Ita/49/2015 Of Sunil Thomas v. Income Tax Officer

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 7TH DAY OF MARCH 2017/16TH PHALGUNA, 1938 ITA.No. 49 of 2015 ------------------------- AGAINST THE ORDER IN ITA 19/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED12-12-2014------- APPELLANT: ------------- SUNIL THOMAS KANJOOPARAMBIL BUILDING, CONVENT ROAD, KOCHI - 682035. PAN : ABRPT 6088M BY ADVS.SRI.V.V.ASOKAN (SR.) SRI.K.I.MAYANKUTTY MATHER SRI.R.JAIKRISHNA RESPONDENTS:----------------- 1. INCOME TAX OFFICER WARD NO.2(1), RANGE -2, C.R. BUILDING, I.S PRESS ROAD.KOCHI - 682018. 2. COMMISSIONER OF INCOME TAX (APPEALS) III, 6TH FLOOR, KERA BHAVAN, SRVH ROAD, ERNAKULAM - 682 011. R1-R2 BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R1-R2 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 07-03-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.No.49 of 2015Dated this the 7[th] day of March, 2017 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Antony Dominic, J. JUDGMENT This appeal is filed by the assessee challenging the order of the Income Tax Appellate Tribunal, Cochin Bench in ITA19/2014 concerning the assessment year 2009-2010. Theissue raised in this appeal is confined to assessment of anamount of 1,66,01,834/- as the income of the assessee on the₹ground that he failed to prove the genuineness of thetransaction and the capacity of the donor, his brother, toadvance the money as required under Section 68 of the IncomeTax Act. The said order was confirmed by the Commissioner ofIncome Tax (Appeals) and the Income Tax Appellate Tribunalby dismissing the appeals filed by the assessee. It is in this background, the assessee has filed these appeals framing the following questions of law for consideration of this court: “i) Whether the Department is right in law toenquire and insist the assessee to prove the source ofthe donor, when the assessee discharges his primaryburden that the subject amount has received by wayof Gift from his brother (relative) through bankingchannel? Were not the authorities below in error asregards their interpretation about Section 68 of theIncome Tax Act, 1961? ii) Is not the onus and burden of proof on thedepartment to probe into and establish by itself thesource of the donor placed abroad when the assesseeestablishes the fact that he received the amount byway of gift from his brother (exempted underSection 56(2) through banking channel? iii) Whether on the facts and circumstances of thecase the authorities below were justified in holdingthat a sum of Rs.1,66,01,834/- is the undisclosedincome of the assessee?” 2. Briefly stated, the facts of the case are that the assessee is the Director of a private limited company known as CoreFundamental and Developers Private Limited. In his return for the assessment year 2009-2010, the assessee had declared a total income of 1,95,000/-. The return was processed under₹Section 143(1) of the Income Tax Act. The case was selectedfor scrutiny through CASS and a notice under Section 143(2) ofthe Income Tax Act was issued. It was found that the assesseehad shown income from other sources as 'nil' claimingdeduction under Section 56(2) in respect of gift of₹1,66,01,834/- received from his brother, Sri.Sudeep Thomas, a Non Resident Indian employed in Dubai. Variousopportunities were given to the assessee to prove therequirements of Section 68 of the Act such as identity of thedonor, genuineness of the transaction and the capacity of hisbrother to advance the money, etc. the assessment year 2009-2010, the assessee had declared a total income of 1,95,000/-. The return was processed under₹Section 143(1) of the Income Tax Act. The case was selectedfor scrutiny through CASS and a notice under Section 143(2) ofthe Income Tax Act was issued. It was found that the assesseehad shown income from other sources as 'nil' claimingdeduction under Section 56(2) in respect of gift of₹1,66,01,834/- received from his brother, Sri.Sudeep Thomas, a Non Resident Indian employed in Dubai. Variousopportunities were given to the assessee to prove therequirements of Section 68 of the Act such as identity of thedonor, genuineness of the transaction and the capacity of hisbrother to advance the money, etc. 3. Reading of the impugned orders show that the identityof the donor, his brother, Sri.Sudeep Thomas, was not a matterof dispute. However, insofar as the genuineness of the transaction and the capacity of the donor are concerned, theconclusion arrived at by the authorities concurrently is that theassessee has failed to prove these requirements. Insofar asthese two aspects are concerned, it is seen that the assesseehas produced only documents which evidenced that the moneywas transferred to him through banking channels and from theaccount of his brother in Abudabi Commercial Bank. However,despite repeated opportunities that were extended to theassessee, no evidence whatsoever was produced by him toprove that his brother had capacity to gift the amounts gifted tohis brother or that the transaction was genuine. It was in thesecircumstances that the Income Tax Officer assessed the amountas income of the assessee. 