In a recent judgment, Delhi High Court while quashing the additions made u/s 68 and 69 of the Income tax Act, 1961 has observed that a donor could not be expected to share details, which may be considered as confidential.

Case Details:
Income Tax Appeal (ITA) No. 59/2013 ; AY: 1995-96
Commissioner of Income Tax (Appellant) vs Sudhir Budhraja (Respondent)
Date of Order : 13-10-2015
Coram: Justice Muralidhar and Justice Vibhu Bakhru

Facts of the Case(s):
The Assessee was a Chartered Accountant who filed return of income for the Assessment Year 1995-96 under Section 44AD. Apart from professional receipts, (including consultancy fees from a US based company – M/s Blackfin Development Company Inc., USA) the Assessee had also received US$ 6,00,000/- from Blackfin paid on behalf of Sh. Jaspal (donor) which according to the assessee was a gift.

The donor personally appeared before the Assessing Officer (AO) and was examined on oath. The donor affirmed that he and the Assessee had been close friends since 1971 and the remittance made was as a gift from him out of love and affection for the Assessee. He also stated that he had a business turnover of US$ 3-4 million. The Assessee also produced a letter written by the donor to the Assessee wherein he mentioned that the Assessee had stood like a pillar in his times of crisis and, therefore, as a token of love, the donor had arranged to send the said funds to the Assessee. In addition to the above evidence, the Assessee was also examined on oath. Subsequently, the AO also sent a questionnaire to the donor, asking lengthy details and documents.

The donor by a letter stated that he had offered all explanations to the queries raised during the course of the recording of his statement which included explanations regarding his capacity and capability to make the gift as also the 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, the same did not have a direct bearing on the assessment of the Assessee’s income. However, later, the donor faxed a copy of the confirmation certificate from Blackfin which was typed on the letter head of Blackfin and signed by Art De Pue of Blackfin before a Notary Public of the State of Texas, USA on 26th March, 1997. The aforesaid certificate confirmed that the donor was a business associate of Blackfin since 1993 and that on his instructions, a sum of US$ 6,00,000/- was remitted by Blackfin on 8th May, 1994 through its bank account with National Bank, USA to the Citibank Account of the Assessee in India.

The AO passed an assessment order holding that although the entity of the donor had been established, the Assessee had failed to establish the capacity of the donor to make the gift or the genuineness of the transaction. The AO drew an adverse inference from the fact that the Assessee had not been able to persuade the donor to produce the documentary details as required by the AO. The AO noted that there were certain discrepancies in the statements of the donor and the Assessee, inasmuch as the donor did not know the date of the Assessee’s marriage and there were also some inaccuracies in the names of the children of the Assessee as mentioned by the donor. The AO held that the Assessee had failed to substantiate his claim of having received the gift and added the amount of the aforesaid gift as income in the hands of the Assessee u/s 68 and 69.

CIT(A) rejected the assessee’s appeal. However ITAT allowed the appeal holding that the Assessee had discharged its burden as to the identity of the source as well as the capacity of the donor.

Excerpts from the High Court Judgment:

There is no dispute that the identity of the donor has been established. The donor had appeared before the AO and recorded his statement on oath. He had affirmed (i) that he had gifted the amount in question to the Assessee out of love and affection; (ii) that the amount had been remitted by Blackfin at his instance; (iii) that he had known the Assessee since 1971 and was close to the Assessee; (iv) that his average annual income was 3-4 million dollars (equivalent to `15 crores approximately); and the donor had also answered all other questions that were put to him.

In addition, the Assessee had recorded his statement affirming that he had received the gift from the donor. His statement also clearly indicated that he and the donor were friends since long and the donor was a highly successful businessman.

Insofar as the issue regarding discrepancy in the statement of the donor is concerned, we find that the same is not material in determining the question of the genuineness of the gifts or the capacity of the donor. The AO had found that there were some inaccuracies in the statements made by the donor inasmuch as he had not accurately named the children of the Assessee; the donor had described the family of the Assessee as “His wife Smt. Arti, daughter Shriya, Shom (Shirom). They stay with Sudhir’s parents at New Rajinder Nagar, New Delhi.” but, the Assessee had stated that he had three children and his son master Shirom was a minor. Further, the donor had stated that he and the Assessee knew each other since 1971 and had done their CA together; but, the Assessee had affirmed that he and the donor had done their graduation and CA together during the period 1967 to 1975. In addition, the AO also found certain other minor discrepancies. The Tribunal had noted the above and did not consider the discrepancies to be material. We do not find any infirmity with this view as it is apparent that the discrepancies in the statement are not significant.

Insofar as the failure on the part of the donor to provide his business details, details of his assets, bank accounts and his agreements with his associates and other information is concerned; clearly, a donor could not be expected to share such details, which understandably may be considered as confidential. The donor had, therefore, responded by saying that the details sought for did not have a bearing on the assessment proceedings. In order for the Assessee to discharge its burden, he had to show that the donor was a person of means and that such gift has been made out of love and affection. The Assessee had produced the donor who answered all questions put to him. The Assessee as well as the donor had sworn statements indicating their close relationship going back several years. The certificate dated 26th March, 1997 issued by Blackfin and the statement of account of the donor in the books of Blackfin clearly indicated that the donor had access to the funds necessary for making the gift in question. The rent deed relating to a hotel in Dubai also indicated that the donor was a person of means. The donor himself had affirmed that his annual income was 3-4 million dollars. Plainly, the above material could not be ignored by the AO. The donor himself was under no obligation to subject himself to the inquisition by the AO. The Tribunal had considered the above and had concluded that the Assessee had discharged the burden. The AO on the other hand had not identified any material that was available with the Assessee, or should have been available with the Assessee, and had been withheld by him. In our opinion, the Tribunal rightly considered the issue in its correct perspective while holding that the Assessee had discharged his burden.

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