Taxmann's Taxation of Cash Deposits

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The black money has substantial impact on the economy. Because
of use of black money in the economy, actual GDP cannot be
shown, actual tax realisable are not realised and resources required
for development are not gathered. Crime and corruption also
add to the growth of black money. Another dimension of black
money is counterfeit currency which is thrown into the economy
by vested interests within and outside India. Inspite of several
opportunities provided in the past by the Government to the
people, in the form of voluntary disclosure schemes, to pay the tax
on their undisclosed income, the tendency to carry business and
personal transactions through untaxed money and accumulating
cash (and assets) through black money including crime and
corrupt money was not reduced. Fake currency was in circulation
and every year large sum of fake money was pumped into India.
Also, there were informal sectors where cash transactions were
carried out in High Value Currency Notes. Therefore, in order
to control growth and accumulation of unaccounted, crime and
corrupt money and also to control the growth and circulation of
counterfeit currency, the Government, in addition to promoting
e-transactions, demonetised High Denomination Currency
Notes (of ` 1000 and ` 500) on 08-11-2016. It was expected that
demonetisation will take out from the circulation, about 86% of the
currency.
All the demonetised currency was required to be deposited in
the bank by 31st December 2016 and in special cases to RBI
by 31st March 2017. Certain concessions were announced by
the Government such as no verification shall be done in case
of deposits upto 2.50 lakhs per person. Even thereafter, it was
expected that large amount of black money would be surfaced and
bring taxes to the Government required for growth. In addition
PREFACE
I-7

to demonetisation, the Government also opened certain other
windows such as PMGKY for bringing unaccounted cash so
deposited in the bank into mainstream of economy. For pushing
the people to opt for the scheme, PMGKY, the Government also
made amendment in section 115BBE by raising tax rates from 30%
to 60% in cases of deposits not satisfactorily explained and which
are taxed as deeming income under Chapter VI of the Income-tax
Act.
The cash deposited in the banks after 09-11-2016 till 31-03-2017,
had fallen for the assessment under Income-tax Act in the FY
2016-17 relevant to the AY 2017-18.
The Government formulated a comprehensive policy for voluntary
compliance, verification, investigation, and assessment, including
those relating to cash deposits post demonetisation. Some of the
objectives were (i) Promote voluntary compliance by e-delivery of
services and reducing taxpayer compliance costs (ii) Collect timely
and accurate third-party information from Reporting Entities
(iii) Increase collaboration and data exchange with government
agencies and data exchange partners (iv) Effective identification,
assessment and management of risks by leveraging technology
and data analytics (v) Effective deterrence for habitual offenders
to deter serious and repeated non-compliance. Keeping these
objectives in mind, various approaches/explanations to cash
deposits were visualized and verification machinery was put into
service. Surveys and searches under the provisions of the Act
were also carried out and after following due process of Law,
assessments of cash deposits were finalized by December 2019. The
Government further announced in March 2020 a scheme called
Direct Tax Vivad se Vishwas Act, 2020 so as to settle tax disputes
pending before Appellate Authorities by only paying taxes and
without facing the penalty.
There is no doubt that some of the taxpayers have manipulated
evidence to explain their untaxed money, being old currency notes
(SBNs) deposited in the bank and Income-tax Department has
very efficiently and effectively exposed such manipulation. But
in some cases, there have been either violation of due process of
law or assessments were made on the basis of misunderstanding
of Law or without support of adequate evidence. Many of those

P R E F A C E
I-8

cases where additions have been made on the basis of adequate
and direct evidence are preferring VSVT scheme to settle their tax
disputes arising out of tax deposits of SBNs in the bank.
Since, it has been experienced that there has been some
misunderstanding, on both the sides, the taxpayers and tax
collectors, about the law relating to assessment of cash deposits
in the bank, a need is felt to compile the relevant data, views and
decisions, analyse them and put them at one place. This is expected
to help the taxpayers, their counsels, and Departmental Authorities
to decide the issues in proper perspective in the light of most
appropriate proposition of Law.
To make the work comprehensive, several articles written by me
and published in various magazines of Taxmann were utilized,
Circulars issued by CBDT and decisions rendered by Income Tax
Appellate Tribunal, High Courts and Supreme Court were referred
wherever required. Certain topics like revision u/s 263, reopening
u/s 147 and power of enhancement of CIT(A)/Tribunal were
added so as to provide material in case issue relating to revision
or reopening or enhancement crops up in post assessment period.
The chapters are designed in the form of independent articles
so that material relating to that issue are compiled at one place.
Since all the chapters are independent, it is possible that some
propositions may find place in more than one chapter. This may
appear repetitiveness but it was considered appropriate to make
the article in the chapter comprehensive.
Objective of the book is (
i
) to provide general idea about the
tax consequences of demonetisation (
i i
) to provide an insight
into various modes used by the taxpayers to explain their cash
deposited in the bank (
i i i
) to highlight the conditions under which
various deeming provisions under Income Tax Act can be applied
(
i v
) to highlight the requirement of documentary evidence in
support of explanation furnished by the assessee (
v
) to highlight
the circumstances under which enhancement, revision or
reopening can be done and (
v i
) to highlight the circumstances
under which penal provisions in relation to cash deposits can be
invoked. It is possible that some readers may want quick answers
to certain questions. In order to meet this requirement, a chapter
on selected questions and answers, which may be called FAQs on
I-9
P R E F A C E

the issues relating to assessment of cash deposits has also been
inserted in the book.
As a supplement I have incorporated topics on “power of
enhancement by CIT(A) and Tribunal”, “Reopening and
reassessment” and “Revision u/s 263” so that usefulness of the
book is increased.
In this book, the material available in public domain and the
websites of Taxmann and other agencies have been used. Largely,
it is a presentation of available data in a form suitable to the issues
arising from cash deposits post demonetisation giving personal
views wherever considered appropriate.
Even though all the efforts have been taken to make the work
error free, it is possible that some inadvertent errors might have
crept in. It is sincerely hoped that readers will forgive me for
these errors. As and when they come into my notice necessary
corrections will be done.
With these words I dedicate this book to esteemed readers, with
the hope that it will render maximum assistance to them to defend
their cases before Appellate Authorities.
D.C. AGRAWAL, Advocate
M.Sc., LL.B., ICWAI
I R S ( C o m m i s s i o n e r o f I n c o m e T a x ( R e t d . ) ) &
A c c o u n t a n t M e m b e r , I T A T ( R e t d . )
E - M a i l i d - d c a g r a w a l 4 9 @ g m a i l . c o m

P R E F A C E
I-10

P A G E
About the Author I-5
Preface I-7
Acknowledgement I-11
Chapter-heads I-13
List of cases I-29
1
INTRODUCTION
1.1
B l a c k m o n e y a n d i t s g e n e r a t i o n
2
1.2
E s t i m a t i o n o f b l a c k m o n e y
3
1.3
U n a c c o u n t e d m o n e y
4
1.4
V a r i o u s m e a s u r e s t o c u r b b l a c k m o n e y
9
1.5
C o n c l u s i o n
13
2
AFTER EFFECT OF DEMONETISATION
2.1
I n t r o d u c t i o n
15
2.2
L e g a l t e n d e r , w i t h d r a w a l o f
15
2.3
R e s p o n s e o f t a x p a y e r s a f t e r d e m o n e t i s a t i o n
17
2.4
V a r i o u s m e t h o d s o f c o n v e r t i n g u n a c c o u n t e d S B N s
21
2.5
T h e e x p l a n a t i o n a n d v e r i fi c a t i o n o f S B N s
24
2.6
R e p o r t i n g c o m p l i a n c e
26
2.7
V a r i o u s p r o v i s i o n s u n d e r I n c o m e - t a x A c t t o m o n i t o r
u n a c c o u n t e d m o n e y
26
Contents
I-17

P A G E
2.8
O t h e r l a w s a p p l i c a b l e f o r c a s h t r a n s a c t i o n s
30
2.9
C o n c l u s i o n
30
3
VARIOUS MODES OF CASH DEPOSITS
3.1
32
3.2
C a s h s a l e s o f s t o c k i n t r a d e a n d c a s h r e c e i p t o n r e n d e r i n g
o f s e r v i c e s
32
3.3
G i f t
35
3.4
D o n a t i o n s r e c e i v e d b y a t r u s t
40
3.5
R e c o v e r y f r o m d e b t o r s o n a c c o u n t o f s a l e
43
3.6
I n h e r i t a n c e / O p e n i n g b a l a n c e s / p a s t s a v i n g s
44
3.7
A d v a n c e s / L o a n s / D e p o s i t s
45
3.8
S a l e o f a s s e t o r a d v a n c e a g a i n s t s a l e o f a s s e t s ( m o v a b l e o r
i m m o v a b l e )
47
3.9
A g r i c u l t u r e i n c o m e / s a v i n g s
48
3.10
W i t h d r a w a l s f r o m t h e b a n k a c c o u n t
50
3.11
D e f e r r e d / j o i n t o w n e r s h i p
52
3.12
A c c o m m o d a t i o n e n t r i e s
53
3.13
C a s h r e c e i v e d b y C h i t F u n d C o m p a n i e s
55
3.14
C a s h c o l l e c t i o n b y N o n - B a n k i n g F i n a n c e C o m p a n i e s
56
3.15
C a s h R e c e i v e d b y P o l i t i c a l P a r t i e s
56
3.16
C a s h r e c e i v e d b y s o c i e t i e s
57
3.17
C a s h r e c e i v e d b y e d u c a t i o n a l i n s t i t u t i o n s c o v e r e d u / s
1 0 (
23C
) (
iiiad
)
58
3.18
C a s h r e c e i v e d a s P a r t n e r ’ s C a p i t a l b y P a r t n e r s h i p fi r m
58
3.19
C a s h r e c e i v e d a s I m p r e s t M o n e y
59
3.20
R e c e i p t / p a y m e n t o f O n - m o n e y
60
3.21
O t h e r s
62
3.22
C o n c l u s i o n
63
4
CASH DEPOSITS AND BOGUS SALES AND PURCHASES
4.1
64

