INCOME TAX ACT, 1961

Income from undisclosed income- Addition under section 68-Genuineness of gift received-Identity and creditworthiness of donor proved

Assessee filed his return of income, which was accompanied by a copy of his capital account in the partnership firm where he was a partner. The capital account contained a credit entry showing a sum as gift received from R. AO examined the assessee as well as the donor R during the proceedings of assessment. The donor appeared before AO and confirmed the fact of having made the gift by way of bank draft. He also produced evidences in support of the source from which the funds for making the gift were available with him. The assessee submitted that levying gift-tax completed gift-tax assessment in donors case. AO held that the credit appearing in the capital account remained unexplained and the alleged receipt of gift from R was not genuine, therefore, it was nothing but undisclosed income of the assessee, which was credited to the assessees capital account. Held: Section 68 requires that there has to be a credit in the books maintained by the assessee during the previous year and the assessee offers no explanation about the nature and source of such credit or the explanation offered by the assessee is not satisfactory as per AO then the sum so credited may be charged to tax as income of the assessee of the previous year. The primary onus is on the assessee to offer an explanation as to the nature and source of the credit. The assessee can be asked to prove the source of credit in books, but cannot be asked to prove the source of the source. Tribunal stated that motivation for making the gift was not established. The assessee was called upon to explain the credit entry found in its capital account. The assessee submitted that he received a gift from R, who appeared before AO and confirmed the fact of having made the gift. He produced evidence in support of the source from which the funds of making the gift were available with him by way of a bank draft. The revenue commenced the present proceedings on the day it made gift-tax assessment qua that very gift in the hands of the donor. Despite that factual position, Tribunal singularly failed to note the fact that the identity of the donor was established and the donor having appeared in person before AO, the genuineness of the transaction was established, not only by the receipt of the bank draft, but also by the fact of transaction having borne gift-tax once the assessment was framed. The primary onus, which rested with the assessee, thus was discharged. If the revenue was not satisfied with the source of the funds in the hands of the donor, it was up to the revenue to take appropriate action.

Despite minor discrepancies, the factum of the gift having been made had been accepted by the donor and in the circumstances, it could not be stated that the credit entry in the capital account of the assessee did not reflect the true picture. The assessee had shown the same as gift received. The assessee tendered an explanation and nothing had been brought on record to even hold for a moment that the said explanation was not satisfactory. Therefore, the order of Tribunal could not be sustained.