Itta/701/2016 Of Pendurthi Chandrasekhar, Hyderabad v. The Deputy Commissioner Of Income Tax

THE HON’BLE SRI JUSTICE C.V. NAGARJUNA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A. Nos.701 and 702 of 2016 DATED:23-02-2018 Between: Pendurthi Chandrasekhar … Appellant And The Deputy Commissioner of Income Tax Central Circle-11, Hyderabad … Respondent COUNSEL FOR THE APPELLANT: Mr. K. Vasanth Kumar COUNSEL FOR THE RESPONDENT: Ms. M. Kiranmayee, Senior Standing Counsel for Income Tax Department THE COURT MADE THE FOLLOWING: COMMON JUDGMENT: (per the Hon’ble Sri Justice C.V. Nagarjuna Reddy) As the parties to these appeals are common and the subject matter is connected in both the cases, though not identical, we have heard both these appeals together and decided to dispose of the same by this common judgment. 2. The appellant (hereinafter referred to as “the assessee”) is an individual. A search under Section 132 of the Income Tax Act, 1961 (for short, “the Act”) in the group entities of M/s. Ambience Property Private Ltd., has taken place on 9.10.2007. As the assessee happens to be a Director of one of the group companies, namely, M/s. Dakshin Shelters Private Limited, a search took place at his residence also. The assessee has not filed any return of income prior to the search, as purportedly he did not have regular source of income. Consequently, proceedings under Section 153-A of the Act were initiated against the assessee. On receipt of the notice, he has filed his return of income for a total income of Rs.43,809/- for the assessment year 2006-07. The Assessing Officer (AO) did not accept the return. He has issued a notice proposing to make certain additions to the income of the assessee. The AO has eventually made additions to the income of the assessee. The additions in respect of the following items relating to the assessment year 2006-2007, are the subject matter of dispute in these appeals. (i)Gift of Rs.73,00,000/- to the assessee by his maternal aunt Smt. Mikkilineni Nirmala. aunt Smt. Mikkilineni Nirmala. (ii)Unsecured loans of Rs.87,95,724/- from Mr. Dev Singh Palak. Singh Palak. (iii)Addition of a loan of Rs.10,00,000/- received by the assessee as unsecured loan from Mr. J.V. Sudhakar, which was returned before the search by cheque. assessee as unsecured loan from Mr. J.V. Sudhakar, which was returned before the search by cheque. (iv)Interest income in respect of the amounts advanced by the assessee to M/s. Dakshin Shelters Pvt. Ltd. for which TDS was deducted and remitted to the tax authorities by the donee company the assessee to M/s. Dakshin Shelters Pvt. Ltd. for which TDS was deducted and remitted to the tax authorities by the donee company (v)Unsecured loan of Rs.14,50,000/- given by the assessee’s wife from out of the gift received from her father. assessee’s wife from out of the gift received from her father. 3. The assessee has filed an appeal before the Commissioner of Income Tax (Appeals)-I, Hyderabad [for brevity, “CIT(A)”], questioning the additions. The CIT(A), by order dt.30.11.2011 allowed the appeal of the assessee to the extent of item No.(v) addition of unsecured loan of Rs.14,50,000/- and dismissed the appeal in respect of other four items. Feeling aggrieved by the order of the CIT(A), the assessee has filed I.T.A. No.2120/H/11, and the Revenue has filed I.T.A. No.106/H/12 to the extent of the order of the CIT(A) (v)Unsecured loan of Rs.14,50,000/- given by the assessee’s wife from out of the gift received from her father. assessee’s wife from out of the gift received from her father. 3. The assessee has filed an appeal before the Commissioner of Income Tax (Appeals)-I, Hyderabad [for brevity, “CIT(A)”], questioning the additions. The CIT(A), by order dt.30.11.2011 allowed the appeal of the assessee to the extent of item No.(v) addition of unsecured loan of Rs.14,50,000/- and dismissed the appeal in respect of other four items. Feeling aggrieved by the order of the CIT(A), the assessee has filed I.T.A. No.2120/H/11, and the Revenue has filed I.T.A. No.106/H/12 to the extent of the order of the CIT(A) allowing the appeal in respect of item No.(v). By common order dt.22.3.2013, the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, Hyderabad, (hereinafter referred to as “the Tribunal”) disposed of the appeals and cross-objections of the assessee, and the appeals of the Revenue for the assessment years 2005-06 to 2008-09. For the assessment year 2006-2007, it confirmed the order of the CIT(A) in respect of items Nos.(i) to (iv) and reversed the order in respect of item (v), in I.T.A. No.2120/H/11, and questioning the additions in respect of items (i) to (iv) the assessee filed I.T.T.A. No.701 of 2016, and he has filed I.T.T.A. No.702 of 2016 against the order of the Tribunal in allowing the appeal of the Revenue being I.T.A No.106/Hyd/12 in respect of item No.(v). 4. The substantial questions of law originally framed and those subsequently reframed in the appeals are as follows: ITTA No.701/2016 Substantial questions of law originally framed: “Item No.