ACIT 24(1), MUMBAI vs. ASHA M. GUPTA (AGARWAL), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER Rajendra A.M.- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dt.25.10.2010 of CIT(A)-34, Mumbai, the Assessing Officer (A.O) has filed the present appeal.The assessee has filed Cross Objection. 2.The assessee has filed a petition for condonation of delay in filing cross objections.In her petition,she has stated that she was advised by her husband in the tax matters, that on receipt of the order of the CIT(A) she did not take any action,that later on her CA advised her to file cross objections, that based on legal advice she was filing the cross objections,that there were many vital facets of the penalty appeal which went to the root of the matter and would have a significant bearing to the issue involved.The petition is accompanied by an affidavit of the assessee. During the course of hearing before us,the Authorised Representative (AR) reiterated the submission that are part of the petition and the affidavit. The Department Representative (DR) left the issue to the discretion of the Bench. We find that there is a delay of 150 days in filing cross objections. The assessee is a lady and is advised by her husband in the tax matters, she had claimed that after getting proper legal advice she decided to file the cross objections.Considering the totality of facts and circumstances we are condoning the delay and we are of the opinion that there was reasonable cause for not filing the cross objections in time .

Brief facts :

103/M/11 & C.O.40/13-Asha Gupta 3.During the course of assessment proceedings,the AO found that the assessee had filed her return of income on 27.10.2004 declaring income of Rs. 28.71 lacs, that she had received a gift of Rs.30 lakhs from one Mrs. Chandra Hingorani,that the donor was not in any way connected to the assessee or her family.He directed her to prove conclusively the genuineness of the gift occasion and purpose of the gift.After considering the submission of the assessee the AO added Rs.30 lakhs to the total income of the assessee under the head unproved gift. An addition of Rs.1.00 lakhs was also made on account of low household expenses. Aggrieved by the order of the AO the assessee preferred an appeal before the First Appellate Authority (FAA)who dismissed her appeal.The assessee further contested the issue before the Tribunal. However, the issue of low household withdrawal was not agitated before the Tribunal.Vide its order dated 4.10.2010, the Tribunal upheld the order of the FAA (ITA/ 400/Mum/2008 ).Meanwhile,the AO had issued a notice for levying penalty u/s. 271(1)(c )of the Act for filing inaccurate particulars of income to conceal the taxable income.

4.During the penalty proceedings the AR submitted that the donor filed a letter confirming the gift during the scrutiny proceedings, that identity and credit worthiness of the donor was established,that the transaction was genuine and should not be treated as unexplained cash credit,that the assessee had requested the AO during the assessment proceedings to issue a summon to the donor. After considering the submission of the assessee the AO held that the alleged letter wherein a request was made to summon the donor was not signed by assessee or her AR,that the unsigned letter was not acted upon, that the issue to be decided by him was to levy/non levy of the penalty u/s. 271(1)(c )and not to decide genuineness of the alleged gift.Finally, the AO held that the assessee had failed to put forth any plausible explanation as to why penalty should not be levied, that she had not discharged the onus cast upon her, that she was allowed sufficient opportunity.The AO referred to the cases of Madanlal Kishorilal(144CTR197) and Shri Krishna Trading Co.(253ITR645)and observed that if an assessee fails to furnish an explanation or offers an explanation which he is not able to substa -ntiate,Explanation 1 to section 271(1)(c) of the Act would come into play.The AO further held that the assessee had concealed the particulars of income within the meaning of section 271(1)(c ) r.w. Explanation 1 to the section, that the amount involved included the cash credit of Rs.30 lakhs and expenditure on household from undisclosed sources of Rs.1.00 lacs.He levied a penalty of Rs.10.23lacs on the income of Rs.30 lakhs sought to be evaded by the assessee.

103/M/11 & C.O.40/13-Asha Gupta 5.The assessee filed an appeal before the FAA.After considering the submission of the assessee and the penalty order he held penalty proceedings were distinct from the assessment proceedings,that the AO had not made any further inquiry of the impugned gift during penalty proceedings to be bogus especially when the donor had not denied the impugned gift, that the AO could have suo-motu examined the donor, that the AO and the FAA had simply rejected the claim of the assessee,that the assessee’s case was covered by the ratio of Hon’ble Apex Court delivered in the case of Reliance Petro Products Private Limited.He further held that the AO had made no independent enquiries from the donor,that it was not proved conclusively that the gift had been purchased by the assessee from the donor and that the AO was not justified in levying the penalty u/s.271(1)(c)of the Act.

