A.rajendran v. The Assistant Commissioner Of Income Tax Special Investigation Circle – Iii Coimbatore

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 29.03.2006 CORAM THE HON'BLE MR.JUSTICE R.BALASUBRAMANIANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C. (A) NOS.74 TO 76 & 78 TO 82 OF 2002(Appeal.30 to 32 & 34 to 38/2002) T.C.NO.74 OF 2002: 1. A.Rajendran..Appellant2. A.Srinivasan..Appellant in TC 75/20023. S.Balaji Manikandan..Appellant in TC 76/20024. R.Mohana Kala..Appellant in TC 78/20025. S.Kalavathy..Appellant in TC 79/20026. A.Srinivasan..Appellant in TC 80/20027. S.Kalavathy..Appellant in TC 81/20028. S.Balaji Manikandan..Appellant in TC 82/2002 Vs. The Assistant Commissioner of Income TaxSpecial Investigation Circle – IIICoimbatore ..Respondent in all TC cases Prayer: Tax Case Appeal preferred under Section 260A of the Income TaxAct 1961 against the order of the Income Tax Appellate Tribunal, "C"Bench, Chennai dated 18.4.2002 and made in ITA.Nos.797 to 804 (MDS)/2000for the Assessment years 1995-96 and 1996-97 respectively against theorder of the Commissioner of Income Tax (Appeals) Coimbatore dated31.3.200 and made in I.T.Appeal Nos. 1. 318-C/98-99 2. 321-C/98-99 & 114-C/99-2000 3. 319-C/98-99 & 113-C/99-2000 4. 317-C/98-99 5. 320-C/98-99 & 112-C/99-2000 6. 321-C/98-99 & 114-C/99-2000 7. 320-C/98-99 & 112-C/99-2000 and 8. 319-C/98-99 & 113-C/99-2000 respectively against the order of the Assistant Commissioner of Income Tax, SpecialInvestigation Circle III, Coimbatore, Dated 27.3.1998 and made in 1. PAN/GIR.NO.P.T.2814/SIC III/CBE 2. PAN/GIR.NO.P2-3356/SIC III/CBE 3. PAN/GIR.NO.B-790/SIC III/CBEhttps://hcservices.ecourts.gov.in/hcservices/ 4. PAN/GIR.NO.P2-2434/SIC III/CBE 5. PAN/GIR.NO.P2-8440/SIC III/CBE 6. PAN/GIR.NO.P2-8440/SIC III/CBE7. PAN/GIR.NO.P2-8440.SIC III/CBE and8. PAN/GIR.NO.B-790/SIC III/CBE respectivelyfor the Assessment years 1995-96 and 1996-97 upholding the order of theCommissioner of Income Tax (Appeals). For Appellant : Mr.Aravind P Datar, Senior Counsel for: Mr.R.SundaramFor Respondent : Mr.N.Muralikumaran Senior Standing Counsel for Income Tax COMMON JUDGMENT (Judgment of the court was delivered by Justice R.Balasubramanian) Tax Case Nos.74 to 76/2002 stand admitted on the following questionsof law: "(a) Whether in the facts and circumstances, the Income-TaxAppellate Tribunal was correct in law to accept the principle ofpreponderance of probabilities in holding that the claim of theappellant that the sum of Rs.15,62,500/- received by him by wayof gifts through normal Banking Channels was not genuine and thatit was liable to be assessed under section 68 of the Income TaxAct, 1961? (b) Whether in the light of the law established and based onthe facts and in the circumstances of the case, the learnedIncome Tax Appellate Tribunal is legally justified in concludingthat the burden of proof cast on the appellant under section 68of the Income Tax Act, 1961 has not been discharged and theingredients for invoking section 68 of the Income Tax Act arepresent? (c) Whether in the facts and circumstances of the case, theconclusion of the Tribunal that the claim of gift is not genuineis reasonable and based on relevant material and not perverse?" T.C.Nos.78 to 82/2002 stand admitted on the following questions of law: "(a) Whether in the facts and circumstances, the Income TaxAppellate Tribunal was correct in law to accept the principle ofpreponderance of probabilities in holding that the claim of theappellant that the sum of Rs.15,62,500/- received by him by wayof gifts through normal Banking Channels was not genuine andthat it was liable to be assessed under section 68 of the IncomeTax Act, 1961? (b) Whether in the light of the law established and based onhttps://hcservices.ecourts.gov.in/hcservices/the facts and in the circumstances of the case, the learnedIncome Tax Appellate Tribunal is legally justified in concludingthat the burden of proof cast on the appellant under section 68 T.C.Nos.78 to 82/2002 stand admitted on the following questions of law: "(a) Whether in the facts and circumstances, the Income TaxAppellate Tribunal was correct in law to accept the principle ofpreponderance of probabilities in holding that the claim of theappellant that the sum of Rs.15,62,500/- received by him by wayof gifts through normal Banking Channels was not genuine andthat it was liable to be assessed under section 68 of the IncomeTax Act, 1961? (b) Whether in the light of the law established and based onhttps://hcservices.ecourts.gov.in/hcservices/the facts and in the circumstances of the case, the learnedIncome Tax Appellate Tribunal is legally justified in concludingthat the burden of proof cast on the appellant under section 68 of the Income Tax Act, 1961, has not been discharged and theingredients for invoking section 68 of the Income Tax Act arepresent? (c) Whether in the facts and circumstances of the case, theconclusion of the Tribunal that the claim of gift is not genuineis reasonable and based on relevant material and not perverse?" 