(i) (i)Whether on the facts and circumstances of the case, the Hon’ble Tribunal is right in upholding the addition under Section 68 of the IT Act, notwithstanding the fact that the Appellant/Assessee has discharged his onus of proof regarding the gift by furnishing all the materials required for establishing the genuineness of the gift? (ii)On the facts and circumstances of the case, whether the Hon’ble Tribunal is justified in adopting the theory of ‘occasion’ in respect of the gift received by the Hon’ble Tribunal is right in upholding the addition under Section 68 of the IT Act, notwithstanding the fact that the Appellant/Assessee has discharged his onus of proof regarding the gift by furnishing all the materials required for establishing the genuineness of the gift? (ii)On the facts and circumstances of the case, whether the Hon’ble Tribunal is justified in adopting the theory of ‘occasion’ in respect of the gift received by the Appellant/Assessee, which is regulated by the provisions of Proviso (a) of Section 56(1)(v) of the IT Act, 1961, under which in case of specified relatives inter se, no ‘occasion’ is required to make a gift irrespective of its quantum? (iii)Whether the findings of the Hon’ble Tribunal are perverse and bad in law due to non-consideration of relevant factors and instead basing it on surmises, conjectures and suspicion and by discarding the evidence and the reasons and explanations adduced by the Appellant/Assessee for the gift and proving the source of funds for making the gift and despite the clinching evidence to establish the gift, the test of ‘occasion’ for gift, which is quite irrelevant and strikes at the root of the concept of gifts as understood in law was imposed, which thereby stand vitiated? bad in law due to non-consideration of relevant factors and instead basing it on surmises, conjectures and suspicion and by discarding the evidence and the reasons and explanations adduced by the Appellant/Assessee for the gift and proving the source of funds for making the gift and despite the clinching evidence to establish the gift, the test of ‘occasion’ for gift, which is quite irrelevant and strikes at the root of the concept of gifts as understood in law was imposed, which thereby stand vitiated? Item No.(ii) Item No.(ii) (i)Whether the Tribunal has committed a serious error of law in brushing aside clinching evidence in the form of documents evidencing the loan transaction by means of cryptic observation that the Appellant/Assessee has not discharged burden of proof? brushing aside clinching evidence in the form of documents evidencing the loan transaction by means of cryptic observation that the Appellant/Assessee has not discharged burden of proof? (ii)Whether finding of the Tribunal is vitiated is evident from the fact that the Tribunal refers to ‘donor and gift’ which do not exist here? fact that the Tribunal refers to ‘donor and gift’ which do not exist here? (iii)Whether the two reasons given by the First Appellate Authority and relied on by the Tribunal, viz, the evidence by way of documents filed, does not have any evidentiary value in the absence of any authentication and secondly, such huge amounts of loan could not have been given by a friend residing in the UK without any return are either irrelevant or based on surmises, conjectures and suspicion? Authority and relied on by the Tribunal, viz, the evidence by way of documents filed, does not have any evidentiary value in the absence of any authentication and secondly, such huge amounts of loan could not have been given by a friend residing in the UK without any return are either irrelevant or based on surmises, conjectures and suspicion? Item No.(iii) “The Assessing Officer having independently called for the bank account statements of Mr. J.V. Sudhakar and having compared it with the bank account statements of the Appellant/Assessee and having found that the loan transaction was genuine and the repayment of the loan having also been made in less than four months through bank transfer, all these transactions having taken place long before the search, was the Assessing Officer right in drawing a hasty conclusion against the veracity of the loan due to the mere non-appearance of Mr. J.V. Sudhakar by the summons issued to him by overlooking the fact that Mr. J.V. Sudhakar was a person of substantial means and had the sources to give the loan, without re-issuing the summons to him, thereby, vitiating the finding and order against the Appellant/Assessee and therefore causing a miscarriage of justice to the Appellant/Assessee? Item No.