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On going through the records, we find that an important query was raised by the Department as to whether these two donors had the financial capacity to make the gift(s) in favour of the assessees herein. This query has not at all been answered by the Income Tax Appellate Tribunal [‘ITAT’, for short].
Section 68 of the Act – substantive provisions (post amendment by Finance Act 2012) – Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
Coming to the facts of the case, the assessee was afforded sufficient opportunities to furnish confirmations in respect of the impugned credits by the Assessing Officer (refer page 2 of the assessment order). A final show-cause notice was issued by him on 22/03/2006, stating the said fact, and by way of allowing a last opportunity to the assessee to substantiate its case, for 24/03/2006, and which (notice) again remained un-responded, even up to the date of passing of the assessment order, i.e., 29/03/2006 (refer page 3 of the assessment order).
In the present case, it is an admitted fact that the partners Shri C.P. Mathur and Shri L.C. Mathur contributed Rs. 8 lacs and Rs. 4,30,000/- respectively as their capital and the Assessing Officer made the addition by invoking the provisions of section 68 of the Income-tax Act. On a similar issue, the Hon’ble Jurisdictional High Court in the case of Kewal Krishan & Partners, Sri Ganganagar (supra) held as under :-
The dispute is regarding addition of Rs.14,60,052/- made by AO on account of unsecured loans from Shri Balwantbhai Grewal. There is no dispute that the said amount had been shown as loan in books of account of the assessee. Assessee could not produce any evidence to prove the identity and creditworthiness of Shri Balwantbhai Grewal who lived in UK and genuineness of transaction. Subsequently before CIT(A), assessee submitted that the amount had been wrongly entered in books and the same related to transaction of Shri Balwantbhai Grewal with the sister concern M/s. Kaypan Vanijya Pvt. Ltd.
In order to curb the practice of laundering of unaccounted money by taking advantage of basic exemption limit, it is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable). It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections.
It is, proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder. However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI).
It is not in dispute that there were cash deposits of the equivalent amounts in the bank accounts of the creditors just before advancing loan to the assessee or on the date of issuing cheques to the assessee. In the case of the creditor, ‘RS’, his bank statement is filed in which Rs. 2,50,000 has been deposited, but neither it is mentioned that it was cash nor it is mentioned how the amount similar to the credit was credited in his bank account.
The issue for consideration before is whether the gift received by the assessee is genuine or not? As per the AO, gift of such a substantial amount was not justified to a nonrelative/ no blood relation and the creditworthiness of the donor is not adequate. The CIT(A) held that, in fact, the Assessing Officer has in his remand report clearly stated that “The donor has confirmed in his statement the fact of giving gift to the appellant during the year under consideration.
Indisputably, the documents placed at sl. no. 3 on page no.15-20 of the paper book viz. affidavit of Ms. Anjana Vohra, her confirmation and PAN details were never considered by the AO, having been submitted before the AO after the conclusion of hearing on 23.12.2009. There is no sl. no.4 in the paper book; admittedly sl. nos. in the paper book having been wrongly numbered. Though the ld. CIT(A) referred to the relevant submissions of the assessee in the impugned order and these documents are stated to have been placed before him, he did not record his specific findings in the light of these documents and merely affirmed the order of the AO.
