TaxTMI 
TaxTMI 
2001 (11) TMI 273
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....,00,000 (3) Ms. Amruta Arun Sable Rs. 50,000 (4) Ms. Minoti Sudhir Sable Rs. 75,000 (5) Ms. Gayatri Sudhir Sable Rs. 75,000 (6) Master Nikhil Sanjay Sable Rs. 1,50,000 &nb....
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....he donors through their fathers. It was also noted by him that none of the donors had seen the donees' children and the minors and had never visited the places of the donors in Gujarat. The guardians of the children were also not sure whether the donors had ever visited their houses. Further, it was noticed that the donors were not related them directly or indirectly. They were also not aware of the financial status of the donors. They were also not sure whether they had been inviting these donors for any social function in the family. Hence, he was of the view that donors were neither friends nor relatives of the guardians of the donors. In this connection, it was also noted by him that none of the guardian of the children was aware of the children of donors. On the basis of these factual aspects, the Assessing Officer was of the view that the theory that the gifts was made out of love and affection was not proved by the facts. 2.2 Further inquiries were made by the Assessing Officer to find and ascertain as to whether the close relatives of these children including maternal grand parents and uncles had ever made any gift for more than Rs. 5,000. It was found that no such gifts....
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....e. All these persons were having accounts in the Mercantile Co-op. Banks, Bhadran. All of them had issued cheques of gifts on another bank account without any convincing reasons. All of them had filed the gift-tax returns before the Assessing Officer Challans for payment of gift-tax had been prepared in all the cases by the same person. All the letters and affidavits in respect of gifts had been typed on the same typewriter. None of them were Income-tax payee. None of them have ever made any gift of such amount even to their own children or grand children. None of them could prove satisfactorily with evidences that they had sufficient cash in hand on the particular date to make such gifts. 2.5 One of the donors Shri Dayabhai Patel stated that his uncle Shri Motilalbhai Patel knew Shri Shankar Seth grandfather of the donees children for the last 20 years and his uncle had told him that Shri Shankar Seth had helped them. Therefore, the gift of Rs. 50,000 was given by him to the son of Shri Dilip Sable to help him back. However, he could not tell the name of donee. When the question was asked as to what type of help was given, it was stated that Shri Shankar Seth had helped in open....
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....) The funds had been received by minors by way of gifts from various persons who are known to the family, (3) The gifts were received by D.D. and all the gifts have been assessed to gift-tax, (4) The Assessing Officer had wrongly ignored the evidence of gift-tax assessment in the cases of donors, (5) The donors had appeared before the Assessing Officer in response to notice under section 131 and had admitted the fact of giving gifts to the children donees, (6). The explanation of the donors had been rejected merely on the suspicion. Accordingly, he deleted the addition made by the Assessing Officer. Aggrieved by the same, the revenue is in appeal before the Tribunal. 4. The learned D.R. on behalf of the revenue has vehemently assailed the order of the CIT (Appeals). He took us through the entire assessment order giving detailed reasons for making addition under section 68 which we have narrated in our own order in detail and, therefore, need not be repeated. According to him, all the transactions are contrary to the normal human behaviour and conduct. Further, a link has been established to prove that all gifts were arranged through Shri Narendrabhai Patel, accountant of M/s. Fu....
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....e of the source has also been established. The capacity of cash creditors as well as donors are well established by evidence and, therefore, the Assessing Officer was not justified in holding to the contrary. Secondly, it was submitted by him that there was no consideration for transferring the money by donors to the donees and, therefore, in law it amounted to a valid gift and, therefore, the genuineness of the same could not be rejected. It was also submitted by him that the donors wanted to make gifts to Shri Shankar Sable on 75th birthday, but the same could not be made, since, he had expired and, accordingly the gifts were made to the grand children. It was also submitted that there was no evidence that any money was paid by the assessee to the donors by any other means. Further, minors' assessments were also made under the Income-tax Act which impliedly means that department has accepted the genuineness of the gift. Accordingly, it was submitted by him that genuineness of the gifts cannot be rejected on mere suspicion. He also relied on various Tribunal decisions reported as Atmaram J. Manghirmalani HUF v. ITO [1998] 62 TTJ (Mum.) (SMC) 357/Dy. CIT v. Anil Kumar [1997] 58 TTJ....
