2007 (5) TMI 192 - SC - Income Tax

Section 68: Cash credits from foreign donor deemed income where explanations inadequate; assessees failed to rebut on balance of probabilities

Commissioner of Income-Tax Versus P. Mohanakala

The SC held that where cash credits from a foreign donor were inadequately explained, the Assessing Officer's adverse opinion under section 68 constituted ... Cash credit entries received from the foreign donor - genuineness of gifts - Burden of proof - gifts through normal banking channels - principle of preponderance of probabilities - HELD THAT:- We are required to notice that section 68 of the Act itself provides, where any sum is found credited in the books of the assessees for any previous year the same may be charged to income-tax as the income of the assessees of the previous year if the explanation offered by the assessees about the nature and source of such sums found credited in the books of the assessees is in the opinion of the Assessing Officer not satisfactory. Such opinion formed itself constitutes a prima facie evidence against the assessees, viz., the receipt of money, and if the assessees fail to rebut the said evidence the same can be used against the assessees by holding that it was a receipt of an income nature. In the case in hand the authorities concurrently found the explanation offered by the assessees unacceptable. The authorities upheld the opinion formed by the Assessing Officer that the explanation offered was not satisfactory. The assessees did not take the plea that even if the explanation is not acceptable the material and attending circumstances available on record do not justify the sum found credited in the books to be treated as a receipt of an income nature. The burden in this regard was on the assessees. No such attempt has been made before any authority. The findings of fact arrived at by the authorities below are based on proper appreciation of the facts and the material available on record and surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real ones. May be the money came by way of bank cheques and was paid through the process of banking transaction but that itself is of no consequence. The High Court misdirected itself and committed an error in disturbing the concurrent findings of fact. Appeals accordingly allowed. Issues Involved:1. Application of the principle of preponderance of probabilities in assessing the genuineness of gifts under Section 68 of the Income-tax Act, 1961.2. Burden of proof under Section 68 of the Income-tax Act, 1961.3. Reasonableness and material basis of the Tribunal's conclusion regarding the genuineness of the gifts.Detailed Analysis:Issue 1: Application of the Principle of Preponderance of ProbabilitiesThe core issue was whether the Income-tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the claim of the appellant regarding the sum of Rs. 15,62,500 received as gifts through normal banking channels was not genuine. The Tribunal, after examining the evidence and circumstances, concluded that the gifts were not genuine and were liable to be assessed under Section 68 of the Income-tax Act, 1961.Issue 2: Burden of Proof Under Section 68The second issue was whether the Tribunal was justified in concluding that the burden of proof cast on the appellant under Section 68 of the Income-tax Act, 1961, had not been discharged. Section 68 stipulates that if any sum is found credited in the books of an assessee and the assessee offers no satisfactory explanation about the nature and source thereof, the sum so credited may be charged to income-tax as the income of the assessee. The Tribunal found that the explanation offered by the assessees was not satisfactory, thereby shifting the burden of proof onto the assessees to prove the genuineness of the credits, which they failed to do.Issue 3: Reasonableness and Material Basis of Tribunal's ConclusionThe third issue was whether the Tribunal's conclusion that the claim of gift was not genuine was reasonable and based on relevant material, and not perverse. The Tribunal, along with the Assessing Officer and the Commissioner of Income-tax, found that the gifts were not real and were merely apparent. The authorities noted inconsistencies in the statements provided by the assessees and the donor, Sampathkumar, who had aliases such as Ariavan Thotan and Suprotoman. The authorities concluded that the transactions were not genuine gifts but were compensatory payments, as suggested by the letters exchanged, which indicated a materialistic relationship rather than one based on love and affection.High Court's Reversal and Supreme Court's ConclusionThe High Court reversed the findings of the Tribunal and other authorities, stating that the reasons assigned were in the realm of surmises, conjectures, and suspicions. The High Court re-appreciated the evidence and substituted its own findings, which the Supreme Court found to be an overreach of its jurisdiction under Section 260A of the Act. The Supreme Court held that the High Court should not have interfered with the concurrent findings of fact arrived at by the lower authorities, as these findings were based on proper appreciation of the material and surrounding circumstances.The Supreme Court emphasized that once the explanation offered by the assessees is found unsatisfactory, the sums credited in the books may be charged to income-tax as the income of the assessees. The burden is on the assessees to offer a reasonable explanation, which they failed to do. The Supreme Court allowed the appeals preferred by the Revenue Department, reinstating the findings of the Assessing Officer, the Commissioner of Income-tax, and the Tribunal.ConclusionThe Supreme Court concluded that the High Court erred in re-appreciating the evidence and substituting its own findings for those of the Tribunal and other authorities. The concurrent findings of fact by the lower authorities were based on proper appreciation of the material and surrounding circumstances, leading to the conclusion that the so-called gifts were not genuine. The appeals by the Revenue Department were allowed, and the High Court's judgment was set aside.