In the Commissioner of Income Tax vs M.S Aggarwal the Delhi High Court reiterated the decision of Sumati Dayal versus Commissioner of Income Tax, Bangalore and held that a gift cannot be accepted as such to be genuine merely because the amount has come by way of cheques or draft through banking channels unless the identity of the donor, his creditworthiness, relationship with the done and the occasion was proved. It further held that unless the recipient proved the genuineness of the transaction, the same could be very well treated as an accommodation entry of the assessee’s own money, which was not disclosed for the purpose of taxation.
In the instant case, during the search of assessee’s premises, several incriminating documents and material were found and seized. The assessee-respondent was carrying out benami business in the names of several firms, which were not accounted for. As per the Revenue on the basis of the papers and documents found during the search, these benami entities belonging to the respondent/assessee had unaccounted for turn-over of over Rs.26.35 Crores.
In November 1999, the assessee/respondent confessed that he had procured gifts of Rs.50 Lacs and Rs.10 Lacs from Mr. Kamlapati Singhania in his name and in the name of his Hindu Undivided Family (HUF). Respondent/assessee confessed that he had never met Mr. Kamlapati Singhania, an industrialist and Chairman of J.K. Synthetic and J.K. Cement. The respondent/assessee or his family members did not know Mr. Kamlapati Singhania personally. He confessed that he knew of no reason why Mr. Kamlapati Singhania had given him and his HUF gifts of Rs. 50,00,000/- and Rs.10,00,000/-, respectively. Respondent/assessee in his subsequent statement recorded under Section 131 of the Act on 6th January 2000 had again accepted and admitted that the gifts were bogus and had offered the same to be taxed. Upon receiving a notice under Section 158 BC dated 20th November 2001, the respondent-assessee filed block return for the block period on 4th January 2002 accepting and declaring undisclosed income of Rs.86.82 Lacs.
During the course of the block assessment proceedings, the respondent/assessee by a letter in March 2002 retracted his admission on bogus gifts, asserting that the gift of Rs.50,00,000/- given to him by Mr. Rama Pati Singhania was genuine and not procured. The gifts were given by way of two cheques dated 8th May 1999 and 12th May 1999 of Rs.25,00,000/- each, drawn on Hong Kong & Shanghai Banking Corporation Limited. Mr. Rama Pati Singhania, who was a regular assessee with the Income Tax Department, Kanpur, had sold his residential flat at Bombay for Rs.2,75,00,000/- for which he had obtained clearance from the Income Tax Department. Mr. Rama Pati Singhania had duly disclosed the gift in his assessment proceedings. The Respondent further state in his letter that the admissions recorded on 25th November 1999 were dictated confession, extracted and feigned as he wanted to be free and leave his residence to attend a family function. He contended that his signatures were taken wherever the search party felt necessary.
The Assessing Officer rejected the contention that the confession was extorted under coercion, pressure, and duress observing that the retraction and explanation justifying the gift was given for the first time in March 2002 and accepted the confession of the assessee. The Commissioner of Income Tax (Appeals) also affirmed the view of the A.O. However, the Tribunal found the Gift to be genuine The Tribunal found that statement of the assessee admitting the gifts to be non-genuine had been recorded before the commencement of the search and held that it cannot conceivably be construed as a statement u/s 132(4) of the Income-tax Act.
On appeal before the Delhi High Court, the Bench comprising of Justice Sanjiv Khanna & Justice Prathiba M. Singh observed “In the present case, the respondent-assessee had stated that he had paid cash to convert his unaccounted money to procure the gift. This admission and confession were made in two statements after a time gap of nearly forty days. It would be difficult, if not impossible, to get direct evidence to ascertain and vouch for the truth or falsity of this inculpatory admission. In view of the aforesaid discussion, we have no hesitation in holding that the gift in question of Rs.50,00,000/- purportedly received by the respondent/assessee from Mr. Rama Pati Singhania was a procured one and the admissions/confession made as recorded in the statements dated 25th November 1999 and 6th January 2000 are trustworthy, true and correct. Finding of the Tribunal on accepting the gift as genuine is contrary to law being perverse and contrary to facts and material on record.”
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