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....ple has been approved by the Supreme Court in the case of Daulatram Rawatmull. Once this initial burden is discharged then the onus shifts to the department to demolish the case of assessee by bringing material on the record. Secondly, the genuineness of transaction has to be seen with reference to human probabilities and surrounding circumstances. If on the basis of such test the transaction appears to be non-genuine, then payment by cheque would not make the transaction as genuine one. Reference may be made to the decision of Supreme Court in the case of Sumati Dayal, decision of Calcutta High Court in the case of Precision Finance (P.) Ltd. and the decision of Punjab & Haryana High Court in the case of Lall Chand Kalra. Thirdly, merely because the explanation of assessee is found to be unsatisfactory, it cannot be said that addition under section 68 is automatic. The Legislature has used the word 'may' in sections 68 & 69C while it has used the word 'shall' in section 69D. That means that discretion has been vested with the Assessing Officer to charge the same as taxable income in the hands of assessee in appropriate case. But such discretion should be exercised in judicial mann....
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.... or grand children or to any other person. (4) The donees have also not received any such gifts from any other person including their own relatives. (5) There was also no occasion for making such gifts. (6) Even the guardians of the donees had never given any such gifts to the children of their own brothers. (7) All the donors had given gifts at the advice of Shri Narendrabhai Patel, an accountant of M/s. Fulabhai Govindbhai of Bhadran who is the commission agent of the assessee for purchase of beedi patties All donors sold their agricultural produce to this firm. (8) All the gifts were given simultaneously on two dates i.e., 25th November, 1988 and 2nd December, 1988 by purchasing DDs either from Bank of India or the State Bank of India, Bhadran. (9) All the donors have filed the Gift-tax return at the advise of said Shri Narendrabhai Patel. All challans of gift-tax were prepared by one person. All the affidavits were typed on the same typewriter. (10) All the donors had accepted the fact of giving gifts to the donees. Such gifts were given out of the sale proceeds of agricultural produce as is apparent from the entries in the pass-books. 8. Considering the....
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....the assessee is required to prove is the genuineness of transaction entered into by the assessee ie., the transactions of loan between assessee and the creditor and not the transaction between the creditor and other parties. It is because of this principle that Courts have held that assessee is not required to prove the source of source. In our opinion, both the lower authorities were not justified in laying too much emphasis on the genuineness of the gifts. No doubt the taxing authorities as well as courts arc bound to discourage the dubious methods for laundering of black money and bring the transactions within the net of taxation. But such exercise must be made to tax the right person and the revenue cannot be permitted to defend the wrong action of Assessing Officer. This aspect was considered by Ahmedabad Bench of the Tribunal in the case of Dr. Jagdish Kansagara to which one of us was party. According to the ratio of that decision, the amount involved in money laundering was treated as income of the donee and consequently held to taxable in the hands of donee. But in the present case, assessee is not the donee. It has also not been established that undisclosed money of assess....
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.... the reasons given by us in the preceding supra. Similar conclusion was drawn by this Bench in the case of Mahavir Nagari Sahakari Pat Sanstha Ltd. [IT Appeal No. (SS) 21 PN of 1997].The Tribunal vide order dated 18-2-2000 held as under: "33. Despite all these findings as given in the preceding paragraphs, we are of the view that still on the facts of the case additions cannot be made in the hands of the assessee. The provisions of section 68 provide that where the explanation offered by the assessee is not satisfactory, the sum so credited may be charged to income-tax is income of the assessee of that previous year. The word 'may' gives discretion to the Assessing Officer to assess in the hands of the assessee which should be exercised judicially considering the facts and circumstances of each case. If the facts of the case indicate that such cash credits could not be considered as income of the assessee, then he shall not make addition in this regard. Reference can be made to the recent judgment of the Hon'ble Supreme Court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570. 34. In the present case, it has been established on the record that deposits with the asse....
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....income of the assessee of that previous year." It is an admitted fact that credits aggregating to Rs. 6,00,000 were found credited in the books of the assessee-firm and the onus was on the assessee-firm to prove the genuineness of the deposits. 2.2 In A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807, the Hon'ble Supreme Court has held that it is for the assessee to prove the sources and the nature of the receipts appearing in its books of account. The department has to prove neither the source nor the nature of the receipts, as has been held by the Madhya Pradesh High Court in Seth Kalekhan Mahomed Hanif v. CIT [1958] 34 ITR 669 which decision has been affirmed by the Hon'ble Supreme Court in Kalekhan Mohammad Hanif v. CIT [1963] 50 ITR 1. The same principle has been reiterated by the Hon'ble Supreme Court in CIT v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194, by Calcutta High Court in Shankar Industries Ltd. v. CIT [1978] 114 ITR 689, C. Kant & Co. v. CIT [1980] 126 ITR 63, Oriental Wire Industries (P.) Ltd. v. CIT [1981] 131 ITR 688. In view of above, the entire burden is upon the assessee and the assessee has to prove the following: (1) Identity of the creditor; ....