2. The appellant in each of these appeals is an assessee within thejurisdiction of the respondent. The appellant in T.C.No.75/2002 and theappellant in T.C.No.80/2002 is one and the same. He is the father of theappellant in T.C.No.76/2002 and T.C.No.82/2002 and husband of theappellant in T.C.Nos.79/2002 and 81/2002. The above referred to appellantin T.C.Nos.75 and 80/2002 is the brother of the appellant inT.C.No.74/2002. The appellant in T.C.No.74/2002 is the husband of theappellant in T.C.No.78/2002. The assessment orders in the respective taxcases are as hereunder: In respect of those "assessment orders", there is a credit entry in favourof the respective assessee as hereunder: (a) Rs.15,63,600/- credited as NRI gifts received (US$ 50000)(b) Rs.8,64,500/- credited as NRI gifts received (US$ 25000)(c) Rs.21,85,604/- credited as NRI gifts received (US$ 25000)(d) Rs.15,62,500/- credited as NRI gifts received (US$ 50000)(e) Rs.15,50,000/- received as gift – added as an income of the appellant – source being undisclosed. (f) Rs.26,47,647/- NRI gift (g) Rs.21,82,847/- received as a gift from NRI is added as an income of the assessee from undisclosed source. (h) Rs.8,64,500/- received as a gift from NRI is added as an income of the assessee from undisclosed source. 3. The assessing officer did not accept the explanation offered by therespective assessee that the amount credited to their respective accountis a gift from NRI and proceeded to add it as the income of the assesseefrom an undisclosed source. There were assessment orders for each of theassessee for the assessment years referred to earlier. The assessmentorder in each case is dated 27.03.1998, 31.03.1999, 27.03.1998,27.03.1998,31.03.1999,27.03.1998,27.03.1998and31.03.1999respectively. Each of the assessee filed an appeal before the Commissionerof Income Tax (A), Coimbatore, who, by separate order dated 31.03.2000https://hcservices.ecourts.gov.in/hcservices/passed in each case, dismissed the appeal thereby affirming the order ofthe assessing officer. Thereafter, each assessee filed a separate appealbefore the Income Tax Appellate Tribunal, Chennai. All the appeals were disposed of by a common order dated 03.08.2001. The AccountantMember affirmed the order of the lower authorities, while the JudicialMember did not agree and therefore, wrote a dissenting judgment.Therefore, the points in controversy were referred by the President of theAppellate Tribunal to the Senior Vice President of the Appellate Tribunal,who, by order dated 20.02.2002, agreed with the finding of the AccountantMember. As a result thereof, the impugned order dated 18.04.2002 came tobe passed affirming the order of the lower authorities. The effect of theabove proceedings is, the explanation offered by each assessee that thecredit entry in their respective account represents only a gift from NRIstands negatived and as a consequence thereof, the respective credit entryis treated as the income of the respective assessee from an undisclosedsource. Heard Mr.Aravind P Datar learned senior counsel appearing for theappellant in all these appeals and Mr.N.Muralikumaran learned counselappearing for the Revenue in all these appeals. 4. There is no dispute on the following facts: "The donor is a person by name Sampath Kumar; he is thecommon donor; the donees are the respective assessees; the giftsfrom the donor, in respect of which credit entries have beenmade, were during the period from 08.07.1992 to 19.10.1995; allthe gift amounts have been channelised through bank namely, thepayments were made by instruments issued by a foreign bank andcredited into the respective assessee's account by negotiating itthrough a bank in India; the donor's father was working as adriver under assessee Srinivasan; the donor is a resident of theUnited Kingdom; the donor invested huge sums of money in India inmovable and immovable properties, including opening factories inand around Coimbatore; the donor appeared in response to a noticeissued to him by the Income Tax Authorities and was examined; heproduced materials in support of his solvency; proceedingsagainst the donor were initiated for alleged violation ofForeign Exchange Regulation Act; however, the said proceedingswere not taken to it's logical end; in other