Dr. Bharat Bhushan Parsoon, J

The revenue has filed this appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as, the Act) challenging order (Annexure A-3) dated 19.8.1999 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as, the Tribunal) in ITA No. 474(ASR)/1993.

2. This appeal was admitted for hearing on the following substantial question of law:

“Whether, on the facts and in the circumstances of the case, the Ld. ITAT was justified in law in dismissing the appeal of the Revenue whereby sustaining the findings of the Ld. CIT(A) deleting the addition of Rs. 1,00,000/- made by the A.O On account of unexplained and ingenuine credit in the capital account of the partner, Sh. Sat Pal Singh appearing in the books of account of the assessee in the asstt. Year 1989-90, holding that no such addition was required to be made in the hands of the assessee?”

3. During the assessment for the assessment year 1989-90, the Assessing Officer (hereinafter mentioned as, the AO) had noticed that in the capital account of one partner of the firm, Rs. 1 lac had been credited through cheque received from NRI Harjit Singh. On further enquiry, the AO had noticed that this amount had been received from an acquaintance of the partner of the firm as a gift. Finding no reasonable connection of the gift with the partner or the firm, addition of Rs. 1 lac was made in income for the year of the assessee. Following observations were made by the AO:

“In this case, the point to be seen is that a person residing abroad has not sent or gifted a single penny to his family members residing in India and as such, the story of gifting the huge amount of Rs. One lakh to Sh. Satpal Singh cannot be accepted as a genuine one. From the detailed discussion made above, one can reach to a irresistible conclusion the amount in question is the own money of the assessee firm which has been introduced by way of gift in the name of Sh. Satpal Singh from a Non resident person namely Sh. Harjit Singh and as such, it stands established beyond any shadow of doubt that the sum of Rs. One lakh has not been gifted at all and is in fact, it is the own money of the assessee firm, which is treated as undisclosed income of the assessee and as such, it is added to the income for the year under consideration.”

4. Aggrieved with this order, when the assessee had gone in appeal, the Commissioner of Income Tax (Appeals) [hereinafter referred to as, the CIT(A)] agreeing with the plea of the assessee that not only the donor but even the source as also the mode of the gift had been identified and explained, had deleted the addition of Rs. 1 lac made to income of the assessee. Observations of the CIT(A) in this respect were as under:

“On a reference to the assessment records, it is observed that the A.O Had obtained a copy of N.R.E A/c. Of Sh. Harjit Singh from the said Central Bank of India wherein this transaction of giving Rs. 1 lakh to Sh. Satpal Singh is only reflected. The A.O Also recorded the statement of Sh. Harjit Singh, the donor who confirmed having gifted this amount to Sh. Satpal Singh. In view of this evidence on record, which remains uncontroverted the observation of the A.O that this amount represented undisclosed income of the assessee firm is not maintainable. Considering the facts and the circumstances of the case alongwith evidence on record, I am of the view that the gifts stands duly explained with reference to the identity of the donor, his paying capacity as well as genuineness of the transaction. The addition of Rs. One lakh made on this account is, therefore, deleted.”

5. Aggrieved with this order of the CIT(A), the revenue had gone in appeal before the Tribunal, though the Tribunal had agreed with it that it was not a genuine gift but still had refused to interfere with order of the CIT(A) whereby deletion of the addition made by the AO had been made.

Observations of the Tribunal rejecting claim of the revenue are to the following effect:

“In this case, there was a credit of Rs. 1 lakh in the capital account of Sh. Satpal Singh, partner of the assessee firm and, hence, this amount of Rs. 1 lakh cannot be added to the income of the assessee as unexplained. Accordingly, we find no merit in the ground Nos. 1 and 1A of the appeal of the Revenue because we hold that though the gift has been proved to be ingenuine but because of the finding given by us as above this addition of Rs. 1 lakh on account of income from undisclosed sources cannot be made in the hands of the assessee firm. Hence, the same has been rightly deleted by the CIT(A). With the above observations, ground Nos. 1 & 1A of the appeal of the Revenue are dismissed and the appeal of the Revenue stands disposed of accordingly.”

6. We have heard counsel for the parties while going through the paper book.

7. By now, there does not remain any dispute that credit of Rs. 1 lac in the capital account of Sat Pal Singh, partner of the assessee firm was not through a genuine gift, there are following uncontroverted aspects of the issue:

(i) The donee though had very close relations including his brother-in-law residing in Washington for the last so many years had not received any gift from any of them ever. Donor Harjit Singh is resident of a village in District Hoshiarpur. He is brother of husband of sister of wife of the donee and was living in Kuwait and thus is distant relative of donee. The gift in question was made by donor Harjit Singh vide cheque dated 11.7.1988 from his NRI account which had been opened on 4.6.1987 with huge deposits therein in Central Bank of India, Hoshiarpur. This account was left with only nominal credit balance of Rs. 595/- as on 18.7.1989 and entire deposits in this NRI account had been withdrawn by way of cheques issued by the NRI account holder i.e Donor in this case;

(ii) Donor Harjit Singh has very close relations in India but had not made gift to any of his such relatives;

(iii) There was no occasion for making this gift;

(iv) There was no connection of the donor with the donee except for the distant relationship through wife of the donee. Rs. 1 lac was a huge amount in 1988. There is no explainable relationship of the gift with the donee; and,

(v) Though the donor had been coming to India but had not been connected with them and rather had been staying with brother of his father-in-law in Model Town, Phagwara.

