IN HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 13.10.2015 + ITA 59/2003 COMMISSIONER OF INCOME TAX, DELHI .....Appellant versus SUDHIR BUDHRAJA ..... Respondent Advocates who appeared in this case: For Appellant : Mr Dileep Shivpuri, Senior Standing Counsel with Mr Sanjay Kumar, Junior Standing Counsel. For Respondent : Dr Rakesh Gupta with Ms Poonam Ahuja, Mr Somil Agarwal, Mr Rohit Kumar Gupta. CORAM: DR. JUSTICE S.MURALIDHAR MR. JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1. This is Revenue s appeal under Section 260A of Income Tax Act, 1961 (hereafter Act ), against order dated 30 th July, 2002 passed by Income Tax Appellate Tribunal (hereafter Tribunal ) in ITA No. 1124/Del/2001. aforesaid appeal (ITA No. 1124/Del/2001) was preferred by Assessee impugning order dated 12th March, 2001 passed by Commissioner Income Tax (Appeals) [hereafter CIT(A) ] rejecting Assessee s appeal against assessment order dated 27th ITA 59/2003 Page 1 of 17 March, 1998 passed by Assessing Officer (hereafter AO ) in respect of Assessment Year 1995-96. 2. principal controversy involved in present appeal relates to addition of `1,87,38,100/- made by AO to taxable income of Assessee under Sections 68 and 69 of Act. This addition was made as AO held that Assessee had been unable to establish his claim that sum of US $ 6 lacs received by him was gift. Assessee s appeal to CIT(A) against said decision was also rejected. On further appeal, Tribunal held that Assessee had established source of gift as well as creditworthiness of donor and, accordingly, deleted addition. Aggrieved by aforesaid decision, Revenue has preferred present appeal. 3. present appeal was admitted on 5th March, 2004 and following questions of law were framed for determination by Court:- Whether ITAT was correct in law in deleting addition of US $ 6 lacs (Rs.1,87,38,100/-) made by A.O. U/s. 68 and 69 of Income Tax Act ? Whether order passed by ITAT is perverse in laws and on facts when ITAT had observed that assessee had proved capacity of donor? ITA 59/2003 Page 2 of 17 4. aforesaid questions have to be considered in backdrop of following facts:- 4.1 Assessee is Chartered Accountant. Assessee filed return of income for Assessment Year (AY) 1995-96 on 31st October, 1995 along with requisite audit report under Section 44AD of Act, returning income of `2,59,300/-. 4.2 return filed by Assessee indicated gross professional receipts of `18,95,901/- out of which `18,05,400/- was received as consultancy fees from US based company M/s Blackfin Development Company Inc., USA (hereafter referred to as Blackfin ). In addition Assessee had also received US$ 6,00,000/- ( US dollars Six hundred thousand) from Blackfin. It was Assessee s case that Blackfin had remitted amount at instance of Sh. Jaspal (hereafter donor ) and insofar as Assessee was concerned, it was gift from Sh. Jaspal. 4.3 Out of aforesaid sum of US$ 6,00,000/- sum of US$ 5,80,000/- had been credited to Assessee s savings account on 12th May, 1994. balance US$ 20,000 was retained in Exchange Earner's Foreign Currency Account (hereafter EEFC A/C ), of which US$ 10,000 was ITA 59/2003 Page 3 of 17 subsequently withdrawn in financial year 1994-95 and remaining US$ 10,000 was withdrawn during relevant financial year. During assessment proceedings on 3rd March, 1997, donor appeared before AO and was examined on oath. donor affirmed that he and Assessee had been close friends since 1971 and remittance made was as gift from him out of love and affection for Assessee. He also stated that he had business turnover of US$ 3-4 million. 4.4 Assessee also produced letter dated 2nd April, 1994 written by donor to Assessee wherein he mentioned that Assessee had stood like pillar in his times of crisis and, therefore, as token of love, donor had arranged to send said funds to Assessee. In addition to above evidence, Assessee was also examined on oath on 14th March, 1997 and 28th May, 1997. Thereafter, Income Tax Authorities conducted survey under Section 133A on Assessee s business premises. 4.5 AO also sent questionnaire to donor, inter alia, asking him to provide following details:- ITA 59/2003 Page 4 of 17 (i) Details of all past and present business activities alongwith annual turnover of such activities. (ii) Tax statements for business outside India in places like Dubai, China, Russia, Africa, USC etc. (iii) Statements of assets and liabilities for year 1992 to 1996 giving details of properties, stocks and other assets acquired during above period, alongwith cost of such assets and date of purchase. (iv) Documentary evidence in support of claim that annual business turnover was 3-4 millions as claimed in statement of Shri Jaspal recorded on 3.3.97. (v) Copies of bank statements of bank accounts in India and