(iv) (i)Whether the Hon’ble Tribunal was justified in law in upholding the addition of interest not received by the Appellant/Assessee only on the reasoning that the Appellant/Assessee had claimed credit towards TDS on the basis of the certificate sent by the loanee company? upholding the addition of interest not received by the Appellant/Assessee only on the reasoning that the Appellant/Assessee had claimed credit towards TDS on the basis of the certificate sent by the loanee company? (ii)Whether the Appellant/Assessee who was consistently following the cash system of accounting would be required to account for such unreceived interest merely because the income stood credited to his account in the book of the loanee company, which has been following the mercantile system of accounting? following the cash system of accounting would be required to account for such unreceived interest merely because the income stood credited to his account in the book of the loanee company, which has been following the mercantile system of accounting? (ii)Whether the Appellant/Assessee who was consistently following the cash system of accounting would be required to account for such unreceived interest merely because the income stood credited to his account in the book of the loanee company, which has been following the mercantile system of accounting? following the cash system of accounting would be required to account for such unreceived interest merely because the income stood credited to his account in the book of the loanee company, which has been following the mercantile system of accounting? (iii)Whether the reasoning of the Tribunal at Para 71 that claiming of credit towards TDS and claiming of deduction of interest shall go together and there could not be dual method for the same income is sustainable in law especially having referred to the provision contained in Section 145 of the I.T. Act and the inequitable consequences that flow? claiming of credit towards TDS and claiming of deduction of interest shall go together and there could not be dual method for the same income is sustainable in law especially having referred to the provision contained in Section 145 of the I.T. Act and the inequitable consequences that flow? (iv)Whether the factum of adjusting TDS against the tax payable by Appellant/Assessee would ipso facto convert the income not at all received by the Appellant/Assessee as taxable income for the relevant year? payable by Appellant/Assessee would ipso facto convert the income not at all received by the Appellant/Assessee as taxable income for the relevant year? (v)Whether on the facts and circumstances of the case, the Hon’ble Tribunal is justified in upholding the addition towards interest income by observing that the Appellant/Assessee claimed credit towards TDS on the disputed interest income and for other portion of interest the Appellant/Assessee is following cash system of accounting? Hon’ble Tribunal is justified in upholding the addition towards interest income by observing that the Appellant/Assessee claimed credit towards TDS on the disputed interest income and for other portion of interest the Appellant/Assessee is following cash system of accounting? (vi)Whether the impugned order is not perverse as the Hon’ble Tribunal has failed to consider the materials on record and considered irrelevant materials in arriving in its decision?” Tribunal has failed to consider the materials on record and considered irrelevant materials in arriving in its decision?” Reframed substantial questions of law: 1.“Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal while confirming the addition of Rs.73,00,000 as unexplained credit under Section 68 of the Act, is right in law in holding that there should be sufficient reasons for receiving gifts though it is from mother’s sister and the gift is covered by the provisions of Section 56 of the Act? Income Tax Appellate Tribunal while confirming the addition of Rs.73,00,000 as unexplained credit under Section 68 of the Act, is right in law in holding that there should be sufficient reasons for receiving gifts though it is from mother’s sister and the gift is covered by the provisions of Section 56 of the Act? 2.Whether on the facts and in the circumstances of the case, the decision of the Income Tax Appellate Tribunal is perverse and without application of mind in confirming the addition of Rs.87.95 lakhs received as loan from Mr. Devsingh Palak, on the ground that the burden of proof is on the assessee to establish that the donor has means and the gift was genuine though it is a loan and burden is discharged by filing all required documents? decision of the Income Tax Appellate Tribunal is perverse and without application of mind in confirming the addition of Rs.87.95 lakhs received as loan from Mr. Devsingh Palak, on the ground that the burden of proof is on the assessee to establish that the donor has means and the gift was genuine though it is a loan and burden is discharged by filing all required documents? 3.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in ignoring the reference made by the Assessing Officer to the Foreign Tax Division of the Central Board of Direct Taxes requesting to verify the genuineness of the amounts received from UK and confirming the addition though no adverse communication is received as per records? Income Tax Appellate Tribunal is right in law in ignoring the reference made by the Assessing Officer to the Foreign Tax Division of the Central Board of Direct Taxes requesting to verify the genuineness of the amounts received from UK and confirming the addition though no adverse communication is received as per records? 4.