KAUSHIK PANDYA,MUMBAI vs. ITO 2 (3) (2), MUMBAI

We heard the parties and perused the record. The assessee is engaged in the business of trading in shares and securities. Assessee’s sister named Smt Jalini Amul Mehta is residing in USA along with her husband named Shri Amul Jagdish Mehta. One S.B account has been maintained with Central Bank of India in the joint name of Smt. Jalini Amul Mehta and Shri Amul Jagdish Mehta. The assessee’s name is also included in that account as “PA for both the persons”. During the year under consideration the assessee received a sum of Rs.9.00 lakhs as gift from her sister. The AO noticed that the gift cheques have 2 Shri Kaushik Pandya been given out of the account maintained with Central Bank of India, referred above. The AO asked for evidences to support the gift receipts. The assessee himself signed the gift confirmation letter in his capacity as Power of Attorney holder and also furnished copy of gift deed. Since the gift deed was not in proper form; since the confirmation letter was signed by the assessee himself and since the assessee has been operating the bank account, the AO did not accept the explanations of the assessee. Hence the assessee furnished a confirmation letter obtained from his sister, but the AO rejected the same by observing the signature affixed in that confirmation letter did not tally with the signature available in the copy of pass port. Accordingly the AO took the view that the assessee has failed to substantiate the claim of receipt of gift and accordingly assessed the above said sum of Rs.9.00 lakhs as income of the assessee.

Before Ld CIT(A), the assessee furnished additional evidences in the form of fresh confirmation letter obtained from his sister, her driving licence copy and copy of return of income filed by her husband. The assessee also submitted that the assessee and her husband held certain shares and they were sold by her husband. It was submitted that the sale proceeds of shares were credited to the joint bank account, referred above. The said sale proceeds were used to give gift to the assessee. Hence the Ld CIT(A) called for a remand report from the AO. In the remand report, the AO objected to the admission of additional evidences and also observed that the donor has failed to prove her creditworthiness by furnishing the copy of return of income filed in USA. Accordingly he stood by his order. The Ld CIT(A) also confirmed the addition by holding that the genuineness of the gift and the capacity of the donor were not proved by the assessee. Aggrieved, the assessee has filed this appeal before us.

The Ld A.R submitted that the assessee has proved the identity and genuineness of the transactions. Further the credit worthiness of the donor has been proved by furnishing the copy of bank account and the assessee has also proved the source of the source. Accordingly he submitted that the assessee has established that he has not routed his own funds by way of gift. He also invited our attention to the copies of various documents that were relied upon before the tax authorities.

On the contrary, the Ld D.R placed strong reliance on the order passed by Ld CIT(A).

Having heard rival contentions, we are of the view that there is merit in the contentions of the assessee. In respect of cash credit, it is established that the initial burden of proof is placed upon the shoulders of the assessee, i.e., the assessee is required to prove three main ingredients, viz., the identity of the creditor, the creditworthiness of the creditor and the genuineness of the transaction. In the instant case, the nature of cash credit is the Gift received by the assessee. It is seen that the gift has been received from the sister and not from any third party. The assessee has furnished copies of pass port, driving licence, copies of joint bank account etc., in order to prove the identity of the donor. The gift has also been transacted through the banking channels and hence the genuineness of the transaction also stands proved. In respect of credit worthiness of the transaction, the assessee has submitted that the sale proceeds of shares sold by the husband of the sister was credited to the joint bank account and the said proceeds aggregating to about Rs.21.00 lakhs have been used to give gifts to the assessee. In support of the same, the assessee has furnished the copies of bank accounts and also copy of income tax return filed by the sister’s husband, wherein the capital gain arising on sale of shares have been duly computed. Thus the source for making gifts to the assessee has 4 Shri Kaushik Pandya also been established. A careful perusal of the bank account would also show that there is no cash deposit made prior to issuing the gift cheques. The gift has been received from assessee’s sister, who is a blood relative and it is quiet natural to receive such kind of gifts. Hence in our view, the assessee has discharged the initial burden of proof placed upon him u/s 68 of the Act.

Once the assessee discharges the burden, then the burden to disprove the claim of the assessee shifts upon the shoulders of the assessing officer. We notice that the assessing officer has found fault with the signature of the assessee’s sister given in the confirmation letter and also expressed the view that the credit worthiness of the donor has not been proved. We notice that the Ld CIT(A) has also upheld the said view. We notice that the assessee, in his capacity of Power of Attorney holder, has also signed confirmation letter in respect of loan taken by him from his sister. We notice that the AO has accepted the same and did not make any addition in respect of loan transaction. In respect of gift transaction, the assessee has filed two confirmation letters signed by his sister, one before the AO and another one before Ld CIT(A). We notice that the AO did not offer any comment on the confirmation letter filed before Ld CIT(A). Hence the alleged signature difference, in our view, cannot be a ground to reject the genuineness of the gift. With regard to the credit worthiness, we have seen that the assessee has shown the source of sources and hence, the same cannot also be doubted with. Hence we are of the view that the AO has failed to discharge the burden shifted on his shoulder.

In view of the foregoing discussions, we are unable to agree with the view taken by the Ld CIT(A). Accordingly we set aside the order passed by Ld CIT(A) and direct the AO to delete the addition of Rs.9.00 lakhs relating to gift receipts.

In the result, the appeal filed by the assessee is allowed. Order has been pronounced in the Court on 25.4.2017.