned counsel for the assessee, the primary onus to establish the identity and creditworthiness of the concerned donors as well as the genuineness of the relevant transactions involving gifts thus was duly discharged by the assessee by producing the relevant documentary evidence and without bringing on record any material or evidence to disprove or dislodge the claim of the assessee, the authorities below, in my opinion, were not justified in treating the gifts received by the assessee as unexplained cash credit u/s 68 merely on the basis of doubts and suspicion. I, therefore, delete the addition of Rs. 4,00,000/- made by the AO and confirmed by the Ld. CIT(A) u/s 68 and allow this appeal of the assessee.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-Burdwan dated 04.06.2020 and the solitary issue involved therein relates to the addition of Rs. 4,00,000/- made by the AO and confirmed by the Ld. CIT(A) u/s 68 of the Income Tax Act, 1961 by treating the gifts received by the assessee during the year under consideration as unexplained cash credit.

2. The assessee in the present case is an individual who is engaged in the business trading of sugar, atta and maida. The return of income for the year under consideration was filed by her on 26.10.2004 declaring a total income of Rs. 2,15,870/-. During the year under consideration, the assessee had introduced a fresh capital of Rs. 4,00,000/-and the source of the same was explained as gift of Rs. 1,00,000/- each received from four persons namely Mana Das, Mohanlal Sau, Nemai Chandra Dey s/o Bhudhar Chandra Dey and Nemai Ch. Dey s/o Bhupati Charan Dey. In support of her claim of having received the said gifts, tax particulars of the donors were furnished by the assessee along with the copies of relevant cheques as well as the declarations of the donors confirming the gifts. In order to verify the assessee’s claim, summons u/s 131 of the Act were issued by the AO to all the donors enquiring their personal attendance. However, none of the donors appeared before the AO for their examination. Even the assessee failed to produce the donors for the examination before the AO. Keeping in view this failure as well as the fact that none of the donors had blood relations with the assessee, the AO held that the identity and creditworthiness of the donors as well as the genuineness of the transactions involving gifts was not established. He, therefore, treated all the four gifts aggregating to Rs. 4,00,000/- as unexplained cash credit and addition to that extent was made by him to the total income of the assessee u/s 68 in the assessment completed u/s 143(3) vide an order dated 26.12.2006.

3. Against the order passed by the AO u/s 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and the following submission was made on behalf of the assessee in writing before the Ld. CIT(A) in support of her case that all the gifts received from four donors were genuine:

“That in the year under consideration, the assessee received gifts from four persons through account payee cheque of Rs. 1,00,000 each amounting to Rs.4,00,000/-. Now the A.O. contended that in the absence of any blood relations between the assessee and the donors, the creditworthiness and genuineness of the transaction cannot be established and therefore the said sum of Rs.4,00,000/- was added to the total income of the assessee. Now, the gifts were made by account payee cheques dated 20.03.2004 and 25.03.2004 and the Finance Act, 1998 specifically stated that gifts from non-relatives can be accepted on and from 1^st day of October 1998 till 31^st day of August 2004, and only after such date the Finance Act, 2004 limited the acceptance of gifts from non-relative upto Rs.25,000/- only and any amount above and beyond Rs.25,000/- shall be taxable in the hand of the donee. So it was well within the four comers of the law in accepting the gifts of Rs. 1,00,000/- each on 20.03.2004 and 25.03.2004 as enumerated by the provisions of the Finance Act, 1998, therefore making it not ultravires to the statute.

Now, coming to the genuineness of the transaction, the gifts were made through account payee cheques, which itself is a third party corroboration authenticating the genuineness of the transactions.

And regarding the creditworthiness of the person making gifts, they were income tax assessee and they made the gifts out of their tax paid accumulated capital, and to corroborate this please find enclosed the copy of their return of income acknowledgements, computation sheet of the year under consideration.

Hence the addition to the tune of Rs.4,00,000/- is illegal and done beyond powers vested by the statute and therefore it is requested to upheld justice by deleting the same.”

4. The Ld. CIT(A) did not find merit on the above submission made on behalf of the assessee for the following reasons given in paragraph no. 5.3.5 of his impugned order:

“I have carefully gone through the assessment order, the observations of the A.O. and the contentions and arguments of the appellant.

I have perused the Income Tax Returns of the persons who have given Rs. 1,00,000/- each to the appellant Smt. Tapasi Singha. It is pertinent to note that all the four persons Shri Mohan Lal Sau, Shri Mana Das, Shri Nimai Chandra Dey S/o Bhudhar Chandra Dey and Shri Nemai Chandra Dey S/o

Bhupati Charan Dey have filed Income Tax Return showing income of Rs. 52,400/- and all these income tax returns have been filed on the same date i.e. 08.11.2004.

It is hard to believe that all the purported donors, who are unrelated will file their return of income on the same date i.e. 08.11.2004 and showing identical income of Rs. 52,400/-. It is also not amenable to reason and logic that a person having limited income of Rs. 52,400/- would gift an amount of Rs. 1,00,000/- to an unrelated person.”

For the reasons given above and relying on certain judicial pronouncements as discussed in the impugned order, the Ld. CIT(A) confirmed the addition made by the AO u/s 68 by treating the gifts claimed to be received by the assessee as unexplained cash credit. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.

5. I have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that all the four donors who had given the gifts in question to the assessee during the year under consideration were engaged in the business and in the returns of income filed regularly for the year under consideration, the business income earned by them was duly declared as is evident from the photocopies of their IT return acknowledgement placed at page no. 32 & 33 of the Paper Book. Moreover all the gifts in question were given to the assessee by the four donors by account payee cheques and their declarations confirming the gifts given to the assessee were also furnished on record giving all the relevant particulars including the Permanent Account Number of the donors. As rightly contended by the learned counsel for the assessee, the primary onus to establish the identity and creditworthiness of the concerned donors as well as the genuineness of the relevant transactions involving gifts thus was duly discharged by the assessee by producing the relevant documentary evidence and without bringing on record any material or evidence to disprove or dislodge the claim of the assessee, the authorities below, in my opinion, were not justified in treating the gifts received by the assessee as unexplained cash credit u/s 68 merely on the basis of doubts and suspicion. I, therefore, delete the addition of Rs. 4,00,000/- made by the AO and confirmed by the Ld. CIT(A) u/s 68 and allow this appeal of the assessee.

6. In the result, the appeal of the assessee is allowed.

Order Pronounced in the Open Court on 30^th April, 2021.