C O N T E N T S
I-18

P A G E
4.2
W h a t a r e b o g u s s a l e s
64
4.3
W h e t h e r b u s i n e s s i s i n e x i s t e n c e
65
4.4
O n u s i s o n t h e a s s e s s e e t o p r o v e t h a t d e p o s i t s a r e f r o m
b u s i n e s s a c t i v i t y
66
4.5
H o w a n d w h e n t h e i n f e r e n c e t h a t s a l e s a r e b o g u s c a n b e
d r a w n
68
4.6
I n s t a n c e s o f s a l e s h e l d a s b o g u s
69
4.7
O t h e r I n s t a n c e s w h e r e s a l e s a r e h e l d b o g u s
70
4.8
I n s t a n c e s w h e r e s a l e s a r e n o t h e l d a s b o g u s
71
4.9
U n v e r i fi a b l e s a l e s a n d a p p l i c a t i o n o f n e t p r o fi t / g r o s s p r o fi t
74
4.10
B o g u s s a l e s , s e t o f f a n d n e t r e s u l t
75
4.11
B o g u s s a l e s a n d i l l e g a l t e n d e r s
76
4.12
W h e t h e r s a l e s w o u l d b e b o g u s i f i d e n t i t y o f p u r c h a s e r i s
n o t p r o v e d
78
4.13
B o g u s p u r c h a s e s
79
4.14
C o n c l u s i o n
87
5
CASH DEPOSIT AND SECTION 68
5.1
89
5.2
S e c t i o n 6 8
89
5.3
I n g r e d i e n t s o f s e c t i o n 6 8
90
5.4
A n y s u m c r e d i t e n t r y
90
5.5
S c o p e o f “ c r e d i t e d i n t h e b o o k s o f t h e a s s e s s e e ”
91
5.6
W h a t i s n a t u r e a n d s o u r c e
92
5.7
S a t i s f a c t i o n o f t h e A O
93
5.8
T h e i n g r e d i e n t s o f n a t u r e a n d s o u r c e o f c r e d i t e n t r y
93
5.9
S e c t i o n 6 8 a n d “ i n c o m e f r o m o t h e r s o u r c e s ”
94
5.10
W h e t h e r c a s h d e p o s i t i s c h a r g e a b l e t o t a x a s i n c o m e
97
5.11
T h e c a s h d e p o s i t i s c h a r g e a b l e i n t h e r e l e v a n t p r e v i o u s y e a r
97
5.12
E x p l a n a t i o n o f t h e a s s e s s e e
98
5.13
O n u s t o p r o v e s o u r c e o f s o u r c e
104
5.14
A p p l i c a b i l i t y o f s e c t i o n 5 6 ( 2 ) (
vii
)
104
I-19
C O N T E N T S

P A G E
5.15
W h e t h e r a d d i t i o n u / s 6 8 c a n b e m a d e e v e n w h e r e b o o k s
a r e r e j e c t e d
105
5.16
A d d i t i o n o f c a s h c r e d i t o n e s t i m a t e b a s i s c a n n o t b e m a d e
108
5.17
W h e t h e r s a l e p r o c e e d s c r e d i t e d i n t h e b o o k s c a n b e t a x e d
u / s 6 8
111
5.18
C a s h d e p o s i t a s b u s i n e s s i n c o m e
117
5.19
A d d i t i o n o f b o g u s s a l e s a n d i n v o k i n g s e c t i o n 1 1 5 B B E
119
5.20
S e t o f f o f l o s s e s a g a i n s t d e e m e d i n c o m e u / s s 6 8 t o 6 9 D
120
5.21
C o n c l u s i o n
121
6
CASH DEPOSIT AND SECTION 69
6.1
122
6.2
S e c t i o n 6 9
122
6.3
I n v e s t m e n t
123
6.4
F i n d i n g o f a c t u a l i n v e s t m e n t i s n e c e s s a r y
124
6.5
O t h e r c o n d i t i o n s
125
6.6
C o m p a r a t i v e a p p l i c a t i o n o f s e c t i o n 6 8 / 6 9 / 6 9 A
126
6.7
D i s c h a r g i n g o f b u r d e n b y t h e a s s e s s e e
127
6.8
I n s t a n c e s w h e r e e x p l a n a t i o n o f c a s h d e p o s i t w a s f o u n d
s a t i s f a c t o r y u / s 6 9
130
6.9 Explanation
o f t h e f o l l o w i n g n a t u r e m a y n o t b e h e l d s a t
-i s f a c t o r y
134
6.10
I n s t a n c e s w h e r e e x p l a n a t i o n o f c a s h d e p o s i t w a s n o t f o u n d
s a t i s f a c t o r y u / s 6 9
135
6.11
C o n c l u s i o n
138
7
CASH DEPOSITS AND SECTION 69A
7.1
139
7.2
S e c t i o n 6 9 A
139
7.3
S e c t i o n 6 9 A i s r u l e o f e v i d e n c e
140
7.4
W h e t h e r c a s h d e p o s i t e d i n b a n k a c c o u n t i s m o n e y
141
7.5
S e c t i o n 6 9 A i s a p p l i c a b l e f o r u n e x p l a i n e d m o n e y e t c .
141

C O N T E N T S
I-20

P A G E
7.6
C o n c e p t o f O w n e r s h i p u / s 6 9 A
142
7.7
O n u s f o r i d e n t i fi c a t i o n o f o w n e r s h i p o f c a s h d e p o s i t i s o n
t h e R e v e n u e
145
7.8
O w n e r s h i p o f c a s h d e p o s i t h a s t o b e i n t h e n a m e o f s p e c i fi c
p e r s o n
148
7.9
W h e r e e x p l a n a t i o n f u r n i s h e d b y a s s e s s e e w a s n o t f o u n d
s a t i s f a c t o r y
148
7.10
W h e r e e x p l a n a t i o n f o r c a s h w a s f o u n d s a t i s f a c t o r y u / s 6 9 A
150
7.11
W h e r e e x p l a n a t i o n f o r c a s h r e q u i r e d v e r i fi c a t i o n
150
7.12
S e c t i o n 6 9 A i s n o t a p p l i c a b l e w h e n c a s h d e p o s i t s a r e
r e c o r d e d i n t h e b o o k s m a i n t a i n e d b y t h e a s s e s s e e
150
7.13
O n u s f o r i d e n t i fi c a t i o n o f y e a r o f a s s e s s m e n t i s o n t h e
R e v e n u e
153
7.14
P r o v i d i n g o p p o r t u n i t y t o a s s e s s e e t o e x p l a i n t h e d e p o s i t i s
n e c e s s a r y
155
7.15
A p p l i c a b i l i t y o f s e c t i o n 6 9 A i n c a s e s c o v e r e d u / s 4 4 A D
155
7.16
F i l i n g c a s h fl o w s t a t e m e n t i s h e l p f u l
156
7.17
C o n c l u s i o n
157
8
CASH WITHDRAWAL AND DEPOSIT
8.1
158
8.2
R e a s o n s w h y t h e e x p l a n a t i o n t h a t d e p o s i t s a r e o u t o f e a r l i e r
w i t h d r a w a l s i s n o t a c c e p t a b l e
158
8.3
C i r c u m s t a n c e s u n d e r w h i c h e x p l a n a t i o n i s a c c e p t e d
160
8.4
C o n c l u s i o n
166
9
BANK PASSBOOK AND SECTION 68
9.1
168
9.2
R e l e v a n t p o r t i o n o f s e c t i o n 6 8
168
9.3
T h e C o n c e p t o f b o o k s o f a c c o u n t a s p e r p r o v i s i o n s o f t h e
A c t a n d J u d i c i a l d e c i s i o n s
169
9.4
W h e t h e r b a n k p a s s b o o k i s a b o o k o f t h e a s s e s s e e m a i n
-t a i n e d f o r a n y p r e v i o u s y e a r ?
169
I-21
C O N T E N T S

P A G E
9.5
C o n t r a r y v i e w t h a t a d d i t i o n u / s 6 8 c a n b e m a d e e v e n o n
t h e b a s i s o f b a n k p a s s b o o k
172
9.6
T h e d i s t i n g u i s h i n g f a c t s
175
9.7
C o n c l u s i o n
177
10
BOOKS AND BOOKS OF ACCOUNTS
10.1
178
10.2
W h a t i s “ b o o k ”
178
10.3
B o o k a s p e r s e c t i o n 3 4 o f t h e I n d i a n E v i d e n c e A c t , 1 8 7 2
180
10.4
D e fi n i t i o n o f b o o k s o f a c c o u n t s a s p e r d i c t i o n a r i e s
180
10.5
T h e d e fi n i t i o n o f B o o k s o f a c c o u n t s u n d e r s e c t i o n 2 (
12A
)
181
10.6
C o n c e p t o f b o o k s u / s 6 8
184
10.7
D i f f e r e n c e b e t w e e n b o o k s a n d b o o k s o f a c c o u n t s
184
10.8
W h a t i s l o o s e p a p e r
185
10.9
W h e t h e r l o o s e p a p e r / d o c u m e n t c a n b e c a l l e d a s a b o o k
w i t h i n t h e m e a n i n g o f s e c t i o n 6 8 ?
185
10.10
W h e t h e r b a l a n c e s h e e t e t c . a r e b o o k s o f a c c o u n t s o f t h e
a s s e s s e e
186
10.11
W h e t h e r a d d i t i o n c a n b e m a d e o n t h e b a s i s o f e n t r i e s i n
t h e l o o s e p a p e r s
186
10.12
L o o s e p a p e r s / d o c u m e n t s / b o o k s s e i z e d / i m p o u n d e d i n
s e a r c h / s u r v e y s h o u l d b e r e l i e d u p o n a s a w h o l e
187
10.13
W h a t i s a d o c u m e n t
187
10.14
W h a t i s a d u m b d o c u m e n t
188
10.15
E x a m p l e s o f w h a t a r e b o o k s / b o o k s o f a c c o u n t s
189
10.16
E x a m p l e s o f w h a t a r e n o t b o o k s / b o o k s o f a c c o u n t s
190
10.17
C o n c l u s i o n
190
11
BURDEN OF PROOF
11.1
191
11.2
T h e b u r d e n o f p r o o f
191
11.3
P r o o f
192

C O N T E N T S
I-22

P A G E
11.4
O n u s
192
11.5
G e n e r a l p r i n c i p l e s o f b u r d e n o f p r o o f
193
11.6
E v i d e n c e
194
11.7
B u r d e n o f p r o o f a n d p r e s u m p t i o n s
199
11.8
B u r d e n o f p r o o f u n d e r I n c o m e t a x A c t
199
11.9
M i s c e l l a n e o u s c a s e s o n b u r d e n o f p r o o f u / s 6 8
209
11.10
C o n c l u s i o n
210
12
LEGAL FICTION U/S 68, 69 AND 69A
12.1
211
12.2
L e g a l fi c t i o n
211
12.3
C o n c e p t o f “ d e e m e d ”
212
12.4
V a r i o u s l e g a l p r o p o s i t i o n s r e l a t i n g t o l e g a l fi c t i o n
215
12.5
O t h e r d e e m i n g c o n c e p t s
220
12.6
C o n c e p t o f d e e m e d i n c o m e u / s 6 8
222
12.7
C o n c e p t o f d e e m e d i n c o m e u / s 6 9 / 6 9 A
222
12.8
C o n c e p t o f d e e m e d i n c o m e u / s 6 9 C
223
12.9
L e g a l fi c t i o n u / s 6 8 / 6 9 / 6 9 A / 6 9 B / 6 9 C a n d p e n a l t y p r o
-c e e d i n g s
223
12.10
C o n c l u s i o n
223
13
CONCEPT OF TELESCOPING AND PEAK CREDIT IN RELATION
TO CASH TRANSACTIONS
13.1
225
13.2
C o n c e p t o f p e a k t h e o r y
225
13.3
C u m u l a t i v e p e a k t h e o r y
227
13.4
D e t e r m i n a t i o n o f p e a k
228
13.5
C o n c e p t o f t e l e s c o p i n g
229
13.6
A d j u s t m e n t s t o t h e p e a k c r e d i t
230
13.7
C i r c u m s t a n c e s w h e r e p e a k c r e d i t t h e o r y w o u l d b e a p p l i c a b l e
232
I-23
C O N T E N T S

