2012 (4) TMI 358 - HC - Income Tax

High Court upholds Tribunal decision on tax appeals involving unexplained cash credits and capital losses

The High Court dismissed the tax appeals, upholding the Tribunal's decision that the transactions involving unexplained cash credits for gifts and the ... Appeal against Order of Tribunal - addition in respect of the gift received as unexplained cash credits as well as non-genuine - AO required details of the donor and creditworthiness of power of attorney holder of donor to give confirmation with regard to such gift - opinion that details of business activities of Donor prior to 1999 was not provided – submitted by the assessee money had been transferred through banking channel and it has also come from the NRE account of the donor- Held that:- relationship of the Donor with the present appellant had not been established, so much so that for love and affection or for being an acquaintance also, not an iota of evidence was furnished - It doubted the very source of the gift and since the onus is on the appellant to prove the genuineness of the gift – the issue merits no acceptance. Dis- allowance of set off of short-term capital loss on cancellation of the agreement to sell (banakhat) – Held that:- no capital loss would be allowed if it is more than the cost of an asset - there could be transfer of the asset by the assessee and in the entire transaction of forfeiture of advances, no assets are owned by the assessee and nothing is transferred - there was no question of invoking any of the provisions of the Income-tax Act to allow capital loss - a colourable device was designed so as to get set off against the capital gains earned by the assessee on sale of jewellery declared under the VDIS - tax appeals dismissed. Issues Involved:1. Addition of unexplained cash credits for gifts received.2. Disallowance of set-off of short-term capital loss on cancellation of agreements to sell (banakhat).Detailed Analysis:1. Addition of Unexplained Cash Credits for Gifts Received:The appellant-assessee challenged the addition of Rs. 1,42,845 and Rs. 12,00,000 as unexplained cash credits for the assessment years 1999-2000 and 2000-01, respectively, which were claimed as gifts received from Shri Biral Patel. The Assessing Officer (AO) required details to establish the creditworthiness of the donor. Despite the appellant providing a confirmation from the donor's father and a copy of the NRE account, the AO doubted the genuineness due to the lack of details about the donor's business activities prior to 1999 and the large amounts involved.The Commissioner of Income-tax (Appeals) upheld the AO's decision, noting the absence of direct confirmation from the donor and the lack of any reason for such a large gift. The Tribunal concurred, emphasizing the lack of evidence of any relationship or reason for the gift, and concluded that the transaction was not genuine despite the transfer through banking channels.The Tribunal referenced various judgments, asserting that the Revenue authorities are entitled to examine the genuineness of transactions and the surrounding circumstances. The Tribunal found no error in the adjudicating authorities' assessment, given the suspicious circumstances, such as the non-availability of the donor, the large amounts involved, and the connection to illegal activities.2. Disallowance of Set-Off of Short-Term Capital Loss on Cancellation of Agreements to Sell (Banakhat):The appellant claimed short-term capital losses of Rs. 2,50,000 and Rs. 6,50,000 for the assessment years 1999-2000 and 2000-01, respectively, due to the cancellation of agreements to sell land. The AO found the transactions non-genuine and contrived to offset long-term capital gains from the sale of diamonds disclosed under the Voluntary Disclosure Scheme (VDIS).The Commissioner of Income-tax (Appeals) and the Tribunal both doubted the credibility of the documents and found the transactions to be a colorable device designed to offset capital gains. The Tribunal noted that no capital loss could be allowed if it exceeded the cost of an asset and that there was no transfer of any tangible or intangible asset. The Tribunal concluded that the appellant was never in possession of any asset, and thus, no capital loss could be claimed.The Tribunal's detailed examination of the issue, supported by provisions of the Income-tax Act and various authorities, led to the conclusion that the transactions were not genuine and were designed to set off capital gains.Conclusion:The High Court dismissed the tax appeals, finding no error in the Tribunal's detailed findings and reasoning. The court held that the issues were predominantly factual, with no question of law arising, and the overwhelming material on record supported the conclusions of the adjudicating authorities. The appeals were dismissed as the transactions were found to be non-genuine and contrived for tax benefits.