Hon'ble Aditya Nath Mittal,J.
(Delivered by Hon'ble Aditya Nath Mittal, J.)
1. Both these appeals contain common questions of law regarding gifts to both the assessees by same donors, hence are taken together.
2. Income Tax Appeal No.124 of 2001 has been admitted on the following questions of law:-
"(i) Whether on the facts and in the circumstances of the case, in view of the fact that the Assessing Authority has not found entries in the diary correct and reliable and, therefore, referred the matter to the departmental Valuation Officer for the value of the cost of construction and once, departmental valuer has estimated cost of construction at Rs.5,04,100.00 it was not open to the Assessing Authority to determine the cost of the construction on the basis of entry of diary which was rough and not reliable?
(ii) Whether on the facts and in the circumstances of the case, once, matter has been referred to the departmental valuer for the determination of the cost of the construction and once, departmental valuer has determined the cost of construction which has not been objected by the Assessee, the valuer report was binding upon Assessing Officer and ought to have been accepted?
(iii) Whether, in view of the fact that with regard to gift of Rs.50,000/- received from one Sri Ram Lal Kanodia, Nepal, appellant has filed confirmatory letter, income tax assessment order and copies of drafts by which payment was received, Tribunal as well as authorities below were justified in not accepting the gift merely on the ground that appellant could not produce Sri Ram Lal Kanodia for examination?
(iv) Whether in view of the fact that by filing confirmatory letter, income tax assessment order, copy of two drafts, initial burden has been discharged by Assessee inasmuch as, there was any legal justification in treating a sum of Rs.50,000/- as unexplained deposit?"
3. Income Tax Appeal No.136 of 2001 has been admitted on the following questions of law:-
"(i) Whether in view of the fact that with regard to the gift of Rs.45,000.00 received from Sri Ramji Lal Kanodia, Sri Vishnu Prasad Kanodia and Sri Rajendra Kanodia, all resident of Krishna Nagar, Nepal and relatives, appellant has filed confirmatory letter, income tax assessment orders and copies of drafts by which payments were received, Tribunal as well as authorities below were justified in not accepting the gift merely on the ground that the appellant could not produce the donors?
(ii) Whether in view of the fact that by filing confirmatory letters, Income Tax Assessment order, copies of two drafts, initially burden has been discharged by the Assessee inasmuch as, there was any legal justification in treating a sum of Rs.45,000.00 as unexplained deposit?"
4. Both the appellants are doctors by profession and are husband and wife. On 5.3.1992, a search under Section 132(1) of the Income Tax Act, 1961 (the Act) was conducted at their residence and Nursing Home, in which certain documents regarding unexplained investments were found. The appellants house was under construction, in which they had shown the investments of Rs.4,45,000/- upto 31.3.1992, while as per rough diary found at the residence of the appellants during search, it showed investments of Rs.7,10,229/-. The matter was referred to Departmental Valuer, who valued the cost of construction at Rs.5,04,100/-.
5. Apart from it, the assessees had claimed to have received following gifts from the following persons, who are citizens of Nepal:-
Dr. Ram Autar Agarwal Smt. Rashmi Agarwal Sl. No. Name of the Donor Amount Name of the Donor Amount 1 Sri Ramji Lal Kanodia, Krishna Nagar, Nepal Rs.50,000/-
Sri Ramji Lal Kanodia, Krishna Nagar, Nepal Rs.10,000/-
Sri Vishnu Prasad Kanodia, Krishna Nagar, Nepal Rs.25,000/-
Sri Rajendra Kanodia, Krishna Nagar, Nepal Rs.10,000/-
6. In respect of the above gifts, the assessees were asked to furnish the following details:-
"(i) To produce the person for cross examination to know the capacity and genuineness of transaction.
(ii)To furnish the balance sheet of the donors.
(iii)To produce the bank pass book from where the money has been withdrawn by the donor.
(iv)Relationship with donor.
(v)To how many persons assessee has made gift upto date.
The assessee has stated in reply as under:-
(i)No gift made to any person by the assessee upto date.
(ii)No books of account maintained by the donor as he is citizen of Nepal.
(iii)Not possible to produce bank pass book as the donor is citizen of Nepal.