P A G E
13.8
C i r c u m s t a n c e s w h e r e p e a k c r e d i t t h e o r y w i l l n o t b e
a p p l i c a b l e
235
13.9
C o m m o n f e a t u r e b e t w e e n t e l e s c o p i n g a n d p e a k
237
13.10
P e a k a d d i t i o n a n d o t h e r a d d i t i o n s
237
13.11
W o r k i n g o u t p e a k i s a q u e s t i o n o f f a c t
238
13.12
C o n c l u s i o n
239
14
SUBSTANTIVE - PROTECTIVE ASSESSMENTS
14.1
240
14.2
C o n c e p t o f p r o t e c t i v e a s s e s s m e n t
240
14.3
W h e r e s u b s t a n t i v e a d d i t i o n i s c o n fi r m e d , p r o t e c t i v e a d d i t i o n
c a n n o t s u r v i v e
242
14.4
F o r s u b s t a n t i v e a n d p r o t e c t i v e a d d i t i o n , i n c o m e m u s t a c c r u e
o r a r i s e a n d m u s t b e r e c e i v e d o r r e c e i v a b l e
243
14.5
A d d i t i o n o f d e e m e d i n c o m e c a n n o t b e m a d e o n p r o t e c t i v e
b a s i s
245
14.6
T h e i n c o m e f o r s u b s t a n t i v e a n d p r o t e c t i v e a d d i t i o n m u s t
f a l l u n d e r C h a p t e r I V
246
14.7
N a t u r e o f i n c o m e d o e s n o t c h a n g e i n c a s e o f s u b s t a n t i v e /
p r o t e c t i v e a d d i t i o n
247
14.8
S u b s t a n t i v e a n d p r o t e c t i v e a d d i t i o n c a n b e m a d e o n t h e
s a t i s f a c t i o n o f t h e s a m e A O
247
14.9
C o n c l u s i o n
248
15
CASH DEPOSITS AND PRESUMPTIVE TAXATION
15.1
249
15.2
S e c t i o n 4 4 A D
249
15.3
S e c t i o n 4 4 A D A
258
15.4
S e c t i o n 4 4 A F
259
15.5
O t h e r s e c t i o n s
261
15.6
C a s h t r a n s a c t i o n s a n d s e c t i o n 4 0 A ( 3 )
262
15.7
C o n c l u s i o n
263

C O N T E N T S
I-24

P A G E
16
NATURE OF AMENDMENT IN SECTION 115BBE BY TAXATION
LAWS (SECOND AMENDMENT) ACT, 2016
16.1
265
16.2
R a t i o n a l o f i n c r e a s i n g t a x r a t e s t o 6 0 % u / s 1 1 5 B B E
266
16.3
G e n e r a l p r i n c i p l e s o f r e t r o s p e c t i v i t y
266
16.4
N a t u r e o f a m e n d m e n t i n s e c t i o n 1 1 5 B B E
276
16.5
T h e e f f e c t i v e a s s e s s m e n t y e a r f o r t h e a m e n d m e n t
277
16.6
W h e t h e r a m e n d m e n t i n s e c t i o n 1 1 5 B B E w o u l d b e a p p l i c a b l e
f o r a n d a f t e r F Y 2 0 1 7 - 1 8
278
16.7
C o n c l u s i o n
279
17
RELATED ISSUES
17.1
281
17.2
C a s h D e p o s i t s i n M u l t i p l e / J o i n t / fi c t i t i o u s b a n k a c c o u n t s
281
17.3
A p p l i c a t i o n o f s e c t i o n 2 9 2 C a n d s e c t i o n 6 8
284
17.4
H u m a n p r o b a b i l i t i e s
288
17.5
C r o s s e x a m i n a t i o n
292
17.6
C o n c l u s i o n
305
18
POWER OF ENHANCEMENT
18.1
306
18.2
C i r c u m s t a n c e s w h e r e u n d e r - a s s e s s m e n t i s v i s u a l i z e d , a n d
p o w e r o f e n h a n c e m e n t m a y b e e x e r c i s e d
306
18.3
P o w e r o f C I T ( A ) u / s 2 5 1
307
18.4
C o m p a r i s o n o f t h r e e c a s e s
308
18.5
O t h e r o b s e r v a t i o n s o n e n h a n c e m e n t
309
18.6
P r i n c i p l e s
316
18.7
W h a t i s a s o u r c e o f i n c o m e
318
18.8
W h a t i s n e w s o u r c e o f i n c o m e
318
I-25
C O N T E N T S

P A G E
18.9
C o n t r a r y v i e w
323
18.10
V a r i o u s s i t u a t i o n s f o r c o n s i d e r i n g e n h a n c e m e n t
325
18.11
C a s e s w h e r e n o n e w s o u r c e o f i n c o m e i s d i s c o v e r e d w h i l e
e n h a n c i n g i n c o m e
326
18.12
S c o p e o f s u b - s e c t i o n ( 2 ) t o s e c t i o n 2 5 1
327
18.13
E f f e c t o f
Explanation
t o s e c t i o n 2 5 1
328
18.14
W h e t h e r T r i b u n a l h a s p o w e r o f E n h a n c e m e n t
330
18.15
C o n c l u s i o n
335
19
SBN DEPOSITS IN BANK AND PROHIBITION OF BENAMI
PROPERTY TRANSACTIONS ACT, 1988
19.1
337
19.2
R e l e v a n t p r o v i s i o n s o f P B P T A
337
19.3
A n a l y s i s o f s e c t i o n 2 ( 9 )
338
19.4
A n a l y s i s o f t h e t e r m s u s e d i n s e c t i o n 2 ( 9 )
341
19.5
V a r i o u s s i t u a t i o n s a r i s i n g f r o m d e p o s i t s o f S B N s
346
19.6
C o n s e q u e n c e s o f b e n a m i t r a n s a c t i o n
353
19.7
C o n c l u s i o n
353
20
CASH TRANSACTIONS AND PENALTIES
20.1
355
20.2
K i n d o f T r a n s a c t i o n s i n c a s h
355
20.3
N a t u r e o f d e f a u l t a n d p e n a l t i e s
356
20.4
G e n e r a l p r i n c i p l e s f o r p e n a l t y p r o c e e d i n g s / o r d e r
356
20.5
P e n a l t y u / s 2 7 1 A A C
358
20.6
P e n a l t y u / s 2 7 1 D A
358
20.7
P e n a l t y u / s 2 7 1 D
359
20.8
P e n a l t y u / s 2 7 1 E
367
20.9
P e n a l t y u / s 2 7 0 A
371
20.10
P e n a l t y u / s 2 7 1 A A D
384

C O N T E N T S
I-26

P A G E
20.11
I m m u n i t y u / s 2 7 0 A A
395
20.12
C o n c l u s i o n
397
21
REOPENING AND REASSESSMENT
21.1
398
21.2
R e l e v a n t p r o v i s i o n s u / s s 1 4 7 t o 1 5 1
398
21.3
C o n d i t i o n s f o r R e o p e n i n g o f a s s e s s m e n t
400
21.4
N a t u r e o f i n f o r m a t i o n r e c e i v e d f o r r e o p e n i n g o f a s s e s s m e n t
402
21.5
S c o p e o f t h e e x p r e s s i o n “ r e a s o n t o b e l i e v e ”
403
21.6
L i m i t a t i o n f o r r e o p e n i n g
409
21.7
C e r t a i n e x p r e s s i o n s i n s e c t i o n 1 4 7
410
21.8
T h e c h a r g e o f e s c a p e m e n t o f i n c o m e i s n e c e s s a r y i n a v a l i d
r e o p e n i n g
412
21.9
W h e t h e r S u b s e q u e n t m a t e r i a l / d e v e l o p m e n t c a n b e u s e d
t o j u s t i f y r e o p e n i n g
413
21.10
J u r i s d i c t i o n o f t h e A O t o i s s u e n o t i c e u / s 1 4 8 ( 1 )
414
21.11
I s s u e a n d s e r v i c e o f n o t i c e u / s 1 4 8 ( 1 )
417
21.12
N o t i c e u / s 1 4 8 ( 1 ) i s s u e d o n , o r i n r e s p e c t o f d e a d p e r s o n /
n o n - e x i s t e n t e n t i t y a n d p r o c e e d i n g s t h e r e a f t e r
419
21.13
S e r v i c e o f n o t i c e a n d s e c t i o n 2 9 2 B
421
21.14
S a n c t i o n f o r i s s u e o f n o t i c e u / s 1 4 8
422
21.15
C e r t a i n s e t t l e d p r o p o s i t i o n s i n r e l a t i o n t o r e a s s e s s m e n t
p r o c e e d i n g s
423
21.16
O b j e c t i o n s a n d t h e i r d i s p o s a l
424
21.17
C h a l l e n g e t o r e o p e n i n g
424
21.18
I m p e r m i s s i b l e c o n s i d e r a t i o n s t o r e o p e n a s s e s s m e n t c o m
-p l e t e d u / s 1 4 3 ( 3 )
431
21.19
A d d i t i o n o f a n o t h e r i t e m o f e s c a p e d i n c o m e
432
21.20
L a w r e l a t i n g t o m u l t i p l e i s s u e o f n o t i c e s
433
21.21
R e o p e n i n g o n a c c o u n t o f b o g u s p u r c h a s e s
433
21.22
S u m m a r y
434
21.23
C o n c l u s i o n
437
I-27
C O N T E N T S

P A G E
22
REVISION U/S 263
22.1
439
22.2
R e v i s i o n u / s 2 6 3
439
22.3
I n g r e d i e n t s o f s e c t i o n 2 6 3
440
22.4
T h e p o w e r a n d f u n c t i o n o f t h e C o m m i s s i o n e r i n r e v i s i o n
441
22.5
T h e c o n c e p t o f “ e r r o n e o u s ”
442
22.6
C o n c e p t o f p r e j u d i c i a l t o t h e i n t e r e s t o f r e v e n u e
443
22.7
K i n d s o f r e v i s i o n s w h i c h c a n b e m a d e i n r e s p e c t o f c a s h
d e p o s i t s , r e c e i p t s , i n v e s t m e n t , a n d e x p e n d i t u r e
446
22.8 Explanation 2
t o s e c t i o n 2 6 3
449
22.9
O t h e r r e l e v a n t a s p e c t s r e l a t i n g t o r e v i s i o n u / s 2 6 3
452
22.10
D o c t r i n e o f m e r g e r
455
22.11
N o r e v i s i o n i s p e r m i s s i b l e o n m a r g i n a l l o s s t o R e v e n u e
456
22.12
C o n c l u s i o n
456
23
FAQs
u FAQs 458
SUBJECT INDEX 479

