Leela Jain, Mumbai vs Assessee

Date of Hearing : 04.12.2014 Date of Pronouncement : 11.02.2015 ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 2 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

ORDER

Per Sanjay Garg, Judicial Member:

The above titled appeals have been filed by different but related assessees against the orders dated 21.03.2013 & 25.03.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)]. Since the facts and issues involved therein are identical, hence the same are taken together for disposal by this common order for the sake of brevity. The facts, for the sake of convenience, have been taken from ITA No.3569/M/2013.

ITA No.3569/M/2013. 2. The assessee has taken the following grounds of appeal:

"A) Addition made u/s.68 of Rs.1,25,00,000/- in order passed u/s.153A is bad-

in-law, unjustified and liable to be deleted

1. The learned CIT(A) erred in confirming addition made u/s.68 of the Act in the assessment order passed u/s. I 53A of the Act without appreciating the fact that no incriminating material or evidence was found in course of search action in respect of addition made u/s.68 more particularly when the assessment for AY 2004-05 was already completed and order passed u/s.143(3) of the Act and the impugned issue duly examined and that the said assessment order did not get abated as the same was not pending as on the date of search action and hence, the addition made u/s.68 of Rs.I.25 lacs in the order passed u/s.153A of the Act is bad in law, unjustified and may be deleted.

2. The learned CIT(A) failed to appreciate that statement recorded of son of appellant in the course of search action cannot be said to be incriminating evidence found in course of search action more particularly when no evidence was found and only general question and answer were asked and hence, the addition sustained in order passed u/s.153A of the Act is without any justification and liable to be deleted.

Without prejudice to above, on merits:

3. The Ld. CIT(A) erred in confirming addition made u/s.68 of the Act in respect of Gift re ceive d from Shri Kanhaiyala l S harma on the ground t hat creditworthiness and genuineness of Gift is not proved ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 3 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

without appreciating that all the evidences and explanations were furnished in the course of the proceedings proving beyond doubt the creditworthiness of the donor as also the genuineness of the gift received and hence, the addition sustained u/s.63 of the Act of Rs.1.25 lacs is unjustified and liable to be deleted.

4. The Ld. CIT(A) failed to appreciate that the gift was received from close family friend and not from stranger and that the financial statement of the do no r g iv e n by i nd e pe nd e nt a u d it o r in UA E cl e a r ly p rov e d t h e creditworthiness of the donor and hence, the addition made u/s.68 of the Act merely on presumptions and assumptions and surmises and conjectures is without any justification and liable to be deleted.

5. The appellant craves leave to add, amend, alter or delete all or any of the aforesaid grounds of appeal."

3. The brief facts of the case are that the assessee had filed his return of income for the assessment year in question i.e. A.Y. 2004-05 on 12.08.04 declaring total income of Rs.6,70,420/-. The Assessing Officer (hereinafter referred to as the AO) noted that the assessee had shown to have received gift of Rs.1,25,00,000/- from an NRI Shri Kanhaiyalal Sharma. During the assessment proceedings under section 143(3) of the Act, the AO called for necessary details from the assessee to substantiate the claim of gift received from Shri Kanhaiyalal Sharma. The assessee submitted the necessary details such as copy of passport of Shri Kanhaiyalal Sharma, certificate from Asia Exchange Center and Wall Street Exchange Center for the verification of gift received and also the confirmation from the donor namely Shri Kanhaiyalal Sharma. After necessary verifications to his satisfaction, the income of the assessee was assessed accordingly vide assessment order dated 15.12.06 passed under section 143(3) of the Act. Thereafter a search action, under section 132 of the Act, was conducted followed by subsequent assessment proceedings under section 153A of the Act. During the said subsequent assessment proceedings, the AO asked the assessee to provide necessary evidences in support of the gift transaction in question. The assessee provided ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 4 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

the necessary details which have been summarized by the AO in para 2.1 of the assessment order, reproduced as under:

"2.1 The assessee has provided copy of Notarized declaration of gift dated 06-02- 2006. He has further filed photocopies of the following documents.

i. A copy of Certificate from Asia Exchange Center, Dubai dt. 20th Nov, 2006 showing the particulars of demand drafts of Rs.50,00,000/- issued by them. ii. A copy of Certificate from Wall Street Finance Center, Dubai dt. 20th Nov, 2006 showing the particulars of demand drafts of Rs.75,00,000/- issued by them. iii. A copy of Certificate dt. 18th Nov. 2006 issued by Union Bank of India, Zaveri Bazar Branch confirming deposit of the aforesaid demand drafts and their clearance.

iv. A copy of relevant pages of Passport of Shri Kanhayalal Sharma. v. A copy of declaration of gift made by Shri Kanhayalal Sharma on plain paper on 29-01-2004 stated to be made at Dubai."

3.1 The AO, however, observed that the crucial point of natural love and affection was missing between the donor and the donee. The AO further noticed that during the search and seizure action carried out in the premises of the assessee, statement of Shri Ritesh Jain, son of the assessee Shri Amritlal Jain was recorded on 14.11.08. The excerpts of the statement relied upon by the AO as noted in para 2.4 of the assessment order, for ready reference, are reproduced as under:

"2.4 During the course of search and seizure action, statement of Shri Ritesh Jain, son of Shri Amritlal Jain was recorded on 14-11-2008. Relevant part of the statement is reproduced below:

"Q.27 Do any of your or your families relative, or close friend Jive in Dubai or was living earlier in Dubai?

Ans. No, none of my or our family relative or close friend have ever lived in Dubai including as on date."

On the next day, a specific query about Shri Kanhayalal Sharma was made to him. Relevant part of the statement is reproduced below:

"Q.20. Do you and any member of your family know Mr. Kanihyalal Sharma? Who is he? What is the relation with you? What is his address? What are the source of income of him?

Ans. Yes, he is a person, belonging to our native place, his father and my late grandfather were good friends, and he used to live in Rajasthan and now, he settle some where abroad. I have no idea about his personal and professional life.

ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 5 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

Q.22. What is his present address?

Ans. I do not remember, as lost touch with him.

Q.22. Have he ever Iived in Dubai?

Ans, Yes. I think so.

Q.23. In case of reply to question 27 of your statement dated 14-11-2008, you have clearly said that none of your or your families friend or relative lives in Dubai or ever lived in Dubai now you are saying that your family friend Mr. Kanihyalal Sharma has sometime lived in Dubai? Ans. At that time, I would not remember the same, but when you have told me the name of Mr. Kanihyalal sharma, I remembered him. Q.24. In such situation why the gift from this person, whose name you are not able to remember, you do not know about his personal and professional life. Thus why the gift from such party should be exempted from tax, as this gift does not have means of natural love and affection. Ans. Just because I was not able to remember that he lives in Dubai, and do not know his personal and professional life does not mean that our relation is devoid of love and affection."

This statement clearly establishes that the donor is not having any close relations with the family of the assessee. The question of love and affection does not arise."

3.2 From the above, the AO held that the donor was not having any close relations with the family of the assessee and there was no question of love and affection between them. He further concluded that it was unlikely that said Shri Kanhaiyalal Sharma would have made a gift of his hard earned money to the assessee and his family. He therefore held that the assessee had failed to discharge the onus on him to establish that the gift was genuine. He accordingly made the addition of the gift amount of Rs.1,25,00,000/- into the income of the assessee.

4. The Ld. CIT(A) upheld the additions so made by the AO. The assessee has, thus, come in appeal before us.

5. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. After hearing the Ld. Representatives of the parties, we find that in this case, the scrutiny assessment under section 143(3) of the Act was completed on 15.12.06. During the said ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 6 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

assessment proceedings, the AO had called for necessary evidences regarding the gift transaction in question. The assessee provided the necessary details such as copy of deed of declaration of gift by the donor, bank account statements, copy of passport of the donor, confirmation from Asia Exchange Center and Wall Street Exchange Center to the effect that out of the amount provided by Shri Kanhaiyalal Sharma of Dubai through cheque drawn from his bank account, the said exchange centers had issued demand drafts in favour of the assessee payable in India. The AO, after duly verifying the identity of the donor, creditworthiness of the donor and genuineness of the transaction accepted the claim of the assessee. The assessment proceedings therefore had become final. During the course of search action, no incriminating material was found to show that the gift in question was non genuine. So far the reliance on the statement of Sh. Ritesh Jain son of the assessee Shri Amritlal Jain is concerned, the Ld. AR has brought into our attention the fact that his examination/cross examination was started at 9 P.M. on 14.11.08 and continued till 7 A.M. of the next day i.e. 15.11.08. This fact has been specifically recorded under the signatures of Shri Ritesh Jain on his statement as is revealed from page No.60 to 72 of the paper book filed with us. During the said lengthy cross examination, the AO picked up some questions/ answers which have already been reproduced above. From the said answers, the AO concluded that the donor was not having any close relations with the family of the assessee. It has also been recorded in the assessment order that the examination/cross examination of Shri Ritesh Jain continued for two days. A perusal of the above reproduced question/answers numbering 20, 23 & 27, relied upon by the AO, reveals that there was nothing incriminating in the said replies/answers given by Shri Ritesh Jain to the questions put by the AO. The AO has just made inferences and presumptions from the reply that the assessee was not having any close relation with the donor. Assumptions and ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 7 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

presumptions made by the AO out of some answers given by Shri Ritesh Jain in his lengthy statement/cross examination which continued during the whole night were not sufficient to hold that there is some incriminating evidence in the said statement. Even as per the law, as was in force at the time of occurring of above stated transactions, there was no legal requirement that the donee should be closely related to the donor or vice-versa. No tangible incriminating material evidence was found during the search action against the assessee. Under such circumstances, the subsequent assessment under section 153A in relation to already concluded assessment under section 143(3) of the Act was not justified. The Special Bench of the Tribunal in the case of "All Cargo Global Logistics Ltd." 137 ITD 257, has held that assessment u/s. 153A can be made on the basis of incriminating material found during the search. The Hon'ble Rajasthan High Court in the case of "Jai Steel (India) v. ACIT" (2013) 259 CTR 281 has held that in case nothing incriminating is found on account of search or requisition, the question of reassessment of the concluded assessment does not arise. Hon'ble High Court rejected the argument of the learned counsel for assessee to the effect that once the notice u/s. 153A is issued, the assessments for six years are at large both for the AO and the assessee. It has been further held by the Hon'ble High Court that the provisions of section 153A to 153C cannot be interpreted to be further innings to the AO and/or assessee beyond the provisions of section 139 (return of income), 139(5) (revised return of income), 147 (income escaping assessment) and 263 (revision of orders) of the Act. The Hon'ble High Court has further observed that the words "assess" or "re-assess" have been used at more than one place in the section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of abated proceedings and 'reassess' has been used for completed assessment proceedings, which would not abate as they are not pending on the date of ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 8 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only on the basis of the incriminating material found during the course of search or requisition of documents. The Ld. DR has relied on the judgment of the Hon'ble Andhra Pradesh High Court in the case of "Gopal Lal Badruka Vs. DCIT", 346 ITR 106 (AP) to stress the point that the AO can use evidence other than that found during the course of search while framing the assessment u/s. 153A of the Act. The said judgment of Hon'ble Andhra Pradesh High Court has been duly discussed by the Special Bench of the Tribunal in the case of "All Cargo Global Logistics Ltd." (supra), holding that the same was distinguishable on the facts. In the case of "Gopal Lal Badruka Vs. DCIT" (Supra), incriminating evidence was found in relation to eight plots of land but no evidence was found in respect of 24 plots. Since incriminating material was found in respect of eight plots, Hon'ble Court held that the AO can estimate the income in respect of all 32 plots. The fact was that incriminating material was found in that case. The proposition of law which emerges out in the light of the law laid down by the Rajasthan High Court in the case of "Jai Steel (India) (supra)", Hon'ble Gujarat High Court in the case of "Gopal Lal Badruka" (supra) is that where incriminating material is found during the search action, the AO while making assessment u/s. 153A can take note of other materials on record, which are relevant and connected to the material found during the search and inference can be drawn relating to other transactions of similar nature. However, when no incriminating evidence is found during search, it is not open to the AO to make re-assessment of concluded assessment in the garb of invoking the provisions of section 153A. As observed above, such an action will defeat the other relevant provisions of the Act and also the rights of the assessee accrued therein. In our view, no tangible incriminating material was found during the search action. Hence, the ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 9 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

reassessment made by the AO under section 153A was bad in law.

6. Even on merits, the additions in this case have been based on conjectures and surmises. The gifts were made in this case in assessment year 2004-05 i.e. prior to the insertion of clause (v) to sub section (2) of section 56 vide which the scope of persons from whom the gift received is exempt from tax has been restricted. Prior to the said insertion, there was no embargo on receipt of gift from a friend. Such gifts were exempt from tax .

7. Now coming to the question of validity of the gift transaction, the three essentials for a gift to be valid as per section 122 of the transfer of Property Act are that;

(1) The gift must be by one person called donor, (2) The gift must be accepted by the another person called donnee. (3) The acceptance must be made during the life time of the donor and while he is still capable of giving.

All the above requirements of a valid gift as per law have been duly complied with in the transaction in question. So far as the provisions of the Income Tax Act are concerned, the three requirements for a valid transaction should be;

(1) Identity of the donor (2) Financial capacity of the donor (3) Genuineness of the transaction

The above ingredients relating to the transaction had duly been examined by the AO during the assessment proceedings under section 143(3) of the Act and after due satisfaction, the assessment order was passed.

8. Even during the appellate proceedings before the Ld. CIT(A), the assessee had produced necessary evidences in respect of the above three requirements. The identity of the donor was duly established, confirmation ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 10 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

was duly received from the donor, the transactions were done through banking channel and as such evidences regarding the genuineness of the transactions were also produced. A perusal of the impugned order reveals that the additions have been made pursuance to assessment proceedings under section 153A of the Act merely on the basis of assumptions and presumptions holding that the assessee had failed to discharge the burden relating to genuineness of gifts. We may point out here that the present proceedings were not the original assessment proceedings under section 143(3) of the Act where the initial burden was upon the assessee to prove the genuineness of the transaction. In the proceedings under section 153A, there must be some incriminating material indicating that the income of the assessee in the original assessment proceedings had escaped assessment. On the basis of that incriminating material, the assessment proceedings can be initiated under section 153A. The initial burden is upon the Revenue under section 153A to prove that there is an incriminating material which shows that the claim made by the assessee in its original return was not correct. Once there does not exist any such incriminating evidence, the additions on the basis of mere suspicion about the genuineness of the transactions cannot be held to be justifiable.

9. In view of the above, the assessment proceedings made under section 153A in this case are held to be bad in law and the same are set aside and the consequential additions made are also accordingly ordered to be deleted.

ITA Nos.3570 & 3571/M/2013

10. The assessee, Mrs. Leela Jain in ITA No.3570/M/2013 is the wife of Shri Amritlal Jain and the assessee in ITA No.3571/M/2013 namely Shri Ritesh Jain is the son of Shri Amritlal Jain to whom the gifts of Rs.50 lakh each have been made. The facts and issues involved being identical in nature and in view of our findings given above, the above appeals are also hereby ITA No.3569/M/2013, ITA No.3570/M/2013 & ITA No.3571/M/2013 11 Shri Amritlal Jain, Mrs. Leela Jain & Shri Ritesh Jain

allowed.

9. In the result, all the above titled three appeals filed by the different assessee are hereby allowed.

Order pronounced in the open court on 11.02.2015.

Sd/- Sd/- (R.C. Sharma) (Sanjay Garg) ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai, Dated: 11.02.2015. * Kishore, Sr. P.S.

Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [

By Order

Dy/Asstt. Registrar, ITAT, Mumbai.