words, theproceedings initiated as referred to above were not continued atall; each of the assessees have credited their books of accountwith the amount received by them as gifts; besides the donorgiving a statement confirming that he had gifted various sums ofmoney to each of the assessee as found reflected in the creditentries made in their books of account, each of the assesseeshave also given a statement admitting receipt of gift from thedonor and crediting it into their respective accounts; the donor,in all, is shown to have brought into India, during the relevanttime through proper channel, foreign exchange to the value of US$61,06,000, which includes the amounts made by way of gifts inIndia." 5. Mr.Aravind P Datar learned senior counsel appearing for theappellant in all these appeals would contend that the hierarchy ofauthorities under the Act had acted only on surmises and conjectures inhttps://hcservices.ecourts.gov.in/hcservices/rejecting the explanation offered by the assessee in each case. Accordingto the learned senior counsel, the assessee had established the followingfacts namely, "who the donor is; what his capacity is; all the 5. Mr.Aravind P Datar learned senior counsel appearing for theappellant in all these appeals would contend that the hierarchy ofauthorities under the Act had acted only on surmises and conjectures inhttps://hcservices.ecourts.gov.in/hcservices/rejecting the explanation offered by the assessee in each case. Accordingto the learned senior counsel, the assessee had established the followingfacts namely, "who the donor is; what his capacity is; all the transactions are through bank; the respective receipts have been creditedinto the books of account of the assessee; the donor is an income taxassessee in United Kingdom as well as in India; the donor has every goodreason to make gifts" and if these facts are established, then theassessing officer has no right to go behind this and probe further as towhy the donor has gifted such huge sum of money. Motivation to make sucha large gift would be totally extraneous when the explanation offered bythe assessee is found acceptable. In considering the explanation, thoughthe assessing officer and the hierarchy of authorities have a right toprobe, such a probe should not go beyond a limit, especially when theassessee had established the earlier referred to facts. In any event, theassessing officer and the hierarchy of other authorities ought to actreasonably and definitely not unreasonably. In these batch of cases, thereasons given by the assessing officer and the higher authorities, in theface of the materials established by the assessee, in rejecting theexplanation, are purely on surmises and conjectures. If the explanationoffered is rejected arbitrarily and capriciously thereby refusing to drawthe legal conclusions that can be drawn on the shown facts, then it woulditself be a question of law which the court would be in a position toconsider. Therefore the submission made by the learned senior counsel isthat an interference is called for at the hands of this court. Learnedsenior counsel brought to the notice of this court the following judgmentsin support of his case: (a) Commissioner of Income Tax Vs. Orissa Corporation P.Ltd. (1986) 159 ITR Pg.78; (b) Rukmanand Vs. State of Bihar (AIR 1971 SC Pg.746); (c) Commissioner of Income Tax Vs. Sibal (2004) 269 ITRPg.429 (Delhi); (d) Deputy Commissioner of Income Tax Vs. Rohini Builders (2002) 256 ITR Pg.360 (Guj.); (e) Nemi Chand Kothari Vs. Commissioner of Income Tax (2003)264 ITR Pg.254 (Gau) – Head notes only. (f) Muralidhar Lahorimal Vs. Commissioner of Income Tax (2006) 280 ITR Pg.512 (Guj.). Mr.N.Muralikumaran, learned counsel appearing for the Revenue, while notdisputing the facts established on record by the assessee, would stillcontend that enormous amount of gift made itself probabilises that thereceipts are in the nature of a income of the assessee from anundisclosed source. Therefore, the authorities have proceeded to considerthe explanation on the touch stone of human probabilities. 