Mayawati wins again in ITAT – can gift to a politician be treated as Professional income? – Gift of Rs 11 Lakhs allowed by AO after proper inquiry and consultation with CIT – Commissioner’ s Review order quashed: ITAT
KM Mayawati the beloved Chief Minister is in the habit of getting huge gifts from her fans, teachers, lawyers and party-men – out of sheer love and affection, notwithstanding interference by Income Tax Department.
This is an appeal filed by the assessee – Km Mayawati with the following grounds:- That having regard to the facts and circumstances of the case, the CIT has erred in law and on facts
1. in assuming jurisdiction u/s 263 and has accordingly erred in setting aside the assessment order, more so when there is no finding recorded by Ld. CIT that the assessment order was erroneous and
prejudicial to the interest of revenue.
2. in passing the order u/s 263 without giving any opportunity of being heard and has erred in recording that show cause notice u/s 263 was served on the assessee on 24.3.08 which fact is wrong. The show cause notice has been served only on 28.4.2008 while the order u/s 263 was served on 08.04.2008 and thus the order passed u/s 263 is without jurisdiction and null and void on that score also.
1. in holding that the assessing officer did not examine the claim of gifts from Mr O.P. Khadaria and Mr. Ajay Agarwal and did not conduct proper enquiries during the course of assessment, which is contrary to the records of the case.
2. in holding that the gift of Rs. 1,00,000 from Mr. O.P, Khadaria was liable to be taxed as her “income from other sources” by treating it as a vocational income.
3. in holding that gift of Rs.10,00,000/ – from Mr. Ajay Agarwal may be taxable in hands of appellant.
4. in passing the impugned order u/s 263 by recording incorrect facts and findings and irrelevant observation and without observing the principles of natural justice.
and
5. That in any view of matter and in any case, the order passed u/s 263 by the Ld. CIT setting aside the order of assessment with the direction to examine the issue of gift aforesaid is bad in law and against the facts and circumstances of the case, more so when the assessment order got merged with order of appellate authorities.
The return of income was filed by the assessee on 6th August, 2003 declaring total income of Rs.13,29,090/ – and assessment has been framed vide assessment order dated 30th March, 2006 passed u/s 143(3) of the Act. It is mentioned in the assessment order that the assessee along with other family members has received gifts to the tune of Rs.6.18 crore and the cases of group of assessee has been centralized in the Circle as per the directions of the Supreme Court. From the perusal of details filed by the assessee and her family members it was noted by the AO that 129 persons had donated the gifts ranging between Rs.2 lacs to Rs. 10 lacs to the assessee and her family members on different dates and out of total gifts of Rs.13.10 crores, Rs.9.78 crores worth of gifts were received by the assessee and her family during the period April, 2002 to September, 2003 and it was noted that assessee had received 2.97 crore gifts which included immovable properties. The assessee among other gifts is also beneficiary of gifts received by her from Shri Ajay Agarwal a sum of Rs.10 lac received vide cheque No.921359 dated 7th December, 2002 of PNB, and Rs.1 lac from Shri O.P. Khadaria, vide cheque No. 529892 dated 15th January, 2003 of State Bank of India, University Branch, Delhi. The aspect of receiving gift by the assessee was examined by the AO in detail in the assessment order and ultimately on account of unexplained gifts a sum of Rs. 64,72,300/- was added to the income of the assessee which did not include above mentioned gifts of Rs.10 lac and Rs.1 lac. An Office Note was also given by the AO to the assessment order in which the reasons for not adding these two gifts were given.
The office note relating to the said gifts as given by the AO in the assessment order read as under:-
The assessee has received gift of Rs.1,00,000/ – from Shri O.P. Khadaria. He is an Advocate by profession and the assessee had been her student when she was student of law. His statement on oath was recorded by Addl, DI (Inv.), New Delhi and myself. He is showing handsome income as also he is having sufficient assets, etc. Keeping in view his financial status as also the fact that the assessee had been his student and at present also he is her advocate as also of BSP the same has been accepted.
The assessee has also claimed to have received a gift of Rs.10,00,000/ – from Shri Ajay Aggarwal. It is seen that he is grandson of Seth Mukand Lal. He received certain properties in family partition as per copy of the partition deed filed by the assessee. He got Hotel Sherton of Mussorie in partition and he sold this property in the year 2002 as per copy of letter issued by the AO u/s 230A filed by the assessee, Shri Aggarwal appeared before me and had given a statement that he has gifted Rs.10,00,000/ – out of natural love and affection. The copy of bank account has been examined and it is seen that he received a sum of Rs.9,95,000/ – from M/s G.C. International, Bombay as per copy of their letter dated 28th Nov., 2002. The copy of demand draft has also been filed to prove that the amount has been received from them. The copy of bank account also reveal that pay orders worth Rs.55,00,000/ – were obtained by him from the bank for filing tenders. Since source is explained, the same has been accepted.
This case was discussed with the Addl. CIT, CR-II, ND and Ld. CIT (C)-I ND from time to time.”
According to the impugned order CIT has called for and examined the assessment records of the assessee and he found that the AO did not make addition on account of gifts allegedly received by the assessee from Shri OP. Khadaria and Shri Ajay Agarwal by holding the same as genuine, explained and exempt from tax.
