Commissioner of Income Tax vs. Dr.Kodela Siva Prasada Rao

HONOURABLE SRI JUSTICE GODA RAGHURAM AND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO

I.T.T.A.No.499 of 2012 JUDGMENT (per Hon’ble Sri Justice M.S.Ramachandra Rao):

This appeal is filed under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) by the Revenue challenging the order dated 29-06-2010 in I.T.A.No.677/Vizag/2008 of the Income Tax Appellate Tribunal, Visakhapatnam relating to the assessment year 2003-04. 2. The respondent/assessee, an ex-MLA and an Ex-Minister filed his return of income on 08-10-2003 for the assessment year 2003-04 admitting a total income of Rs.3,34,500/- including income from other sources of Rs.60,000/- earned by him during the previous year. He also admitted agricultural income of Rs.40,000/-. The return was processed under Section 143 (1) on 19-01- 2004. The assessing officer suspected that some income chargeable to tax had escaped assessment and issued a notice under Section 148 on 11-10-2005 calling for return of income for the assessment year 2003-04. In response to this, the assessee’s authorized representative filed a letter dated 07-11-2005 stating that the return filed for the

assessment year 2003-04 on 10-03-2002 may be treated as return filed in response to notice under Section 148. Thereafter notice under Section 143 (2) was issued on 12- 12-2005. Further notice under Section 142 (1) was issued on 28-06-2006 calling for total salary particulars including all allowances received by him in the capacity of Minster during the assessment year 2003-04. 3. The assessing officer reopened the earlier assessments and brought to tax the allowances received by the assessee after holding that no exemption was available to the assessee on such allowances. 4. In this appeal, we are only concerned with the issue relating to an amount of Rs.22,76,750/- in U.S. dollars received by the assessee from an NRI which was credited to his capital account in the assessment year 2003-04. 5. The assessing officer by notice under Section 142 (1) dated 12-09-2006 requested the assessee to furnish the complete details of receipt of the above amount from the NRI such as nature of the transaction, name and address of the person from whom the amount was received and bank account particulars in which this amount was realized in Indian currency. In response, the assessee’s authorized representative filed a letter dated 22-12-2006 stating that one N.Mohan, an NRI, a resident of USA had given the amounts to him and

also gave a copy of the assessee’s bank account in S.B.H., Secretariat Branch, Hyderabad. On verification of this bank account, the assessing officer found that the assessee himself made a note of gifts received in the bank account statements furnished by the bank and as per the bank statement it was clear that an amount of Rs.7,76,750/- was received by the assessee. The assessing officer vide letter dated 26-12-2006 requested the assessee to furnish proof regarding receipt of gift of remaining amount of Rs.15.00 lakhs on or before 28-12- 2006. The assessee filed a confirmation letter from the NRI, N.Mohan wherein he confirmed that he paid Rs.15.00 lakhs to the assessee who was his relative during the financial year 2002-03 apart from the official remittance in foreign currency to his account. The assessee in a letter dated 27-12-2006 informed the assessing officer that the donor is available in town due to the demise of his mother-in-law, furnished the complete details of the addresses and mobile numbers of the donor to the Revenue for verification. But the Revenue authorities did not contact the donor and verify the facts stated by him in the confirmation letter given by him. 6. The assessing officer was of the view that the NRI had not furnished any details as to the exact date when he paid Rs.15.00 lakhs, the sources for the same and also the reasons for paying this amount to the

assessee. He also noted that the bank account of the assessee for the financial year 2002-03 did not disclose from which account the sum of Rs.7,76,750/- was received by the assessee and the assessee had not furnished any details regarding the bank account from where these amounts were transferred to the assessee’s account. He therefore held that the identity of the lender or his creditworthiness or the genuineness of the transaction could not be verified. He therefore opined that the explanation of the assessee was not satisfactory and by order dated 29-12-2006 determined that the amount of Rs.22,76,750/- is liable to be taxed as income of the assessee under Section 68 of the Act. 7. The assessee filed I.T.A.No.295/CIT(A)/GNT/ 2006-07 to the CIT (Appeals). Before the appellate authority, the assessee also filed copies of the donor’s financial statements and contended that the donor is a resident of Boston in USA, that he is an immigrant to USA and is working there as a software expert owning a software company and during the year he had an yearly income of Rs.4.00 crores, in the subsequent year he had an annual assessed income of Rs.2.00 crores and as on the date of filing of the appeal he owns a software company of worth U.S. $ 25 million (Rs.100 crores). The assessee filed another confirmation letter dated 10-07-2007 from the donor in the form of a

certificate stating about his financial creditworthiness and therein the donor also stated that his gifts to the assessee are to help his extended family back home, that they are genuine, that during the same period he had donated more than Rs.2.00 crores to rebuild a government school, constructed a guest house for Sree Sitaramachandra Swami temple at Bhadrachalam and also gave money for a number of charitable causes. He enclosed the return of income filed in U.S. by him showing the status and financial position. The appellate authority, did not consider the same and held that the assessee had proved the identity of the donor, his creditworthiness but the assessee had not proved the genuineness of the transaction. He held that a bald confirmation letter from the donor in USA is not sufficient to prove the genuineness of the transaction of gift, that the NRI’s bank account evidencing transfer of amounts to the tune of Rs.7,76,750/- to the assessee’s bank account have not been filed and there is no evidence to show that the amount of Rs.15.00 lakhs was gifted to the assessee by him as there is no evidence of withdrawal of funds by him to make these gifts. He therefore confirmed the addition of Rs.22,76,750/- to the income of the assessee under Section 68 of the Act by order dated 26-09-2008. 8. Aggrieved, the assessee filed I.T.A.No.677/Vizag/2008 to the Income Tax Appellate

Tribunal, Visakhapatnam Bench, Visakhapatnam. After considering the donor’s confirmation letter annexed to the assessee’s letter dated 27-12-2006 and the second confirmation letter dated 10-07-2007 of the donor, the bank statements of the assessee, the income tax returns of the donor filed in the USA and noticing that the department made no effort to contact the donor even though he was in India in December 2006 on account of the demise of his mother- in-law and the assessee had furnished the mobile number of the donor to the department, the Tribunal held that the assessee had proved the identity and the creditworthiness of the donor and also the transaction of gift given by him to the assessee as the assessee and his children were his relatives. The Tribunal therefore reversed the orders passed by the CIT (Appeals) and the assessing officer and held that the Revenue’s contention that the genuineness of the gifts by the donor to the assessee were not proved by the assessee is not correct, that on the basis of conjunctures and surmises the assessing officer had held that the gift was not genuine without taking any steps to examine the donor or making any independent enquiry from the donor with regard to the gift. It also held that entries found in bank pass books which are not regular books of accounts cannot be included under Section 68 of the Act and therefore the provisions of Section 68 cannot be invoked.

law and the contact details of the donor in India (address and mobile numbers), the department did not bother to contact him and verify the above facts. In this view of the matter, we are of the view that the assessee had discharged the burden cast on him to prove the identity of the creditor, the creditworthiness of the creditor and the genuineness of the transaction. Therefore, the contention of the Revenue that the said sum ought to be added to the income of the assessee cannot be accepted. The finding recorded by the Tribunal is based on appreciation of the material on record and cannot be said to be perverse. In our view, no question of law, much less a substantive question of law arises for consideration in this appeal. 13. Therefore the appeal is without any merit and is dismissed. No costs.

____________________________ JUSTICE GODA RAGHURAM

__________________________________ JUSTICE M.S.RAMACHANDRA RAO Date:20-11-2012 Kvr