6. Before proceeding to analyse the merits and demerits of these batchof cases, let us apply our mind to section 68 of the Income Tax Act andthe decided case laws on that section. Under section 68 of the Income TaxAct, hereinafter referred to as "the Act", "when any sum is found creditedin the books of account of an assessee and the assessee offers noexplanation about the nature and source thereof, or the explanationoffered by him is not, in the opinion of the assessing officer,satisfactory, then the sum so credited may be charged to income tax as thehttps://hcservices.ecourts.gov.in/hcservices/income of the assessee of the previous year". In (1963) Vol.49 ITR (SC)Pg.112 (Sreelekha Banerjee & Others Vs. Commissioner of Income Tax), theSupreme Court, while dealing with section 34 of the Income Tax Act, 1922 (which corresponds to section 68 of the current Act), held that "if theexplanation shows that the receipt was not of a income nature, theDepartment cannot act unreasonably and reject that explanation to holdthat it was income. If however, the explanation is unconvincing and onewhich deserves to be rejected, the Department can reject and draw theinference that the amount represents income etc.,........" Therefore, theprinciple that can be deduced from the above judgment is, if theexplanation of the assessee shows that the receipt was not of a incomenature, the Department cannot act unreasonably in rejecting theexplanation. In (1995) Vol.214 ITR (SC) Pg.801 (Sumati Dayal Vs.Commissioner of Income Tax), the Supreme Court again reiterated that,while considering the explanation offered by the assessee for the amountcredited in his account, the Department cannot, however, act unreasonably.For such a conclusion, the Supreme Court relied upon it's earlier judgmentnamely, (1963) Vol.49 ITR Pg.112. In (1971) Vol.82 ITR (SC) Pg.540(Commissioner of Income Tax Vs. Durga Prasad More), the Supreme Court heldas hereunder: "It is true that an apparent must be considered real only ifit is shown that there are reasons to believe that the apparentis not the real. The Taxing Authorities were not required to puton blinkers while looking at the documents produced before them.They are entitled to look into the surrounding circumstances tofind out the reality of the recitals made in those documents." The Supreme Court again, in the judgment reported in (1995) 214 ITRPg.801, had reiterated the law laid down in (1971) Vol.82 ITR (SC) Pg.540that an apparent must be considered real only if it is shown that thereare reasons to believe that the apparent is not the real and that theTaxing Authorities are entitled to look into the surrounding circumstancesto find out the reality and the matter has to be considered by applyingthe test of human probabilities. Therefore, it is clear from the abovejudgments that the burden is on the assessee to show that the receipt isnot of a income nature by giving an explanation; the income tax officer isnot expected to put blinkers and accept it as it is; it is open to him toprobe further and find out whether the apparent is real or not and take adecision on such probing, in the light of human probabilities. However,he should not act unreasonably. 7. Let us now examine the assessment order of the AssistantCommissioner of Income Tax as affirmed by the various higher authorities.In so doing, we should bear in mind the reasons which weighed with thevarious authorities in rejecting the explanation offered by the assessee,which includes the statement given by the donor confirming the gifts. TheCommissioner of Income Tax, in his appellate order, had extracted thereasons which entered the mind of the assessing officer in rejecting theexplanation and those reasons alone found favour with the AccountingMember of the Appellate Tribunal (the Judicial Member dissenting) and theSenior Vice President of the Appellate Tribunal. We extract those reasonsas hereunder: https://hcservices.ecourts.gov.in/hcservices/ "The said Sampathkumar invested huge sums in India inmovable and immovable properties including factories in andaround Coimbatore. While examined by the A.O., Shri.Sampathkumarpromised to file the source of the same but has so far failed todo so. The statements given by Shri.Srinivasan and his familymembers are contradictory. Thus while Shri.Srinivasan statedthat Shri.Sampathkumar used to stay with him on his visits inIndia, his wife and son stated that he used to stay in HotelSurya. Although all the donees claim to be close friends ofShri.Sampathkumar, none knows the name of his parents or theparents of his wife. Shri.Rajendran and Shri.Sampathkumar are not related andbelong to different communities. https://hcservices.ecourts.gov.in/hcservices/ "The said Sampathkumar invested huge sums in India inmovable and immovable properties including factories in andaround Coimbatore. While examined by the A.O., Shri.Sampathkumarpromised to file the source of the same but has so far failed todo so. The statements given by Shri.Srinivasan and his familymembers are contradictory. Thus while Shri.Srinivasan statedthat Shri.Sampathkumar used to stay with him on his visits inIndia, his wife and son stated that he used to stay in HotelSurya. Although all the donees claim