6.During the course of hearing before us the DR stated that the Tribunal had confirmed the additions made during quantum appeal,that assessee had not proved the genuineness of the gift, that the Explanation to section 271 (1)(c ) was applicable.The AR supported the order of the FAA and relied upon the case of Miter Sain (HUF) (26 Taxmann.com 67).

7.We have heard the rival submission and perused the material before us. Before proceeding further we would like to incorporate the order of the Tribunal dt.4.6.2010 passed in quantum appeal(supra) and same reads as under:- “12.We have heard learned representatives of the parties perused the record and gone through the decisions cited and referred.In the case under consideration the issue is in respect of gift of Rs 30 lakh.The ordinary meaning of the gift is a transfer by one person to another of any existing movable or immovable property made voluntarily or without consideration of money or money worth. In legal effect,there cannot be a'gift' without a giving and taking. The giving and taking are the two contem -poraneous reciprocal acts which constitute a 'gift'. In order to make a valid gift, there must be perfect knowledge in the mind of the person making the gift of the extent of the beneficial interest intended to be conferred, and of which making it. Donor gives gift in money or money's worth and taking love and affection from donee. To examine the issue from point of view of the provisions of Income Tax Act we are to see the nature of the transaction Gift.Its nature is credit in the hands of the donee because donee credited gift amount his/her capital account and being treated as own money/capital. Normally such credit entry in capital account can be made only of the transition-which- has been processed through the provisions of the Income Tax Act. It appears from reading of section 68 of the Act that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount. When an explanation in regard thereto is given by the assessee then, it is for the Income-tax Officer to be satisfied whether the said explanation is correct or not, It is in this regard that enquiries are usually made in order to find out as to whether, firstly the persons from whom money is alleged to have been received actually existed or not. Secondly depending upon the facts of each case, the Income-tax Officer may even be justified in trying to ascertain the source of the depositor, assuming he is identified, in order to determine whether that depositor is a mere

103/M/11 & C.O.40/13-Asha Gupta name lender or not. But that as it may, it is clear that the Income-tax Officer has to make enquiries with regard to the nature and source of a sum credited in the books of account of an assessee and it would be immaterial as to whether the amount so credited is given the colour of a loan or a sum representing the sale proceeds or even receipt of gift.The use of the words 'any sum found credited in the books' in section 68 indicates that the said section is very widely worded and an Income-tax Officer is not precluded from making an enquiry as to the true nature and source thereof even if the same is credited as gift. What is clear, however, is that section 68 clearly permits an Income-tax Officer to make enquiries with regard to the nature and source of any or all the sums credited in the books of account of the company irrespective of thenomenclature or the source indicated by the assessee. In other words, the truthfulness of the assertion of the assessee regarding the nature and the source of the credit in its books of account can be gone into by the Income tax Officer. There is no quarrel with the proposition that mere identification of the donor and showing the movement of the gift amount through banking channels is not sufficient to prove the genuineness of the gift and since the claim of a gift is made by the assessee the onus lies on him not only to establish the identity of the donor but his capacity to make such a gift.The assessee is required to prove three important conditions, namely, (i) the identity of the creditor, (ii) the capacity of the creditor to advance the money, and (iii) the genuineness of the transaction.What evidence would be sufficient to establish the said conditions or what material would be relevant in a particular case, would depend on the facts of each case. There cannot be one general guiding yardstick in the matter. 12.1The assessee has furnished various type of material/evidence in the form of gift deed, confirmation and others,to appreciate those material evidences we would like refer one of the judgment of the Apex Court in the case of CIT v Durga Prasad More 82 ITR 540 (SC) wherein the Court held that Science has not yet invented any instrument to test the reliability of the evidence placed before a court or tribunal. Therefore, the courts and Tribunals have to judge the evidence before them by applying the test of human probabilities, It has been further held as under:- "It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of the present kind a party who relies on a recital in a deed has to establish the truth of those recitals, otherwise it will be very easy to make self-serving statements in documents either executed or taken by a party and rely on those recitals. If all that an assessee who wants to evade tax is to have some recitals made in a document either executed by him or executed in his favour then the door will be left wide open to evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents.” 12.2. We would also like refer one more judgment of the Apex Court in the case of Commissioner of Income-tax v. P Mohanakala 291ITR 278 (SC) In this case following questions have been answered by the High Court in favour of the assessees and against the Revenue: "(a) Whether, in the facts and circumstances, the Income-tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the claim of the appellant that the sum of Rs. 15,62,500/- received him by way of gifts through normal banking channels was not genuine and that it was liable to be assessed under section 68 of the Income-tax Act, 1961 ? (b) Whether, in the light of the law established and based on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal is legally justified in concluding that burden of proof cast on appellant under section 68 of the Income-tax Act, 1961 has not been discharged and the ingredients for invoking section 68 of the Income-tax Act are present? (c) Whether in the facts and circumstances of the case, the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse ?" 4