8. These circumstances were enough to reach a conclusion that the amount in question in fact was own money of the assessee firm which was introduced by way of gift in the name of partner Sat Pal Singh from a Non-Resident account of Harjit Singh, a distant relation of Sat Pal Singh.

9. The matter of receipt of foreign gifts even earlier had engaged attention of the courts. This Court in Lal Chand Kalra v. CIT(1981) 22 CTR 135 had held that NRI gift from a stranger was neither genuine nor valid. This judgment was followed in Jaspal Singh v. CIT (ITA No. 256 of 2006) decided on 15.9.2006 by this Court as also judgment in Sajan Dass and Sons v. CIT(2003) 264 ITR 435 by Hon'ble Delhi High Court.

Recently, this Court in ITA No. 498 of 2005 decided on 7.2.2011 titled Commissioner of Income Tax, Karnal v. Puneet Singh had taken the same view holding as under:

“We are of the view that the Assessing Officer and the CIT (A) were justified in holding that the gift in question was bogus and the Tribunal committed patent error in accepting the gift as genuine. Admittedly, the donor had no relationship with the assessee. He had no occasion to give the gift. He was not produced. His financial capacity was not established. His bank statement was not produced. The Tribunal failed to appreciate these facts. It, thus, committed patent error of law in holding that the assessee discharged onus on him to prove the genuineness of the gift. Its order is, thus, perverse. In identical situation, this Court held that NRI gift could not be accepted as genuine unless the assessee was able to prove natural love and affection and financial capacity of the donor. Observations of this Court in Jaspal Singh are:-

“It is well settled that mere identification of donor and showing the movement of gift amount through banking channel is not enough to prove genuineness of the gift. The assessee was required to establish that the donor had the means and the gift was genuine, for natural love and affection. Reference in this regard may be made to the judgment of this Court in Lal Chand Kalra v. CIT, 22 CTR 135, judgment of Delhi High Court in Sajan Dass and Sons v. CIT, (2003) 264 ITR 435, CIT, Commissioner Of Income Tax,West Bengal Ii v. Durga Prasad More, (1971) 82 ITR 540 and Sumanti Dayal v. CIT, (1995) 214 ITR 801.”

10. Even this Bench in ITA No. 72 of 1999 titled Shri Hanuman Dass v. The Commissioner of Income Tax, Jalandhar decided on 22.11.2013 held as under:

“Taking up the case in hand, even when the donor had the means to make the gifts, there being neither any relationship nor there being any circumstance to show natural love and affection of the donor for the donee nor there being any occasion to make such gifts to the assessee and the authority of jurisdictional High Court being against the assessee, the authority cited by the assessee as Commissioner Of Income Tax, Delhi…Petitioner v. R.S Sibal…, (2004) 269 ITR 429 does not support the case of the appellant. Thus, there is no perversity or impropriety in the impugned order and sequelly the same is upheld.”

11. Though the Tribunal also came to the conclusion that the gift was not genuine but refused to accept the plea of the revenue for addition of amount of Rs. 1 lac in income of the assessee firm holding that credit of Rs. 1 lac was in the capital account of the partner of the assessee firm and thus addition could not be made to the income of the assessee. Having said so, the Tribunal did not go further. The legal position involved clearly did not engage the attention of the Tribunal, deserved from it. It is a conceded fact that partners of the assessee firm had not been maintaining their own books of accounts. Any credit found unexplained and ingenuine thus was to be accounted for in the books of accounts of the assessee firm only and sequelly such credit was to be treated as income of the firm for the year in such ingenuine and unexplained credits were found in its books of accounts. At this stage, for quick reference, provision of Section 68 of the Act is reproduced as below:

“Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”

12. There is judicial mandate on this count as well in Smt. Shanti Devi v. Commissioner of Income Tax1988 Income Tax Reports 532(P&H) wherein it was held that where a partner maintained no books of accounts and a credit entry appeared in the books of the firm in the name of the partner, the amount of the credit entry could not be assessed as income in the hands of the partner treating the books of accounts of the partnership as those of the individual partner and was assessed as income of the firm only.

13. In view of the discussion as made earlier, the finding of the Tribunal and that of the CIT(A) had gone wrong in reversing the finding of the AO which are restored, as unexplained and ingenuine credit in the capital account of the partner Sat Pal Singh in the book of accounts of the assessee firm in absence of any separate account books having been maintained by the partners, was to be credited in the account of the assessee firm only.

14. Consequently, question of law is answered in favour of the revenue and against the assessee and the appeal is allowed.