to be close friends ofShri.Sampathkumar, none knows the name of his parents or theparents of his wife. Shri.Rajendran and Shri.Sampathkumar are not related andbelong to different communities. Shri.Rajendran is not even aware of the fact thatShri.Sampathkumar has two daughters while he stated thatShri.Sampathkumar has one son and one daughter. The gifts received were in the name of Ariavan Thotan orSuprotoman. Only after enquiry by the department, it transpiresthat they were aliases of Shri.Sampathkumar. The nickname was Suprotoman or Toto. Why the alias AriavanThotan was used? The letters of the donor express reciprocation from thedonees during his stay in India. Hon'ble Supreme Court in Durgaprasad More's case hasobserved that the A.O., is not supposed to put on blinkers whileexamining documents produced before him. Although Sampathkumar has a brother, no gifts were made tohim and he was working as a driver in Indian Bank, Coimbatore. The Commissioner of Income Tax (Appeals), after extracting the reasons asreferred to above, referred to the case laws reported in (1995) Vol.214ITR Pg.801 and (1971) Vol.82 ITR Pg.540; extracted the statement of thedonor and disposed of the appeal by giving his conclusions in twosentences. The conclusion is as hereunder: "This is rather shallow and hard to believe. The preponderance of probabilities, the common course of humanevents as discussed earlier point to the contrary."In fact, we find that the Commissioner of Income Tax (Appeals) had noteven applied his mind independently to any of the materials which enteredthe mind of the assessing officer, except concluding on the linesindicated above. There is no discussion at all in his order as to how thehttps://hcservices.ecourts.gov.in/hcservices/transaction concerned in this case is opposed to the common course ofhuman events. "This is rather shallow and hard to believe. The preponderance of probabilities, the common course of humanevents as discussed earlier point to the contrary."In fact, we find that the Commissioner of Income Tax (Appeals) had noteven applied his mind independently to any of the materials which enteredthe mind of the assessing officer, except concluding on the linesindicated above. There is no discussion at all in his order as to how thehttps://hcservices.ecourts.gov.in/hcservices/transaction concerned in this case is opposed to the common course ofhuman events. 8. In the further appeal, the Appellate Tribunal, after referring tothe judgments of the Supreme Court in Durga Prasad More's case andSumathi Dayal's case and the principles laid down therein as to how theexplanation offered by the assessee should be considered, had referred tothe judgment of the Delhi High Court in Sumathi Vachani's case (1990)Vol.184 ITR Pg.121 and proceeded to discuss the case on merits inparagraph No.10 of it's order. In the course of discussion, theAccountant Member of the Appellate Tribunal found that the transaction wasthrough regular banking channels and the donor had confirmed the same.Then, after finding fault with the donor not producing proof for thesource of investment in India, the Accountant Member simply adopted thesame reasons which entered the mind of the assessing officer and thusconfirmed the order. The Judicial Member of the Appellate Tribunal hadtaken upon the trouble of addressing to himself each ground that enteredthe mind of the assessing officer and had given excellent reasons for nottaking those circumstances as acting against the explanation and thendecided to agree with the explanation. The Judicial Member also found, atthe end of paragraph 20 of his order, that in the context of the capacityand status of the donor and when there is no adverse finding by theRevenue, it must be held that there is a valid gift. In paragraph No.17of his order, the Judicial Member also found that the Revenue had notproved any consideration for the gift. 9. The Senior Vice President of the Appellate Tribunal – III Memberhad recorded in his order that, in the course of that hearing, theassessee had given the details and filed copies of the bank drafts orcheques issued by the donor on various dates. However, it appears fromhis order that he had started the discussion with a pre-conceived notionthat clandestine transactions in a good number of cases had emerged out ofCoimbatore namely, by engaging agents, by paying them commissions forarranging remittances from foreign countries to India. He had also foundin his order that the Accounting Member had noted that the donor is wellplaced financially; he is an industrialist in Great Britain; establishedsome industries in Coimbatore and building properties. Then, going by thereasons which entered the mind of the assessing officer, which again wentinto the mind of the Commissioner of Income Tax (Appeals) and theAccountant Member, the Senior Vice President of the Appellate Tribunal –III Member also agreed with the finding of the Accountant Member byconcluding that giving donation of such a large sum of money does notsound to be an action of any reasonable man, especially when it is viewedfrom the point that the assessee is in the business of jewellery. Inother words, his conclusion is on the application of preponderance ofprobabilities. 