TaxTMI 
TaxTMI 
TaxTMI 
2008 (5) TMI 641
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.... was claimed to have been received from Shri Kishore Chhagan Lal Kapadia, an NRI who was living in New Jersy, USA. A sum of Rs. 26,78,504 was found deposited in the said bonds was transferable and were transferred in favour of the petitioner by Shri Kishore Chhagan Lal Kapadia, on 10th July, 1999 by making necessary declarations in this regard on the back of the each bond itself. Petitioner has filed the confirmatory letter dt. 8th Feb., 2006 of Shri Kishore Chhagan Lal Kapadia, duly notarized by Notary Public of New Jersey confirming the gift of 4 such bonds. In the month of Oct, 2003, when the said bonds were matured, a sum of Rs. 26,78,504 was paid, which was equal to 58.829.44 US dollars to the petitioner in view of the declaration of the bonds being transferred and the said amount was deposited in account No. 0119017878 of SBI, Main Branch, Lucknow. The said amount was claimed to be gifted by Shri Kishore Chhagan Lal Kapadia, to the petitioner. During the course of the assessment proceeding, the assessing authority had recorded the statements of the petitioner on 31st Jan., 2006 and on 9th Oct., 2006. It also appears from the perusal of the assessment order that two letters dt....
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....ased by NRI against foreign currency. The bonds were issued on the application of Shri Kishore Chhagan Lal Kapadia, which is clear from the application sent by the Chief Manager, SBI, NRI Branch, Mumbai, in reply to the letter issued by the ITO. The copies of bonds, which are annexure-I to the writ petition also reveal that the bonds had been issued in the name of Shri Kishore Chhagan Lal Kapadia. It was issued against the payment of 40,000 US dollars. The back side of the bonds reveals that it was transferable and was transferred in favour of the petitioner by Shri Kishore Chhagan Lal Kapadia on 10th July, 1999, which has also been confirmed by the Chief Manager, SBI, NRI Branch, Mumbai, in his earlier letter. Therefore, there is no manner of doubt that the bonds were purchased by Shri Kishore Chhagan Lal Kapadia in the year 1998 against the US dollars. He submitted that it is not in dispute that amount of Rs. 26,78,504 was the maturity amount of the four bonds, which were purchased by Shri Kishore Chhagan Lal Kapadia in the year 1998 and were subsequently, transferred in favour of the petitioner. He submitted that after the amendment in the GT Act by the Finance Act (No. 2) of 19....
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....h was found deposited to the extent of Rs. 26,78,504 was not gifted money but was the money of the petitioner, which was routed through fictitious person. He submitted that in fact the addition was not under s. 68 of the Act but was under s. 69 of the Act and the burden lies upon the petitioner to prove the source of the investment for which the petitioner had to prove the identity or the person, from whom the money was received and his creditworthiness, which on the facts and circumstances of the case, the petitioner failed to establish. 6. Secs. 68 and 69 of the IT Act read as follows : "68. Cash Credits'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 AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous years. 69. Unexplained investments'Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source ....
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....103 ITR 344(Pat.)]. 11. In the case of Jalan Timbers (supra), the Division Bench of Gauhati High Court held that under s. 68 of the IT Act, the assessee has to prove three important conditions (1) identity of the person (2) genuineness of the transaction and (3) capability of the person giving cash credit. On the explanation being given the assessing authority can reject the explanation by cogent grounds and if the grounds are based on no ground, presumption against the assessee does not arise. 12. In Sreelekha Banerjee vs. CIT (1963) 49 ITR 112(SC) the apex Court held that "if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denominations notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money was and to prove that it was not income. The Department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of ....
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....ament in enacting s. 69 was to confer a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under s. 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the ITO under s. 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case." 15. Sec. 68 of the Act has been recently considered by the apex Court in the case of CIT vs. P. Mohanakala (2007) 210 CTR (SC) 20: (2007) 291 ITR 278(SC), the apex Court held as follows : "The question is what is the true nature and scope of s. 68 of the Act ? When and in what circumstances would s. 68 of the Act come into play ? A bare readi....
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....se, the expressions' (a)............. (b) 'non-resident Indian' shall have the meaning assigned to it in cl. (e) of s. 115C of the IT Act." 18. In the aforesaid cases, the apex Court held that each case depends upon the facts of the said case. It has been further held that the opinion of the assessing authority for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the assessing authority is required to be formed objectively with reference to the material available on record. 19. In the present case, Addl. CIT has doubted the genuineness of the gift mainly on the ground that the assessee in his statement stated that she met donor when she was in Class VI or VII at her grand parents' place. After that she did not meet him. The identity of the person is not established because he is not available on a given address. On record there is one declaration dt. 8th Feb., 2006 stating that he made this gift of Rs. 40,000 dollars to Ms. Kanchan Singh, but the donor is not available for confirming the same on the address giv....
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....nt. Letter of the Chief Manager, SBI, NRI Branch, Mumbai, dt. 28th Feb., 2006 confirms the transfers by way of gift to the assessee by Sri K.C. Kapadia. 5. Undisputedly, in purchasing the four bonds the investments were made on 1st Oct., 1998 and not in the year under consideration and in the year under consideration, namely, in the asst. yr. 2004-05 only the maturity amounts of the bond were received. 6. Thus, so far as the year under consideration is concerned, the source and nature of deposit are fully established and the query with regard to the investment made in purchasing the bonds could be made only in the financial year 1998-99 relevant to the asst. yr. 1999-2000 and not in the year under consideration. 7. After the amendment in s. 5(iiie) of the GT Act by the Finance (No. 2) Act of 1991, gift could be made to the person other than relatives also. The omission of the word 'relative' in the section shows that the amendment was made to promote the gift by NRI to the persons other than relatives to encourage inflow of foreign money in India through gifts. 8. Sri K.C. Kapadia, by confirmatory letter dt. 8th Feb., 2006 duly notarized by Notary Public of New Jersey, ....