Pawan Kumar Aggarwal vs Income Tax Officer
2014 Latest Caselaw 6223 Del

$~
*     IN THE HIGH COURT OF DELHI AT NEW DELHI
+                   ITA No. 137/2003
                                   Date of decision: 27th November, 2014

      PAWAN KUMAR AGGARWAL                     ..... Appellant
              Through    Mr. Mukul Gupta, Sr. Advocate with
              Mr. Vibhor Garg, Mr. Aseem Swaroop and Ms.
              Suvarna Kashyap, Advocates.

                          versus

      INCOME TAX OFFICER                         ..... Respondent
              Through    Mr. Akash Vajpai, Advocate for Mr.
              Rohit Madan, Sr. Standing Counsel.

      CORAM:
      HON'BLE MR. JUSTICE SANJIV KHANNA
      HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J. (ORAL)

C.M. 59/2003

This is an application for stay.

Learned senior counsel appearing for the appellant-assessee

states that he is not pressing the stay application. The same is

accordingly dismissed as not pressed.

ITA No. 137/2003

This appeal under Section 260A of the Income Tax Act, 1961

(Act, for short) by the appellant-assessee Pawan Kumar Aggarwal

impugns the findings recorded by the Income Tax Appellate Tribunal

(Tribunal, for short) in their order dated 17th September, 2002, relating

to the genuineness of the gift of Rs.1 lac received by the assessee‟s

minor daughter Aushi Aggarwal. The appeal pertains to assessment

year 1993-94 and was admitted for hearing vide order dated 13th April,

2004, on the following substantial question of law:-

"Whether the order of the I.T.A.T. in reversing the order of C.IT. [sic, C.I.T. (Appeals)] is not perverse?"

2. As is apparent from the question itself, the finding of the

Tribunal is factual and the issue is whether the aforesaid finding is

perverse.

3. The appellant is an individual and father of minor Aushi

Aggarwal, whose income was to be clubbed in terms of Section 64(1A)

of the Act. It is an accepted and admitted position that Aushi Aggarwal

had invested Rs.1 lac and Rs.5,000/- in Prayag Polymers (P) Ltd. on

18th August, 1992. The Assessing Officer called upon the assessee to

explain the source of the said deposit made by the minor Aushi

Aggarwal. The appellant-assessee, to explain the same, filed and relied

upon declaration of gift purportedly executed by one Bhupinder

Kumar, resident of Germany, who was maintaining a non-resident

external account in Citibank N.A., New Delhi. The said declaration

records that gift of Rs. 1 lac has been made out of natural love and

affection. The assessee also filed a copy of the bank account statement

of Bhupinder Kumar, the cheque prepared by Bhupinder Kumar for

issue of banker‟s cheque in favour of Aushi Aggarwal. The said bank

had issued a certificate dated 10th August, 1992 certifying that Aushi

Aggarwal had been paid an amount of Rs.1 lac by debit to the non-

resident external account of Bhupinder Kumar. The Assessing Officer,

however, did not accept the said explanation for various reasons set out

in the assessment order and treated the purported gift of Rs.1 lac as

assessee‟s own income from undisclosed sources.

4. The Commissioner of Income Tax (Appeals), however, deleted

the said addition observing that the aforesaid documents showed that

the gift was made by Bhupinder Kumar and it was not necessary that

the donor or the donee should have blood relationship. He referred to

Section 5(1)(ii)(b) of the Gift Tax Act, 1958 to the effect that

relationship was not a condition for making a gift by an non-resident

Indian. Accordingly, the addition made by the Assessing Officer was

deleted.

5. Revenue preferred an appeal before the Tribunal and has

succeeded by the impugned order dated 17th September, 2002. The said

order records that during the course of arguments, the authorized

representative of the assessee had admitted categorically that there was

no relationship between the assessee/Aushi Aggarwal and Bhupinder

Kumar. Therefore, the Tribunal felt that the assessee in this case had

created evidence to cloak his own undisclosed funds as a gift. The

Commissioner of Income Tax (Appeals) had also expressed doubts, but

had accepted the gift in view of the documents filed by the assessee.

The Tribunal on the said aspect observed that the Commissioner of

Income Tax (Appeals) had ignored the ground reality that gifts were

exchanged between known circles and were not made or received from

strangers. It was recorded that as per the assessee‟s own statement the

donor and the donee were strangers to each other.

6. We are not impressed with the contention raised by the

appellant-assessee that the gift should be accepted as genuine because

under Section 5(1)(ii)(b) of the Gift Tax Act, 1958, it is not necessary

or a condition that there should be relationship between the donor and

the donee in case of a gift by a non-resident Indian. The Gift Tax Act,

1958 is a separate enactment. The said Act, however, is not applicable

to gifts with effect from 1st October, 1998. Section 5 of the said Act

relates to exemption in respect of certain gifts. The provision relied

upon by the learned counsel for the assessee reads as under:-

5. Exemption in respect of certain gifts.--

(1) Gift-tax shall not be charged under this Act in respect of gifts made by any person--

(i) of immovable property situate outside the territories to which this Act extends;

(ii) of movable property situate outside the said territories unless the person--

(a) xxx

(b) not being an individual, is resident in the said territories, during the previous year in which the gift is made;"

Our attention is also drawn to clause (iic), Explanation thereto and

clause (iid) to Section 5(1) of the Gift Tax Act, 1958, which for the

sake of convenience, are being reproduced below:-

"(iic) being a citizen of India, or a person of Indian origin, who is not resident in India, to any relative of such person in India, of convertible foreign exchange remitted from a country outside India in accordance with the provisisons of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder.

Explanation.-- For the purposes of this clause and clause (iid),--

(a) a person shall be deemed to be of Indian origin if he or either of his parents or any of his grand-parents was born in undivided India;

(b) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder;

(c) "relative" has the meaning assigned to it in clause (41) of section 2 of the Income-tax Act;

(d) "resident in India" shall have the meaning assigned to it in the Income-tax Act;

(iid) being a citizen of India or a person of Indian origin, who is not resident in India, to any relative of such person in India of property in the form of any foreign exchange asset as defined in clause (b) of section 115C of the Income-tax Act"

What was highlighted by the Senior Counsel is that in clause

(iic) and (iid), the word „relative‟, which is defined in explanation

clause (c) has been used, whereas, in Section 5(1)(iid), the legislature

conspicuously has not used the word „relative‟. It is difficult to accept

the said contention. Section 5 deals in exemption and stipulation that

when gift tax would not be charged. The said provision is of no

relevance and application when we examine the question whether the

assessee has been able to prove and establish the genuineness of the

transaction, i.e. the gift, and establish the source of the entry made in

the books of accounts. Admittedly, in the present case the minor

daughter of the appellant had made investment of Rs.1 lac and when

the assessee was called upon to explain the source of the

deposit/income of her daughter, the assessee had submitted that Aushi

Aggarwal had received a gift from a non-resident by the name of

Bhupinder Kumar.

7. The Tribunal in the impugned order has not specifically referred

to Section 68 of the Act, but when we notice and read the order of the

Assessing Officer, he has specifically recorded that the addition of

Rs.1 lac was being made as the assessee had not been able to prove and

establish the source of the income/deposit of the minor Aushi

Aggarwal and accordingly the said amount should be treated as income

from undisclosed source. On the said aspect, the Assessing Officer has

referred to the scrutiny of the bank account in the name of Aushi

Aggarwal in Canara Bank, which was opened on 14th August, 1992

with deposit of Rs.5,100/- and thereafter a cheque of Rs.1 lac was

deposited on 18th August, 1992. On the same date itself, two cheques

were issued in favour of Prayag Polymers (P) Ltd. During the course

of assessment proceedings, the assessee was asked to prove and

establish the donor‟s capacity to make the gift, relationship between

the assessee and Bhupinder Kumar and also to produce a copy of

assessment order made by the tax authorities of the country in which

Bhupinder Kumar was residing. These details were required to

establish and show genuineness of the transaction relating to the gift.

The Assessing Officer has recorded that this information was not

furnished. The Assessing Officer has further recorded that apparently

there was no blood relationship between the donor and the

assessee/donee and the donor had not been produced for examination.

The capacity of the donor was also not proved and established.

Accordingly, the Assessing Officer held that medium of gift was a

conduit for funnelling his own undisclosed money. The Commissioner

of Income Tax (Appeals) has only relied upon Section 5(1)(ii)(b) of the

Gift Tax Act, 1958 to hold that the addition could not be sustained.