abroad. (vi) Description of nature of business association with Blackfin Development Co. giving details of goods and/or services in which Shri Jaspal and Blackfin Development together. (vii) Copy of business agreement with Blackfin. (viii) Evidence for share of profit from business association with Blackfin and dealings in Africa. (ix) To produce evidence to show that Shri Jaspal was actually associated with M/s Blackfin and further that money remitted by Blackfin to Shri Budhiraja actually belonged to Shri Jaspal and Blackfin remitted this amount to Jaspal. In this context, Shri Jaspal was also requested to give note on his acts of involvement in business of Blackfin and copy of transactions of business done together, profit sharing agreement, profit computation from such business and details as to how money matters were settled exactly. ITA 59/2003 Page 5 of 17 4.6 donor responded to above questionnaire by letter dated 25 th March, 1997, inter alia, stating that he had offered all explanations to queries raised during course of recording of his statement on 3 rd March, 1997, which included explanations regarding his capacity and capability to make gift as also source from which such gift was made. He did not provide any details regarding his foreign assets, businesses and other personal matters as according to him, same did not have direct bearing on assessment of Assessee s income. However, on 27th March, 1997, donor faxed copy of confirmation certificate from Blackfin which was typed on letter head of Blackfin and signed by Art De Pue of Blackfin before Notary Public of State of Texas, USA on 26th March, 1997. 4.7 aforesaid certificate confirmed that donor was business associate of Blackfin since 1993, that in accordance with arrangement, he had to receive certain amount in June 1994 and that on his instructions, sum of US$ 6,00,000/- was remitted by Blackfin on 8th May, 1994 through its bank account with National Bank, USA to Citibank Account of Assessee in India. ITA 59/2003 Page 6 of 17 4.8 During survey conducted on premises of Assessee, Income Tax Authorities, inter alia, found ledger which recorded credit of `3,32,412/- on 5th September, 1995 under Account Fee-Income . This amount represented withdrawal of US$ 10,000 by Assessee from EEFC A/c. 4.9 Assessee was called upon to produce agreement with Blackfin pursuant to which Assessee had been engaged to provide consultancy services. In response thereto, Assessee, during course of hearing held on 24th February, 1998, produced copy of agreement dated 4th June, 1994 with Blackfin, to provide consultancy services in terms of which Assessee was to be remunerated at rate of US$ 20,000 per month inclusive of reimbursement of any out of pocket expenses incurred on behalf of Blackfin. Assessee also produced some correspondence with Blackfin including letter dated 4th October, 1994 issued by Blackfin terminating agreement with Assessee after period of 90 days. 4.10 AO passed assessment order dated 27th March, 1998, inter alia, holding that although entity of donor had been established, Assessee had failed to establish capacity of donor to make gift or ITA 59/2003 Page 7 of 17 genuineness of transaction. AO drew adverse inference from fact that Assessee had not been able to persuade donor to produce documentary details as required by AO. AO noted that there were certain discrepancies in statements of donor and Assessee, inasmuch as donor did not know date of Assessee s marriage and there were also some inaccuracies in names of children of Assessee as mentioned by donor. AO held that Assessee had failed to substantiate his claim of having received gift and added amount of aforesaid gift as income in hands of Assessee. 4.11 Assessee preferred appeal before CIT(A) and also sought to produce additional evidence in form of statement of accounts of donor as certified by Blackfin. statement of accounts indicated that sum of US$ 6,00,000/- which was remitted to Assessee had been reduced from account of donor maintained by Blackfin. However, CIT(A) did not interfere with assessment made by AO and, by order dated 12th March, 2001, rejected Assessee s appeal. ITA 59/2003 Page 8 of 17 4.12 Assessee appealed before Tribunal against order dated 12th March, 2001 passed by CIT(A) rejecting Assessee s appeal, which was allowed by Tribunal after considering facts and circumstances of case. 5. In order for Assessee to sustain its claim that receipt in question was gift, Assessee had to explain source of receipt as well as establish genuineness of transaction. Tribunal held that Assessee had discharged its burden as to identity of source as well as capacity of donor. Tribunal s findings are, essentially, findings of fact and there is little scope to interfere with same unless it is