10. In (1995) 214 ITR Pg.801, the assessee had explained that thecredited amounts represent her winnings in races. On facts, it was foundthat the explanation is unsatisfactory because of the following reasons: 10. In (1995) 214 ITR Pg.801, the assessee had explained that thecredited amounts represent her winnings in races. On facts, it was foundthat the explanation is unsatisfactory because of the following reasons: "The assessee has no expertise in races; to accept that a race goerhad won jackpot events so many times in a short period of two years, ishttps://hcservices.ecourts.gov.in/hcservices/highly improbable; in the books of account of the assessee, the amountrepresenting travelling expenses of the assessee to travel to Hyderabadand Bangalore have not been debited at all; likewise, losses suffered by the assessee in the races have not been shown at all in the books ofaccount and lastly, from the year 1972 onwards, she had stopped going toraces". It was noted that from that year onwards, winnings in races werebrought within the tax purview. Those reasons were found to be cogent andconvincing reasons to reject the explanation offered by the assessee. In(1971) Vol.82 ITR (SC) Pg.540, the Supreme Court was considering theexplanation offered by the assessee that "the property, from which incomeis generated, is the trust property; the sale deed in favour of theassessee shows that he purchased the property as a trustee and there is asubsequent deed creating a trust which records a corpus of Rs.2 lakhs leftin the hands of the assessee". In that context only, the explanation, forthe various reasons stated in the original order, was rejected. 11. Now let us apply our mind to the explanation offered by theassessee in each case, which is similar. The donor is identified as anindustrialist in the United Kingdom. It is shown that the donor is theson of a poor driver, who was driving a car of one of the assessees. Theassessees are closely related. The donor was an young boy at that timeand having regard to his family poverty, one of the assessees had beenhelping the donor's father to meet both ends, which enabled the donor'sfather to give him good education. The donor had declared in hisstatement that he climbed the ladder only with the help rendered by one ofthe assessees and from that stage onwards, he did not look back. It is onrecord that the donor went from strength to strength and spread his wingsto Indonesia first and then to United Kingdom, where he is nowprominently settled. The donor had obtained a Degree in Bachelor ofEngineering. The orders impugned show that the donor is worth about Rs.20crores and during the relevant time, he had brought about US$ 61,60,000into India through proper channel. The donor had stated that as agratitude for the help rendered by one of the assessees to his father,which enabled him to come up in life and that too, to such an exaltedposition, he had made the gift. All the gifts have come through properbanking channel and there is no hanky panky about it. In fact, the donorappeared on summons by the Income Tax Department and gave all the details.The Senior Vice President, in his concurring order with the AccountantMember, had stated that atleast by that time, the donor had produced allthe materials in proof of his claim. Therefore it is clear that theassessees have established the identity of the donor namely, the source,the solvency of the donor and his love and gratitude for the family of theassessees, which made him to make the gift. In fact, the assessingofficer himself had referred to a letter dated 08.12.1994 of the donor,which shows that, as one of the assessees was constructing a new house andas it is in progress, any additional resources will enhance theconstruction progress and that is why he is sending US$ 50000 as his gift.Love knows no bounds. It is seen from the materials available on recordthat the donor was brought up by the assessees as their family members.It stands established that the name Ariavan Thotan and Suprotomanare the nick names of the donor and it