In case of gift the identity and creditworthiness of the donor and genuineness of the transaction must be proved and in additional evidence CIT must verified that before taking any decision

IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI BENCH “C”, MUMBAI

BEFORE SHRI B. RAMAKOTAIAH, A.M. AND SHRI V. DURGA RAO, J.M.

ITA No. 5810/Mum/2009

Assessment Year: 2004-05

Asstt. Commissioner of Income-tax-2(1), … Appellant

Aayakar Bhavan, R.No. 561, 5th Floor,

M.K. Road, Mumbai – 400 020.

Vs.

Pradeep K. Vakharia, …Respondent

Purav Apartment, Plot No. 30,

Malabar Hill, Mumbai – 400 006.

(PAN - ABBPV6815E)

Appellant by: Mr. Parthasarathi Naik

Respondent by: Mr. Vijay Mehta

Date of Hearing: 26/12/2011

Date of Pronouncement: 24/02/2012

ORDER

PER V. DURGA RAO, J.M.:

This appeal filed by the Revenue is directed against the order of CIT(A)-II, Mumbai, passed on 25/08/2009 for the assessment year 2004-05.

2. The revenue raised four grounds of appeal, the sum and substance of which is against the action of the CIT(A) in treating the source of credit of Rs. 55 lakhs in the capital account of the assessee.

3. The facts, in brief, are that the assessee who is a Joint Managing Director in M/s Ashapura Shipping Ltd. had received a gift of Rs. 55,00,000/- from Mr. Nilesh shah during the year under consideration. On being asked by  the AO to furnish the details in support of the confirmation of the gift, namely a) Name, address & PAN No. of the donor, b) relationship of the donor with the assessee, c) Occasion for giving the gift, d) copy of the bank a/c reflecting the gift amount and e) confirmation of the gift from the donor, the assessee stated that the gift of Rs. 55 lakhs was received from one Mr. NV Shah, residing at 5, F Yamakatsu Bldg, 1-9-3 Misuji, Taitoku Tokyoo – 111 – 0055, on the assessee’s reaching the 60th year of age. In support of his contention, the assessee filed copy of the letter dated 17/09/03 received from the donor Mr. N.V. Shah, which states that, a cheque No. 392227 for Rs. 55 lacs drawn on SBI, dated 17/09/03 enclosed with the letter is a gift due to the long standing family relations which they were enjoying for the last 3 generations. In this letter, the donor also confirmed that his legal heirs will not have any right on the aforesaid money. However, the donor has not stated anything about the occasion of the gift in the said letter. The assessee also filed a copy of the bank statement showing credit of Rs. 55 lacs on 07/10/03. As per the ROI, the date of birth of the assessee is 27/01/43 and his 60th birthday falls only on the 27th of Jan., 03 & not in Sept., 03. Further the assessee vide his letter dated 01/08/06 submitted copies of the passports of the donor, Mr. N.V. Shah & a copy of the credit advice from Commerzbank, Hongkong, of the donors a/c, showing a credit of USD 62498311. The AO noted that on verification of the bank statement received from SBI, Opera House Branch, regarding Mr. N.V. Shah’s a/c, it is seen that his credit balance as on 17/09/03 was Rs. 5602/- only & further credits of Rs. 28,79,737/- & Rs. 28,55,461/- were made on 19/09/-3 & 26/09/03 respectively. A cheque of Rs. 55 lacs was debited from his a/c on 03/10/03 & was credited to the a/c of the assessee on 07/10/03. The AO further noted that the donor, stationed in Japan, had already issued the cheque of Rs. 55 lacs, drawn on SBI in India, on 17/09/03, i.e. about 3 weeks prior to the date on which he had sufficient credits to his a/c. The AO was of the view that from these facts one fails to understand that how the donor can issue a cheque of a sizable amount when there was a negligible credit balance in his a/c. In view of the above, the AO held that the creditworthiness of the donor was not established, therefore, he issued summons u/s 131 of the Act to Mr. NV Shah, on 20/11/06 which was duly served on 21/11/06, to

appear before him. However, Mr. Shah neither appeared before the AO nor made any communication in response to the summons. Hence, the assessee was given one more opportunity to give information regarding the credit worthiness of the donor, with supporting documentary evidence. Since no fresh evidence was produced by the assessee regarding the source of income of the donor, whether the donor is paying any taxes in the country of his residence or any other information regarding the donors business/financial activity or status, nor the credit worthiness nor the capacity of the donor to donate the amount to the tune of Rs. 55 lacs is established, the AO held that it is, therefore, established beyond doubt that all the statements made by the assessee were nothing but after thoughts and cooked up stories, particularly when the donor had not made a single statement before him. Accordingly, the AO treated the amount of Rs. 55 lacs is treated as unexplained credit in the books of account of the assessee and added the same to the total income of the assessee u/s 68 of the Act. Aggrieved, the assessee carried the matter in appeal before the CIT(A).