(iv)Donor can not be produced as he is citizen of Nepal.
(v)The Donor is 'Uncle' of the assessee."
7. The assessees replies were not accepted because the assessees did not produce the donors' bank pass book and the balance sheet. Accordingly, the amount of gifts were treated as unexplained money of the assessees and were added in their total income.
8. The assessees filed appeals before the Commissioner of Income Tax (Appeals), Varanasi which were partly allowed. Against the order of Commissioner of Income Tax (Appeals), Varanasi, appeals to Income Tax Appellate Tribunal were filed by the assessees which were dismissed.
9. These appeals have been filed under Section 260A of the Income Tax Act, raising the aforesaid questions of law.
10. We have heard Sri Krishna Agarwal, counsel for the appellants and Sri Shambhu Chopra for the respondent.
Question Nos.1 and 2 of Income Tax Appeal No.124 of 2001
11. Learned counsel for the appellant submits that the Assessing Authority could not travel beyond the report of the Departmental Valuer because it was found that a number of entries were mentioned twice. It has been further submitted that the diary was not authenticated to get proper valuation of the property.
12. The assessees had shown an investment of Rs.4,45,000/- upto 31.3.1992 while as per the figures in the diary, it was estimated at Rs.7,10,229/-. The Departmental Valuer valued the cost of construction at Rs.5,04,100/-. Learned counsel for the appellant has relied upon the Circular No.96 dated 25.11.1972 issued by Central Board of Direct Taxes.
13. A new Section 55A was inserted in the Income Tax Act enabling the Income Tax Officer to refer the question of valuation of any capital asset to the Valuation Officer with a view to ascertain the fair market value of such capital asset. The Income Tax Officer was authorized to make a reference to the Valuation Officer under Section 55A(b)(ii). The jurisdiction of the Valuation Officer is defined in Rule 3A of the Wealth Tax Rules. The circular provides that the Valuation Officer will exercise the same jurisdiction for income tax purposes. It is further provided in the circular that in cases covered by the provisions of Clause (a) and (b)(i) of Section 55A, it will be incumbent on the Income Tax Officer to refer the question of valuation of the assets to the Valuation Officer, and it will not be open to him to decide the question of valuation on his own.
14.In the present case the appellant had shown the investment of Rs.4,45,000/- in the construction of the house, while as per diary found during the search the total details were of Rs.12,43,085/-. It was also found that there were various entries in the diary, which were mentioned twice. The diary admittedly contained details of expenditure regarding construction of the house.
15. Shri Krishna Agrawal, learned counsel appearing for the assessee appellant submits that at the time of search the residential house of the appellant assessee was under construction. They had shown investment of Rs.4,45,000/- upto 31.3.1992. In the diary with rough notes in the handwriting of Smt. Rashmi Agrawal, the entries of payment to labour, contractor and for purchase of material was calculated, after giving adjustment to the duplicate entries at Rs.6,77,510/-. Having assessed the value on the basis of the seized material, the A.O. could not have referred the matter of estimation of value to the Valuation Officer. Shri Krishna Agrawal submits that Section 55A falls in Chapter IV-Computation of Income From Capital Goods. The special procedure for assessment of search case, is provided in Chapter XIV-B. The assessment of undisclosed income as a result of search is made under Section 158BA for which procedure for block assessment is provided under Section 158BC. The A.O. can assess the undisclosed income as a result of search only on the basis of material or information as are available with the Assessing Officer in the search. He is not authorised to refer the matter to the Valuation Officer under Section 55A (b) (ii) to asses the fair market value. Such an enquiry is not permissible in respect of search cases.
16. Shri Krishna Agrawal has relied upon Smt. Amiya Bala Paul v. Commissioner of Income Tax, (2003) 262 ITR 407 (SC) in which the Supreme Court held that A.O. is the fact finding authority. It has his opinion on the basis of the facts as found on an enquiry conducted by himself, which results in the assessment order. A report by the Valuation Officer under Section 55A, is on the other hand the outcome of an enquiry held by the Valuation Officer. Such a report would not be the result of an enquiry by the A.O. under the provisions of Section 133 (6) or 142 (2). Though the A.O. is not bound by strict rules of evidence and report of Valuation Officer under Section 55A may be considered by the A.O. as piece of evidence, if it is relevant; however, the power of enquiry granted to an A.O. under Sections 123 (6) and 142 (2) does not include the power to refer the matter to the Valuation Officer for an enquiry by him.