C O N T E N T S
I-28

32
3C H A P T E R
Various Modes of Cash Deposits
3.1 INTRODUCTION
W h e r e v e r , A O f i n d s c a s h d e p o s i t s i n t h e b a n k o r i n t h e b o o k s o f b u s i n e s s
e n t i t y , h e i s d u t y b o u n d t o a s k f o r a n e x p l a n a t i o n a s t o t h e n a t u r e a n d
s o u r c e o f c a s h d e p o s i t s w h i c h m a y b e o f t h e n a t u r e o f g r o s s b u s i n e s s r e
-c e i p t , c a s h c r e d i t s t o b e c o v e r e d u / s 6 8 , o r o f t h e n a t u r e o f i n v e s t m e n t /
d e p o s i t c o v e r e d u / s 6 9 , o r m a y b e s i m p l y m o n e y l y i n g i n t h e b a n k a c c o u n t
o f t h e a s s e s s e e c o v e r e d u / s 6 9 A . O n c e , t h e p r i m a r y c o n d i t i o n s o f i n v o k i n g
a p a r t i c u l a r s e c t i o n a r e f u l f i l l e d b y t h e A O , t h e o n u s s h i f t s o n t h e a s s e s s e e
t o e x p l a i n t h e n a t u r e a n d s o u r c e o f t h e s u m f o u n d c r e d i t e d i n t h e b o o k s
o r f o u n d d e p o s i t e d i n t h e b a n k o r w i t h a b u s i n e s s e n t i t y . I n t h i s c h a p t e r ,
v a r i o u s m o d e s o f d e p o s i t s i n t h e b o o k s o r i n t h e b a n k a r e d e s c r i b e d a l o n g
w i t h n e c e s s a r y e v i d e n c e r e q u i r e d t o b e f u r n i s h e d b y t h e a s s e s s e e i n s u p p o r t
o f h i s e x p l a n a t i o n . V a r i o u s a u t h o r i t i e s r e n d e r i n g d e c i s i o n s o n s i m i l a r s e t
o f f a c t s a r e a l s o b r i e f l y r e f e r r e d .
3.2 CASH SALES OF STOCK IN TRADE AND CASH RECEIPT ON
RENDERING OF SERVICES
I t i s g e n e r a l l y c l a i m e d b y t h e a s s e s s e e t h a t c a s h r e c e i v e d a n d c r e d i t e d i n
t h e b o o k s o r d e p o s i t e d i n t h e b a n k a r e s a l e p r o c e e d s o f s t o c k . I n s u p p o r t o f
t h i s c l a i m t h e A O r e q u i r e s t h e a s s e s s e e t o p r o d u c e b o o k s o f a c c o u n t s a n d
s h o w t h e a v a i l a b i l i t y o f s t o c k f o r s a l e . W h e r e a s s e s s e e m a i n t a i n s b o o k s o f
a c c o u n t s a n d s a l e s i n c a s h a r e d u l y r e c o r d e d i n t h e b o o k s a n d t h e r e i s a
d i r e c t c o r r e l a t i o n o f c a s h o u t f l o w f r o m t h e b o o k s w i t h t h e d e p o s i t i n t h e
b a n k , t h e n p r i m a f a c i e e x p l a n a t i o n o f t h e a s s e s s e e i s a c c e p t a b l e . H o w e v e r ,
i n o r d e r t o s t r e n g t h e n h i s c a s e , t h e a s s e s s e e i s r e q u i r e d t o p r o d u c e s t o c k
r e g i s t e r f r o m w h e r e o u t f l o w o f t h e s t o c k a g a i n s t s a l e s i s r e f l e c t e d . T h e r e
s h o u l d n o t b e a n y n e g a t i v e s t o c k o n a n y d a y i . e . t h e r e s h o u l d n o t b e m o r e
s a l e s r e c o r d e d a s c o m p a r e d t o a v a i l a b i l i t y o f s t o c k . T h e a u d i t o f b o o k s
SAMPLE CHAPTER

a n d a u d i t r e p o r t s u b m i t t e d t o t h e A O f u r t h e r s u p p o r t s t h e c l a i m o f t h e
a s s e s s e e . I n a d d i t i o n t o t h i s , i t i s d e s i r a b l e t h a t t h e s a l e s m a t c h e s w i t h t h e
s a l e s d e c l a r e d t o t h e V A T o r G S T d e p a r t m e n t a n d a c c e p t a n c e o f t h e V A T
r e t u r n . W h e n t h e s e f o u r c o n d i t i o n s a r e s a t i s f i e d , i . e . (
i
) s a l e s a r e r e c o r d e d
i n t h e b o o k s (
ii
) b o o k s a r e a u d i t e d (
iii
) t h e s a l e s a r e r e f l e c t e d i n t h e s t o c k
r e g i s t e r a n d (
iv
) s a l e s m a t c h e s w i t h t h e s a l e s d e c l a r e d t o t h e V A T d e p a r t
-m e n t , t h e o n u s l y i n g o n t h e a s s e s s e e i s d i s c h a r g e d .
3.2-1 For discharging the onus
a n d f o r p r o v i n g t h a t c a s h d e p o s i t i n t h e
b a n k a r e s a l e p r o c e e d o f s t o c k , o r a r e c a s h r e c e i p t s o n a c c o u n t o f r e n d e r i n g
s e r v i c e s ( S e r v i c e s l i k e c o n s u l t a n c y , b r o k e r a g e o r p r o f e s s i o n a l ) f o l l o w i n g
d o c u m e n t a t i o n m a y b e r e q u i r e d -

(
i
)

S a l e b i l l b o o k .

(
ii
)

D e l i v e r y c h a l l a n o r a n y o t h e r p r o o f s h o w i n g d e l i v e r y .

(
iii
)

S a l e s a r e r e c o r d e d i n t h e b o o k s - S a m p l e c o p i e s o f t h e c a s h b o o k
a n d r e a d i n e s s t o p r o d u c e e n t i r e c a s h b o o k o n d e m a n d b y t h e A O .

(
iv
)

I f b o o k s a r e a u d i t e d - A u d i t r e p o r t u / s 4 4 A B .

(
v
)

T h e q u a n t i t a t i v e d e t a i l s o f s a l e s , w h i c h a r e r e fl e c t e d i n t h e s t o c k
r e g i s t e r - C o p y o f t h e s t o c k r e g i s t e r .

(
vi
)

S a l e s m a t c h e s w i t h t h e s a l e s d e c l a r e d t o t h e V A T D e p a r t m e n t / G S T
D e p a r t m e n t / C e n t r a l E x c i s e D e p a r t m e n t , o r a n y o t h e r D e p a r t m e n t
o f c e n t r a l / s t a t e G o v e r n m e n t . C o p y o f t h e r e t u r n s u b m i t t e d t o e i t h e r
o f t h e m , o r a c k n o w l e d g e m e n t s h o w i n g a c c e p t a n c e t h e r e o f .

(
vii
)

O u t fl o w f r o m c a s h b o o k m a t c h e s w i t h t h e d e p o s i t i n t h e b a n k - A
c h a r t s h o w i n g d a t e a n d a m o u n t o f o u t fl o w f r o m t h e b o o k s w i t h t h e
d a t e a n d a m o u n t o f d e p o s i t i n t h e b a n k .
O n c e , o n u s l y i n g o n t h e a s s e s s e e i s d i s c h a r g e d , i t i s s h i f t e d t o t h e A O w h o
i s r e q u i r e d t o f i n d d e f e c t i n t h e e x p l a n a t i o n s u b m i t t e d b y t h e a s s e s s e e o n
t h e b a s i s o f c r e d i b l e e v i d e n c e a n d t h e r e a f t e r o n l y , h e m a y i n f e r t h a t e x p l a
-n a t i o n s u b m i t t e d b y t h e a s s e s s e e i s n o t s a t i s f a c t o r y .
3.2-2 The line of investigation by the AO
, i n o r d e r t o h o l d t h e e x p l a n a t i o n
u n s a t i s f a c t o r y , i n c a s e s w h e r e b o o k s a r e m a i n t a i n e d , m a y b e a s u n d e r -

(
i
)

T h e r e a r e c r e d i b l e d e f e c t s i n t h e b o o k s o f t h e a s s e s s e e a n d t h e r e f o r e ,
t h e y c a n n o t b e r e l i e d u p o n .

(
ii
)

T h e s t o c k r e g i s t e r i s m a n i p u l a t e d .

(
iii
)

T h e p u r c h a s e s a r e b o g u s .

(
iv
)

T h e s a l e s d e c l a r e d t o V A T d e p a r t m e n t d o n o t m a t c h w i t h t h e s a l e s
r e c o r d e d i n t h e b o o k s .

(
v
)

T h e o u t fl o w o f c a s h f r o m t h e b o o k s d o n o t m a t c h w i t h t h e c a s h
d e p o s i t e d i n t h e b a n k .
33
C A S H S A L E S O F S T O C K I N T R A D E
Para 3.2

(
vi
)

T h e p a r t i e s t o w h o m s a l e s a r e m a d e a r e n o t i d e n t i fi a b l e .

(
vii
)

T h e r e a r e l a r g e s a l e s o n a s i n g l e d a y o r i n s m a l l p e r i o d n o t c o m m e n
-s u r a t e w i t h s a l e s i n s i m i l a r p e r i o d i n e a r l i e r y e a r s .

(
viii
)

T h e d e p o s i t s a r e m o r e t h a n t h e s a l e s s h o w n .

(
ix
)

C a s h i s s h o w n t o b e r e c e i v e d p r i o r t o d r a w i n g o f s a l e v o u c h e r s .

(
x
)

T h e c a r r y f o r w a r d c l o s i n g b a l a n c e o f c a s h i n t h e b a n k a c c o u n t i s
m o r e t h a n i n c o m e d e c l a r e d .

(
xi
)

T h e s a l e s a r e b o g u s .
W h e r e a s s e s s e e d o e s n o t m a i n t a i n b o o k s o f a c c o u n t , i n c o m e i s g e n e r a l l y
d e c l a r e d u n d e r p r e s u m p t i v e t a x a t i o n , i f t u r n o v e r i s l e s s t h a n p r e s c r i b e d l i m i t .
3.2-3 In following cases cash deposit in the bank were held to be coming
out of sales:
B i l l s i s s u e d t o t h e c u s t o m e r s a n d e n t r i e s i n t h e b a n k p a s s b o o k w e r e v e r i
-f i a b l e f r o m t h e c a s h b o o k 1 .
C a s h - i n - h a n d i s r e c o r d e d i n b o o k s , a s s e s s e e h a s b e e n f i l i n g t h e i n c o m e t a x
r e t u r n a l o n g w i t h t h e b a l a n c e s h e e t s 2 .
C a s h s a l e s w e r e r e c o r d e d i n t h e b o o k s o f t h e f i r m a n d l i n k e d t o d e p o s i t
i n t h e b a n k 3 .
A O h a d a c c e p t e d t h e p u r c h a s e s , s a l e s a n d t r a d i n g r e s u l t d i s c l o s e d b y t h e
a s s e s s e e 4 .
S a l e t r a n s a c t i o n s c a n n o t b e d i s b e l i e v e d o n l y f o r t h e r e a s o n t h a t t h e a s s e s s e e
c o u l d n o t g i v e t h e i d e n t i t y o f t h e p u r c h a s e r s 5 .
T h e r e i s n o d u t y c a s t u p o n t h e s e l l e r t o i n s i s t f o r t h e a d d r e s s o f t h e p u r c h a s e r 6 .
W h e r e c r e d i t s i n u n d i s c l o s e d b a n k a c c o u n t c o n s i d e r e d a s c a s h s a l e s , e n t i r e
s a l e s w e r e n o t i n c o m e b u t o n l y p r o f i t e m b e d d e d i n i t w a s i n c o m e o f a s s e s s e e 7 .
A s s e s s e e ’ s c a s e w a s t h a t c r e d i t s i n q u e s t i o n r e p r e s e n t e d a m o u n t r e c e i v e d
b y h i m f r o m h i s t w o e m p l o y e e s o n s o u t o f p r o c e e d s o f g o o d s p i l f e r e d a n d
s o l d o u t s i d e b o o k s o f a c c o u n t b y t h e m . T r i b u n a l o b s e r v i n g t h a t o n c e s a l e
o f g o o d s p i l f e r e d w a s a c c e p t e d , t h e r e w a s n o j u s t i f i c a t i o n t o r e j e c t c o r r e
-s p o n d i n g s a l e s r e a l i z a t i o n , c o n c l u d e d t h a t i d e n t i t y o f c r e d i t o r s , n a t u r e a n d
s o u r c e o f c r e d i t s t o o d e x p l a i n e d 8 .

1 .
PrincipalCIT
v .
DilipKumarSwami
[ 2 0 1 9 ] 1 0 6 t a x m a n n . c o m 5 9 / 2 6 4 T a x m a n 3 3 ( R a j a s t h a n ) .

2 .
NandKumarTaneja
v .
ITO
[ T S - 8 4 7 9 - I T A T - 2 0 1 9 ( D e l h i ) - O ] [ I T A N o s . 4 9 5 8 a n d 4 9 5 9 / D e l / 2 0 1 8 ] .

3 .
ITO
v .
Vinod Chadha
[ 2 0 1 6 ] 7 3 t a x m a n n . c o m 1 1 8 / 1 6 0 I T D 5 5 8 ( D e l h i - T r i b . ) .

4 .
CIT
v .
Pancham Dass Jain
[ 2 0 0 6 ] 1 5 6 T a x m a n 5 0 7 ( A l l . ) .

5 .
CIT
v .
Sudeep Goenka
[ 2 0 1 3 ] 2 9 t a x m a n n . c o m 4 0 2 / 2 1 4 T a x m a n 4 1 8 ( A l l a h a b a d ) .

6 .
Kishore Jeram Bhai Khaniya
v .
ITO
[ I T A N o . 1 2 2 0 / D e l / 2 0 1 1 , d a t e d 1 3 - 0 5 - 2 0 1 4 ] .

7 .
Dineshbhai Dhansukhlal Mithaiwala
v .
ITO
[ 2 0 1 4 ] 4 9 t a x m a n n . c o m 5 8 3 / [ 2 0 1 5 ] 1 5 2 I T D 8 7 4
( A h m e d a b a d - T r i b . ) .

8 .
CIT
v .
K.C. Malhotra
[ 2 0 0 7 ] 1 6 4 T a x m a n 1 0 1 ( P u n j . & H a r . ) .
Para 3.2
V A R I O U S M O D E S O F C A S H D E P O S I T S
34

O n c e a s s e s s e d o n p r e s u m p t i v e b a s i s u / s 4 4 A D , s e p a r a t e a d d i t i o n o f c a s h
d e p o s i t i n b a n k i s n o t u p h e l d 9 .
C a s h d e p o s i t e d i n t h e b a n k c a n b e s e t o f f a g a i n s t t r a d i n g a d d i t i o n s 1 0 .
S e c t i o n 6 8 w i l l n o t a p p l y , i f n o r e a l c r e d i t h a s c o m e . A s s e s s e e h a d m a d e
o n l y a j o u r n a l e n t r y b y d e b i t i n g ‘ A ’ a n d c r e d i t i n g a s s e s s e e ’ s c u r r e n t a c c o u n t
w r o n g l y , a n d t h i s w r o n g e n t r y w a s r e c t i f i e d l a t e r o n b y b o t h p a r t i e s , s a m e
b e i n g n o t r e a l c r e d i t 1 1 .
U n d e r s e c t i o n 6 8 , s a t i s f a c t i o n o f A s s e s s i n g O f f i c e r h a s t o b e e x e r c i s e d q u a
e a c h d e p o s i t a s s a i d s e c t i o n d o e s n o t p r e s c r i b e a n y a d h o c o r e s t i m a t e d
a d d i t i o n 1 2 .
W h e r e c a s h r e c e i p t s w e r e f o u n d i n c a s h b o o k , f a i l u r e o n p a r t o f a s s e s s e e
t o m a k e c r e d i t e n t r y i n r e s p e c t i v e a c c o u n t s w o u l d n o t e n t i t l e a s s e s s e e t o
c l a i m t h a t n o a m o u n t w a s c r e d i t e d ; a d d i t i o n c o u l d b e m a d e u n d e r s e c t i o n
6 8 o n a c c o u n t o f c a s h c r e d i t s 1 3 .
W h e r e b o t h A O a n d C I T ( A ) f o u n d t h a t s o u r c e o f c a s h d e p o s i t s w a s t r a c e a b l e
t o p a d d y s a l e s w h i c h w a s n o t a c t u a l l y s o l d t o ‘ G ’ b u t w a s a c t u a l l y m i l l e d b y
a s s e s s e e a n d d i s p o s e d o f i n o p e n m a r k e t , t h e n a d d i t i o n o f s a l e a m o u n t w a s
u n s u s t a i n a b l e a s a c t u a l d e p o s i t o f t h i s a m o u n t i n b o o k s o f a c c o u n t w a s n o t
d o u b t e d . E v e n i f s a i d d e p o s i t s w e r e t r e a t e d a s o n a c c o u n t o f b o g u s s a l e n o
f u r t h e r a d d i t i o n c o u l d b e m a d e a s s a l e p r o c e e d s a l r e a d y s t o o d a c c o u n t e d
f o r i n a s s e s s e e ’ s m a n u f a c t u r i n g , t r a d i n g , a n d p r o f i t a c c o u n t 1 4 .
3.3 GIFT
T h e o r d i n a r y m e a n i n g o f t h e g i f t i s a t r a n s f e r b y o n e p e r s o n t o a n o t h e r o f
a n y e x i s t i n g m o v a b l e o r i m m o v a b l e p r o p e r t y m a d e v o l u n t a r y o r w i t h o u t
c o n s i d e r a t i o n o f m o n e y o r m o n e y w o r t h .
O n e o f t h e e x p l a n a t i o n s u b m i t t e d b y t h e a s s e s s e e t o e x p l a i n t h e c a s h d e
-p o s i t i s t h e g i f t r e c e i v e d f r o m c l o s e r e l a t i v e s / f r i e n d s . S u c h a n e x p l a n a t i o n
n e e d e d t o b e s u b s t a n t i a t e d i n t h e m a n n e r r e q u i r e d b y s e c t i o n 6 8 .
T h e l a n g u a g e o f s e c t i o n 6 8 s h o w s t h a t i t i s g e n e r a l i n n a t u r e a n d a p p l i e s
t o a l l c r e d i t e n t r i e s i n w h o m s o e v e r n a m e t h e y m a y s t a n d , t h a t i s , w h e t h e r
i n t h e n a m e o f t h e a s s e s s e e o r a t h i r d p a r t y a s h e l d i n t h e c a s e o f
Gumani

9 .
Thomas Eapen
v .
ITO
[ 2 0 2 0 ] 1 1 3 t a x m a n n . c o m 2 6 8 / 1 8 0 I T D 7 4 1 ( C o c h i n - T r i b . ) ;
Nand Lal
Popli
v .
Dy. CIT
[ 2 0 1 6 ] 7 1 t a x m a n n . c o m 2 4 6 / 1 6 0 I T D 4 1 3 ( C h a n d i g a r h - T r i b . ) ;
CIT
v .
Surinder
Pal Anand
[ 2 0 1 0 ] 1 9 2 T a x m a n 2 6 4 ( P u n j . & H a r . ) .

1 0 .
CIT
v .
Megha Industries
[ 2 0 1 3 ] 2 9 t a x m a n n . c o m 4 0 4 / 2 1 4 T a x m a n 4 0 4 ( G u j a r a t ) .

1 1 .
Asstt. CIT
v .
Mahendra Kumar Agarwal
[ 2 0 1 2 ] 2 3 t a x m a n n . c o m 2 8 5 ( J a i p u r - T r i b . ) .

1 2 .
Sahara India Financial Corpn. Ltd.
v .
Dy. CIT
[ 2 0 1 4 ] 4 1 t a x m a n n . c o m 2 5 1 / 1 4 8 I T D 3 3 6
( D e l h i - T r i b . ) .

1 3 .
Haji Nazir Hussain
v .
ITO
[ 2 0 0 4 ] 9 1 I T D 4 2 ( D e l h i - T r i b . ) ( T M ) .

1 4 .
Bansal Rice Mills
v .
ITO
[ 2 0 0 1 ] 7 8 I T D 3 2 6 / [ 2 0 0 2 ] 1 2 0 T a x m a n 1 5 5 ( C h d . - T r i b . ) ( T M ) .
35
G I F T
Para 3.3

