Ajeet Singh Karan,, New Delhi vs Department Of Income Tax

DCIT, Circle 43(1) Vs. Shri Ajeet Singh Karan, New Delhi. H.No.36, Sector 37, Arun Vihar, NOIDA - 201303

(PAN AAGPK 5575 J)

(Appellant) (Respondent)

Appellant by : Smt. Parwinder Kaur, Sr. D.R. Respondent by: Sh. Deepak Chopra, And Sh. Rohan Khare, Advocates

ORDER

PER SHRI GEORGE GEORGE K, JM:

1. This appeal at the instance of the Revenue is directed against the order of

the CIT(A)'s order dated 13.10.2009. The relevant assessment year is 2005-06.

2. The solitary ground raised reads as follows:-

"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.3.00 crores made by the AO on account of gift received by the assessee."

3. The Assessing Officer vide letter dated 24.12.2014 had raised an additional

ground which reads as under:-

"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.3.00 crores made by AO by admitting the additional evidence in contravention of Rule 46A(3) of I.T. Rules by way of examining the witness produced by assessee before him during appellate stage without allowing the reasonable opportunity to the Assessing Officer to cross examine the witness."

ITA No.28/Del /2010 2 4. The assessee is an individual. He is earning income from salary. For the relevant

assessment year, return of income was filed declaring an income of Rs.98,56,088/-. The

assessee had received as gift a sum of Rs.3.00 crores from Madan Lal Arya (Donor) vide

Cheque No. 712656 dated 21.08.2004 drawn on ICICI Bank, New Delhi. The said gift

was characterized as part of the capital of the assessee and reflected in the capital

account annexed to the balance sheet filed by the assessee, along with the return of

income. The assessment was selected for scrutiny by issuance of notice u/s 143(2) of

the Act. The Assessing Officer, during the course of scrutiny assessment, issued

summon to the Donor. The donor, through his representative, complied with the notice

issued by the Assessing Officer and furnished the information sought for by the

Assessing Officer from time to time. However, assessment was concluded by the order

dated 26.12.2007, wherein gift received by the assessee from Shri Madan Lal Arya was

treated as bogus and added to the total income of the assessee.

5. The assessee being aggrieved filed an appeal before the First Appellate Authority.

The CIT(A) allowed the appeal of the assessee. The relevant finding of the CIT(A) reads

as follows:-

(at Page 7) " I find that the assessing officer has treated the gift of Rs.3 crores received by the appellant in the F.Y. relevant to assessment year 2005-06 has not genuine on the grounds that;

a) The assessee has not been able to establish the identity of the alleged doner .

b) The capacity of the doner has remained in doubt c) The genuineneness of transaction is also not proved.

The appellant has challenged the above inference of the AO stating that the assessee had produced the necessary evidence to clarify all the objections raised by the AO. The identity of the donor has been confirmed by the report of the Inspector who had been deputed by the AO himself. The financial capacity of the donor is proved beyond any doubt by the statement of affairs and returns of income of the donor filed by the assessee. The documents/evidence produced by the assessee to establish the identity and financial capacity of the doner have not been disputed or controverted by the assessing officer. The assessee has also produced all the papers like copy of bank account etc. to show that the transaction has taken place through ITA No.28/Del /2010 3

banking channels and it was genuine. In view of the above facts the AO was not justified in drawing adverse inference and treating the gift as not genuine.

As far as establishing the genuineneness of gift on grounds of identity and financial capacity of the doner as well as genuineness of the transaction is concerned I agree with the assessee that given the fact that the assessee had submitted the necessary and sufficient documentary evidence before the AO to prove the identity and financial capacity of the donor, the AO was not justified in drawing an adverse inference.