concluded that findings are perverse in law and/or are not based on any material. In CIT v. Sunita Vachani: (1990) 184 ITR 121 (Del) this court held that : in our opinion, Tribunal had, on merits, come to conclusion that gifts were genuine. This is pure question of fact. Tribunal has examined evidence which was available on record and has arrived at aforesaid finding. Even though it may be surprising as to how large sums of money are received by family in India by way of gifts from strangers from abroad, unless there is something more tangible than suspicion, it will be difficult to regard moneys received in India from abroad as representing income of assessee in India. On facts as existing on record, we are ITA 59/2003 Page 9 of 17 unable to come to conclusion that any question of law arises. petition is dismissed. No order as to costs. Thus, it is essential to consider whether Tribunal s decision on facts is based on any cogent material and is otherwise sustainable in law. 6. In order to address this issue, it is necessary to examine material that persuaded Tribunal to accept Assessee s claim that amount of US$ 6,00,000/- (US Dollars Six hundred thousand) received by Assessee was indeed gift and not income received from abroad by Assessee. 7. There is no dispute that identity of donor has been established. donor had appeared before AO and recorded his statement on oath. He had affirmed (i) that he had gifted amount in question to Assessee out of love and affection; (ii) that amount had been remitted by Blackfin at his instance; (iii) that he had known Assessee since 1971 and was close to Assessee; (iv) that his average annual income was 3-4 million dollars (equivalent to `15 crores approximately); and donor had also answered all other questions that were put to him. ITA 59/2003 Page 10 of 17 8. In addition, Assessee had recorded his statement affirming that he had received gift from donor. His statement also clearly indicated that he and donor were friends since long and donor was highly successful businessman. 9. Assessee had produced letter dated 2nd April, 1994 wherein donor had mentioned that Assessee had stood by him in his time of crisis and, therefore, he was arranging some funds as token of love and affection towards Assessee. 10. In addition to above material, Assessee had also produced copy of notarised certificate issued by Blackfin confirming that donor and Blackfin were associated since 1993 and donor was to receive monies from Blackfin and that sum of US$ 6,00,000/- had been remitted by Blackfin to Assessee through its bank account on instructions of donor. 11. In addition to above material, Tribunal also took note of copy of account of donor with Blackfin that was produced which indicated that share of donor before 30th June, 1993 was US$ 12,50,300 and during ensuing year sum had increased by ITA 59/2003 Page 11 of 17 US$ 4,34,600 and had decreased by US$ 6,00,000/- ( US Dollars six hundred thousand) - amount remitted to Assessee as gift - as well as other amounts, which resulted in amount lying to credit of donor to be reduced to US$ 4,99,400 as on 30th June, 1994. Tribunal also noted that Assessee had submitted copy of rent deed which indicated that donor had leased Hotel Sunrock in Dubai from one Mr Abdul Rehman Ahmad at rent of 23 lac Dhirams (equivalent to `2.25 crores). 12. According to Tribunal above material was sufficient for Assessee to discharge his onus that amount of US$ 6,00,000 received by him was gift. 13. reasons that persuaded AO to hold otherwise were essentially (i) discrepancies in statements of donor and Assessee; (ii) failure on part of donor to respond to questionnaire and provide details as to his businesses, bank account, business agreements with Blackfin etc; (iii) fact that Assessee had received `18,05,400/- amount as consultancy fees from Blackfin and this indicated business connection between Blackfin and Assessee; (iv) that US$ 10,000 withdrawn by Assessee from EEFC Account ITA 59/2003 Page 12 of 17 (which was part of alleged gift) had been credited in ledger as Fee Income . 14. Insofar as issue regarding discrepancy in statement of donor is concerned, we find that same is not material in determining question of genuineness of gifts or capacity of donor. AO had found that there were some inaccuracies in statements made by donor inasmuch as he had not accurately named children of Assessee; donor had described family of Assessee as His wife Smt. Arti, daughter Shriya, Shom (Shirom). They stay with Sudhir s parents at New Rajinder Nagar, New Delhi. but, Assessee had stated that he had three children and his son master Shirom was minor. Further, donor had stated that he and Assessee knew each other since 1971 and had done their CA together; but, Assessee had affirmed that he and donor had done their graduation and CA together during period 1967 to 1975. In addition, AO also found certain other minor discrepancies. Tribunal had noted above and did not consider discrepancies to be material. We do not find any infirmity with this view as it is apparent that discrepancies in statement are not significant. ITA 59/2003 Page 13 of 17 15. Insofar as failure on part of donor to provide his business details, details of his assets, bank accounts and his agreements with his associates and other information is concerned; clearly, donor could not be expected to share such details, which understandably may be considered as confidential. donor had, therefore, responded by saying that details sought for did not have bearing on assessment proceedings. In order for Assessee to discharge its burden, he had to show that donor was person of means and that such gift has been made out of love and affection. Assessee had produced donor who answered all questions put to him. Assessee as well as donor had sworn statements indicating their close relationship going back several years. certificate dated 26th March, 1997 issued by Blackfin and statement of account of donor in books of Blackfin clearly indicated that donor had access to funds necessary for making gift in question. rent deed relating to hotel in Dubai also indicated that donor was person of means. donor himself had affirmed that his annual income was 3-4 million dollars. Plainly, above material could not be ignored by AO. donor himself was under no obligation to subject himself to inquisition by AO. Tribunal had considered above and ITA 59/2003 Page 14 of 17 had concluded that Assessee had discharged burden. AO on other hand had not identified any material that was available with Assessee, or should have been available with Assessee, and had been withheld by him. In our opinion, Tribunal rightly considered issue in its correct perspective while holding that Assessee had discharged his burden. 16. Insofar as professional consultancy fee received from Blackfin is concerned, Assessee had produced copy of agreement as well as letter of termination. agreement itself was in force for period of six months and in terms of agreement, Assessee was to receive sum of US$ 1,20,000 against, which Assessee had received sum of US$ 1,16,833. Whilst receipt of consultation fee indicated that Assessee had rendered certain services, Tribunal rejected conclusion that this could cast doubt on nature of amount received by Assessee as gift. agreement was only for period of six months and Assessee had affirmed that except for said arrangement it had no connection with Blackfin. Further discrepancy in amount received by Assessee as consultancy fees and amount receivable in terms of ITA 59/2003 Page 15 of 17 agreement could not possibly be ground for doubting amount of gift as consultancy fees. 17. alleged ledger showing withdrawal of US$ 10,000 as fee would also be considered as insufficient for treating gift in question as income. 18. Tribunal had evaluated material and evidence on record and had concluded that Assessee had discharged its burden of justifying receipt in question as gift. On other hand that AO had no material or had not collected any evidence to reject claim made by Assessee. Apart from doubting and questioning material produced by Assessee, AO had not produced any positive evidence which could lead to inference that amount received by Assessee was not gift. 19. In Umacharan Shaw & Bros v. CIT: (1959) 37 ITR 271 (SC), Income Tax Officer did not consider firm in question as being genuine and rejected Assessee s claim for registration of said firm. Appellate Assistant Commissioner upheld decision of ITO and rejected Assessee s appeal. Assessee s further appeal to Tribunal met same fate. Supreme Court set aside decision of Tribunal and directed registration of firm in question. Court held that there ITA 59/2003 Page 16 of 17 was no material on which Income-tax Officer could come to conclusion that firm was not genuine and further observed conclusion is result of suspicion which cannot take place of proof in these matters . In present case too, AO had rejected evidence produced and based his conclusion only on surmises; there was hardly any material for him to conclude that amount in question was not gift. 20. In aforesaid circumstances, we are unable to accept that there is infirmity in order passed by Tribunal. findings of Tribunal are based on sufficient material and cannot be stated to be perverse. In view of aforesaid, questions of law are answered against Revenue and in favour of Assessee. appeal is, accordingly, dismissed. VIBHU BAKHRU, J S. MURALIDHAR, J OCTOBER 13, 2015 RK ITA 59/2003 Page 17 of 17 COMMISSIONER OF INCOME TAX, DELHI v. SUDHIR BUDHRAJA