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in confirming the addition of Rs.10,00,000 being loan received and repaid from one Mr. J.V. Sudhakar on the ground that his identity is not proved though the transaction is through bank and assessee discharged his burden? Income Tax Appellate Tribunal is right in law in confirming the addition of Rs.10,00,000 being loan received and repaid from one Mr. J.V. Sudhakar on the ground that his identity is not proved though the transaction is through bank and assessee discharged his burden? 5.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in upholding the conclusion of the Assessing Officer and the learned Commissioner of Income Tax (Appeals) that undisclosed income has been brought in the form of gifts in spite of the fact that there was no income earning activity to the assessee? Income Tax Appellate Tribunal is right in law in upholding the conclusion of the Assessing Officer and the learned Commissioner of Income Tax (Appeals) that undisclosed income has been brought in the form of gifts in spite of the fact that there was no income earning activity to the assessee? 6.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in holding that the assessee has to discharge his onus though the assessee has complied with the provisions of law? Income Tax Appellate Tribunal is right in law in holding that the assessee has to discharge his onus though the assessee has complied with the provisions of law? 7.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal while confirming the addition of Rs.3,05,713 as interest income on mere ground of claiming credit for TDS on entire amount in utter disregard to the provisions of Sec. 145 of the Act and method of accounting followed by the assessee?” Income Tax Appellate Tribunal while confirming the addition of Rs.3,05,713 as interest income on mere ground of claiming credit for TDS on entire amount in utter disregard to the provisions of Sec. 145 of the Act and method of accounting followed by the assessee?” ITTA No.702/2016 Substantial questions of law originally framed: 7.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal while confirming the addition of Rs.3,05,713 as interest income on mere ground of claiming credit for TDS on entire amount in utter disregard to the provisions of Sec. 145 of the Act and method of accounting followed by the assessee?” Income Tax Appellate Tribunal while confirming the addition of Rs.3,05,713 as interest income on mere ground of claiming credit for TDS on entire amount in utter disregard to the provisions of Sec. 145 of the Act and method of accounting followed by the assessee?” ITTA No.702/2016 Substantial questions of law originally framed: (a)“Whether the Tribunal was legally justified in treating the loan given by the wife of the Appellant/Assessee as unexplained cash credit on the two grounds, viz, (1) that the credit received by the Appellant/Assessee cannot be said to be genuine unless there is evidence to establish that the wife is having sources of income and that her own income is not much, and; (2) it is “very easy to make self-serving gift letter” and relying on it; given by the wife of the Appellant/Assessee as unexplained cash credit on the two grounds, viz, (1) that the credit received by the Appellant/Assessee cannot be said to be genuine unless there is evidence to establish that the wife is having sources of income and that her own income is not much, and; (2) it is “very easy to make self-serving gift letter” and relying on it; (b)In making the above observations, whether the Hon’ble Tribunal has committed an error of law in as much as the Tribunal overlooked the material on record, establishing the source of her funds and secondly, found fault with the confirmation of gifts letter, by merely characterising the same as “self-serving”? has committed an error of law in as much as the Tribunal overlooked the material on record, establishing the source of her funds and secondly, found fault with the confirmation of gifts letter, by merely characterising the same as “self-serving”? (c)Whether under the facts and circumstances of the case, the Hon’ble Tribunal was justified in reversing the Order of the Commissioner of Income Tax (Appeals) without evaluating and Hon’ble Tribunal was justified in reversing the Order of the Commissioner of Income Tax (Appeals) without evaluating and appreciating the materials on record furnished by the Appellant/Assessee to substantiate the genuineness of the transactions? Appellant/Assessee to substantiate the genuineness of the transactions? (d)Whether under the facts and circumstances of the case, the direction given by the Commissioner of Income Tax (Appeals) to the Assessing Officer to take steps to assess the credit amounts in the hands of the lender? direction given by the Commissioner of Income Tax (Appeals) to the Assessing Officer to take steps to assess the credit amounts in the hands of the lender? (e)In view of the reference to FTD of CBDT having not brought out any adverse finding against the Appellant/Assessee, is the order of the Hon’ble Tribunal liable to be struck down by drawing adverse inference