However, as far as final test of gift regarding genuineness is concerned it has been held by various courts that the genuineness of the gift cannot be determined without looking into the aspect of human probabilities, relationship of doner and done, occasion of making a gift and existence of reciprocity. In this case the counsel of the assessee has tried to prove the genuineness of the gift by bringing on record information that while the' assessee was working with the company in which the doner was a director, he had developed family relationship with the doner and his sons and together they managed to take the company to great height resulting in an increase of 6 times in the turnover of the company in a span of 4 years. As a result of appellant's close association with the family, the doner assumed the role of an elderly father figure for the appellant and he gifted the money to the appellant without any consideration out of natural love and affection that had developed over' a period of time. It has also been stated before me that the doner is a philanthropist and a generous person and he has given gifts to other individuals as well. The donor Mr. Arya and the assessee Mr. A.S. Karan himself appeared before me and explained the circumstances which led to 'the development of a close family relationship between them.

The explanation given by the appellant is supported by sufficient evidence and it is also seen that Mr. Arya, the donor has on many occasions gifted substantial amounts as gifts to his close relations and friends some of who were persons in need. It is also seen that he has gifted a huge sum of Rs.3 crores to the assessee in the year 2006-07 also and this second gift of Rs. 3 crores has been offered to tax in view of change in law relating to gifts. In fact it has also been argued by the assessee that if there was any intention to avoid payment of tax by disguising an item of income as gift then there would not have been another gift in the very next year when such gifts became taxable.

I am of the view that although the AO is right in holding that the genuineness of gift transferred cannot be determined without looking into the aspect of human probabilities, yet, in the case of the assessee even though it appears highly improbable that a person having a family of his own will donate such huge amount not even once but twice to a person who is not a family relation but has been only a business associate, we cannot reject/disregard the circumstances of the case and the evidence produced. Considering the facts and circumstances of the case in totality, I am inclined to treat is as a rare case and hold that the AO is not justified in rejecting the explanation of the assessee supported by necessary and sufficient evidence merely on the ground of human probabilities, specially when he has not brought on record any material to show that the transaction was not genuine.

I am therefore convinced about the genuineness of gift and therefore delete the addition of Rs.3 crores made by the AO on account of gift received by the assessee.

ITA No.28/Del /2010 4

6) In the result, the appeal is allowed."

6. The Revenue being aggrieved is in appeal before us. The Ld. DR referring to

additional ground submitted that the CIT(A) in contravention of Rule 46A(3) of the I.T.

Rules, examined the donor, during appellate stage, without allowing reasonable

opportunity to the AO to examine the witness. The Ld. A.R. on the other hand, reiterated

the submissions made before the Income Tax Authorities and relied on the

finding/conclusion of the First Appellate Authority. The AR had also filed paper book

comprising of 121 pages, enclosing the details of source of funds, Bank statement as

well as the assessment orders of the donor. The copies of the written submissions filed

before the CIT(A) were also placed on record.

7. We have heard rival submissions and perused the material on record. The

Assessing Officer has treated the gift received by the assessee from Shri Madan Lal Arya

as bogus for the following three reasons:

(i) The identity of the donor is not substantiated by the assessee.

(ii) Capacity of the donor is doubted.

(iii) Genuineness of the transaction is not proved.

7.1 As regards, the first objection raised by the Assessing Officer, it is discernable

from the paper book filed that sufficient documentary evidence is furnished during the

course of assessment proceeding in the form of:

· Affidavit of the donor in confirming the gift;

· Copies of the acknowledgement of return filed by the Donor.

· Copy of Cheque of Rs.3.00 crores received from Donor of the gift.

7.2 From the above documents, produced before the Assessing Officer, the complete

details of the donor including his name, address and the PAN are clearly stated. Further, ITA No.28/Del /2010 5

in response to summon issued by the AO, the Donor, through his representative

submitted the information sought for by the AO. Further, the identity of the donor is also

personally verified by the Inspector who had visited the residence of the Donor on

18.12.2007. Therefore, the assumption of the AO that identity of the Donor is not

established is without any basis.