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The dispute in all these appeals relates to the addition made by the Assessing Officer in respect of several foreign gifts stated to have been received by the assessees from one common donor namely Sampath Kumar. The gifts received were from one Ariavan Thotan and Suprotoman. It is during the enquiry by the Revenue it is asserted that they were the aliases of Sampathkumar. These gifts were made to A. Srinivasan and his wife, Smt. S. Kalavathy, his son, S. Balaji Manikandan and to one of his brothers, Rajendran and Smt.Mohanakala.In all the aggregate gifts received by the assessees is to the extent of Rs.1,79,27,703. The Assessing Officer did not accept the explanation offered by the respective assessees that the amount of credit is a gift from NRI and proceeded to add it as the income of the assessees from undisclosed sources. The credit entries have been made during the period from July 8, 1992 to October 19, 1995. There is no dispute that the payments were made by instruments issued by a foreign bank and credited into the respective assessee's account by negotiation through a bank in India. Most of the cheques sent from abroad were drawn on Citibank, N .A. Singapore. The Assessing Officer dealt with the controversy as regards the cash credit entries received from the foreign donor. He noticed that the gifts have been sent in the name of Ariavan Thottan and received by A. Srinivasan and others who are all his family members .Each one of them is an individual assessee. All the assessees were summoned and their statements have been recorded by the Assessing Officer. Srinivasan who is the key person in his statement said that he knew Sampathkumar for the last 20 years and he had been helping Sampathkumar prior to 1985 by paying Rs. 100 to 200 every month as he had no source of income to get himself educated. Sampathkumar in his own statement stated that he was in Indonesia up to the year 1992 and employed as an engineer. Thereafter, he shifted to England and started consultancy profession there. Later in the end of the year 1994-95, he joined New Century Machinery Ltd., Cheshire, SK 16 4xS and became its director in 1996. It is in his statement that he is paying taxes in England from his income earned in England. As far as his Indian income is concerned, he stated that he filed the returns for the assessment years 1996-97 and 1997-98 before the Income-tax- Officer, Ward 1(4), CBE only on October 23, 1997. His investment in Indian companies according to him will be around Rs. 5 crores and made out of his income earned in the foreign countries. He did not reveal the details of his bank account in India and stated that he would be submitting the details through his auditor which he did not. Except the self serving statement there is no material evidence as regards his financial status. He stated from 1972-73 he knew Srinivasan, Rajendran and their families. His father was a taxi driver, and was very poor. Srinivasan and his family members were supporting him when he was in India. To a pointed query as to whether there is any evidence to show that he was also known by any other name other than Sampathkumar,he stated that "no evidence. Only Mr. Srinivasan used to call me as Suprotoman." The Assessing Officer in the circumstances came to the conclusion that the gifts though apparent are not real and accordingly treated all those amounts credited in the books of the assessees as the income of the assessees. On appeal the Commissioner of Income-tax concluded that the story set up by the assessees is unacceptable and hard to believe and the preponderance of probabilities, the common course of human livings point to the contrary". The appeals were accordingly dismissed. The ITAT concurred with the findings and conclusions arrived at by the Assessing Officer and the Commissioner of Income-tax. The Tribunal noticed that the letters exchanged "by the person who had sent foreign exchange to the assessees only indicate that there is no love and affection between them and that he is clearly materialistic and his statement of accepting a reciprocation is also an indication to the fact that he is not doing anything free but clearly the compensation was a roundabout manner of showing of he having been compensated either in India or abroad." The Tribunal also took note of the various other attending circumstances and found it difficult to accept the explanation offered by the assessees. The High Court came to the conclusion that the reasons assigned by the Tribunal and other authorities "are in the realm of surmises, conjectures and suspicions ... the authorities under the Act have failed to draw the only conclusion that is possible legally and logically." The Apex Court held as under:

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"explanation offered was not satisfactory.The assessees did not take the plea that even if the explanation is not acceptable the material and attending circumstances available on record do not justify the sum found credited in the books to be treated as a receipt an income nature. The burden in this regard was on the assessees.No such attempt hasbeen made before any authority. All the decisions cited and referred to hereinabove are required to be appreciated and understood in the light of the law declared by this court in Sumati Dayal [1995]Supp 2 SCC 453 Whether the High Court was justified in interfering with the concurrent finding of fact arrived at by all the authorities including the Tribunal?The Assessing Officer found that all the so called gifts came from Ariavan Thotan and Suprotoman.The assessees did not declare that they are the aliases of Sampathkumar. It is only an afterthought they have come forward with the said plea. The Assessing Officer also found that the gifts were not real in nature, Various surroundings circumstances have been relied upon by the Assessing Officer to reject the explanation offered by the assessees. The Commissioner of Appeals confirmed the findings and conclusion drawn by the Assessing Officer. The Tribunal speaking though its Senior Vice President concurred with the findings of fact. The findings in our considered opinion are based on the material available on record and not on any conjectures and surmises. They are not imaginary as sought to be contended.Relying on the decisions of this court in Bejoy Gopal Mukherji v. Pratul Chandra Ghose,AIR 1953 SC 153 and Orient Distributors v. Bank of India Ltd. AIR I 979 SC 867.Shri lyer, learned senior counsel contended that the issue relating to the propriety of the legal conclusion that could be drawn on the basis of proved facts gives rise to a question of law and. therefore, the High Court is justified in interfering in the matter since he authorities below failed to draw a proper and logical inference from the proved facts. We are unable to persuade ourselves to accept the submission. The findings of fact arrived at by the authorities below are based on proper appreciation of the facts and the material available on record and surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real ones. May be the money came by way of bank cheques and was paid through the process of banking transaction but that itself is of no consequence. " No question of law much less any substantial. question of law had arisen for consideration of the High Court. The High Court misdirected itself and committed an error in disturbing the concurrent findings of fact. " 12.3 In the light of above law laid down by the Apex Court in the case of CIT v Durga Prasad More 82 ITR 540 (SC) and in the case of Commissioner of Income-tax v. P Mohanakala 291 ITR 278 (SC) If we consider the facts of the case under consideration and the surrounding ''circumstances, prevailing practice/customs in the society, we find that the assessee is not remotely connected with the family of the donor as evident from the replies given by the assessee in her statement recorded by the AO which are reproduced above in Para No 3 of this order. She has no knowledge about the family of the donor, she never visited their house. She never attended any social function or normal get together with the family of the donor. She was never invited by the donor family and the same was the case with the assessee as the donor family had no link whatsoever with the assessee. That Donor, Mrs. Chandra Hingorani is not in any way connected to the assessee or to her family.There was no such occasion for such huge gifts to the assessee.Under the alleged circumstances gift received by the assessee is not a genuine gift.When gift is not genuine, the addition u/s 68 is warranted. Further, as said above those two elements are essential in the gift, 'giving' and 'taking. In the case under consideration,the assessee has failed to establish second part of that element i.e. giving any love and affection to donor. One of the aspect of the gift is that unless it is in favour of a relative, a disposition can be said to operate as a gift only if it can be shown to contain any element if bounty. In the case under consideration gift is not given to relative, therefore, the burden is on the assessee to prove some element of bounty. But the 6

103/M/11 & C.O.40/13-Asha Gupta assessee has failed in this regard. Under the circumstances we are of the considered view that the AO has rightly made the addition u/ s.68 of the Act as gift was not a genuine gift. Since we followed the law laid down by the Hon 'ble Supreme Court, therefore, the decision cited by the learned AR does not help the assessee. In the result the Appeal of assessee is dismissed.”

7.1.We find that the FAA has held that penalty proceedings were distinct from the assessment proceedings,that the then AO had not made any further inquiry of the impugned gift during penalty proceedings,that the AO could have suo motu examined the donor,that the AO and the then FAA had simply rejected the claim of the assessee,that the assessee’s case was covered by the ratio of Hon’ble Apex court delivered in the case of Reliance Petro Products Private Limited.He further held that, that it was not proved conclusively that the gift had been purchased by the assessee from the donor and that the AO was not justified in living the penalty u/s.271(1)(c)of the Act.We would like to deal with all the issues raised by the FAA.

7.2.As per the settled principles of taxation jurisprudence a gift is a voluntary act,by a person who out of love and affection transfers money or a movable or immovable asset to another person.The element of personal and close relationship between the two is the motivating factor as the donor parts with and transfers what belongs to him to someone,whom he or she loves and cares.This mandates and requires a close association between the donor and the donee,except where gifts are made for charity and philanthropic purposes.Therefore,a simple identification of the donor and showing the movement of the gift amount through banking channels is not enough to prove the genuineness of the gift. Since the claim of gift was made by the assessee,the onus was on her to discharge the burden about the genuineness of the gift transaction.The fact finding enquiry conducted by the AO and confirmed by the FAA and the Tribunal cannot be overlooked as the donor was not related to the assessee nor was there any occasion for her to part with such a big sum of Rs. 30 lakhs.