against the revenue under illustration (g) of Section 114 of the IT Act.” out any adverse finding against the Appellant/Assessee, is the order of the Hon’ble Tribunal liable to be struck down by drawing adverse inference against the revenue under illustration (g) of Section 114 of the IT Act.” Reframed substantial questions of law: (e)In view of the reference to FTD of CBDT having not brought out any adverse finding against the Appellant/Assessee, is the order of the Hon’ble Tribunal liable to be struck down by drawing adverse inference against the revenue under illustration (g) of Section 114 of the IT Act.” out any adverse finding against the Appellant/Assessee, is the order of the Hon’ble Tribunal liable to be struck down by drawing adverse inference against the revenue under illustration (g) of Section 114 of the IT Act.” Reframed substantial questions of law: 1.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal while reversing the decision of the Commissioner of Income Tax (Appeals) and confirming the addition of Rs.14,50,000 received as loan from wife Smt. P. Shanti Chowdary as unexplained credit under section 68 of the Act, is right in law in holding that genuineness of the transaction is not proved in spite of substantial evidence on record? Income Tax Appellate Tribunal while reversing the decision of the Commissioner of Income Tax (Appeals) and confirming the addition of Rs.14,50,000 received as loan from wife Smt. P. Shanti Chowdary as unexplained credit under section 68 of the Act, is right in law in holding that genuineness of the transaction is not proved in spite of substantial evidence on record? 2.Whether on the facts and in the circumstances of the case, the decision of the Income Tax Appellate Tribunal is perverse and without application of mind in confirming the addition of Rs.14,50,000/- received as loan from Smt. P. Shanti Chowdary? decision of the Income Tax Appellate Tribunal is perverse and without application of mind in confirming the addition of Rs.14,50,000/- received as loan from Smt. P. Shanti Chowdary? 3.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in ignoring the reference made by the Assessing Officer to the Foreign Tax Division of the Central Board of Direct Taxes requesting to verify the genuineness of the amounts received from UK and confirming the addition though no adverse communication is received as per records? Income Tax Appellate Tribunal is right in law in ignoring the reference made by the Assessing Officer to the Foreign Tax Division of the Central Board of Direct Taxes requesting to verify the genuineness of the amounts received from UK and confirming the addition though no adverse communication is received as per records? 4.Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in upholding the conclusion of the Assessing Officer and the learned Commissioner of Income Tax (Appeals) that undisclosed income has been brought in the form of gifts in spite of the fact that there was no income earning activity to the assessee?” Income Tax Appellate Tribunal is right in law in upholding the conclusion of the Assessing Officer and the learned Commissioner of Income Tax (Appeals) that undisclosed income has been brought in the form of gifts in spite of the fact that there was no income earning activity to the assessee?” 5. At the hearing, Mr. K. Vasanth Kumar, learned counsel for the assessee, submitted that the CIT(A) as well as the Tribunal fell into serious error in treating the gift from the assessee’s aunt as unexplained credit under Section 68 of the 5. At the hearing, Mr. K. Vasanth Kumar, learned counsel for the assessee, submitted that the CIT(A) as well as the Tribunal fell into serious error in treating the gift from the assessee’s aunt as unexplained credit under Section 68 of the Act on unsustainable inferences and unwarranted presumptions. That the reasoning of the Tribunal that there was no occasion for the assessee to accept the gift is in the teeth of Section 56(2)(v) of the Act introduced with effect from 01.4.2005 envisaging that for a relative no occasion is needed for making a gift. The learned counsel further submitted that for drawing a conclusion of undisclosed income, the authority must find a source for the assessee and that no such source has been detected. In support of his submissions, the learned counsel placed reliance on the judgment in C.I.T. v. P. Mohanakala[1]. The learned counsel further submitted that the maternal aunt of the assessee has gifted the amount received from her daughter sent from the United States of America as evident from the bank statements including the US bank statements and confirmation issued by the bank. That the said amount was received from abroad and that the AO has made the addition by stating that the statement of the assessee that his mother and father looked after her and that as she has no male child she treated him as her son, is false, which is wholly unsustainable. 6. As regards item No.