17. In CIT v. Vinod Danchand Ghodwat (Bombay), (2001) 247 ITR 448, in which the facts are close to the facts of the present case, the Bombay High Court, in the matter of a search in which the material was found in respect of unexplained gold ornaments, investment in bungalow, and unexplained household goods. While deciding question no.3 the Bombay High Court held as follows:-
"Question No. 3 reads as follows :
Question No. 3: Whether in law, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 2,49,350 made on account of unexplained expenses in construction of the residential bungalow at Jaysingpur, when the same was properly made by the assessing officer.
The said question refers to addition of Rs. 2,49,350 made on account of unexplained expenses in construction of residential bungalow by the assessee. Here also, Chapter XIV-B has no application. The Tribunal, rightly, found that the addition is made on the basis of the report of the department Valuer, According to the assessing officer, during the search, it was found that the assessee, had constructed a bungalow. It was found that the assessee had incurred an expenses of Rs. 4.16 lakhs. The assessing officer, thereafter, referred the matter to the department valuer, who valued the property at Rs. 6,66 lakhs and, accordingly, the difference has been added to the income of the assessee as undisclosed income. The above basis clearly shows that the department has not understood the scope of Chapter XIV-B of the Income Tax Act, By no stretch of imagination, the impugned addition fell within Chapter XIV-B. There would be no finality if the department is permitted to add back to the income of the assessee on the basis of the department valuer's report obtained subsequent to the order of the regular assessment. Hence, the Tribunal was right in deleting the said addition. Accordingly, question No. 3 is answered in the affirmative i.e., in favour of the assessee and against the department.
4. For the above reasons, question Nos. 4 and 5 are also answered accordingly, in the affirmative i.e., in favour of the assessee and against the department.
5. Accordingly, the appeal is dismissed."
18. In CIT v. Khushlal Chand Nirmal Kumar (M.P.), (2003) 263 ITR 77, the Madhya Pradesh High Court followed with approval judgment of Bombay High Court in CIT v. Vinod Danchand Ghodawat (supra). The Madhya Pradesh High Court also placed reliance upon CBDT Circular dated 27th August, 2002 in which it was laid down as under:-
"61.3.2-The Finance Act, 2002, has amended s.158BB to clarify that the block assessment of undisclosed income is to be based on the evidence found in the search and material or information gathered in post-search inquiries made on the basis of evidence found in the search."
19.In CIT v. Ravi Kant Jain (Delhi), (2001) 250 ITR 141, the Delhi High Court held that the special procedure of Chapter XIV-B is intended to provide a mode of assessment of undisclosed income, which has been detected as a result of search. Its scope and ambit is limited in that sense to materials unearthed during search. The department could not have relied upon report of the special auditors, who had given different colour to existing facts and which stood assessed in earlier assessment orders.
20. In CIT-II, Lucknow v. Smt. Shashi Agarwal, (2007) 159 Taxman 340 (Alld.), this Court followed Smt. Amiya Bala Paul v. CIT (Supra) and Dr. Avinesh Kumar Agarwal v. ADI (Inv.), (2003) 184 CTR (All.) 587 in which it was held that the A.O. did not have powers to refer the value point to the District Valuation Officer in proceedings of scrutiny under Section 143 (3).
21. For the reasons stated above, question nos.1 and 2 in Income Tax Appeal No.124 of 2001 are decided in favour of the assessee and against the revenue.
Questions No.3 and 4 of Income Tax Appeal No.124 of 2001 and Questions No.1 and 2 of Income Tax Appeal No.136 of 2001
22. The assessee Dr. Ram Autar Agarwal had claimed that he had received a gift of Rs.50,000/- from Sri Ramji Lal Kanodia resident of Krishna Nagar, Nepal. Smt. Rashmi Agarwal also claimed gifts from Sri Ramji Lal Kanodia, Sri Vishnu Prasad Kanodia and Sri Rajendra Kanodia residents of Krishna Nagar, Nepal. The assessees were required to furnish necessary details to ascertain the genuineness of the gifts, which they failed to provide. Accordingly, the amount of gifts were treated as unexplained money of the assessees.