He found from the statement of Shri O.P. Khadaria that the said gift was given by him on the direction of Shri Kanshi Ram, the then National President of BSP (Bahujan Samaj Party) for the mission of the party. Further, he found that, Shri O.P. Khadaria stated that one of the reasons for giving the gift was the admiration for the assessee for achieving the status of Chief Minister of UP and his own services to the party and he found that the gift was made to the assessee as she symbolizes the BSP. According to CIT, the said statement of Shri Khadaria revealed that the post which the assessee held was the reason for gift of Rs.1 lac to her and, thus, gift was made to her because of her political position and was directly related to the profession as a politician and, therefore, the same should be treated as her income from the profession of politics and failure to make such addition by the AO in the assessment order made the assessment order erroneous as well as prejudicial to the interest of the revenue.
Similarly, with regard to the gift of Rs.10 lac received by the assessee from Shri Ajay Agarwal, it was noticed by the CIT that for assessment year 2001-02 to 2003-04 the income of Shri Ajay Agarwal was below taxable limit and he did not make gift to any other persons for the five or six years preceding to the gift made to the assessee. Shri Aggarwal was asked to explain the credit entries in the bank account furnished by him. When he replied that he would do so next day, but he never did submit such details. Thus, the CIT has observed that non-furnishing of such details casts a doubt on the credit worthiness of Shri Aggarwal and the AO did not make any addition on that account.
He pointed out that failure of the AO to consider the evidences emerging from the statement of Shri Ajay Agarwal casts doubt on his credit worthiness and the AO overlooked the failure of Shri Agarwal to specifically explain the credit entries in his bank account resulted into the order of AO being erroneous as well as prejudicial to the interest of revenue.
The Tribunal’s observations: – The application of mind by the AO is visible from the office note, the existence of which has not been denied by the revenue.
From the above note given by the AO to the assessment order, it is clear that it is not a case of simply placing the evidence on record where the AO has not applied his mind. In the office note the AO has discussed the case of both the donors separately and described in short that what evidence was produced and he has also given reasons for arriving at a conclusion that why these gifts were accepted in contradiction to the gifts which are added to the income of the assessee.
From the above facts, the Tribunal found no force in the argument of the DR that it is a case where the AO did not make any inquiry. Evidences were placed on record. The AO has examined those evidences. Not only the evidences have been examined, but the donors in person have also been examined by the AO and after examining all the evidences and donors, a conclusion has been arrived at by the AO that these gifts were not to be added to the income of the assessee. Therefore, on the basis of evidences placed on record by the assessee and after examining those evidences, a view has been formed by the AO.
Unless the said view is shown to be unsustainable in law, the decision of AO cannot be revised by invoking the powers u/s 263 by the CIT. When it is not a case of improper inquiry or where it has not been shown that the view taken by the AO is unsustainable in law, the order of AO cannot be held to be erroneous as well as prejudicial to the interest of revenue.
In view of the above discussion it is held that CIT was wrong in exercising his jurisdiction u/s 263, as assessment order passed by the AO was neither erroneous nor prejudicial to the interests of revenue.
So far as it relates to merger of the assessment order with the appellate order, the ITAT found no force in such argument of the AR as these two gifts on the basis of which CIT has invoked power u/s 263 were not the issue before CIT (A). Therefore, on account of merger the order u/s 263 cannot be held invalid. Therefore, the Tribunal agreed with the DR that on theory of merger the order passed by CIT u/s 263 cannot be held to be invalid.
It has been the contention of the DR that mere movement of funds through banking channel is not sufficient to prove the financial capacity of the donor. The Tribunal found that it is not a case where only on the basis of movement of funds through banking channel the gifts have been accepted by the AO. The AO has examined all the documentary evidence which included bank accounts, gift deed, source to make those gifts and he has examined the donors also. Therefore, it is not a case where the AO has accepted the gifts simply on the basis of fact that the funds have been moved through bank.
So far as it relates to arguments of the AR that amount of gifts received by the assessee cannot be assessed as income from political vocation, the Tribunal declined to express any opinion on the said argument as the same in the present case will be academic as it held that invocation of power u/s 263 is contrary to law.
There is one more aspect of the matter that the assessment order was passed by the AO after discussion with the then Addl. CIT and CIT and where the assessment order is based on the discussions with CIT, the same cannot be revised by subsequent Commissioner as it will be a case of substitution of view of earlier CIT by the present CIT. Therefore, also the order passed by the CIT u/s 263 cannot be upheld.
It was pointed out by the AR that the same Commissioner who has invoked power u/s 263 while presenting the appeal against the impugned assessment order in Hon’ble High Court has recorded that AO had accepted the other two gifts as the credit worthiness of the other two donors were proved. Therefore, also the impugned order of CIT is not sustainable.
Summarising the findings, the Tribunal held that the impugned assessment order passed by the AO was neither erroneous nor prejudicial to the interests of revenue as the AO while accepting the above mentioned gifts had taken a view which cannot be said to be unsustainable in law and the assessment order was passed in consultation with the then Addl. CIT and CIT and it is clearly recorded by the AO in the office note that based on the evidences and inquiries made by him he is accepting these two gifts. Thus the assessment order can neither be held to be erroneous nor can be held to be prejudicial to the interests of the revenue so as to attract the provisions of Section 263 and, therefore, the Tribunal quashed the order u/s 263.
