SH. YASH PAUL KHANNA PROP.,JALANDHAR vs. INCOME TAX OFFICER, JALANDHAR

Brief facts of the case are that the assessee is engaged in textile business and is the proprietor of M/s Rohit Textiles and apart from regular business income, has claimed to have received two gifts of Rs. 4.5 lakhs each totaling Rs. 9 (Nine) lakhs, from one Mr. Gurdev Singh and his son Mr. Nishan Singh, (both stated to be NRI), during the FY 2000-01, (relevant to the year under appeal), by bank drafts, and the said amount has been duly capitalized by the assessee, (copy of the assessee capital account is reproduced).

During the fresh assessment proceedings (post 263 direction), the assessee was called upon to establish the identity and the creditworthiness of the donors and to establish the genuineness of the gifts received , and in order to establish the same, elaborate submissions along with documentary evidences has been filed by the assessee, stating that both the donors are NRI (Non-Resident Indian) and has furnished, copies of their bank A/c No. xxxxx3687 with State Bank of India, purpose of gift to the assessee, supported by copies of gift deeds, signed by Sh.

However, as it turned out, in response to summon , one of the donors (Mr.

It has been further clarified by the donor (during deposition before the AO) , regarding the credit entries reflected in his bank A/c , the State Bank of India A/c No. xxxxx3687 and xxxxx3688 , Mukerian Branch, where cash has been found to have been deposited , on separate two occasions on 19th December, 2000 , for an amount of Rs.6 ( six ) lakhs and again on 13.02.2001 being an amount of Rs.5,50,000/- ( handed over by the assessee ( Yash Paul Khanna ) himself to the donors , and it was further stated by Sh. Gurdev Singh the donor on 12.01.2006 ( 2nd round) of examination ) that he issued two demand drafts of Rs.4,50,000/- each by debiting his bank account , on 24.02.2021, which has been made out of the cash deposits in the bank account as stated earlier.

It was again retreated by the donor , that an amount of Rs.11,50,000/- has been received from the assessee in cash, which has been deposited in his bank account and thereafter as per requirements and instruction of the assessee the said donor Mr. Gurdev Singh ( and his son ) has purchased two drafts of Rs.4,50,000/- each, from his bank account, in favour of the assessee Mr. Yash Paul Khanna , and the same has been handed over to him in form of gift.

The answer of the donor to question number -3 in course of cross examination sums up the entire factual aspect of the matter and the nature of transfer of fund has been elaborately made clear in his answer (reproduced in page no. 35 and 36 of the assessment order) which are also reproduced here for ready reference: (Relevant portion of the donor reply during CO reproduced)

The above statements and answers in course of cross objection are directly in contradiction to the contents of affidavits, statements, documentary evidences and submissions filed by the assessee in support of his argument to prove the genuineness of the gifts. It becomes apparently, very clear and obvious that the genuineness of the gift and the creditworthiness of the donors, has never been established in this case and the amount which has been transferred from donors bank by way of drafts lacks creditworthiness.

In the instant case the bank drafts handed over as gifts amounts to Rs.9 lakhs ( Nine lakhs) which was also capitalized by the assessee ( as per his balance sheet ) and has been credited in the assessee bank account as gifts received, and the same points towards bogus gifts for all practical purpose.

In his own wisdom the AO has proceeded to make an addition of Rs.11,50,000/- being the cash that is deposited in the bank account of the doner and by the donor on 19th December, 2000 and on 13th February, 2021 ( totaling Rs.11.50 lakhs ) , which means additions has been made in the hands of the assessee in respect of cash credits in the books of a third party (the doner Mr. Gurdev Singh), thereby leaving the bogus gifts of Rs.9 ( nine ) lakhs received by the assessee and capitalized by him, completely untouched.

The relevant para no.23 of the assessment order is reproduced below:

The matter was carried in appeal before the first appellate authority where the assessee has challenged the said addition on the ground that the AO has not made any addition on account of bogus gifts received but the addition has been made amounting to Rs.11,50,000/- being the cash deposited by the donors ( Mr Gurdev Singh) in his own bank account and in such cases, the addition will be made in the hands of the person in whose account the cash has been deposited . In the instant case Mr Gurdev Singh is supposed to explain the source of the said deposit in his bank A/c, to which the assessee is not concerned, and there is no evidence that the assessee has handed over cash to Mr Gurdev Singh (except word of mouth).

However, the ld. first appellate authority has dismissed the appeal by observing as follows:

In the result, the appeal is dismissed.”

Now, the assessee is before the Tribunal on the grounds contained in the memorandum of appeal and in course of hearing, the Ld. AR of the assessee has categorically stated that in the instant case he is not disputing or arguing against the gifts received by the assessee from the donor because the said gift Rs. Nine Lakhs , has been accepted by the AO, because no additions has been made on account of “ bogus gifts”, received by the assessee. He further submitted that the addition made by the Assessing Officer is because of cash deposited in the bank account of Mr Rs.11,50,000/- which is disputed in this case were not credited in the books of the assessee but the credit was in the account of Sh. Gurdev Singh (donor) and out of the said amount, gift has been received by the assessee which is not disputed by the Assessing Officer. In fact, the Assessing Officer has added back an amount of Rs.11,50,000/- in the hands of the assessee which happens to be deposited by the donor in his own bank account , and if the source of Rs.11,50,000/- is not explained satisfactorily, then the addition should be made in the hands of Mr. Gurdev Singh in whose bank account, the amount has been found to be credited and in support of his argument he has relied upon the judgment of Hon’ble Supreme Court in the case of CIT v. K. Chinnathamban [2007] 292 ITR 682 (SC) and in the case of CIT v. Metal & Metals of India [2007] 208 CTR (P&H) 457.