Ram Siri Ram
v .
CIT
1 5 . T h e p r e s u m p t i o n u n d e r a n y o t h e r s e c t i o n d o e s n o t
o v e r r i d e o r e x c l u d e S e c t i o n 6 8 , t h a t i s , i t d o e s n o t o b v i a t e t h e n e c e s s i t y
t o e s t a b l i s h b y i n d e p e n d e n t e v i d e n c e t h e g e n u i n e n e s s o f t h e c a s h c r e d i t s
u n d e r S e c t i o n 6 8 , n o r d o e s i t d o a w a y w i t h t h e b u r d e n w h i c h i s o n t h e
a s s e s s e e t o e s t a b l i s h t h e r e q u i s i t e s o f c a s h c r e d i t s 1 6 . T h e p r o v i s i o n s o f s e c
-t i o n 6 8 a p p l i e s t o n o n - c o m m e r c i a l l o a n s a s w e l l a n d i t w a s p r e c i s e l y t h e
s a m e a s h e l d b y t h e H o n . C a l c u t t a H i g h C o u r t i n t h e c a s e o f
C. Kant & Co.v .
CIT
1 7 , o b s e r v i n g t h a t S e c t i o n 6 8 d o e s n o t m a k e a n y d i s t i n c t i o n b e t w e e n
c o m m e r c i a l a n d n o n - c o m m e r c i a l l o a n s .
T h e r e f o r e , t h e A s s e s s i n g O f f i c e r i s n o t p r e c l u d e d f r o m m a k i n g a n e n q u i r y
a s t o t h e t r u e n a t u r e a n d s o u r c e g i f t .
I n t h e c a s e s o f g i f t s , t h e a s s e s s e e i s r e q u i r e d t o p r o v e t h r e e i m p o r t a n t
c o n d i t i o n s , n a m e l y , (
i
) t h e i d e n t i t y o f t h e d o n o r , (
ii
) t h e c a p a c i t y o f t h e d o
-n o r 1 8 t o g i f t t h e m o n e y , a n d (
iii
) t h e g e n u i n e n e s s o f t h e t r a n s a c t i o n . W h a t
e v i d e n c e w o u l d b e s u f f i c i e n t t o e s t a b l i s h t h e s a i d c o n d i t i o n s , o r w h a t m a
-t e r i a l w o u l d b e r e l e v a n t i n a p a r t i c u l a r c a s e , w o u l d d e p e n d o n t h e f a c t s o f
e a c h c a s e 1 9 . T h e b u r d e n i s o n t h e a s s e s s e e t o p r o v e t h e n a t u r e a n d s o u r c e
o f c a s h r e c e i p t s ( b y w a y o f g i f t s ) b y e s t a b l i s h i n g t o t h e s a t i s f a c t i o n o f t h e
A O , t h e i d e n t i t y o f t h e d o n o r , t h e c r e d i t w o r t h i n e s s o f t h e d o n o r a n d g e n u
-i n e n e s s o f t h e g i f t t r a n s a c t i o n . I t i s f o r t h e a s s e s s e e t o t a k e a l t e r n a t i v e p l e a
t h a t , e v e n i f t h e e x p l a n a t i o n i s n o t a c c e p t a b l e , t h e m a t e r i a l a n d a t t e n d i n g
c i r c u m s t a n c e s a v a i l a b l e o n r e c o r d d o n o t j u s t i f y t h e s u m f o u n d c r e d i t e d
i n t h e b o o k s b e i n g t r e a t e d a s a r e c e i p t o f i n c o m e n a t u r e 2 0 .
In the case of gifts following propositions are also relevant
T h e b a n k i n g t r a n s a c t i o n o n l y e s t a b l i s h e s t h a t t h e m o n e y h a s b e e n t r a n s
-f e r r e d f r o m o n e p e r s o n t o t h e o t h e r 2 1 , f r o m d o n o r t o d o n e e .
T h o u g h t h e A s s e s s i n g O f f i c e r s , o f t e n , a c t s o n c o n f i r m a t o r y l e t t e r s a s e v
-i d e n c e , t h e o n u s d o e s n o t g e t d i s c h a r g e d m e r e l y b y s u c h c o n f i r m a t o r y
l e t t e r s a s f o u n d i n
CIT
v .
United Commercial and Industrial Co. (Pvt.) Ltd.
2 2 ,
n o r i s t h e f a c t t h a t t h e a m o u n t i s r e c e i v e d b y a c c o u n t p a y e e c h e q u e s i s
s a c r o s a n c t a s w a s p o i n t e d o u t i n
CIT
v .
Precision Finance Pvt. Ltd.
2 3 T h i s

1 5 .

[ 1 9 7 5 ] 9 8 I T R 3 3 7 ( P u n j . & H a r . ) .

1 6 .
Pushkar Narain Sarraf
v .
CIT
[ 1 9 9 0 ] 1 8 3 I T R 3 8 8 / 5 0 T a x m a n 2 1 3 ( A l l . ) ;
Daya Chand
v .
CIT[ 2 0 0 1 ] 1 1 7 T a x m a n 4 3 8 / 2 5 0 I T R 3 2 7 ( D e l h i ) .

1 7 .

[ 1 9 8 0 ] 1 2 6 I T R 6 3 / [ 1 9 8 1 ] 5 T a x m a n 6 4 ( C a l . ) .

1 8 .
CIT
v .
Precision Finance Pvt. Ltd.
[ 1 9 9 4 ] 2 0 8 I T R 4 6 5 / [ 1 9 9 5 ] 8 2 T a x m a n 3 1 ( C a l ) .

1 9 .
Asstt. CIT
v .
Raghbir Singh
[ 2 0 0 5 ] 1 4 7 T a x m a n 5 2 ( C h d . ) ( M a g . ) .

2 0 .
CIT
v .
P. Mohanakala
[ 2 0 0 7 ] 2 9 1 I T R 2 7 8 / 1 6 1 T a x m a n 1 6 9 ( S C ) .

2 1 .
Smt. Vimladevi S. Garg
v .
ITO
[ 2 0 1 1 ] 4 4 S O T 9 7 ( M u m . - T r i b . ) ( U R O ) .

2 2 .

[ 1 9 9 1 ] 1 8 7 I T R 5 9 6 / 5 6 T a x m a n 3 0 4 ( C a l . ) .

2 3 .

[ 1 9 9 4 ] 2 0 8 I T R 4 6 5 / [ 1 9 9 5 ] 8 2 T a x m a n 3 1 ( C a l . ) .
Para 3.3
36

v i e w w a s f u r t h e r h e l d i n t h e c a s e o f
Nemi Chand Kothari
v .
CIT
2 4 w h e r e i n
i t w a s h e l d t h a t i t c a n n o t b e s a i d t h a t a t r a n s a c t i o n , w h i c h t a k e s p l a c e b y
w a y o f c h e q u e , i s i n v a r i a b l y s a c r o s a n c t .
I t i s n o t s u f f i c i e n t t o p r o v e t h e g e n u i n e n e s s o f t h e g i f t a n d w h e n t h e c l a i m
o f t h e a m o u n t , h a v i n g b e e n r e c e i v e d a s a g i f t , i s m a d e b y a n a s s e s s e e , o n u s
l i e s o n h i m n o t o n l y t o e s t a b l i s h t h e i d e n t i t y o f t h e d o n o r b u t h i s c a p a c i t y
t o m a k e s u c h a g i f t 2 5 .
T h e r e m u s t b e p e r f e c t k n o w l e d g e i n t h e m i n d o f t h e p e r s o n m a k i n g t h e
g i f t t o t h e e x t e n t o f t h e b e n e f i c i a l i n t e r e s t i n t e n d e d t o b e c o n f e r r e d o n t h e
d o n e e 2 6 - 2 7 .
D e g r e e o f p r o o f i n t h e m a t t e r o f g i f t s i s h e a v i e r t h a n t h a t i n t h e c a s e o f c a s h
c r e d i t s 2 6 - 2 7 . I t i s a l s o h e l d t h a t i n a d d i t i o n t o i d e n t i t y a n d c r e d i t w o r t h i n e s s
o f t h e d o n o r s a n d g e n u i n e n e s s o f t h e g i f t t r a n s a c t i o n , t h e a s s e s s e e h a s t o
f u r t h e r e s t a b l i s h (
i
) o c c a s i o n f o r t h e g i f t ; (
ii
) r e l a t i o n s h i p o f t h e d o n o r a n d
d o n e e a n d (
iii
) e v i d e n c e o f n a t u r a l l o v e a n d a f f e c t i o n 2 8 .
T h e r e s h o u l d b e s o m e o c c a s i o n , o r p a r t i c u l a r r e a s o n t o g i v e t h e g i f t a n d
s u c h r e a s o n s s h o u l d b e d i s c e r n i b l e f r o m t h e s t a t e m e n t o f t h e d o n o r 2 9 .
N a t u r a l l o v e a n d a f f e c t i o n a n d p e r s o n a l r e l a t i o n s h i p , i f p r o v e d c a n b e o n e
o f t h e r e a s o n s f o r g i v i n g g i f t . W h e r e g i f t s a r e m a d e b y r e l a t i v e s f o r l o v e
a n d a f f e c t i o n , t h e n i t d o e s n o t n e c e s s a r i l y r e q u i r e a n y p a r t i c u l a r o c c a s i o n
f o r g i v i n g g i f t 3 0
.
T h e g i f t f r o m a n N R E o r n o n - r e s i d e n t ’ s a c c o u n t i s n o t s a c r o s a n c t a n d
u n q u e s t i o n a b l e ; t h e a p p e l l a n t m u s t p r o v e g e n u i n e n e s s o f t h e g i f t a n d t h e
f a c t t h a t i t w a s m a d e o u t o f l o v e a n d a f f e c t i o n 3 1
.
I n t h e m a t t e r o f g i f t , t h e h u m a n p r o b a b i l i t y h a s t o b e c o n s i d e r e d a s t o w h y
d o n o r i s p r o m p t e d t o g i v e g i f t t o t h e a s s e s s e e . T h i s q u e s t i o n i s r e q u i r e d t o
b e a n s w e r e d b e c a u s e a s c o n t r a r y t o l o a n , i n t h e c a s e o f g i f t , d o n o r l o s e s h i s
h a r d - e a r n e d c a p i t a l i n f a v o u r o f t h e d o n e e f o r e v e r w h e r e a s i n t h e c a s e o f
l o a n , t h e c r e d i t o r r e t a i n s t h e r i g h t t o r e c o v e r t h e m o n e y f r o m t h e a s s e s s e e .
T h e t e s t s o f h u m a n p r o b a b i l i t y a r e , o c c a s i o n s w h e n n o t o n l y t h e d o n o r b u t
o t h e r s a l s o c a m e u p t o g i v e g i f t s t o t h e a s s e s s e e ; t h e r e w e r e c e r e m o n i e s
o r g a n i z e d b y t h e a s s e s s e e o n w h i c h h e h a s s p e n t m o n e y ; h e / s h e h a d i n v i t
-e d p e o p l e a n d s o m e o f t h o s e w h o w e r e i n v i t e d h a d d e e p b o n d e d r e l a t i o n s

2 4 .

[ 2 0 0 3 ] 2 6 4 I T R 2 5 4 / [ 2 0 0 4 ] 1 3 6 T a x m a n 2 1 3 ( G a u . ) .

2 5 .
CIT
v .
R.S. Sibal
[ 2 0 0 4 ] 1 3 5 T a x m a n 4 9 2 ( D e l h i ) .

2 6 - 2 7 .
Asstt. CIT
v .
Raghbir Singh
[ 2 0 0 5 ] 1 4 7 T a x m a n 5 2 ( C h d . ) ( M a g . ) .

2 8 .
Abhay Devilal Rathod
v .
Dy. CIT
[ 2 0 1 0 ] 4 0 S O T 3 5 4 ( A h m e d a b a d - T r i b . ) .

2 9 .
CIT
v .
Y.M. Singla
[ 2 0 1 4 ] 5 0 t a x m a n n . c o m 4 1 0 / [ 2 0 1 5 ] 2 2 8 T a x m a n 9 0 ( P u n j a b & H a r y a n a ) .

3 0 .
Dr. Vempala Bala Manohar
v .
ITO
[ 2 0 1 7 ] 8 8 t a x m a n n . c o m 4 1 0 ( V i s a k h a p a t n a m - T r i b . ) .