4. Before the CIT(A), the assessee submitted that he had furnished various documentary evidences such as a) details of gift giving name and address of donor, b) occasion for gift, etc. c) confirmation of gift, d) bank statement of the donor, e) part details of investments made by the donor, f) copy of credit advice of donor with Commerz bank etc. during the course of assessment proceedings. The assessee further submitted that the AO ignored the aforesaid details submitted in the course of assessment proceedings and made addition in gross violations of principles of natural justice. The assessee further submitted that he had established the genuineness of the gift and the credit worthiness of the donor during the course of assessment proceedings. Therefore, the assessee stated that addition was made by the AO merely on the basis of conjectures and surmises taking into account irrelevant and extraneous considerations. The assessee had submitted various additional evidences during the course of appellate proceedings in order to establish the genuineness of the transaction, namely, i) affidavit of the donor, Mr. NV Shah stating the facts relating to the gift, relationship with the assessee and partial details of investments and other assets to establish credit worthiness, ii) letter issued by the SBI relating investment of FD made by the Donor Mr. NV Shah on 17/09/03 establishing the creditworthiness of the donor, statement issued by Eddelweiss Capital Ltd. duly certified by Chartered Accountant relating partial details of investments made by the donor Mr. Nilesh Shah, iii) photographs of the marriage function of the donor’s parents as well as the donor evidencing presence of the asesssee and photographs showing special bonding between the family of the asesssee and Mr. Shah, iv) other evidences in relation to assets held by the Donor, viz. share certificate issued by the society for ownership of residential flat at Breach Candy, D.mat statement of Mr. Shah and D.mat statement of family members of Mr. Shah and v) copies of passports of the asessse,e his wife, Mrs. Anila Shah, mother of donor & late Mr. Vinod shah, father of the donor to establish the facts of foreign tours being conducted together by both the families and photographs taken during the said tours. He also filed details submission dated 16/03/2009, which was extracted by the CIT(A) at 2,3 & 4 of his order. The CIT(A) remanded the matter to the AO for verification of the aforesaid additional evidences submitted during the course of appellate proceedings by the assessee. In the remand proceedings, the AO recorded the statement of the donor and the assessee on oath and submitted remand report on 09/06/2009 after

verification of additional evidences wherein the AO contended that gift of such a substantial amount to a non-relative was not justified. Referring to affidavit of Mr. Shah, the AO contended that the gift was not justified as there is no blood relation between the donor and the assessee. After considering the submissions of the assessee and the remand report of the AO, the CIT(A) held that the addition cannot be made in the present case merely on the basis of estimate in the absence of any cogent material or evidence by observing as under:-

“13. I have careful ly gone through the submissions made before me in the course of appel late proceedings. I have also gone through the additional evidences submitted during the course of appel late proceedings. It is observed that the additional evidences go to the root of the matter and hence the admission of the same is vital in deciding the case on merits. These additional evidences only corroborate and further clarify the submissions made in the course of assessment proceedings. These additional evidences have been verified by the Assessing Officer in the course of remand proceedings and the Assessing Officer has submitted his comments on the same as well. Respectfully following the ratio laid down by the jurisdictional High Court in the case of Smt. Prabhavati S. Shah v. CIT, Hon’ble Apex Court in the case of MST Katiji & Ors. and various other decisions relied upon by the appellant, I admit the additional evidences submitted in the course of appellate proceedings. I have also considered the submissions made before me, the various evidences furnished, the assessment order, the remand report and the facts of the case before me. The main objections of the Assessing Officer are in respect of receiving the gift  from a non-relative and the credit worthiness of the Donor. The Assessing Officer has recorded statement of the donor wherein he has specifically stated that the gif t was given to the