7.3 As regards, the doubt raised with regard to creditworthiness of the donor it has

been brought to our notice by placing reliance on the paper book filed, that sufficient

documentary evidence in the form of copy of acknowledgement of income tax return of

the Donor in respect of AYs 2005-06 & 2006-07, wherefrom it is clear that the Donor was

a man of means and falls in high income bracket group. The statement of affairs/wealth

tax return are also placed on record, which clearly shows that the net worth of the donor

is more than seventy crores. Therefore, the assumption of the AO that the Donor is

lacking creditworthiness is also devoid of any merit.

7.4 As regards, the genuineness of the transaction AO without placing any evidence

on record to prove the transaction is sham, false or not genuine had disbelieved the

version of the assessee. The documentary evidence such as the details of the donor

affidavit of the donor, confirming the gift, the copy of the cheque of Rs.3.00 crore

received from Donor and the Bank statement reflecting the credit in respect of the gift,

were furnished before the Assessing Officer. However, the AO held that there was no

relationship between the Donor and Donee and there was no occasion for giving the gift

to the assessee by the Donor. There is no requirement under the Income Tax Act or any

other law that the gift can be made only to a relative. Further, there is no requirement that

the gift can be made only on specific occasions.

7.4.1 The term Gift has no where been defined under the Income Tax Act. However, the

Gift Tax Act, 1958 (now repealed) now defined the gift as follows: ITA No.28/Del /2010 6

"....transfer by one person to another of any existing movable or immovable property made voluntarily and without consideration in money or money's worth..."

In simple words, Gift may be defined as transfer of any property from one person

to another gratuitously.

In view of the above definition, following are the essential elements of a Gift

· Donor's intention to make a gift, and

· The gift should be made voluntarily and without consideration by the Donor

7.4.2 Further, section 123 of the Transfer of Property Act deals with the

procedure relating to transfer of gifted property and in relation to movable property states

that the transfer may be effected merely by delivery.

7.4.3 In the instant case, the documentary evidences on record clearly establish

that all the pre conditions of a valid Gift are fully satisfied. The Donor has gifted the

amount voluntarily out of natural love and affection without any consideration. Further,

the property in the gift also stands transferred to the assessee, as the gift cheque has

been delivered to the assessee. The AO has not been able to bring out any tangible

material on record to demonstrate that the Gift was made by the Donor out of some

ulterior motive or design.

7.4.4 In the instant case, as noticed by the CIT(A), the assessee was employed

as a Senior Vice President (operation) with a company which was owned by the Donor.

The assessee on account of long relationship with the donor, had developed a fatherly

relationship with the donor. Moreover, assessee was mainly instrumental in taking the

donor's company to greater heights, by increasing the turnover of the company six times

within a span of four years. The Donor had also gifted the assessee a sum of Rs.3.00

crores in the assessment year 2006-07, which was never doubted as not genuine, since

the assessee had paid taxes on the said gift transaction u/s 56 of the Act, in view of the ITA No.28/Del /2010 7

prevailing law in AY 2006-07. The human probabilities clearly establish the genuineness

of the gift/transaction.

7.4.5 As regards, the additional ground it is to be mentioned that at the very first

instance, assessee had produced the affidavit of the donor wherein it is clearly

mentioned that the gift is made out of natural love and affection. What has been stated in

the affidavit, is what is reiterated by the Donor when he appeared before the CIT(A) and

no fresh evidence was brought on record before the First Appellate Authority, thereby

there is no violation of provision of Rule 46A of the I.T. Rules.

8. For the aforesaid reasons, we hold that the CIT(A) is justified in deleting the

addition of Rs.3.00 crores. It is ordered accordingly.

9. In the result, the Revenue's appeal is dismissed.

The decision was pronounced in the open Court on 16th January, 2015.

Sd/- Sd/- (N.K. SAINI) (GEORGE GEORGE K.) Accountant Member Judicial Member

Dated: 16th January, 2015.

Aks/- Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi