Rajeev Tandon v. Assistant Commissioner Of Income-Tax, Delhi High Court, Judgment, Law, casemine.com

Factual and Procedural Background

The assessee received two gifts from abroad amounting to Rs. 30,04,300 from Mr. P.B Bhardwaj and Rs. 4,61,942 from Mr. Surender Khoka. These donors were unrelated to the assessee and purportedly gave the gifts to assist him in purchasing a house. The assessee provided documentation to establish the creditworthiness of the donors. However, the Assessing Officer concluded that the gifts were bogus, alleging that the assessee had routed his own money through these persons to inflate his capital. The assessee appealed to the Commissioner of Income-tax (Appeals), who dismissed the appeal. Subsequently, the Income-tax Appellate Tribunal also dismissed the assessee's appeal. The present appeal arises under section 260A of the Income-tax Act, 1961, challenging the Tribunal's order dated September 8, 2006.

Legal Issues Presented

Whether the gifts received by the assessee from unrelated persons can be considered genuine and not bogus under the Income-tax Act.

Whether the assessee sufficiently established the identity and creditworthiness of the donors and the genuineness of the gifts.

Whether the Assessing Officer was justified in rejecting the assessee's explanation and treating the credited amounts as income under section 68 of the Income-tax Act.

Arguments of the Parties

Assessee's Arguments

The assessee contended that the identity and creditworthiness of the donors had been established through documentation.

It was submitted that the gifts were genuine and should not be treated as bogus.

Revenue's Arguments (Assessing Officer)

The Assessing Officer held that the gifts were bogus and that the assessee had routed his own money through unrelated persons to increase his capital for purchasing a house.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Cit v. Durga Prasad More, [1971] 82 ITR 540 (SC)	Taxing authorities are entitled to examine surrounding circumstances to ascertain the real and factual position regarding credited amounts.	The court applied this principle to uphold the Assessing Officer's inquiry into the genuineness of the gifts based on surrounding circumstances.
Sajan Dass and Sons v. CIT, [2003] 264 ITR 435 (Delhi HC)	The assessee must establish the identity and capacity of the donor and prove that the amount received is indeed a gift.	The court found that the assessee failed to satisfy these requirements, supporting the Tribunal’s decision.
Commissioner Of Income Tax v. P. Mohanakala, [2007] 291 ITR 278 (SC)	Section 68 requires (i) credit of amount in assessee's books, (ii) sum credited during the previous year, and (iii) assessee’s explanation about the nature and source of credit must be satisfactory to the Assessing Officer.	The court relied on this precedent to conclude that the assessee's explanation was neither reasonable nor acceptable, justifying the rejection of the gifts as genuine.

Precedent

Rule or Principle Cited For

Application by the Court

Cit v. Durga Prasad More, [1971] 82 ITR 540 (SC)

Taxing authorities are entitled to examine surrounding circumstances to ascertain the real and factual position regarding credited amounts.

The court applied this principle to uphold the Assessing Officer's inquiry into the genuineness of the gifts based on surrounding circumstances.

Sajan Dass and Sons v. CIT, [2003] 264 ITR 435 (Delhi HC)

The assessee must establish the identity and capacity of the donor and prove that the amount received is indeed a gift.

The court found that the assessee failed to satisfy these requirements, supporting the Tribunal’s decision.

Commissioner Of Income Tax v. P. Mohanakala, [2007] 291 ITR 278 (SC)

Section 68 requires (i) credit of amount in assessee's books, (ii) sum credited during the previous year, and (iii) assessee’s explanation about the nature and source of credit must be satisfactory to the Assessing Officer.

The court relied on this precedent to conclude that the assessee's explanation was neither reasonable nor acceptable, justifying the rejection of the gifts as genuine.

Court's Reasoning and Analysis

The court examined the facts that the donors were strangers to the assessee and gifted large sums solely because the assessee needed money to purchase a house. The court found this scenario unusual and improbable. It emphasized the principle from Cit v. Durga Prasad More that taxing authorities may consider surrounding circumstances to determine the factual position. The court also referred to Sajan Dass and Sons v. CIT, which requires the assessee to prove the identity and capacity of the donor as well as the genuineness of the gift. The assessee failed to meet this burden satisfactorily. Furthermore, the court applied the Supreme Court's ruling in Commissioner Of Income Tax v. P. Mohanakala regarding section 68, which mandates a proper, reasonable, and acceptable explanation for credited amounts. The assessee's explanation was found lacking in reasonableness and acceptability. Consequently, the court found no error in the Tribunal's conclusion that the gifts were not genuine and upheld the order dismissing the appeal.

Holding and Implications

The appeal is dismissed.

The court upheld the Income-tax Appellate Tribunal's finding that the gifts received by the assessee were not genuine and could not be accepted as legitimate credits. The direct consequence is that the credited amounts are liable to be treated as income and taxed accordingly. No substantial question of law arises from this case, and no new precedent has been established beyond reaffirming existing principles regarding the burden of proof under section 68 of the Income-tax Act.

Rajeev Tandon v. Assistant Commissioner Of Income-Tax

Madan B. Lokur, J.:— The assessee is aggrieved by an order dated September 8, 2006, passed by the Income-tax Appellate Tribunal, Delhi Bench “C” in I.T.A No. 3495 (Del)/2004 relevant to the assessment year 2001-02.

2. The assessee claims to have received two gifts from abroad. One gift was from Mr. P.B Bhardwaj and was of an amount of Rs. 30,04,300 while the second gift was from Mr. Surender Khoka of an amount of Rs. 4,61,942. The assessee produced documentation to show the creditworthiness of both the donors but the Assessing Officer took the view that the gifts were bogus and that the assessee had merely routed his own money through these persons to increase his capital for purchasing a house.

3. The alleged gifts were given to the assessee by persons who were not related to him in any manner and were not given to him for any particular reason except because he needed the money to purchase a house and these donors wanted to help him.

4. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) (“the CIT(A)”) before whom he contended that the identity and creditworthiness of the donors had been established and consequently it was submitted that the Assessing Officer should not have come to the conclusion that the gifts were bogus. The Commissioner of Income-tax (Appeals) did not agree with the view canvassed by the assessee and dismissed the appeal. Similarly, the Tribunal also dismissed the appeal of the assessee and that is how we are required to deal with this appeal under section 260A of the Income-tax Act, 1961.

5. Having heard learned counsel for the assessee, we find that the Tribunal considered the entire case law on the subject including several decisions of the Supreme Court and this court. Reference has been made to Cit v. Durga Prasad More, [1971] 82 ITR 540, wherein the Supreme Court observed that the taxing authorities were entitled to look into the surrounding circumstances to find out the real and factual position. Similarly, this court in Sajan Dass and Sons v. CIT, [2003] 264 ITR 435 took the view that not only must the assessee establish the identity of the donor and his capacity to make the gift, but he must also establish that the amount received by him was in fact a gift.

6. We find from the facts of this case that the two donors had absolutely no connection with the assessee and they made gifts to the assessee only because he needed money to buy a house and they wanted to help him. It appears to us that this is not only quite unusual but also quite unnatural. It sounds rather incredible that a complete stranger would want to gift lakhs of rupees to a person only because that person wanted the amount for purchasing a house. The taxing authorities were entitled to look into the surrounding circumstances, which they did, and came to the conclusion that the gifts could not be said to be genuine. On these facts, we find no reason why a different view should be taken.

7. We may note that very recently, the Supreme Court dealt with a somewhat similar situation in Commissioner Of Income Tax v. P. Mohanakala, [2007] 291 ITR 278. While dealing with section 68 of the Act, the Supreme Court held that:

(i) There has to be a credit of the amount in the books maintained by the assessee.

(ii) Such credit has to be of a sum during the previous year,

(iii) The assessee offers no explanation about the nature and source of such credit found in the books, or if the assessee offers an explanation then, in the opinion of the Assessing Officer, it is not satisfactory

8. It is only then that the sum so credited may be charged to income-tax as the income of an assessee.

9. The Supreme Court considered the expression “the assessee offers no explanation” and observed that what it means is that the assessee offers no proper, reasonable and acceptable explanation in the opinion of the Assessing Officer, formed objectively with reference to the material available on record.

10. In so far as the present case is concerned, the explanation offered by the assessee does not appear to be reasonable, much less acceptable. Consequently, we do not find any error in the view taken by the Tribunal. No substantial question of law arises for consideration. Dismissed.

I.T.A No. 77 of 2007

Rajeev Tandon v. Assistant Commissioner Of Income-Tax

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue's Arguments (Assessing Officer)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Rajeev Tandon v. Assistant Commissioner Of Income-Tax

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