23. It is a settled preposition of law that the Assessing Authority can examine the genuineness of gift, the capacity and identity of the donor. The assessees had informed the Assessing Authority that donors are their uncles and they reside in Nepal. It cannot be believed that the assessees did not know the full address of the donors. The address given by the assessees is Krishna Nagar, Nepal. Nepal is a country which has several districts. It was not sufficient on the part of the assessees merely to show that the donors are citizens of Nepal. Hence the identity of the donors was not established. As far as the capacity of the donors is concerned, it was also not proved. The donors were not produced for cross examination. Their balance sheet or the bank pass books were also not produced to prove the genuineness of the transaction.
24. In Commissioner of Income Tax Vs. P. Mohanakala, (2007) 291 ITR 278 (SC), Hon'ble the Supreme Court has held as under:-
"A bare reading of section 68 of the Income- tax Act, 1961, suggests that (i) there has to be credit of amounts in the books maintained by the assessee; (ii) such credit has to be a sum of money during he previous year; and (iii) either (a) the assessee offers no explanation about the nature and source of such credits found in the books or (b) the explanation offered by the assessee, in the opinion of the Assesssing Officer, is not satisfactory. It is only then that the sum so credited may be charged to income- tax as the income of the assessee of the previous year. The expression "the assessee offers no explanation" means the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on the record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. Application of mind is the sine qua non for forming the opinion.
In cases where the explanation offered by the assessee about the nature and source of the sums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz., the receipt of money. The burden is on the assessee to rebut the same, and, if he fails to rebut it, it can be held against the assessee that it was a receipt of an income nature.
The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature.
The assessees received foreign gifts form one common donor. The payments were made to them by instruments issued by foreign banks and credited to the respective account of the assessees by negotiation through a bank in India. Most of the cheques sent from abroad were drawn on the Citibank, N.A. Singapore. The evidence indicated that the donor was to receive suitable compensation from the assessees. On this material the Assessing Officer held that the gifts though apparent were not real and accordingly treated all those amounts which were credited in the account books of the assessees as their income applying section 68 of the Income- tax Act, 1961. The assessees did not contend that even if their explanation was not satisfactory the amounts were not of the nature of income. The Commissioner (Appeals) confirmed the assessment. On further appeal, there was a difference of opinion between the two Members of the Appellate Tribunal and the matter was referred to the Vice President who concurred with the findings and conclusions of the Assessing Officer and the Commissioner (Appeals). On appeal the High Court re-appreciated the evidence and substituted its own findings and came to the conclusion that the reasons assigned by the Tribunal were in the realm of surmises, conjecture and suspicion. On appeal to the Supreme Court:
Held, reversing the decision of the High Court, that the findings of the Assessing Officer, the Commissioner (Appeals) and the Tribunal were based on the material on record and not on any conjectures and surmises. That the money came by way of bank cheques and was paid through the process of banking transaction was not by itself of any consequence. The High Court misdirected itself and erred in disturbing the concurrent findings of fact."
25. In view of the above decision of Hon'ble the Supreme Court, a burden is on the assessee to prove the genuineness of the gift. The assessees have failed to produce the donors for cross examination and the document regarding their identity or capacity has been produced by the assessees. All the authorities below have elaborately considered the material available on record and have come to a definite conclusion that the assessees had failed to prove the genuineness of the gifts. Merely because the assessees have shown the receipts by demand drafts from Nepal, it cannot be presumed that the gifts are genuine. The assessees have failed to offer any reasonable and satisfactory explanation to the alleged gifts hence in our opinion the Tribunal has not committed any error in upholding the findings that it was a receipt of an income to be charged to income tax.
26. In the result, the questions are decided against the assessees and in favour of the revenue.
27. In the facts and circumstances of above discussion, all the questions are decided against the assessees and in favour of the revenue. Both the appeals are accordingly dismissed.
Order Date :- 13.9.2012 Kpy