is an alias name. It has alsocome out on record that those names relate to the donor. There is nothingon record to show that the gifts received by the assessees were sent byany person other than the donor in his own name. Simply because the donorhttps://hcservices.ecourts.gov.in/hcservices/writes letters in his alias name namely, letters dated 08.12.1994 and27.05.1994, cannot mean that there is a dispute regarding the identity ofthe donor, especially when the donor appeared pursuant to the notice issued by the Income Tax Authorities and affirmed his gifts. The donor isshown to be an income tax assessee not only in the United Kingdom but alsoin India. In addition to the above, it is not in dispute that theproceedings initiated against the donor under the provisions of theForeign Exchange Regulation Act was not taken to it's logical end by theDepartment. This means, the donor had not violated any provisions of theForeign Exchange Regulation Act. 12. In (1990) 184 ITR Pg.121 (Delhi) (Commissioner of Income Tax Vs.Sunita Vachani), a Division Bench of the Delhi High Court held ashereunder: "Even though it may be surprising as to how large sums ofmoney are received by a family in India by way of gifts fromstrangers from abroad, unless there is something more tangiblethan suspicion, it will be difficult to regard the moneysreceived in India from abroad as representing the income of theassessee in India." 12. In (1990) 184 ITR Pg.121 (Delhi) (Commissioner of Income Tax Vs.Sunita Vachani), a Division Bench of the Delhi High Court held ashereunder: "Even though it may be surprising as to how large sums ofmoney are received by a family in India by way of gifts fromstrangers from abroad, unless there is something more tangiblethan suspicion, it will be difficult to regard the moneysreceived in India from abroad as representing the income of theassessee in India." That was a case where the gift was from strangers. But that is not thecase here. In (2004) 269 ITR Pg.429 referred to supra, the Delhi HighCourt accepted the declaration of the donors that they had gifted theamounts to the assessees on account of their love and affection for them.That is exactly the case here. In (2003) 264 ITR Pg.254 referred tosupra, the Guwahati High Court held that in order to establish the receiptof a cash credit as required under section 68 of the Income Tax Act, 1961,the assessee must satisfy three conditions namely, (1) identity of thecreditor (2) genuineness of the transaction and (3) credit worthiness ofthe creditor. Once this is established, then, it is held that theassessee has discharged his burden. The assessees in the present appealshad done that. Then, going by the Delhi High Court judgment referred tosupra, something more tangible than suspicion would be necessary to rejectthe explanation offered by each of the assessees. In (2006) 280 ITRPg.512 referred to supra, the Gujarat High Court found fault with theTribunal, after the assessee satisfactorily explained the reasons, thatmotivation for making the gift having not been established, theexplanation must be rejected. The Gujarat High Court held that, once theassessee discharges his burden of prooving the relevant facts, thenmotivation for making the gift is irrelevant. As we have already noted,in this case, the donor had shown his love and gratitude for the family ofthe assessees; he wanted to reciprocate by showing his gratitude by makingthe gift; he has channelised the transaction through banking channel andhe had confirmed in his declaration that he had made the gifts. In thesaid circumstances, it is not for the Income Tax Authorities to go onestep further and read his mind as to why he has decided to make asubstantial gift. Simply because close relatives are not shown as thebeneficiaries of such gift, the gift itself would not be invalidated inlaw, is the settled position in law. 13. Now, if we apply our mind to the various reasons, which we haveextracted in the earlier portion of this judgment and which had enteredhttps://hcservices.ecourts.gov.in/hcservices/the mind of the authorities under the Act to reject the explanation, wehave no doubt at all that the authorities were in the realm ofimagination, surmises and conjectures. 