2017 (3) TMI 742 - HC - Income Tax

Court Upholds Income Assessment under Section 68 of Income Tax Act

The court upheld the assessment of Rs. 1,66,01,834/- as the assessee's income under Section 68 of the Income Tax Act. Despite the donor's identity being ... Addition u/s 68 - proof of source of the donor - whether amount has received by way of Gift from his brother (relative) through banking channel? - Held that:- The assessment has been completed against the assessee primarily on the basis that he has failed to prove his creditor's creditworthiness and not sub-creditors creditworthiness. The assessee had not proved his brother's source of income to the Department Thus we are of the considered opinion that the Assessing Officer, the first appellate authority and the Tribunal has not committed any illegality justifying interference. Therefore, answering the questions of law in favour of the Revenue Issues Involved:1. Whether the Department is right in law to enquire and insist the assessee to prove the source of the donor.2. Whether the onus and burden of proof is on the department to establish the source of the donor placed abroad.3. Whether the authorities were justified in holding that a sum of Rs. 1,66,01,834/- is the undisclosed income of the assessee.Issue-wise Detailed Analysis:1. Whether the Department is right in law to enquire and insist the assessee to prove the source of the donor:The primary issue revolves around the assessment of Rs. 1,66,01,834/- as the income of the assessee under Section 68 of the Income Tax Act due to the failure to prove the genuineness of the transaction and the capacity of the donor (the assessee's brother). The assessee argued that the money was received as a gift from his brother through banking channels, and the authorities erred in their interpretation of Section 68. The court noted that the identity of the donor was not disputed, but the genuineness of the transaction and the donor's capacity were not satisfactorily proven by the assessee. Despite multiple opportunities, the assessee failed to provide necessary evidence regarding the donor's capacity to gift the amount, leading to the assessment of the amount as the assessee's income.2. Whether the onus and burden of proof is on the department to establish the source of the donor placed abroad:The court emphasized that under Section 68, the onus is on the assessee to explain the nature and source of any sum credited in their books. The assessee must establish the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor. The court referred to the Supreme Court's judgment in CIT v. P. Mohankala, which reiterated these requirements. The court found that the assessee failed to establish the genuineness of the transaction and the creditworthiness of the donor, despite proving the identity. The court held that merely proving the identity of the creditor or one of the conditions of Section 68 does not discharge the assessee's burden.3. Whether the authorities were justified in holding that a sum of Rs. 1,66,01,834/- is the undisclosed income of the assessee:The court examined the facts and found that the assessee did not provide sufficient evidence to prove the donor's capacity to make such a substantial gift. The court noted that the donor's affidavit did not explain the genuineness of the transaction or the donor's creditworthiness. The court also considered the judgments of the Gauhati High Court in Nemi Chand Kothari v. CIT and the Delhi High Court in CIT v. Value Capital Services P. Ltd., which the assessee relied upon. However, the court distinguished these cases, stating that the burden of proof on the assessee does not extend to proving the sub-creditors' creditworthiness, but in this case, the assessee failed to prove the donor's creditworthiness.Conclusion:The court concluded that the authorities did not commit any illegality in assessing the sum of Rs. 1,66,01,834/- as the income of the assessee. The court answered the questions of law in favor of the Revenue and against the assessee, dismissing the appeal.