Whether if money is routed indirectly from firm to assessee's account in garb of gifts, same is to be taxed in hands of donor as unexplained income - YES: HC

THE issues before the Bench are - Whether if the assessee has not availed opportunity of being heard as provided by the A.O, the burden shifts on the assessee to prove its bonafide on the basis of the statement made by the donor and whether in case the money is routed indirectly from the firm to the assessee's account under the garb of the gifts, the same is taxable in the hands of donor as unexplained income. And the verdict goes against the assessee.

Facts of the case

The assessee, an individual, is a partner in the Firm namely M/s Agrawal Fashion; another partner was the brother of the assessee namely, Shri Surendra Behari Agrawal. The assessee had two minor sons namely, Rajat Agrawal and Rohit Agrawal. While doing the scrutiny, the A.O. observed that the assessee had taken the loan of Rs. 21,00,000/- each from his minor sons through their mother namely, Smt. Meenu Agrawal, wife of the assessee. The AO observed that the amount was given to Shri Surendra Bihari Agrawal, brother of the assessee on his retirement from the firm, out of which a cheque of Rs. 53 lacs was given to him. It was alleged that a sum of Rs. 11 lacs was given to each minor child of the assessee by their uncle Shri Surendra Bihari Agrawal. The minor children had given the gifts to father through mother. Thus, the total loan of Rs. 42 lacs was received by the assessee from his minor children. The A.O. found the said gifts was bogus and made the addition of Rs. 42,00,000/-, which was confirmed by CIT(A). However, the Tribunal had accepted the gifts as genuine and deleted the addition.

Before the HC, the Revenue's counsel had submitted that Shri Surendra Bihari Agrawal had made the statement before the A.O. on 30 December 2003 in response to the notice under Section 131. About the cross-examination, he had drawn the attention to Assessment Order, where it was mentioned that the proper opportunity was given to the assessee to cross-examine Shri Surendra Bihari Agrawal, but the assessee had not availed the said opportunity. Lastly, it had submitted that the gift was not genuine, so he made a request that the impugned order may kindly be set aside.

On the other hand, assessee's counsel had submitted that Shri Surendra Bihari Agrawal is the brother of the assessee who had given the gifts to the children of the assessee through account payee cheque for Rs. 21 lacs each. The money was generated from the firm M/s Agrawal Fashion. The journey of the money was started from the account of Shri Surendra Bihari Agrawal maintained by the firm. Thus, the source of the funds was fully explained. It was submitted that no opportunity was provided to the assessee to cross-examine Shri Surendra Bihari Agrawal. It was further submitted that the identity of the donor was established and the creditworthiness had also been proved. The genuineness of the transaction cannot be denied as the money was routed from the banking channel. For the purpose, he relied on the ratio laid down in the case of Kishan Chand Chellaram Vs. CIT, (1980) 125 ITR 713 SC, where it was held that the burden was on the department to show that money belonged to the assessee. Lastly, he relied upon the order of the tribunal and made a request that the appeal filed by the Department may kindly be dismissed.

Held that,

++ it appears that there was a dispute between the brothers and Shri Surendra Bihari Agrawal who had filed a suit against the assessee on 16.02.2003, where he has made the claim pertaining to the outstanding debt due. From the record, it also appears that Shri Surendra Bihari Agrawal was having own minor children, when it is so, then why he will give the gifts to the children of his brother. Further in his statement, he has categorically stated that no cheque was received from the firm and he has not given any gifts to anybody. Regarding the cross examination, the assessee has not availed the opportunity as stated by the A.O. On the basis of the statement made by the donor, the burden has shifted upon the assessee as per the ratio laid down in the case of Sumati Daya Vs. CIT 2002-TIOL-885-SC-IT-LB. The case law relied by the assessee's counsel is not applicable in the instant case, as the matter in hand is not related to telegraphic transfer of the money;

++ considering the peculiar facts and circumstances of the case, it is evident that the gifts are not genuine as stated by the A.O. as well as by the First Appellate Authority. The Tribunal has deleted the addition merely only on the ground that no opportunity was provided for cross-examination. But fact remains that assessee never availed it. In the instant case, transaction is not genuine but colorable. Hence we are of the view that the Tribunal has wrongly deleted the addition, and the same is not desirable in the circumstances of the case. The money is routed indirectly from the firm to the assessee's account under the garb of the gifts. In view of the above, we set aside the impugned order passed by the Tribunal pertaining two gifts amounting of Rs. 42 lacs and restore the order passed by the A.O. We, accordingly answer the substantial questions of law in favour of the Department and against the assessee. In the result, appeal filed by the Department is allowed.