(ii), i.e., loan received from Mr. Dev Singh Palak, the learned counsel submitted that during the financial year 2005-06 the assessee has received a loan of Rs.87,95,000/- from one of his family friends, Mr. Dev Singh Palak, a resident of U.K., that out of the said sum, Rs.47,45,724/- was received from U.K. and the balance was received from Punjab in the form of demand drafts. That during the course of assessment proceedings, the assessee submitted confirmation letters from Mr. Dev Singh Palak, the U.K. company, which transferred the amount, the company’s financial statements, confirmation of the drafts and copies of sale of lands in Punjab. The AO, submitted the counsel, however, held that the loan is not proved and that he has further held that the signature of the person in the confirmation demonstrates that the person is not a man of means. The learned counsel submitted that such a reasoning of the AO, as confirmed by both the appellate authorities, cannot stand the scrutiny of the Court. 7. With regard to item No.(iii), the learned counsel submitted that during the financial year 2005-06, the assessee received Rs.10,00,000/- as loan from one J.V. Sudhakar on 21.3.2006 and the same was repaid on 5.7.2006 by bank transfer. That during the course of the assessment proceedings as the said Sudhakar was not available, he could not appear before the AO. That the AO obtained bank statement from the bank which proves the version of the assessee and that in spite of the same, the AO has added the amount as unexplained credit on the ground that identity of the creditor was not proved. The learned counsel submitted that the reasoning of the AO as confirmed by both the appellate fora is not sustainable, as the very bank statement obtained by the AO proves the identity of the creditor and his creditworthiness. 8. As regards item No.(iv) - the addition of Rs.3,05,713/-, the learned counsel submitted that the assessee advanced loan to the company, by name, M/s. Dakshin Shelters Private Limited, on various dates. That the company though credited interest in its books of account and deducted tax at source, it has never paid interest to the assessee. That the assessee followed the cash system of accounting and admitted the tax deducted at source as income and claimed the credit for TDS as the same was admitted as income. That during the course of the assessment proceedings, the AO was informed that the interest income in its entirety is not admitted as the assessee is following cash system of accounting. The AO however held 8. As regards item No.(iv) - the addition of Rs.3,05,713/-, the learned counsel submitted that the assessee advanced loan to the company, by name, M/s. Dakshin Shelters Private Limited, on various dates. That the company though credited interest in its books of account and deducted tax at source, it has never paid interest to the assessee. That the assessee followed the cash system of accounting and admitted the tax deducted at source as income and claimed the credit for TDS as the same was admitted as income. That during the course of the assessment proceedings, the AO was informed that the interest income in its entirety is not admitted as the assessee is following cash system of accounting. The AO however held that as the basis of charge is Section 5 of the Act, interest income is taxable totally ignoring Section 145 of the Act which mandates admission of income on the basis of accounting method. The learned counsel argued that if the company has followed the accounting method and debited the amount in its accounts as being paid to the assessee and deducted tax at source, as for the assessee as he was following only cash system he has not included the amount under income as he has not received the same during that financial year. That even the Central Board of Direct Taxes while issuing clarification on the recently introduced provisions of Income Computation and Disclosure Standard, has recognised this method and gave clarification in this regard. In this context, the learned counsel has referred to Section 199 of the Act which envisages that credit shall be given in the year when income is assessable, that the assessee admitted income to the extent of TDS on receipt basis/cash basis and that once the income to this extent is admitted there is no error in claiming credit for TDS. The learned counsel further submitted that the AO should have at best directed to restrict the claim of TDS in proportion to the income admitted and to allow the balance in the year in which the interest income is admitted on receipt basis. That the assessee has admitted entire interest income in the assessment year 2012-13, as in the previous year relevant to that assessment year, the deposit was converted into shares by the said company. The learned counsel accordingly submitted that the order of the AO, as confirmed by the CIT (A) and the Tribunal suffers from non-application of mind and is contrary to law. 9. As for item No.