Rajrani Gupta v. Dy. CIT - Taxpublishers.in

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The Tax Publishers2013 TaxPub(DT) 0288 (Bom-HC) : (2013) 257 CTR 0047 : (2012) 211 TAXMAN 0346 : (2013) 083 DTR 0254 INCOME TAX ACT, 1961 --Income from undisclosed sources--Addition under section 68Non-genuineness of NRI gifts--Assessee was running health clinic along with her family. A search and seizure action was taken at assessee's clinic as well as residential premises. During the course of search it was came to know by search party that there was substantial gifts were received from NRI trough NRI Accounts and on examination of confirmation letter, etc., it was noticed that gifts were not genuine. Further assessee's husband and her son stated in their statement under FERA that gifts were not genuine and accordingly assessment was made assessee's addition under section 68 of bogus gift. Held: >Where modus operandi was adopted to convert assessee's cash into regular income the addition under section 68 was rightly made as NRI gifts were bogus on the basis of document seized and statements of assessee's husband and son. In this case, there is a concurrent finding of fact by the assessing officer and the Tribunal that the amounts shown as gifts were not genuine gifts, but were mere credits taken so as to evade payment of income tax. Further, as gifts are not income being a capital receipt and not subject to income tax its disclosure or non-disclosure is of no consequence for the purpose of the Act. The assessing officer would normally accept an assessee's return of income along with the accounts showing an amount received as gifts in its capital account. However, it is only on account of search that documents were unearthed/found which showed that the gifts were not genuine, but only a method to convert the appellant's unaccounted money into regular income. Therefore, we hold that the non genuine gifts to the appellant was undisclosed income and covered by the definition provided in section 158B(b). [Para 19] The second contention of the appellant is that a block assessment can only be carried out in respect of documents found during the search and it is not open to the assessing officer to rely upon the documents and/or evidence other than those found during the course of the search for the purposes of assessment under Chapter XIVB of the Act. The submission is that the evidence found during the search can alone be a basis for block assessment. According to Mr. Jhaveri the authorities under the Act have been influenced by the confessional statement made by the Appellant's son and husband to the FERA authorities on 6-11-1996 & 7-11-1996 respectively to the effect that the gifts were not genuine and they paid a premium of 8% to receive the gifts from Non-Resident Indians. However, the statement made before the FERA authorities were withdrawn/ retracted on the next day have not been relied upon. In any event, it is his contention that the statements made under FERA were made after over 6 months from the date of the search and therefore, was not evidence which was found during the course of search and therefore could not be relied upon for block assessment under Chapter XIVB of the Act. [Para 20] This submission ignores the fact that under section 158BB(1) of the Act, an assessing officer has to compute the undisclosed income for the block period in accordance with the provision of the Act on the basis of evidence found, as a result of a search or other documents or materials available with the assessing officer and relatable to such evidence. In the present case, the evidence in the form of confirmatory letters, deed of gifts etc. were found during the course of search. The authorities on examination of the confirmatory letters and surrounding circumstances reached a prima facie view that the gifts were not genuine. A notice dated 27-6-1996 under section 158BC of the Act was accordingly issued. Thereafter, before the assessment for the block period could be completed, the assessing officer came across the confessional statement made by the appellant's husband and son under FERA stating that the gifts were not genuine. Therefore, the statements made under the FERA and its retractions are relatable to the confirmatory letters given by the donors of the gifts found during the search of the appellant's premises. The confessional statement is certainly relatable to the evidence found during the course of the search. [Para 21] In the present case, the Tribunal has essentially relied upon the documents found during the course of the search such as identical confirmatory letters typed on the same typewriter not from relatives but from strangers (most were seamen) and the confessional statement as well as retraction made to FERA authorities which were relatable to the material found during the course of the search. Besides it seems that the amendment made to section 158BB(1) of the Act in 2002 with retrospective effect from 1995 was not brought to the notice of the court. The section as amended permits assessment on the basis of any material with the assessing officer relatable to the evidence found during the search. Therefore the above decision is distinguishable from the present facts. [Para 22] It is very clear that consequent to the amendment in 2002 to section 158BB of the Act documents and/or information available with the assessing officer and relatable to evidence found during the search is certainly evidence which can be used to compute the undisclosed income for the block period. [Para 27] In this case the statement and the retraction thereof to the FERA authorities is certainly relatable to evidence found during the search and could be considered to compute the undisclosed income. [Para 29] Lastly, it was submitted on merits that the evidence found during the course of the search viz. copies of confirmatory letters from the donors of the gifts, copies of passport of the Non-Resident Indian's donors of the gifts and their NRE account singly or together do not indicate reason enough to record the conclusion that the gifts were not genuine. Assessee submits that the entire case against the appellant is as on the basis of suspicion, conjectures and unwarranted inferences. [Para 30] Assessee submits that these letters were prepared by the appellant and her family for production before the Income Tax Authorities when called upon to substantiate the genuineness of gifts. Therefore, they were all typed on the same typewriter and are identically worded. [Para 32Para 33] In the present case the alleged gifts which appeared to be real are infact not real, particularly, if one takes into account the surrounding circumstances and applies the test of human probabilities. It is most unlikely in the normal course of human conduct for a family to receive gifts in excess of over Rs. 35 lacs from persons who are not related in any manner to the assessee or her family. Similarly, while considering the order of the Tribunal, one is not required to examine the same through a microscope so as to discover a minor lapse here or there so as to use it as a peg on which one can raise a question of law. [Para 34] In the present case, if all the circumstances are taken together it certainly establishes that the alleged gifts received by the appellant-assessee were nothing but a modes operandi to convert her cash income into regular income. In such circumstances, no fault can be found with the order of the Tribunal while considering the material found during the course of the search and particularly the identical letters written by the donors. [Para 34] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0288 (Bom-HC) : (2013) 257 CTR 0047 : (2012) 211 TAXMAN 0346 : (2013) 083 DTR 0254

