Sec. 68 additions justified as donors confirmed that they arranged gifts on receipt of commission: Madras HC

Case Details: P.R.Ganapathy v. DCIT - [2022] 143 taxmann.com 122 (Madras)

Judiciary and Counsel Details

• • S. Vaidyanathan & C. Saravanan, JJ.
  • Ms N.V. Lakshmi for the Appellant.
  • R. Karthik for the Respondent.

Facts of the Case

Assessee was an individual who filed the return of income during the relevant year. Consequent to the search conducted at his residence under Section 132, the assessee filed the return of income indicating certain undisclosed income. The Assessing Officer (AO) found that the assessee received certain gifts from Non-Resident Individuals. The assessee submitted that these gifts were exempted from payment of tax.

However, the reply submitted by the assessee was not accepted by the AO on the ground that evidence available on record proves otherwise. Accordingly, AO held that the NRI gifts were not genuine and made an addition under section 68.

The assessee challenged the order of AO before lower authorities but didn’t succeed. The matter reached the Madras High Court.

High Court Held

The Madras High Court held that even though the assessee had proved the receipt of gifts through the affidavits but there was no appropriate explanation provided by him about his relationship with donors.

The exchange of gifts must be warmhearted and not out of compulsion or demand. On inquiry with the donors, it was also found that the gifts were arranged for the assessee on receipt of the commission.

“Commission” is the money that one gets for selling something but the gift is something that is voluntarily transferred by the donor without any compensation. Gifts are not exchanged out of compulsion or demand.

Thus, it is very obvious that they were not in the nature of gifts. Accordingly, the order of the Tribunal was perfectly valid and was liable to be upheld.