(v), which is the subject matter of ITA No.702 of 2016, the learned counsel submitted that during the financial year 2005-06 the assessee received loan of Rs.14,50,000/- from his wife, Smt. P. Shanti Chowdhary, by way of transfer from her bank account to the assessee’s bank account on three dates, that during the course of assessment proceedings the assessee filed confirmation letter along with bank statement, details of gifts received by her from her father and that of foreign remittances to her account, and that the loan was given from out of the gifts received by his wife. The learned counsel also submitted that the petitioner’s wife is the only daughter to her parents, who are U.K. citizens and also Doctors, that in proof of transferring the money to the assessee’s wife by her father, relevant bank statements were filed. That the AO has not accepted the material and made the addition as unexplained credit under Section 68 of the Act and that the CIT(A), however, has allowed the assessee’s appeal, but the Tribunal on an erroneous view of the matter, reversed the said order of the CIT(A). 10. Ms. M. Kiranmayee, learned Senior Standing Counsel for the Income Tax Department, opposed the above submissions and commended the correctness of the decision of the AO and the two appellate fora in respect of the order challenged in ITTA No.701 of 2016, and the decision of the Tribunal reversing the order of the CIT(A) challenged in ITTA No.702 of 2016. that the CIT(A), however, has allowed the assessee’s appeal, but the Tribunal on an erroneous view of the matter, reversed the said order of the CIT(A). 10. Ms. M. Kiranmayee, learned Senior Standing Counsel for the Income Tax Department, opposed the above submissions and commended the correctness of the decision of the AO and the two appellate fora in respect of the order challenged in ITTA No.701 of 2016, and the decision of the Tribunal reversing the order of the CIT(A) challenged in ITTA No.702 of 2016. 11. We have carefully considered the respective submissions of the learned counsel for both the parties with reference to the record. 12. With regard to item No.(i), the learned counsel placed heavy reliance on the following material which was produced before the AO. (i) The confirmation letter dt. Nil, given by Smt. Mikkilineni Nirmala, maternal aunt of the assessee, that she has transferred voluntarily a sum of Rs.73,00,000/- from her SB Account No.737010068905, ING Vysya Bank, Banjara Hills, Hyderabad, on 16.07.2005 to the SB Account No.737010054632 of the same bank belonging to the assessee. (ii) The copy of the statement of account of said Nirmala, issued by the ING Vysya Bank, on 18.3.2010, showing credit of Rs.73,23,152/- in her account on 08.07.2005 and debit of Rs.73,00,000/- on 16.7.2005 and transfer to the SB Account 54632 belonging to the assessee. (iii) The copy of the statement showing Remittance (Purchase) of $1,68,200 showing that Sudha R Ravoori has remitted the aforesaid sum to ING Vysya Bank to the account of Nirmala Mikkilineni, via Abn Amro, New York, and crediting of the said amount to the account of said Nirmala Mikkilineni. (iv) The copy of the statement of account No. 737010054632 standing in the name of the assessee for the period from 01.04.2005 to 31.03.2006, showing credit of sum of Rs.73,00,000/- on 16.7.2005. (v) The copies of Passport of R. Sudha Rani, daughter of Smt. Nirmala Mikkilineni. (vi) The copy of the statement of account of Bank One of USA, standing in the name of Sudha Rani Ravoori for the period from 27.6.2005 to 20.7.2005 inter alia showing electronic withdrawals of $1,68,200.00 from her bank account, to the account of Nirmala Mikkilineni, via., Abn Amro, on 05.7.2005. 13. In his order, the CIT(A) has mainly relied upon the circumstance that the assessee failed to show any occasion for which such huge amount could have been given as gift, that too by maternal aunt, and that it is very odd to note that the entire amount received from her daughter has been diverted to the assessee as a gift without any consideration. The Tribunal placing reliance on the judgment in Tirath Ram Gupta v. C.I.T.[2], Jaspal Singh v. C.I.T.[3], held that unless the identity of the donor, his creditworthiness, relationship with the donee and the occasion are proved, the plea of gift cannot be accepted. 14. In this context, the provisions of Section 56(1) and (2)(v), and Section 68 of the Act are relevant which read as under: “Income from other sources. “56.(1). Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources” if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely: - (i) to (iv)… (v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1[st] day of September, 2004 but before the 1[st] day of April, 2006, the whole of such sum: Provided that this clause shall not apply to any sum of money received- (a)from any relative; or (b)on the occasion of the marriage of the individual; or (c)under a will or by way of inheritance; or (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely: - (i) to (iv)… (v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1[st] day of September, 2004 but before the 1[st] day of April, 2006, the whole of such sum: Provided that this clause shall not apply to any sum of money received- (a)from any relative; or (b)on the occasion of the marriage of the individual; or (c)under a will or by way of inheritance; or (d)in contemplation of death of the payer; or (e)from any local authority as defined in the Explanation to clause (20) of section 10; or 2 304 ITR 145 (P&H) 3 290 ITR 306 (P&H) (f)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g)from any trust or institution registered under section 12AA. Explanation.