appellant out of his overseas business and investment income. The donor has also confirmed about the assets owned by him in form of f ixed deposits and property. The donor has confirmed on oath that his total net worth amounts to Rs. 40 - 45 Crores and has given break-up and details of the same as well . Various documentary evidences establishing the net worth of the Donor have been furnished and verified by the Assessing Officer. The Donor has also explained the relationship between the appel lant’s family and the Donor’s family and various evidences in this regard are furnished. It is observed that the Donor was well placed to gif t Rs. 55,00,000/- to someone with whom he had long standing family relation. The Assessing Officer has not brought any evidence or material to disprove the submissions and evidences placed by the appellant. The Assessing Officer could not establish that the gift was not genuine as the Donor has specifically stated the fact of having given the gift. In fact, the Assessing Officer has in his remand report clearly stated that “The donor has confirmed in his statement the fact of giving gift to the appel lant during the year under consideration. The donor has also stated reasons for giving the gift in the statement. Further, the donor has also ascertained his credit worthiness by giving details of in vestments held by him.”In view of the above remarks of the Assessing Officer, the other objections raised by him are mere conjectures and are not based on any evidence or material. The documentary evidences as well as the statement of the Donor clearly evidence the fact that the Donor had given the gift to the appellant out of his love and affection on the occasion of his 60^th birthday and more so he was also well placed for giving the gift. Thus, the identity, credit-worthiness and the genuineness of the gift has been established by the appellant. The same is evident from the submissions made, evidences furnished and the statements recorded by the Assessing Officer.

14. I am, therefore, of the considered opinion that addition cannot be made in the present case merely on the basis of estimate in the absence of any cogent material or evidence. The A.O. is directed to delete this addition u/s. 68.”

Aggrieved by the order of the CIT(A), the revenue is in appeal before us.

5. Before us, the learned DR besides relying upon the order of the AO submitted that CIT(A) wrongly relied upon the self serving statement of the donor that due to a long relationship between the assessee’s family and the donor’s family gift was made to the assessee without considering that there was no occasion or purpose of making such gift to an un-related person who being an elderly and issueless person had a sufficient source of income from various sources. He further submitted that the CIT(A) was not right in holding that the donor had creditworthiness without considering as to why the donor issued cheque for the gift of Rs. 55 lakhs on 17/09/03 when there was a meager balance in the donors bank a/c and had to deposit the

amounts of Rs. 28,79,737/- and Rs. 28,55,461/- on two different dates on 19/09/03 and 26/09/03, to honour the gift cheque issued earlier.

6. On the other hand, the learned counsel for the asesssee strongly relied upon the order of the CIT(A).

7. We have heard the parties, perused the record and gone through the orders of the authorities below. The issue for consideration before is whether the gift received by the assessee is genuine or not? As per the AO, gift of such a substantial amount was not justified to a nonrelative/ no blood relation and the creditworthiness of the donor is not adequate. The CIT(A) held that, in fact, the Assessing Officer has in his remand report clearly stated that “The donor has confirmed in his statement the fact of giving gift to the appellant during the year under consideration. The donor has also stated reasons for giving the gift in the statement. Further, the donor has also ascertained his credit worthiness by giving details of investments held by him.” In view of the above remarks of the Assessing Officer, the other objections raised by him are mere conjectures and are not based on any evidence or material. The documentary evidences as well as the statement of the Donor clearly evidence the fact that the Donor had given the gift to the appellant out of his love and affection on the occasion of his 60th birthday and more so he was also well placed for giving the gift. Thus, the identity, credit-worthiness and the genuineness of the gift has been established by the appellant. The same is evident from the submissions made, evidences furnished and the statements recorded by the Assessing Officer.” We find that the assessee in the appellate proceedings filed additional evidences before the CIT(A), which were go to the root of the matter as held by the CIT(A). Thereafter, the CIT(A) remanded the matter to the AO for verification of the additional evidences admitted by him. Therefore, we are of the view that the CIT(A) before deleting the addition made by the AO examined the issue and verified the additional evidences filed by the Assessee. Therefore, we do not find any infirmity in the order of the CIT(A) in deleting the addition of Rs. 55 lakhs made by the AO u/s 68 of the Act on account of gift received by the assessee from one Mr. N. Shah. Accordingly, the order of the CIT(A) is confirmed and the ground raised by the revenue is dismissed.

8. In the result, appeal of the revenue is dismissed.

Pronounced in the open court on this 24th day of February, 2012.

                                                    Sd/-                               Sd/-

                                (B. RAMAKOTAIAH)         (V. DURGA RAO)

                            ACCOUNTANT MEMBER   JUDICIAL MEMBER

Mumbai, Dated: 24th February, 2012

kv

Copy to:

1) The Appellant.

2) The Respondent.

3) The CIT (A) concerned.

4) The CIT concerned.

5) The Departmental Representative, “C” Bench, I.T.A.T., Mumbai.

//True copy//

                                                                                                                                 By Order

Asst. Registrar,

I.T.A.T., Mumbai.