INCOME TAX ACT, 1961

--Income from undisclosed sources--Addition under section 68Non-genuineness of NRI gifts--Assessee was running health clinic along with her family. A search and seizure action was taken at assessee's clinic as well as residential premises. During the course of search it was came to know by search party that there was substantial gifts were received from NRI trough NRI Accounts and on examination of confirmation letter, etc., it was noticed that gifts were not genuine. Further assessee's husband and her son stated in their statement under FERA that gifts were not genuine and accordingly assessment was made assessee's addition under section 68 of bogus gift. Held: >Where modus operandi was adopted to convert assessee's cash into regular income the addition under section 68 was rightly made as NRI gifts were bogus on the basis of document seized and statements of assessee's husband and son.

In this case, there is a concurrent finding of fact by the assessing officer and the Tribunal that the amounts shown as gifts were not genuine gifts, but were mere credits taken so as to evade payment of income tax. Further, as gifts are not income being a capital receipt and not subject to income tax its disclosure or non-disclosure is of no consequence for the purpose of the Act. The assessing officer would normally accept an assessee's return of income along with the accounts showing an amount received as gifts in its capital account. However, it is only on account of search that documents were unearthed/found which showed that the gifts were not genuine, but only a method to convert the appellant's unaccounted money into regular income. Therefore, we hold that the non genuine gifts to the appellant was undisclosed income and covered by the definition provided in section 158B(b). [Para 19] The second contention of the appellant is that a block assessment can only be carried out in respect of documents found during the search and it is not open to the assessing officer to rely upon the documents and/or evidence other than those found during the course of the search for the purposes of assessment under Chapter XIVB of the Act. The submission is that the evidence found during the search can alone be a basis for block assessment. According to Mr. Jhaveri the authorities under the Act have been influenced by the confessional statement made by the Appellant's son and husband to the FERA authorities on 6-11-1996 & 7-11-1996 respectively to the effect that the gifts were not genuine and they paid a premium of 8% to receive the gifts from Non-Resident Indians. However, the statement made before the FERA authorities were withdrawn/ retracted on the next day have not been relied upon. In any event, it is his contention that the statements made under FERA were made after over 6 months from the date of the search and therefore, was not evidence which was found during the course of search and therefore could not be relied upon for block assessment under Chapter XIVB of the Act. [Para 20] This submission ignores the fact that under section 158BB(1) of the Act, an assessing officer has to compute the undisclosed income for the block period in accordance with the provision of the Act on the basis of evidence found, as a result of a search or other documents or materials available with the assessing officer and relatable to such evidence. In the present case, the evidence in the form of confirmatory letters, deed of gifts etc. were found during the course of search. The authorities on examination of the confirmatory letters and surrounding circumstances reached a prima facie view that the gifts were not genuine. A notice dated 27-6-1996 under section 158BC of the Act was accordingly issued. Thereafter, before the assessment for the block period could be completed, the assessing officer came across the confessional statement made by the appellant's husband and son under FERA stating that the gifts were not genuine. Therefore, the statements made under the FERA and its retractions are relatable to the confirmatory letters given by the donors of the gifts found during the search of the appellant's premises. The confessional statement is certainly relatable to the evidence found during the course of the search. [Para 21] In the present case, the Tribunal has essentially relied upon the documents found during the course of the search such as identical confirmatory letters typed on the same typewriter not from relatives but from strangers (most were seamen) and the confessional statement as well as retraction made to FERA authorities which were relatable to the material found during the course of the search. Besides it seems that the amendment made to section 158BB(1) of the Act in 2002 with retrospective effect from 1995 was not brought to the notice of the court. The section as amended permits assessment on the basis of any material with the assessing officer relatable to the evidence found during the search. Therefore the above decision is distinguishable from the present facts. [Para 22] It is very clear that consequent to the amendment in 2002 to section 158BB of the Act documents and/or information available with the assessing officer and relatable to evidence found during the search is certainly evidence which can be used to compute the undisclosed income for the block period. [Para 27] In this case the statement and the retraction thereof to the FERA authorities is certainly relatable to evidence found during the search and could be considered to compute the undisclosed income. [Para 29] Lastly, it was submitted on merits that the evidence found during the course of the search viz. copies of confirmatory letters from the donors of the gifts, copies of passport of the Non-Resident Indian's donors of the gifts and their NRE account singly or together do not indicate reason enough to record the conclusion that the gifts were not genuine. Assessee submits that the entire case against the appellant is as on the basis of suspicion, conjectures and unwarranted inferences. [Para 30] Assessee submits that these letters were prepared by the appellant and her family for production before the Income Tax Authorities when called upon to substantiate the genuineness of gifts. Therefore, they were all typed on the same typewriter and are identically worded. [Para 32Para 33] In the present case the alleged gifts which appeared to be real are infact not real, particularly, if one takes into account the surrounding circumstances and applies the test of human probabilities. It is most unlikely in the normal course of human conduct for a family to receive gifts in excess of over Rs. 35 lacs from persons who are not related in any manner to the assessee or her family. Similarly, while considering the order of the Tribunal, one is not required to examine the same through a microscope so as to discover a minor lapse here or there so as to use it as a peg on which one can raise a question of law. [Para 34] In the present case, if all the circumstances are taken together it certainly establishes that the alleged gifts received by the appellant-assessee were nothing but a modes operandi to convert her cash income into regular income. In such circumstances, no fault can be found with the order of the Tribunal while considering the material found during the course of the search and particularly the identical letters written by the donors. [Para 34]