SHRI BHAVESH R MEHTA,RAJKOT vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2,, RAJKOT

The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-3, Rajkot, (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2011-12.

The solitary issue raised by the assessee is that Ld. CIT(A) erred in confirming the addition made by the AO for Rs. 67,00,000/- representing the gift received from the brother which was treated as undisclosed income.

The necessary facts are that the assessee in the present case is an individual and filed his return of income declaring income of Rs. 24,210/- only. The assessee in the year under consideration has shown receipt of gift through banking channel for an amount of Rs. 67,00,000/- from his brother namely Shri Tejas R Mehta. The assessee in response to such gift has filed the copy of PAN of his brother, copy of computation of income and freshly made gift letters. However, the AO found that the income of the brother is not sufficient to grant such a huge amount of gift to the assessee. Thus, as per the AO, the creditworthiness for the gift was not proved based on financial capacity of the donor. Accordingly, the AO treated the same as bogus transaction and added to the total income of the assessee.

Aggrieved, assessee preferred an appeal to Ld. CIT(A). The assessee before the ld. CIT-A has filed the copy of gift letters, capital account where the gift was credited, bank statement/PAN/ITR of the donor. The assessee also submitted the gift was received through the banking channel as evident from the confirmation given by the donor. The assessee also submitted that he has given gift to the tune of Rs. 70,00,000/- in cash to his brother on different occasions which is evident from capital account forming part of the audited accounts. But the AO has not taken note of such fact appearing in the capital account of the assessee which was also available during the assessment proceedings. Accordingly, it was submitted by the assessee that the capacity of the donor is beyond doubt. As such, the gift received by the assessee is fully covered by the amount of gift given by the assessee to his brother. It was also submitted that the income cannot be a criterion to judge the financial capacity of the donor. As such, the capacity of the donor can be judged based on the financial statement of his brother. The assessee in support of his contention has filed the Annual account of the donor which were already available with the AO along with the ITR filed by the donor.

Without prejudice to the above, the assessee also contended that he has received the gift by way of rotation/ in different instalment and therefore the entire amount cannot be assumed as unexplained income of the assessee.

Ld. CIT(A), called for the remand report vide letter dated 23/12/2016 for gift of Rs. 70 lacs given by the assessee to the donor being his brother. The AO vide letter dated 10/03/2017 furnished the remand report reiterating that there was no capacity of Shri Tejas Mehta to extend gift of Rs. 67 lacs to the assessee. The AO in the remand report also submitted that the assessee has claimed to have given gift to the brother of Rs. 70 lacs in cash on different occasions but most of such cash entries did not match with the cash book of donor. As such, the amount given by the assessee in cash to his brother as gift was not reflected in the cash book of his brother.

The assessee in rejoinder submitted that the fact of giving gift to his brother of Rs. 70 lacs was brought to the notice of the AO to justify the creditworthiness of the donor. As such the plea was not taken to justify the source of gift received by the assessee from his brother. The assessee also submitted that he has furnished the source of gift of Rs. 67,00,000/- during the assessment proceedings vide letter dated 04/01/2017 but the AO has not considered the same.

However, the Ld. CIT(A) rejected the contention of the assessee and confirmed the order of the AO by observing as under: In view of these facts the AO in remand report has rejected contention of assessee. In the rejoinder the appellant has contended that there being no entry in cash book of Tejas Mehta does not adversely affect the gift received by appellant and that the appellant never submitted that the gifts received were directly sourced by the gifts given. From above facts and circumstances, I find that the assessee at assessment stage never claimed that the assessee had given gifts to the Tejas Mehta. This is an important fact in the matter. It is at appellate stage that he claimed that AO did not appreciate that assessee had given a gift of Rs. 70 ,00,000/- to Tejas Mehta. It is very peculiar that the assessee when confronted with the issue at assessment stage kept quiet above any sums donated by him to Tejas Mehta. It was for assessee to make such claim and prove it at assessment stage. It is totally fallacious on part of assessee to claim that AO should have appreciated this fact when no such claim was made by assessee before the AO. It is also noteworthy that during remand proceedings, the AO very cogently has brought out that receipt of gifts by Tejas Mehta is not proved as there are no corresponding entries in the cash book of Tejas Mehta and that two of the gifts are prior to any sum was gifted as claimed to Tejas Mehta. When confronted with this fact, the assessee came out with a new plea that gifts from assessee were never claimed to be the immediate sources of gifts to the assessee. Such an argument contradicts the very basic premise of assessee during entire appellant proceedings that AO had failed to appreciate that assessee had advanced Rs. 70 lacs to Tejas Mehta as gifts. When these gifts made were not the immediate source of receipts of gifts, why did he venture into the whole exercise of claiming this amount to prove capacity of the donor. Therefore, (i) In view of the assessee changing its stand constantly, (ii) there being self contradiction in claim of assessee, (iii) there being no proper gift deeds on any of occasions, (iv)there being no occasion to make these counter gifts to each other, (v) the gifts claimed to have been made by assessee being in cash, (vi) the assessee claiming that gifts were not the immediate sources in hands of Tejas Mehta and (vii) some gifts being made by Tejas Mehta prior to said receipt of gifts, I have no hesitation in holding that this is all a concoction and make believe story by assessee. The assessee has failed to prove capacity of donor and genuineness of gift and accordingly the addition is confirmed and ground of appeal is rejected.

Being aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us.

The Ld. AR before us filed a paper book running from pages 1 to 183 and other details on the direction of the ITAT running from pages 1 to 120 and contended that all the details were duly provided to the AO during assessment/remand proceeding. There were sufficient funds available with the donor to advance the gift to the assessee which can be verified from the bank statement.

On the other hand, Ld. DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. The controversy before us arises for adjudication whether the amount of gift received by the assessee from his brother is from genuine/ disclosed sources or not. In this regard, we note that the assessee has furnished details such as copy of gift letter, capital account, bank statement, PAN and return of income of the donor. We have also perused the cash book and bank statement of the assessee which are available on record. On perusal of the cash book of the assessee placed on pages 1 to 50, we note that there was sufficient cash available with the assessee which was arising out of withdrawal from the bank account. Thus, it can be safely concluded that there was sufficient cash available with the assessee to advance the gift to his brother. This fact has also not been disputed by the authorities below. 12.1 At this juncture, it is equally important to note that the assessee first has received part of the gift before giving any gift to his brother in cash but what we find is this that there was sufficient fund available in the bank account of the brother and therefore it cannot be said that such gift could be given to the assessee out of unaccounted income.

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