4. However, the learned counsel for the appellantcontended that admittedly, money has been gifted by hisbrother. His brother is a Non Resident Indian employed in Dubai having substantial earnings. The money has beentransferred from his bank account in Abudabi CommercialBank to the assessee's bank, and has been utilised by theassessee, the manner of which has also been explained to theAssessing Officer. 5. According to the learned counsel, once these factual aspects are proved to his satisfaction, the Assessing Officerought to have accepted the explanation offered by the assesseeand exempted the amount from the assessment under Section56(2) of the Act. In support of this plea, counsel invited ourattention to the judgments of the Gauhati High Court in NemiChand Kothari v. Commissioner of Income Tax[264 ITR 254(Gauhati)] and the Delhi High Court in Commissioner ofIncome Tax v. Value Capital Services Private Limited [(2008)307 ITR 334] and ITA 429/2003(Commissioner of IncomeTax v. Dhooti Pearls and Investment Limited). On the other hand, the learned Senior Counsel for the Revenue argued that it is plain and evident that the assessee, despite variousopportunities granted, did not prove the requirements ofSection 68 of the Act. Therefore, according to him, the amountcannot escape assessment at the hands of the assessee. 6. We have considered the submissions made. 7. The fact that an amount of 1,66,01,834/- was received₹by the assessee from his brother Sudeep Thomas by banktransfer in instalments during the assessment year is not indispute. Assessee claimed benefit of exemption under Section56(2) of the Income Tax Act. A reading of Section 56 showsthat, it deals with income from other sources. As per thisSection, income from every account which is not to be excludedfrom total income shall be chargeable to income tax under thehead, income from other sources, if it is not chargeable toincome tax under any of the heads specified in items A to E of 6. We have considered the submissions made. 7. The fact that an amount of 1,66,01,834/- was received₹by the assessee from his brother Sudeep Thomas by banktransfer in instalments during the assessment year is not indispute. Assessee claimed benefit of exemption under Section56(2) of the Income Tax Act. A reading of Section 56 showsthat, it deals with income from other sources. As per thisSection, income from every account which is not to be excludedfrom total income shall be chargeable to income tax under thehead, income from other sources, if it is not chargeable toincome tax under any of the heads specified in items A to E of Section 14 of the Act. Sub-section 2 enumerates the incomesthat are chargeable to income tax under the head, income fromother sources. However, in the proviso to sub-section 2, thelegislature has declared that Section 56(2) shall not apply toany sum of money received from persons enumerated inclauses (a) to (g). Clause-(a) provides that Section 56(2) doesnot apply to any sum of money received from any relative. Theterm “relative” has been explained in the explanation to theproviso and among others, brother or sister of the individual isalso included therein. Therefore, the benefit of the proviso isavailable to any sum received from the brother of an assessee,and such exclusion from assessment can be claimed by anassessee only if he satisfies the requirements of Section 68occurring in Chapter-VI of the Act. 8. Section 68 provides that where any sum is foundcredited in the books of the assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by theassessee is not, in the opinion of the Assessing Officer,satisfactory, the sum so credited may be charged to income taxas the income of the assessee of that previous year. Therefore, itis the duty of the assessee to offer explanation about the natureand source of any sum found credited in the books maintainedby him for the previous year or if the explanation offered byhim is not found satisfactory to the Assessing Officer, the sumcredited in the books of accounts of the assessee may becharged to income tax as the income of the assessee of thatprevious year. 9. The scope of Section 68 has been considered by the Apex Court in its judgment inCIT v. P. Mohankala [2007] 291ITR 278 (SC). Following the said judgment, this Courtconsidered an identical question in the judgment in I.T.A. No.210/2010 and connected case. In that judgment, this Court reiterated that a reading of Section 68 shows that identity ofthe creditor, the genuineness of the transaction and thecreditworthiness of the creditor are the conditions that arerequired to be established by an assessee. It was held that oncethese three essential requirements are prima facie proved bythe assessee, then the onus would shift to the Department andthat merely by establishing the identity of the creditor oranyone of the other conditions of Section 68, the assesseecannot claim to have discharged his burden. 10. Bearing in mind these principles, if the facts that areavailable in this case are appreciated, it is obvious that thoughthe assessee had established the identity of the creditor, viz. hisown brother, the assessee has not succeeded in establishingeither the genuineness of the transactions, the capacity orcreditworthiness of the creditor. The fact that the amount 10. Bearing in mind these principles, if the facts that areavailable in this case are appreciated, it is obvious that thoughthe assessee had established the identity of the creditor, viz. hisown brother, the assessee has not succeeded in establishingeither the genuineness of the transactions, the capacity orcreditworthiness of the creditor. The fact that the amount received by him has been through banking channels, or that theamount has been utilised by him in any particular mannerwould not improve the case of the assessee. According to us,the genuineness of the transaction and the creditworthiness ofthe creditor ought to have been proved by the assessee byproducing necessary documents with respect to the monetaryability of the creditor to make such substantial gifts to theassessee. Although it is seen from the records that, assesseeand his brother had at different points of time promised tomake available documents to prove these requirements ofSection 68, such documents were not made available at anystage of the proceedings. In fact, even in the affidavit dated11.02.2015 filed by Sri.Sudeep Thomas, the assessee's brother,before this Court, apart from furnishing his employmentparticulars and confirming the gift that he made and alsofurnishing the details of the utilisation of the amounts by the assessee, he has not made any endeavour to explain the genuineness of the transactions or his creditworthiness. Insuch circumstances, we are not in a position to find anyillegality in the order of the Assessing Officer confirmed by thefirst appellate authority and the Tribunal assessing the sum of₹1,66,01,834/- as the income of the assessee. 11. Insofar as the judgments of the Gauhati High Court in Nemi Chand Kothari v. C.I.T.(supra) and the Delhi High Courtin CIT v. Value Capital Services P. Ltd.(supra) relied on by thelearned counsel for the assessee are concerned, we find thatthe judgment of the Gauhati High Court has been relied on bythe Delhi High Court while disposing of I.T.A.429 of 2003 andthe relevant paragraphs of the judgment reads as follows: “12. The Court has examined the decision of the Gauhati High Court in Nemi Chand Kothari (supra).Therein the Gauhati High Court referred to Section68 of the Act and observed that the onus of the Assessee “to the extent of his proving the sourcewhom which he has received the cash credit.” TheHigh Court held that the AO had ample 'freedom' tomake inquiry “not only into the source(s) of thecreditor, but also of his (creditor's) sub-creditors andprove, as a result, of such inquiry, that the moneyreceived by the Assessee, in the form of loan from thecreditor, though routed through the sub-creditors,actually belongs to, or was of, the assessee himself.”Thereafter, the High Court, on a harmoniousconstruction of Section 106 of the Evidence Act andSection 68 of the Act, held as under: “What, thus, transpires from theabove discussion is that while Section 106of the Evidence Act limits the onus of theAssessee to the extent of his proving thesource from which he has received thecash credit, Section 68 gives amplefreedom to the Assessing Officer to makeinquiry not only into the source(s) of thecreditor, but also of his (creditor's) sub-creditors and prove, as a result, of suchinquiry, that the money received by theAssessee, in the form of loan from thecreditor, though routed through the sub-creditors, actually belongs to, or was of,the Assessee himself. In other words,while Section 68 gives the liberty to theAssessing Officer to enquire into thesource/ sources from where the creditor “What, thus, transpires from theabove discussion is that while Section 106of the Evidence Act limits the onus of theAssessee to the extent of his proving thesource from which he has received thecash credit, Section 68 gives amplefreedom to the Assessing Officer to makeinquiry not only into the source(s) of thecreditor, but also of his (creditor's) sub-creditors and prove, as a result, of suchinquiry, that the money received by theAssessee, in the form of loan from thecreditor, though routed through the sub-creditors, actually belongs to, or was of,the Assessee himself. In other words,while Section 68 gives the liberty to theAssessing Officer to enquire into thesource/ sources from where the creditor has received the money, Section 106makes the Assessee liable to disclose onlythe source(s) from where he has himselfreceived the credit and it is not the burdenof the Assessee to show the source(s) ofhis creditor nor is it the burden of theAssessee to prove the creditworthiness ofthe source(s) of the sub-creditors. IfSection 106 and Section 68 are to standtogether, which they must, then, theinterpretation of Section 68 has to be insuch a way that it does not make Section106 redundant. Hence, the harmoniousconstruction of Section 106 of theEvidence Act and Section 68 of the IncomeTax Act will be that though apart fromestablishing the identity of the creditor,the Assessee must establish thegenuineness of the transaction as well asthe creditworthiness of his creditor, theburden of the Assessee to prove thegenuineness of the transactions as well asthe creditworthiness of the creditor mustremain confined to the transactions,which have taken place between theAssessee and the creditor. What follows,as a corollary, is that it is not the burdenof the Assessee to prove thegenuineness of the transactionsbetween his creditor and sub-creditorsnor is it the burden of the Assessee to prove that the sub-creditor had thecreditworthiness to advance the casecredit to the creditor from whom thecash credit has been, eventually,received by the Assessee. It, therefore,further logically follows that the creditor'screditworthiness has to be judged vis-a-vis the transactions, which have takenplace between the Assessee and thecreditor, and it is not the business of theAssessee to find out the source ofmoney of his creditor or of thegenuineness of the transactions, whichtook between the creditor and sub-creditor and/or creditworthiness ofthe sub-creditors, for, these aspectsmay not be within the specialknowledge of the Assessee.”(emphasis supplied)” 12. A reading of the aforesaid judgment of the Delhi High Court and the extracted portion of the judgment of the GauhatiHigh Court would show that after discussing the burden ofproof that is required to be discharged by the assessee, theDelhi High Court has finally concluded that the burden does notextend to proving the sub-creditors creditworthiness. In our view, that principle has no application insofar as the case of theassessee is concerned for the reason that the assessment hasbeen completed against the assessee primarily on the basis thathe has failed to prove his creditor's creditworthiness and notsub-creditors creditworthiness. Secondly, these judgments donot dilute the burden of proof on the assessee, in discharge ofwhich alone the onus would shift to the Assessing Officer.According to us, the judgment would have had relevance if theassessee had proved his brother's source of income to theDepartment and the Department had demanded proof ofcreditworthiness of the assessee's creditor's creditor, which hasnot been done in this case. Therefore, these judgments are of noassistance to the assessee in contending that he has dischargedthe burden under Section 68 of the IT Act. In conclusion, we are of the considered opinion that the Assessing Officer, the first appellate authority and the Tribunal In conclusion, we are of the considered opinion that the Assessing Officer, the first appellate authority and the Tribunal has not committed any illegality justifying interference.Therefore, answering the questions of law in favour of theRevenue and against the assessee, this appeal is dismissed. Sd/- JUDGE ANTONY DOMINIC Sd/- DAMA SESHADRI NAIDU JUDGE jes&kns/- //TRUE COPY// P.S. TO JUDGE