He further argued that onus to prove the source of deposits lies on the person in whose name the deposit has been made and on the failure to explain the source of such deposits, the money will be deemed to be the income of such person u/s 69A of the Act. He further stated that since in the instant case, the deposits rested in the name of the person appearing in the bank, there is no evidence to show that the assessee has been placing his money with Mr Gurdev Singh ( except word of mouth ) and as such there is no question to link up all those amount with the books of the assessee. He further relied on the Hon’ble Allahabad High Court judgment in the judgment of the Hon’ble Punjab & Haryana High Court in the case of Smt. Shanta Devi v. CIT reported 171 ITR 532 (P&H) and stated that the cash credit entry in the book of firm in the name of partner cannot be assessed as income from undisclosed source of the individual partner.

As such, relying on the above judgments, the ld. AR of the assessee submitted that in the instant case, since, there is no evidence at all that the amount of Rs.11,50,000/- was handed over by the assessee to the donor for depositing the same in his bank account ( except word of mouth ), the assessee is not liable to explain the source of such deposits in donor’s bank account. He further stated that in the instant case, he has got nothing to argue in respect of gifts received by the assessee, because the Assessing Officer has never made any addition on account of gift received by the assessee, on the other hand, he has made an addition on account of cash deposit in bank account of a third party for which the assesee is not liable to explain the source and no addition can be made in the hands of the assessee.

As such, he prayed that the addition may please be deleted.

The Ld. DR relied on the order of the Ld. CIT ( A ) and submitted that in this case the donor and donee are not related and are unknown persons and simply movement of funds through bank drafts does not prove the genuineness of gifts , and (1) Tirath Ram Gupta vs CIT [2008] 304 ITR 145 ( P & H ) , (2) E Ummer Bava vs CIT ( Kerala High Court ) of 2015 dated 25th October, 2013 , which again is on the question of creditworthiness of the person granting loans , where the Hon’ble court upheld the additions made u/s 68 of the Act 61, on failure on the part of the assessee to prove creditworthiness, ( 3 ) on the case of Jaspal Singh V CIT , ( Punjab and Haryana High Court ), [2007] 290 ITR page 306, where the Hon’ble court has settled that mere identification of the donor and movement of funds through bank is not enough to prove genuineness.

Thereafter, he relied on the Hon’ble Apex court in the case of P. Mohanakala 291 ITR 278 [2007] dated 15/05/2007, to submit that the sum credited in the bank account of the assessee amounting to Rs.9 lakhs, the explanation offered by the assessee regarding its nature and source, has been proved to be unsatisfactory and as such he prayed that the addition may please be sustained.

We have heard the rival submissions and considered the materials on record and we are perfectly in agreement with the Ld DR that the gift stated to have been received by the assessee, from the donors, amounting to Rs. 9 lakhs (nine lakhs) , are bogus gifts, the nature and source of which could not be satisfactory explained by the assessee in spite of abundant opportunities in course of assessment proceedings ( addition on this ground ( if any ) is to be sustained , but the pertinent question that arises in this case is, where is the addition on account of bogus gifts in the assessment order ? In absence of any specific addition being made by the AO in the assessment order regarding bogus gifts of Rs. Nine lakhs, claimed to have been received by the assessee, there is nothing for this tribunal to sustain or upheld.

In the instant case, the addition of Rs. 11.50 lakhs, has been made by the AO, relating to the cash that is deposited by one Mr Gurdev Singh ( the donor ) in his own bank account , and there is no evidence that this cash so deposited has been advanced by the assessee (except the depositors word of mouth) and in absence of any satisfactory explanation from the owner of the bank account , all deeming provisions under the Act , whether section 68 and / or 69A , shall apply on the said Mr Gurdev Singh , and the said amount cannot be brought to tax in the hands of the assessee.

Subsequently, the assessee has claimed to have received a gift of Rs. 9 nine lakhs from the said Mr. Singh ( which is undoubtedly proved to be a bogus gift) and should be taxed in the hands of the assessee, but unfortunately, there no addition on account of bogus gifts in the assessment order, and this tribunal has no power to improve upon the order of the AO , and cannot bring the said bogus gift to tax , in Tribunal to make out a new case neither for the assessee nor for the revenue.

As such , on the entire facts of the case we arrive at a logical conclusion that the addition of Rs11.50 lakhs being the cash deposited by Mr Gurdev Singh ( alleged donor in this case ) in his own bank account , cannot be assessed in the hands of the assessee under the Act 61, in absence of any direct evidence to prove the fact that the assessee has forwarded his own money to Mr. Singh for deposit of the same and as such the said addition cannot be legally sustained.

As such the addition is to be deleted, and the appeal is allowed.

In the result, the appeal filed by the assessee is allowed.