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....ight. For example, where the cash credit is in the name of relatives or friends of the assessee, the burden would be heavy one and the assessee would have to prove the identity, capacity and genuineness of the cash credits. However, where the cash credit is in the name of third parties, the onus on the assessee may not be heavy and it would be sufficient if the identity of the cash creditor is established and the said creditor confirms the same. The assessee cannot be asked to prove source of the source. Reference may be made in this connection to the decision of the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT 49 ITR 723 and the decision of the Patna High Court in the case of Sarogi Credit Corporation v. CIT 103 ITR 344. In the case of a company where the cash credit is in the form of share application money, it has been held by the Full Bench of the Delhi High Court in the case of CIT v. Sophia Finance Ltd. 205 ITR 98 that the onus on the assessee would be discharged, if the identity of the assessee has been proved. The case of a banking concern is rather on the better footing, since the bankers are not supposed to ask the depositors about the source of money. ....
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....first husband. The said explanation offered by the assessee was rejected except to the extent of Rs. 2000 by the ITO who made an addition of Rs. 32,628 as income from other sources in the assessment year 1968-69 and an addition of Rs. 25,902 in the assessment year 1969-70. The said orders were affirmed in appeal by the AAC. On appeal, the Tribunal held that even though the explanation about the nature and sources of the purchase money was not satisfactory, but in the facts and circumstances of the case it was not possible for the assessee to earn the amount invested in the properties and that by no stretch of imagination could the assessee be credited with having earned this income in the course of the assessment year or was even in a position to earn it for a decade or more. The Tribunal took the view that although the explanation of the assessee was liable to be rejected, section 69 of the Act conferred only a discretion on the ITO to deal with the investment as income of the assessee and that it did not make it mandatory on his part to deal with the investment as income of the assessee as soon as the latter's explanation happened to be rejected. The judgment of the Tribunal was ....
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....venue is allowed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Singhal, J.M.--As there is a difference of opinion between the Accountant Member and the Judicial Member the matter is being referred to the President of the Income-tax Appellate Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire: "Whether on the facts and circumstances of the case, credits aggregating to Rs. 6,00,000 appearing in the books of account of the assesscc-firm are income of the assessee under section 68 of the Income-tax Act, 1961?" THIRD MEMBER ORDER Per Shri R.V. Easwar, Judicial Member-The following question has been referred to me by the Hon'ble President under section 255(4) on a difference of opinion between the learned Members who heard the appeal: "Whether, on the facts and circumstances of the case, credits aggregating to Rs. 6,00,000 appearing in the books of account of the assessee-firm are income of the assessee under section 68 of the Income-tax Act, 1961?" 2. I will briefly notice the facts leading up to the difference of opinion. The assessee is a partnership firm consisting....
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....ccepted by the learned JM on the basis of the judgment of the Supreme Court in the case of Smt. P.K. Noorjahan. He held that applying the test of human probabilities the right person to be taxed was Shankar Sable and not the assessee-firm, because if the monies were the undisclosed income of the assessee-firm they would not have been allowed to be brought into the books of the firm in the name of the family members of one partner only. He therefore held, applying Smt. P.K. Noorjahan's case, that the Assessing Officer had not exercised the discretion vested in him under section 68 property. In this view of the matter, he deleted the credits. 4. The learned Accountant Member (AM) agreed with the learned JM that the gifts said to have been made by the Gujarat agriculturists were not genuine. However, he could not agree with the view taken by the learned JM on the alternative contention of the assessee, viz., that even if the gifts are not genuine, the assessee-firm cannot be assessed in respect of the credits since they appeared in the accounts of the minors belonging to Shankar Sable's family and the taxing thereof in the hands of the assessee-firm would amount to taxing Govind Sa....
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....d to be non-genuine in its entirety and would cease to apply where a part of the same has been found to be non-genuine, as in the present case. He contended that it is difficult to appreciate as to how the credits could be accepted as genuine in the firm's assessment when the source of the monies viz., the gifts from Gujarat agriculturists, coming into the accounts of the creditors (minors) has been found to be non-genuine. He pointed out that on the aspect of genuineness of the gifts to the minors both the learned Members are agreed and that it is only on the alternative contention taken by the assessee that there is a difference between them. He strongly contended that it would be indefensibly inconsistent to hold that though the gifts to the minors--their source for the credits--are not genuine, the credits in their names in the books of the assessee-firm are genuine. 6. Mr. Srinivasan further contended on the basis of the judgment of the Supreme Court in the case of Jamnaprasad Kanhaiyalal v. CIT [1981] 130 ITR 244 that the learned JM committed an error in holding, in effect, that the Assessing Officer had a choice under section 68 with regard to the assessee who is to be as....