He, however, accepted that the relationship between the donor and the

donee had not been established. As far as production of assessment

order in respect of the donor was concerned, it was observed that

Bhupinder Kumar was not liable to be taxed in India and, therefore,

production of assessment order was not relevant. He also observed

that onus of proof was discharged by the assessee by disclosing

identity, capacity, source and confirmation from the donor.

8. Possibly, some of the information/confirmation may not have

been possible for the appellant assessee to procure, but the close

relationship, not necessarily blood relationship, between the parties

could have been asserted and fortified. Genuineness of the transaction

has to be examined by not only taking into consideration the

paper/documents, which were executed, but surrounding circumstances

are also relevant. These aspects are of significance and importance,

when genuineness of a transaction is in issue. A gift is a voluntary act,

by a person who out of love and affection transfers of money,

moveable or immoveable asset to another person. 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/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. In the present case, the appellant

merely relies upon the form of declaration by Bhupinder Kumar that

the gift was made out of love and affection. However, it was accepted

and admitted before the tribunal that the donor and donee/assessee

were not known to each other. Thus, the statement in the declaration of

gift regarding love and affection was apparently a mere formal

proclamation. It was a wrong and incorrect assertion. Assessee does

not plead past relationship and why and for what reason the said

Bhupinder Kumar felt the urge and desire out of love and affection to

make a gift to Aushi Aggarwal, the minor daughter of the appellant-

assessee. The assessee could have explained and shown that the said

Bhupinder Kumar was known to him, but his contention was that he

was not required to show and establish the relationship. Mere fact that

the amount paid had emanated from the bank account of Bhupinder

Kumar would not be suffice in the facts of the present case.

9. It is not necessary for the Revenue to show and prove how the

assessee in this case through a conduit had transferred and brought into

books of account, undisclosed income under Section 68 of the Act. In

fact, this section casts a burden on the assessee to show genuineness of

the transaction by establishing identity of the person from whom the

payment was received, the source of payment, which necessarily need

not be confined only to the details of the bank account from which

payment was made but also corroborating and surrounding

circumstances. This has always been the legal position, even prior to

insertion of Section 68 of the Act. It was a well-accepted principle that

income/cash credits which are not satisfactorily explained might be

assessed as income. Even long prior to the introduction of Section 68

in the statute book, courts have held that where any amount was found

credited in the books of the assessed in the previous year and the

assessed offered no explanation about the nature and source thereof or

the explanation offered was in the opinion of the Assessing Officer not

satisfactory, the sums so credited could be charged to taxed as income

of the assessed for the relevant previous year. Section 68 was inserted

in the Act only to provide statutory recognition to a principle which

had been clearly adumbrated in judicial decisions. The whole history of

the introduction of Sections 68 to 69D of the Act and the judicial

decisions bearing thereupon clearly establish the proposition that these

sections are only clarificatory and that even otherwise an addition can

be made towards income from undisclosed sources. [See

Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd.,

[1986]159ITR78(SC), Yadu Hari Dalmia Vs. Commissioner of Income

Tax, Delhi (Central), [1980]126ITR48(Delhi), J. S. Parkay v. V. B.

Palekar, [1974]94ITR616(Bom), Nanak C hand Laxman Ds Vs. C.I.T,

(1983) 140 ITR 151 (All)]. Likewise, creditworthiness of the donor

would depend upon the income and earning of the donor and whether

and did he have necessary funds. Rarely one finds a poor man giving

gifts to a rich and powerful, out of natural love and affection.

10. In the present appeal, we are considering whether the order

passed by the Tribunal is perverse. The test of perversity is whether a

reasonable person conversant with the legal provisions would have

reached to the conclusion or finding under challenge. If the reasoning

and the finding of the tribunal is plausible, we would not interfere. This

test is not satisfied in the present case

11. Keeping in view the aforesaid position, we do not find that the

order passed by the Tribunal is perverse. Accordingly, the question of

law is answered in favour of the respondent-Revenue and against the

appellant-assessee. The appeal is disposed of. No costs.

SANJIV KHANNA, J.

V. KAMESWAR RAO, J.

NOVEMBER 27, 2014 NA