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51.  When Gifts from Undisclosed Sources Cannot be Assessed as Income

One of the main areas of dispute between the Income-tax assesees and the Income-tax Department is regarding gifts. Generally the gifts are not believed by the Income-tax Authorities. However, where the proof of identity of donors, their creditworthiness and genuineness of gifts are established, then the gifts cannot be assessed as income from undisclosed sources. This has been so held recently by the Delhi High Court in the case of CiT v. Ms. Mayawati (2011)338 ITR 563. As this is an important judgment concerning the gifts not to be assessed as income from undisclosed sources, the facts and the judgment are analysed in this tip below.

The Income-tax Return in this case was filed for the assessment year 2003-04 by the assessee on 6 August 2003, declaring total income of ` 13.29,090. The assessee had income from salary, house property and other sources.. The Assessing Officer, on a perusal of the return, found that during the year under consideration, the assessee had received gifts from certain persons particularly three persons. Likewise, immovable assets were also received from two persons. The assessee and her fam-’ ily members received gifts from different persons at different times and these gifts became the subject matter of scrutiny at various levels including the Income-tax Department and additions were made at the ends of the assessee and her family members in different assessment years.

The Assessing Officer recorded in his assessment order that it was surprising that the assessee had gifted the amount out of loan taken from this concern, namely M/s. BBFC. Since there was no occasion for making the. gift, the gifted amount was more than the income of the assessee and that there was no relation between the donor and the donee, the Assessing Officer held that it was only an arranged gift and an accommodation entry.

In a nutshell. the Assessing Officer did not accept the claim of the assessee in respect of the gift of two immovable properties and added the same to the income of the assessee under Section 69 of the IT Act. In the final assessment order the Assessing Officer made additions by not accepting the claim of the assessee. An appeal was preferred by the assessee against this order dated 30 March 2006. During the course of the appellate proceedings, on the written submissions of the assessee some clarification was sought from the Assessing Officer as to the creditworthiness of the donors as well as the financial statement of affairs depicting the net worth of Shri Ashok Jam, Shri Pankaj Jam and Smt. Veena Jam. The Assessing Officer submitted his remand report dated 30 October 2006 and certified the net worth of the donors as on 31st. March, 2002 as under :


1.           Shri Ashok Jain                                   ` 1,14,74,817

2.       Shri Veena Jain                         ` 1,32,14,312

3.       Shri Pankoj Jain                         ` 1,36,01,314


On a perusal of the report, it was seen that Shri Ashok Jam had gifted immovable property worth ` 40.68 lakh, Smt. Veena Jam had gifted immovable property worth ` 22.03 lakh and Shri Pankaj Jam had made a gift of ` 2 lakh. These gifts were seen in the light of the net worth and the creditworthiness of the three donors.

As per the CIT (Appeals), it was not necessary as per the Income-tax Act that the donor and the donee must be relatives. The CIT (Appeals) was of the opinion that the gifts received by the assessee could not be questioned on the ground of no “occasion” and no “relationship”.

As regards the various issues before the CIT (Appeals) it was noted by the CIT (Appeals) that lot of information and documentary evidence was produced by the assessee. In spite of such overwhelming facts no evidence at all was placed on record by the Assessing Officer to prove that the transaction of gift was sham and benami. The CIT (Appeals) was of the opinion that the genuineness of the gift transaction was conclusively established inasmuch as the identity and the capacity of the donor as well as the factum of gift stood established. The CIT (Appeals) came to the conclusion that once the donee furnished the gift deed and affidavits of the donors, they sufficed to prove the genuineness of the gift. He was also of the opinion that once the initial burden of the donor was discharged by the assessee, the onus shifted on the Assessing Officer to prove if there was anything to the contrary. The Assessing Officer was duty bound to bring new material on record in support of his view, however, mere rejection of good explanation did not convert good proof into no proof.
As regards the applicability of Section 69, the CIT (Appeals) was of the opinion that it was not the assessee who had made the investment. The donor had paid the stamp duty twice, the assessment of the donor was not disturbed and the donor and the donee both accepted the factum of gift. Further. the gift was also evidenced by documentary evidence like gift deeds, sworn affidavits, declaration before the Assessing Officer, etc. The donor also gave explanation for immediate source of gift. The CIT (Appeals) was thus, of the opinion that the donee had discharged not only the burden but also the onus cast on her. Accordingly, the addition of
` 40.68 lakh was deleted.

All the donors appeared before the Department, submitted materials regarding affidavits on oath, confirmed the gifts made, established their old relations with the assessee and proved their capacity to make the gifts. All assessees as well as the donors had appeared before the Registrar and the gifts were duly registered. All the formalities as per law were met by the assessee and the donors as well. The issue raised by the Revenue in this appeal could not be said to involve any question of law. In the light of the facts and circumstances, the High Court was of the view that no substantial question of law arose from the instant appeal. Therefore. the High Court confirmed the judgment passed by the Tribunal and dismissed the appeal of the Revenue.

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