SetCom’s Order Accepting Explanation of Gifts Received from Friends and Relatives Couldn’t Be Faulted | HC

Case Details: Principal Commissioner of Income-tax vs. Smt. Umah Agarwal - [2024] 166 taxmann.com 17 (Karnataka)

Judiciary and Counsel Details

• S. Sunil Dutt Yadav, J.
• Ravi Raj Y.V., Sr. Standing Counsel for the Petitioner.
• K.K. Chaithanya, Sr. Adv., Tata Krishna, Adv. & Shanti Bhushan

Facts of the Case

A search under Section 132 was conducted on the assessee’s premises, during which records, documents, and jewellery were seized. During such the search, an undisclosed income was offered for tax. However, additional income offered before the Commission was asserted to constitute cash gifts received from relatives and well-wishers. The assessee also filed an Affidavit under Rule 8 of the Income Tax Settlement Commission (Procedure) Rules, 1997 and declared that she needed to maintain the details of cash gifts.

The PCIT also filed a report under Rule 9 and raised various objections. However, the Settlement Commission took note of the declaration made under Rule 8 of the Income Tax Settlement Commission (Procedure) Rules and accepted the assertion of cash gifts. Accordingly, the Commission deemed the additional income offered for tax as being fair and reasonable.

The matter reached before the Karnataka High Court.

High Court Held

The High Court held that the assessee had filed an affidavit under Rule 8 explaining the receipt of gifts from friends and relatives. The revenue did not rebut such a declaration by presenting any additional facts to the contrary. In light of this, the Settlement Commission’s conclusion that it accepted the explanation ‘in the spirit of settlement’ cannot be faulted, calling for interference in the exercise of the limited jurisdiction.

With respect to the contention that the additional income disclosed was to be treated as income under the head Section 68 or 69. The Settlement Commission has once again referred to the affidavit filed under Rule 8 and observed that the report under Rule 9 does not place any contra material. It was observed that the PCIT did not show how the conditions prescribed under Section 115BBE were met.

The special slab of higher rate as specified under Section 115BBE would be applicable as regards the income referred to in Sections 69, 69, 69A, 69B, 69C or Section 69D. As rightly pointed out, the PCIT had not stated which particular provision would be applicable, as each provision has a distinct scope and applicability. In the facts of the present case, the question of invoking Section 69D did not arise. If any of the provisions of Section 69, 69A to 69C are sought to be invoked, in all such provisions, the non-acceptance of the explanation will result in such amount “may be deemed to be the income of the assessee for such financial year.”

Accordingly, in the present case, the conclusion arrived at by the Settlement Commission while accepting the contents of the affidavit filed under Rule 8 ‘in the spirit of the settlement’ and refusing to accept the contention of having recourse to Section 115BBE cannot be permitted to be interfered with.

List of Cases Reviewed

• Agson Global Pvt. Ltd., v. ITSC – (2016) 65 taxmann.com 5 (para 17)
• Brij Lal and Others v. Commissioner of Income Tax, Jalandhar, reported in (2011) 1 SCC 1 (para 18)
• N. Krishnan v. Settlement Commission reported in (1989) 180 ITR 585 (Karnataka) (para 19)
• Commissioner of Income Tax v. Smt. P.K.Noorjahan reported in (1999) 237 ITR 570 (SC) (para 23)
• Jyotendrasinhji v. S.I. Tripathi reported in (1993) 201 ITR 611 (SC) (para 26) followed.

List of Cases Referred to

• Principal Commissioner v. Essar Oil Ltd. [2016] 65 taxmann.com 5/53 GST 317 (Gujarat) (para 17)
• Brij Lal and Others v. CIT (2011) 1 SCC 1 (para 18)
• N. Krishnan v. Settlement Commission [1989] 47 Taxman 294/180 ITR 585 (Karnataka) (para 19)
• CIT v. Smt. P.K. Noorjahan [1999] 103 Taxman 382/237 ITR 570 (SC) (para 23)
• Jyotendrasinhji v. S.I. Tripathi [1993] 68 Taxman 59/201 ITR 611 (SC) (para 26).