7.3.The FAA has referred to the case of Reliance Petro Products (322ITR158).What the Hon’ble Supreme Court has held in that case is that mere making of a claim which is not sustainable in law,by itself,will not amount to furnishing inaccurate particulars regarding the income of the assessee and that merely because the assessee had claimed deduction of expenditure, which claim was not acceptable to the Revenue, that by itself would not attract the penalty under section 271(1)(c).In the case before us,the issue is not making a unsustainable claim of expenditure-the assessee has shown an item of income received by her as gift.The fact of non genuineness of the gift has been confirmed by both the appellate authrorities.There is a difference between a debatable claim and false claim.In first case the 7

103/M/11 & C.O.40/13-Asha Gupta AO and the assessee have difference of opinion about a claim but in the later the very basis of the claim does not exists.The AO and the assessee may differ as to whether an expenditure is revenue or capital expenditure and such a situation penalty for concealing or furnishing inaccurate particulars cannot be levied.But,where the incurring of expenditure itself is not proved there cannot be any basis for advancing the argument that there was difference of opinion.A wrong claim in the return of income results in initiation of penalty proceedings. A return of income is not a mere piece of paper wherein the assessee can make any claim.An assessee has to verify the correctness of the details given in the return.All the three authorities have reached to a conclusion that the gift transaction was not a genuine transaction. A gift cannot be accepted as such to be genuine, merely because the amount has come by cheque or draft through banking channels, unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion are proved. Unless the recipient has proved the genuineness thereof, the gift can very well be treated to be an accommodation entry of the assessee's own money, which is not disclosed for the purpose of taxation.The gift was found to have been made without any occasion or out of love and affection and was rightly considered by the AO as not genuine.

7.4.The assessee had not,during the penalty proceedings,filed any explanation about the genuineness of the gift.The FAA surprisingly states that the AO had not made any new material or did not make inquiries.In our opinion,he was shifting the burden of proof from the assessee to the AO.We agree that assessment and penalty proceedings are different proceedings,but it does not mean that the assessee is absolved of filing an explanation rather a plausible explanation about the claims made by him in the return that have been questioned by the AO. Explanation 1 to Sec.271(1)(c) of the Act,raises a presumption of concealment, when a difference is noticed by the AO,between the reported and assessed income. The burden is then on the assessee to show otherwise,by cogent and reliable evidence.When the initial onus placed by the Explanation has been discharged by him, the onus shifts to the Department to show that the amount in question constituted income and not otherwise.It is said that so long as the assessee has not concealed any material fact or the factual information given by him, has not been found to be incorrect, he will not be liable for imposition of penalty under section 271(1)(c) of the Act, even if the claim made by him is unsustainable in law provided that he either substantiates the explanation offered by him or the explanation is found to be bona fide. If the explanation is neither substantiated nor shown to be bona fide, the Explanation u/s.271(1)(c) would come into play and the assessee would be liable for the 103/M/11 & C.O.40/13-Asha Gupta prescribed penalty. A claim made by the assessee needs to be bona fide and if the claim, besides being incorrect in law, is mala fide, Explanation 1 to section 271(1) (c) would come into play and work to the disadvantage of the assessee.In short, Explanation 1 to section 271(1)(c) of the Act,raises a presumption of concealment, when a difference is noticed by the AO,between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the Explanation has been discharged by him, the onus shifts to the Department to show that the amount in question constituted income and not otherwise.In the case under consideration initial burden was not discharged by the assessee.The Hon’ble Supreme Court in MAK Data (P.) Ltd.'s case (358ITR593),has held that the assessee should first show by cogent and reliable evidence that there was neither concealment of particulars of income nor furnished inaccurate particulars of income.Because of the failure of the assessee to file ‘cogent and reliable evidence’ we are of the opinion that the order of the FAA has to be reversed. Secondly, penalty proceedings are not criminal in nature and the rationale behind the provisions of section 271(1)(c)of the Act is to compensate the State exchequer for the revenue loss caused due to commission or omission of an assessee.In the case before us,the assessee has tried to deprive the State by showing taxable income as not taxable in the garb of Gift.Such an action justifies invoking of the provisions of section 271(1)(c)of the Act.

7.5.Lastly,we would like to refer to the case of Zoom Communication,delivered by the Hon’ble Delhi High Court(327ITR510)wherein the Court has held as under: “20. The court cannot overlook the fact that only a small percentage of the Income-tax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1)(c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a licence to unscrupulous assessees to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment under section 143(1) of the Act and even if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a mala fide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have.” Considering the above discussion,we hold that the FAA was not justified in deleting the penalty.So,reversing his order,we decide effective ground of appeal in favour of the AO.

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103/M/11 & C.O.40/13-Asha Gupta