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....e 5. ITO v. Skyjet Aviation (P.) Ltd. [2000] 243 ITR 1 (AT) 6. Shankar Industries Ltd.'s case 7. Precision Finance (P.) Ltd.'s case 8. Oriental Wire Industries (P.) Ltd.'s case. 9. CIT v. Sophia Finance Ltd. [1994] 205 ITR 98 (Delhi) (FB) 9. On the other hand, Mr. Sathe, the learned counsel for the assessee pointed out that the credits from the minors are all by cheques and that they are all assessed to income-tax. According to him, the learned JM has found that the transaction between the assessee-firm and the minors arc genuine and in the light of this finding it is really not necessary or relevant to examine whether the gifts to the minors by the Gujarat agriculturists are genuine or not. Even if they (gifts) are to be treated as non-genuine that would not affect the genuineness of the credits in the minors' accounts with the assessee-firm. He contested the argument of the learned DR that no compartmentalisation or dissection of the assessee's explanation is permissible and urged that it is possible and permissible to hold, despite the finding that the gifts arc not genuine, that the credits are genuine. In fact, he contended that one has to see the transaction....
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.... genuineness of the gifts. So far as I am concerned, it is the ultimate findings or conclusions of the learned Members that matter. The final conclusion of both the learned Members as regards the gifts by the Gujarat agriculturists to the minors is that they are not genuine. This conclusion has been clearly recorded by the learned JM in paragraph 8 of his order with which the learned AM has agreed without any reservation and the same has been expressed in paragraph 2 of his order. I have to therefore proceed only on the basis that the gifts are not genuine. It is beyond the scope of the proceedings before me to examine the question over again, I cannot therefore give effect to the argument attempted by Mr. Sathe that the gifts by the agriculturists are genuine. However, in fairness to him I must add that once I made my position on this aspect clear in the course of the hearing he did not pursue the matter further. 11. Mr. Sathe cited the following authorities in support of his contentions: 1. CIT v. Daya Chand Jain Vaidya [1975] 98 ITR 280 (All.) 2. India Ceramic Corpn.'s case 3. CIT v. Jaiswal Motor Finance [1983] 141 ITR 706 (All.) 4. Sarogi Credit Corpn. v. CIT [1....
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....umble opinion, the answer should be in the negative. Though section 68 has been introduced in the 1961 Act formally, under the earlier Act it was always understood that the Income-tax authorities have the power to assess cash credits if no satisfactory explanation as to the nature and source thereof was forthcoming. The power has been recognised by the 1961 Act. Now the use of the word "may" in section 69 his been held by the Supreme Court in Smt. P.K. Noorjahan's case to confer upon the Assessing Officer a discretion either to assess the amount in the hands of the assessee or not, having regard to the evidence led and explanation filed. In my humble opinion, section 68 does not contemplate an enquiry as to who, in the light of the evidence and the explanation submitted, is the right person to be assessed respect of the credit. All that it says is that if the explanation regarding the nature and source of the credit is not satisfactory the amount may be assessed as the income of the assessee. To hold that the explanation and the evidence must be so examined as to find out the real owner of the monies is to put upon the Assessing Officer a burden which cannot possibly be discharged.....
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....e case of Smt. P.K. Noorjahan. Her explanation was inherently probable. Despite that the Assessing Officer did not accept the same, though he could have, in exercise of the discretion. The case before me is different. A crucial part of the assessee's explanation the part which links the credits with the sources of the creditors - has been found to be non-genuine. In the light of this finding, the Assessing Officer cannot be blamed for not exercising the discretion in favour of the assessee. Exercising the discretion in favour of the assessee would have put him on the mat. 17. In the light of my understanding of the judgment in Smt. P.K. Noorjahan's case (slipra) as above, I proceed to examine the next question as to whether the Assessing Officer had rightly refused to exercise the discretion in favour of the assessee in the case before me. As already noted, both the learned Members are agreed that the alleged gifts by the Gujarat agriculturists to the minors arc not genuine. As rightly submitted by Mr. Srinivasan on behalf of the Revenue, it is difficult to de-link the non-genuineness of the gifts from the explanation offered by the assessee and hold that though the gifts are no....
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.... by section 68 itself. The monies have surfaced in the books of the assessee-firm. Neither Shankar Sable nor his family members have come forward claiming that the monies represent their undisclosed income. Both the learned Members are agreed that the evidence points out unmistakably to the non-genuineness of the so-called gifts from the agriculturists to the minors it would be flying in the teeth of such evidence if the Assessing Officer is expected to exercise his discretion in favour of the assessee simply on the logic that since the monies belonged to Shankar Sable's family he is the right person to be assessed on them and not the assessee-firm. It would be a risky proposition to hold that the Assessing Officer under these circumstances should go after the illusory and elusive "right person". He has to contend with the law of limitation in case action is to be taken against the "right person". There may be so many other imponderables or hurdles in the way of tackling the "right person". Shankar Sable may raise all kinds of objections to any action taken in his case on the footing that he is the "right person" to be taxed. He may not submit to the jurisdiction of the Income-tax ....