- For the purposes of this clause, “relative” means – (i) spouse of the individual; (ii) brother or sister of the individual; (iii) brother or sister of the spouse of the individual; (iv) brother or sister of either of the parents of the individual; individual; (v) any lineal ascendant or descendant of the individual; (vi) any lineal ascendant or descendant of the spouse of the individual; individual; (vii) spouse of the person referred to in clauses (ii) to (vi)” Cash credits. 68. 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: Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless – (a)the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b)such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.” 15. Section 56(2)(v) was inserted by the Finance Act, 2005 with effect from 1.4.2005. The relevant assessment year is 2005-2006. As rightly submitted by the learned counsel for the assessee, for accepting a gift from a relative, no occasion need be proved. As could be seen from the language of sub-clauses (a) and (b) of clause (v) of sub-section (2) of Section 56, while under clause (a) which deals with a gift from any relative no occasion is envisaged, clause (b) dealing with money received from any other person, specifies the occasion of marriage. The explanation to the said provision defined ‘relative’, as persons including brother or sister of either of the parents of the individual. All the three fora below failed to refer to and discuss this pivotal provision. 15. Section 56(2)(v) was inserted by the Finance Act, 2005 with effect from 1.4.2005. The relevant assessment year is 2005-2006. As rightly submitted by the learned counsel for the assessee, for accepting a gift from a relative, no occasion need be proved. As could be seen from the language of sub-clauses (a) and (b) of clause (v) of sub-section (2) of Section 56, while under clause (a) which deals with a gift from any relative no occasion is envisaged, clause (b) dealing with money received from any other person, specifies the occasion of marriage. The explanation to the said provision defined ‘relative’, as persons including brother or sister of either of the parents of the individual. All the three fora below failed to refer to and discuss this pivotal provision. 16. Section 68 of the Act which deals with cash credits laid down that 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. This provision could be pressed into service where the assessee offers no explanation. In the instant case, Section 68 is not attracted for the reason that the assessee has offered an explanation supported by uncontroverted material showing transfer of the amount from the daughter of the assessee’s maternal aunt and the latter in turn transferring the money to the assessee. 17. Section 68 of the Act fell for interpretation of the Supreme Court in many a judgment. In Sumati Dayal v. C.I.T.[4], the Supreme Court held as under: “In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, ‘the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee’ [See Parimisetti Seetharamamma v. C.I.T. : (1965) 57 ITR 532]. But, in view of s. 68 of the Act, where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such as case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature.” 18. On reviewing the case law on the subject, the Supreme Court in P. Mohanakala (1 supra) held in paragraph 12 as under: “12. The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessees; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.” 19. A Division Bench of this Court in R.B. Mittal v. Commissioner of Income Tax[5], after copious reference to the case law, observed as under: “From the above discussion of the case law on the point what transpires is that the assessee, in order to discharge the onus cast on him under s. 68 of the Act, has to establish not only the identity of his creditors and confirmation of the credits but also the capacity of the creditors to advance money as well as the genuineness of the transactions.” 20. In the instant case, though the AO has stated as a general proposition of law that creditworthiness and identity of the donor and the genuineness of the gift, apart from establishing the occasion are relevant, no specific finding was rendered by him that the assessee has not established the identity and relationship of the donor with him. The AO has primarily misdirected himself in thinking that the main ingredient for a valid gift is proof of existence of occasion. This demonstrably is a flawed reason as the same is in the teeth of Section 56(2)(v(a) of the Act, as discussed above. 21. The further observation of the AO that the assessee appeared to have opened the bank account only for the 5 (2000) 246 ITR 283 purpose of receiving cash in the guise of a gift, is also flimsy. When the donor herself has given a confirmation lette