3 1 .
Sarita Aggarwal
v .
ITO
[ 2 0 1 5 ] 5 6 t a x m a n n . c o m 1 9 5 / 2 3 1 T a x m a n 6 0 0 ( D e l h i ) .
37
G I F T
Para 3.3

w h i c h p r o m p t e d t h e m t o g i v e g i f t s t o t h e a s s e s s e e . T h u s , a k i n d o f b o n d a g e
b e t w e e n d o n o r a n d d o n e e n e e d e d t o b e d e m o n s t r a t e d .
T h e b o n d a g e b e t w e e n t h e d o n o r a n d t h e d o n e e s h o u l d b e s h o w n b y f r e q u e n t
v i s i t s t o e a c h o t h e r ; i n v o l v e m e n t o f e a c h o t h e r i n t o e a c h o t h e r ’ s f a m i l y
a f f a i r s ; s t a n d i n g f o r e a c h o t h e r i n t h e h o u r o f n e e d ; d o n e e a l s o g i v i n g g i f t s
t o t h e d o n o r s o r h i s f a m i l y m e m b e r s i n t h e p a s t o r a l s o i n f u t u r e ; t h e y a r e
s o c l o s e l y - r e l a t e d t h a t f o r e g o i n g h a r d e a r n e d m o n e y i s u n l i k e l y t o p i n c h
t h e d o n o r ; d o n o r i s s t a n d i n g o n h i g h e r p e d e s t a l i n t e r m s o f s o c i a l s t a t u s , i n
r e l a t i o n o r i n f i n a n c i a l w o r t h , o r i n a n y o t h e r r a t i o n a l c r i t e r i a , w h i c h w o u l d
m a k e h i m f e e l t o p a s s o n h i s h a r d e a r n e d c a p i t a l t o t h e d o n e e .
I n c a s e o f l o a n , i f i d e n t i t y o f t h e c r e d i t o r i s k n o w n a n d c r e d i t w o r t h i n e s s o f
t h e c r e d i t o r i s e s t a b l i s h e d t h e n o n u s i s s h i f t e d t o t h e r e v e n u e t o s h o w t h a t
c r e d i t i s n o t g e n u i n e . B u t i n t h e c a s e o f g i f t a l l t h e t h r e e i n g r e d i e n t s a r e
n e c e s s a r y t o b e e s t a b l i s h e d b y t h e a s s e s s e e a n d m e r e l y b y g i v i n g e v i d e n c e
o f i d e n t i t y a n d c r e d i t w o r t h i n e s s o f d o n o r , g e n u i n e n e s s c a n n o t b e t a k e n t o
b e e s t a b l i s h e d a u t o m a t i c a l l y 3 2 .
Documentation necessary for proving the identity of the donor
I d e n t i t y o f t h e d o n o r i s e s t a b l i s h e d t h r o u g h v a r i o u s d o c u m e n t s s u c h a s
c o p i e s o f P A N , A a d h a a r c a r d , p a s s p o r t , a s s e s s m e n t p a r t i c u l a r s / o r d e r s , i n
c a s e o f N R I , c i t i z e n s h i p i d e n t i t y c a r d , p a s s p o r t , o t h e r p a r t i c u l a r s s u c h a s
b a n k s t a t e m e n t , a n d t h r o u g h p e r s o n a l p r e s e n c e . I t w i l l b e a p r u d e n c e o n
t h e p a r t o f t h e a s s e s s e e t o r e q u e s t t h e a u t h o r i t i e s t o s u m m o n t h e d o n o r i n
c a s e t h e d o n o r i s r e l u c t a n t t o a p p e a r b e f o r e t h e A O . M e r e l y s u b m i s s i o n o f
t h e c o p y o f P A N c a r d a l o n e w i l l n o t p r o v e t h e i d e n t i t y o f d o n o r .
Documentation necessary for proving the creditworthiness of the donor
T h e c r e d i t w o r t h i n e s s o f t h e d o n o r i s e s t a b l i s h e d b y s u b m i t t i n g s t a t e m e n t o f
a s s e t s a n d l i a b i l i t i e s s h o w i n g a d e q u a t e i n c o m e a n d w o r t h , b a n k s t a t e m e n t s
s h o w i n g a d e q u a t e b a l a n c e b e f o r e g i f t , a s s e s s m e n t o r d e r s s h o w i n g a d e q u a t e
e a r n i n g o f i n c o m e t o e n a b l e t h e d o n o r t o g i f t , p a s t h i s t o r y o f a s s e t s .
Documentation necessary for proving the genuineness of the gift
G e n u i n e n e s s o f t h e g i f t i s e x p l a i n e d t h r o u g h p e r s o n a l r e l a t i o n s h i p , t h e
d o n o r i s p l a c e d a t e q u a l o r h i g h e r l e v e l o f r e l a t i o n s h i p ( g i f t s f r o m m i n o r s
t o e l d e r s d o n o t i n s p i r e c o n f i d e n c e i n t h e g e n u i n e n e s s ) o c c a s i o n o f g i v i n g
g i f t , t r a n s f e r o f g i f t t h r o u g h b a n k i n g c h a n n e l s , g i f t d e e d s , a n d a f t e r g i v i n g
g i f t , t h e d o n o r i s n o t r e d u c e d t o p a u p e r a n d t h e r e i s n o d o u b t f u l t r a n s a c
-t i o n s i n a c c o u n t o f t h e d o n o r s u c h a s d e p o s i t o f c a s h i m m e d i a t e l y b e f o r e
t r a n s a c t i o n o f g i f t . T h e d o n o r s s h o u l d n o t b e p e r s o n s o f s m a l l m e a n s a s
c o m p a r e d t o a s s e s s e e . F u r t h e r , t h e r e s h o u l d n o t b e a n y e v i d e n c e t h a t g i f t
w a s a c a s e o f m o n e y l a u n d e r i n g .

3 2 .
Abhay Devilal Rathod
v .
Dy. CIT
[ 2 0 1 0 ] 4 0 S O T 3 5 4 ( A h m e d a b a d - T r i b . ) .
Para 3.3
38

D a u g h t e r s o f a s s e s s e e r e c e i v e d g i f t b y w a y o f b a n k d e p o s i t f r o m t h e i r
u n c l e , o n c o n f i r m a t i o n o f g i f t b y u n c l e . N o a d d i t i o n i n a s s e s s e e ’ s h a n d s 3 3 .
N o e v i d e n c e t h a t g i f t s r e c e i v e d b y t h e s o n h a d f l o w n f r o m t h e a s s e s s e e 3 4 .
B a r e a s s e r t i o n o f a n o c c a s i o n a l s t a y o f d o n o r w i t h a s s e s s e e i n N e p a l t u r n i n g
i n t i m a c y i n t o f r i e n d s h i p o f d e g r e e w h i c h p r o m p t e d J t o d o n a t e s u b s t a n t i a l
a m o u n t a t n o a u s p i c i o u s o c c a s i o n g o t n o c o r r o b o r a t i v e s u p p o r t e v e n f r o m
a s s e s s e e ’ s o w n a f f i d a v i t , c i r c u m s t a n c e s a t t e n d i n g o n a l l e g e d t r a n s a c t i o n , a s
a l s o c o n d u c t a n d b e h a v i o u r o f p a r t i e s d i d n o t s u p p o r t g e n u i n e n e s s o f g i f t 3 5 .
A s s e s s e e h a d d e p o s i t e d c a s h a m o u n t i n b a n k a c c o u n t w h i c h s h e h a d n o t
r e f l e c t e d i n h e r r e t u r n . S h e c l a i m e d t h a t s h e h a d r e c e i v e d c a s h g i f t s f r o m
f o u r d i f f e r e n t p e r s o n s , b u t s h e c o u l d n o t g i v e c o n f i r m a t i o n o f e a c h d o n o r
a l o n g w i t h n a m e , a d d r e s s , P A N a n d c o p i e s o f l e d g e r a c c o u n t s a s a p p e a r i n g
i n h e r b o o k s o f a c c o u n t . I t w a s h e l d t h a t c a s h g i f t s w e r e n o t b a c k e d b y a n y
s u p p o r t i n g d o c u m e n t s o f d o n o r s 3 6 .
T h e r e w e r e d e p o s i t s i n t h e r e c u r r i n g a c c o u n t o f m i n o r c h i l d r e n . I t w a s
e x p l a i n e d b y t h e a s s e s s e e t h a t h i s m o t h e r m a d e c o n t r i b u t i o n o u t o f h e r
a g r i c u l t u r e i n c o m e a n d t h e c h i l d r e n r e c e i v e d g i f t . B u t n o e v i d e n c e o f
m o t h e r h a v i n g a g r i c u l t u r e l a n d o r a g r i c u l t u r e o p e r a t i o n s w e r e f o u n d o r
t h e r e w a s n o e v i d e n c e o f a n y g i f t 3 7 .
C a s h d e p o s i t e d i n b a n k a c c o u n t o f a s s e s s e e w a s e x p l a i n e d a s g i f t s r e c e i v e d
f r o m d i f f e r e n t r e l a t i v e s , b u t c r e d i t w o r t h i n e s s o f t h e r e l a t i v e s c o u l d n o t b e
p r o v e d 3 8 .
A s s e s s e e c l a i m e d t o h a v e r e c e i v e d g i f t f r o m h i s m o t h e r a s p e r l a s t w i s h
o f h i s f a t h e r w h i c h w a s n o t f o u n d f a l s e a n d f a t h e r h a d s u f f i c i e n t w e t a n d
d r y l a n d s t o e a r n a g r i c u l t u r e i n c o m e 3 9 .
A s s e s s e e h a d d e p o s i t e d c e r t a i n a m o u n t i n b a n k w h i c h , a s c l a i m e d , r e p r e
-s e n t e d g i f t s r e c e i v e d f r o m v a r i o u s p a r t i e s . H o w e v e r , t h e a s s e s s e e f a i l e d t o
p r o v e c a p a c i t y o f c o n c e r n e d p e r s o n s w h o a l l e g e d t o h a v e g i v e n u n s e c u r e d
l o a n a n d / o r g i f t s 4 0 .
T h e a s s e s s e e w a s a p a r t n e r s h i p f i r m , i n w h i c h ‘ K ’ a n d ‘ Z ’ w e r e p a r t n e r s ,
w h o h a d d e p o s i t e d a m o u n t s i n t h e i r c a p i t a l a c c o u n t s i n t h e f i r m . T h e
p a r t n e r s a r e i n c o m e t a x p a y e e s . T h e y h a v e e x p l a i n e d t h e s o u r c e a s h a v i n g
r e c e i v e d g i f t f r o m v a r i o u s p e r s o n s , w h o h a v e a l s o f i l e d t h e i r I n c o m e - t a x

3 3 .
Dy. CIT
v .
Justice P.D. Dinakaran
[ 2 0 1 5 ] 5 5 t a x m a n n . c o m 3 7 4 / 6 8 S O T 7 6 ( C h e n n a i - T r i b . ) .

3 4 .
Dr. Yogiraj Sharma
v .
Asstt. CIT
[ 2 0 1 6 ] 6 9 t a x m a n n . c o m 3 6 6 ( I n d o r e - T r i b . ) .