14. On the facts of this case, when the assessees have established allthe requirements of section 68 of the Income Tax Act as referred to above,rejection of those explanations is definitely due to arbitrary andunreasonable exercise of power. In (1986) 159 ITR Pg.78 referred tosupra, the Hon'ble Supreme Court of India was referring to one of it'searlier decision reported in (1959) 37 ITR Pg.288 (Lalchand Bhagat AmbicaRam Vs. Commissioner of Income Tax) wherein, the Supreme Court has heldas hereunder: 14. On the facts of this case, when the assessees have established allthe requirements of section 68 of the Income Tax Act as referred to above,rejection of those explanations is definitely due to arbitrary andunreasonable exercise of power. In (1986) 159 ITR Pg.78 referred tosupra, the Hon'ble Supreme Court of India was referring to one of it'searlier decision reported in (1959) 37 ITR Pg.288 (Lalchand Bhagat AmbicaRam Vs. Commissioner of Income Tax) wherein, the Supreme Court has heldas hereunder: "This court held that when a court of fact arrives at itsdecision by considering material which is irrelevant to theenquiry, or acts on material, partly relevant and partlyirrelevant, and it is impossible to say to what extent the mindof the court was affected by the irrelevant material used by itin arriving at its decision, a question of law arises, whetherthe finding of the court is not vitiated by reason of its havingrelied upon conjectures, surmises and suspicions not supportedby any evidence on record or partly upon evidence and partlyupon inadmissible material. On no account whatever should theTribunal base its findings on suspicions, conjectures orsurmises, nor should it act on no evidence at all or on improperrejection of material and relevant evidence or partly onevidence and partly on suspicions, conjectures and surmises. Inthat case, the so-called hundi racket in which the assessee wasalleged to have been involved was not proved. That was only asuspicion of the Revenue." The Supreme Court in (1986) 159 ITR Pg.78 referred to supra, once againreferred to another earlier decision of that court reported in (1961) 41ITR Pg.135 (Homi Jehangir Gheesta Vs. Commissioner of Income Tax) wherein,it was held as hereunder: "It was further observed that in determining whether anorder of the Appellate Tribunal would give rise to a question oflaw, the court must read the order of the Tribunal as a whole todetermine whether every material fact, for and against theassessee, had been considered fairly and with due care; whetherthe evidence pro and con had been considered in reaching thefinal conclusion; and whether the conclusion reached by theTribunal had been coloured by irrelevant considerations ormatters of prejudice." It was further held in (1961) 41 ITR Pg.135 that in consideringprobabilities properly arising from the facts alleged or proved, theTribunal did not indulge in conjectures, surmises or suspicions. 15. In the light of the facts available in this case; the reasonswhich entered the mind of the authorities to reject the explanationoffered by the assessee in each case and in the context of the case lawsreferred to by us above, we have no doubt at all that the explanationhttps://hcservices.ecourts.gov.in/hcservices/offered by the assessee in each case has been arbitrarily and unreasonablyrejected. All the reasons, we have no doubt at all, are in the realm ofsurmises, conjectures and suspicions, which approach stands totally prohibited by the decided case laws referred to above. We are fullyconscious that the Appellate Tribunal is the final fact finding body. Buton the facts established, the authorities under the Act have failed todraw the only conclusion that is possible legally and logically.Therefore, such a decision definitely raises a question of law warrantingconsideration at our hands. Accordingly, all the questions of law, onwhich the tax appeals are admitted, are answered in favour of the assesseeand against the Revenue. Vsl Sd/-Asst. Registrar. /true copy/ To Sub Asst. Registrar. 1. The Assistant Registrar,The Income Tax Appellate Tribunal, Rajaji Bhavan,Besant Nagar, Chennai-90. 2.The Commissioner of Income Tax (Appeals),Coimbatore. 3.The Asst. Commr.of Income Tax,Special Investigation Circle – III, Coimbatore 4.The Income Tax Appellate Tribunal, "A" Bench, Chennai 5. The Income Tax Appellate Tribunal, “C” Bench, Chennai. 6. The Secretary, Vsl Sd/-Asst. Registrar. /true copy/ To Sub Asst. Registrar. 1. The Assistant Registrar,The Income Tax Appellate Tribunal, Rajaji Bhavan,Besant Nagar, Chennai-90. 2.The Commissioner of Income Tax (Appeals),Coimbatore. 3.The Asst. Commr.of Income Tax,Special Investigation Circle – III, Coimbatore 4.The Income Tax Appellate Tribunal, "A" Bench, Chennai 5. The Income Tax Appellate Tribunal, “C” Bench, Chennai. 6. The Secretary, Central Board of Direct Taxes, New Delhi. + 8 CC To Mr.N.Muralikumaran, Senior Standing Counsel for IT. SR.15903 to 15910.+ 2 CC To Mr.R.Sundaram, Advocate, SR NO.15653 & 15654. T.C (A) NOS.74 TO 76/2002 & 78 TO 82 OF 2002 VC(CO)RVL 10.04.2006