3 5 .
Shyam Sunder Gupta
v .
ITO
[ 1 9 9 5 ] 8 2 T a x m a n 1 4 8 ( J p . ) ( M a g . ) .

3 6 .
Truptiben Bakulbhai Patel
v .
ITO
[ 2 0 1 7 ] 8 7 t a x m a n n . c o m 4 1 ( G u j a r a t ) .

3 7 .
Shyam Sunder Gupta
v .
ITO
[ 1 9 9 5 ] 8 2 T a x m a n 1 4 8 ( J p . ) ( M a g . ) .

3 8 .
S. Raman
v .
Dy. CIT
[ 2 0 1 7 ] 8 0 t a x m a n n . c o m 3 6 3 / 2 4 7 T a x m a n 4 0 6 ( M a d r a s ) .

3 9 .
Anandasayanam P. Pillai
v .
CIT
[ 2 0 1 7 ] 8 8 t a x m a n n . c o m 7 3 0 ( M u m b a i - T r i b . ) .

4 0 .
Sitaram Ramchanddas Patel
v .
ITO
[ 2 0 1 8 ] 9 5 t a x m a n n . c o m 2 9 0 ( G u j a r a t ) .
39
G I F T
Para 3.3

r e t u r n s a n d h a v e b e e n a s s e s s e d a c c o r d i n g l y . I t i s h e l d t h a t t h e b u r d e n b y
t h e f i r m i s d i s c h a r g e d 4 1 .
N o c o n f i r m a t i o n o f c a s h g i f t w a s f i l e d a l o n g w i t h r e t u r n a n d a s s e s s e e a l s o
f a i l e d t o p r o d u c e d o n o r f o r e x a m i n a t i o n 4 2 .
W h e r e (
a
) t h e i d e n t i t y o f t h e d o n o r w a s n o t i n d o u b t ; (
b
) g i f t w a s g i v e n b y
a d e c l a r a t i o n d e e d ; (
c
) d o n o r h a d g i v e n a n a f f i d a v i t a f f i r m i n g t h e m a k i n g
o f t h e g i f t ; (
d
) t h e r e w a s a c o n f i r m a t i o n t h r o u g h p o s t o f g i f t p e r d e m a n d
d r a f t ; (
e
) a f f i r m a t i o n o f t h e a s s e s s e e i n e x a m i n a t i o n o n o a t h r e c o r d e d b y
t h e A s s e s s i n g O f f i c e r ; (
f
) a f f i r m a t i o n o f t h e d o n o r i n e x a m i n a t i o n o n o a t h
r e c o r d e d ; (
g
) d i r e c t r e p l y o f t h e d o n o r t o t h e A s s e s s i n g O f f i c e r c o n f i r m i n g
t h e g i f t ; (
h
) d o n o r w a s s t a t e d t o b e a f r i e n d o f t h e a s s e s s e e ’ s f a t h e r ; (
i
) d o
-n o r w a s d o i n g s o m e f i n a n c e b u s i n e s s ; t h e n s o u r c e o f t h e g i f t w a s p r o v e d 4 3 .
D o n o r s g i v i n g g i f t s o f 5 l a k h s a n d
` 
7 l a k h s r e s p e c t i v e l y , t h e y n e v e r m a d e
a n y i n v e s t m e n t w o r t h
` 
O n e l a k h o r m o r e , m e a g r e r e t u r n e d i n c o m e ,
m e a g r e c a s h i n h a n d , b o o k s n o t m a i n t a i n e d , g i f t s w e r e g i v e n i n c a s h , v e r y
g r i m f i n a n c i a l b a c k g r o u n d , G i f t s w e r e h e l d n o n - g e n u i n e 4 4 . S o a l s o i n a c a s e
w h e r e d o n o r s w e r e p e t t y p e r s o n s 4 5 , o r w h e r e d o n o r s w e r e n o t r e l a t e d t o
a s s e s s e e , t h e r e w a s n o o c c a s i o n t o g i v e s i z e a b l e g i f t s , r e s o u r c e s a v a i l a b l e t o
s a i d d o n o r s w e r e m e a g r e , s o u r c e o f c r e d i t b e f o r e g i f t w a s n o t e x p l a i n e d ,
t h e n m e r e l y b e c a u s e g i f t s w e r e g i v e n t h r o u g h b a n k i n g c h a n n e l s , g i f t s w e r e
h e l d n o n - g e n u i n e 4 6 . S i m i l a r l y , w h e r e d o n o r s , n o t f i n a n c i a l l y s o u n d , w e r e
n o t r e l a t e d t o d o n e e , g i f t s w e r e o f h u g e a m o u n t , t h e r e w a s n o o c c a s i o n t o
m a k e g i f t , a d d i t i o n o f g i f t a m o u n t w a s c o n f i r m e d 4 7 .
3.4 DONATIONS RECEIVED BY A TRUST
A t r u s t m a y r e c e i v e d o n a t i o n s / c o n t r i b u t i o n s e i t h e r f o r t h e c o r p u s o f t h e
t r u s t , o r d o n a t i o n s i m p l i c i t e r .
W h e r e a t r u s t i s r e g i s t e r e d u / s 1 2 A , t h e n v o l u n t a r y c o n t r i b u t i o n m a d e w i t h
a s p e c i f i c d i r e c t i o n t h a t t h e y s h a l l f o r m p a r t o f t h e c o r p u s o f t h e t r u s t o r
i n s t i t u t i o n , t h e n s u c h c o n t r i b u t i o n s h a l l n o t b e i n c l u d e d i n t h e t o t a l i n c o m e
o f t h e t r u s t f o r t h e p r e v i o u s y e a r a s p r o v i d e d i n s e c t i o n 1 1 ( 1 ) (
d
) . W h e r e t h e r e
i s n o s u c h d i r e c t i o n , t h e n a s p e r s e c t i o n 1 2 ( 1 ) , s u c h v o l u n t a r y c o n t r i b u t i o n
r e c e i v e d b y t h e t r u s t s h a l l f o r t h e p u r p o s e s o f s e c t i o n 1 1 b e d e e m e d t o b e
i n c o m e d e r i v e d f r o m p r o p e r t y h e l d u n d e r t r u s t , w h o l l y f o r c h a r i t a b l e o r

4 1 .
Zafa Ahmad & Co.
v .
CIT
[ 2 0 1 3 ] 3 0 t a x m a n n . c o m 2 6 7 / 2 1 4 T a x m a n 4 4 0 ( A l l a h a b a d ) .

4 2 .
Rawal Das Jaswani
v .
Asstt. CIT
[ 2 0 1 5 ] 6 1 t a x m a n n . c o m 3 4 3 ( R a i p u r - T r i b . ) .

4 3 .
Avnish Kumar Singh
v .
ITO
[ 2 0 1 0 ] 1 2 6 I T D 1 4 5 ( A g r a - T r i b . ) ( T M ) .

4 4 .
Pankaj Sumatilal Shah
v .
ITO
[ 2 0 1 6 ] 7 1 t a x m a n n . c o m 3 4 0 ( P u n e - T r i b . ) .

4 5 .
Pandit Vijay Kant Sharma
v .
CIT
[ 2 0 1 7 ] 8 8 t a x m a n n . c o m 2 1 9 ( A l l a h a b a d ) .

4 6 .
Kaushal H. Patel
v .
ITO
[ 2 0 1 4 ] 5 0 t a x m a n n . c o m 1 3 6 / 2 2 6 T a x m a n 1 7 5 ( M a g . ) ( G u j a r a t ) .

4 7 .
CIT
v .
Y.M. Singla
[ 2 0 1 4 ] 5 0 t a x m a n n . c o m 4 1 0 / [ 2 0 1 5 ] 2 2 8 T a x m a n 9 0 ( M a g . ) ( P u n j a b &
H a r y a n a ) .
Para 3.4
40

r e l i g i o u s p u r p o s e s , a n d t h e p r o v i s i o n s o f t h a t s e c t i o n a n d s e c t i o n 1 3 s h a l l
a p p l y a c c o r d i n g l y . H o w e v e r , w h e r e t r u s t h a s a p p l i e d 8 5 % o f s u c h c o n t r i
-b u t i o n t o c h a r i t a b l e p u r p o s e a n d b a l a n c e 1 5 % i s a c c u m u l a t e d f o r b e i n g
u s e d i n f u t u r e , t h e n e n t i r e r e c e i p t w i l l b e e x e m p t a s p e r s e c t i o n 1 1 ( 1 ) (
a
) .
F r o m t h e a b o v e p r o v i s i o n s i t m a y b e i n f e r r e d t h a t i f t h e t r u s t h a s r e c e i v e d
c o n t r i b u t i o n i n c a s h ( i n S B N s ) b e f o r e t h e d a t e o f d e m o n e t i s a t i o n , w i t h
s p e c i f i c d i r e c t i o n t h a t t h e y s h a l l f o r m p a r t o f t h e c o r p u s o f t h e t r u s t , t h e n
s u c h c o n t r i b u t i o n ( o f S B N s ) w i l l n o t b e c h a r g e a b l e t o t a x a s i n c o m e . T h e
o n l y o n u s w h i c h l i e o n t h e t r u s t i s t o p r o v i d e , t o t h e A O , i d e n t i t y o f t h e c o n
-t r i b u t o r s a n d t h e i r c o n f i r m a t i o n s . O t h e r w i s e , d o n a t i o n / c o n t r i b u t i o n w i l l b e
a n o n y m o u s a n d w i l l b e d e e m e d a s i n c o m e u / s 1 1 5 B B C ( 1 ) . W h e r e i d e n t i t y
o f t h e c o n t r i b u t o r s i s n o t p r o v e d , t h e A O m a y c o n s i d e r t h e c o n t r i b u t i o n s
s i m p l y c a s h c r e d i t s t a x a b l e u / s 6 8 . T h e t r u s t m a y t h e r e a f t e r d e p o s i t t h e
c a s h c o n t r i b u t i o n s i n t h e b a n k a c c o u n t a n d f u r n i s h e x p l a n a t i o n a c c o r d i n g l y .
W h e r e t h e r e i s n o s p e c i f i c d i r e c t i o n f r o m t h e c o n t r i b u t o r s t o t h e e f f e c t
t h a t t h e c o n t r i b u t i o n s w i l l f o r m p a r t o f t h e c o r p u s o f t h e t r u s t , t h e n s u c h
c o n t r i b u t i o n s w i l l b e d e e m e d i n c o m e ( d e r i v e d f r o m p r o p e r t y h e l d u n d e r
t r u s t o n l y f o r c h a r i t a b l e a n d r e l i g i o u s p u r p o s e s ) b y v i r t u e o f s e c t i o n 1 2 ( 1 ) .
O n c e , c a s h c o n t r i b u t i o n s ( S B N s ) a r e t r e a t e d a s d e e m e d i n c o m e n o f u r t h e r
o n u s l i e s o n t h e t r u s t t o p r o v e i d e n t i t y / c r e d i t w o r t h i n e s s o f t h e c o n t r i b u t o r s
o r g e n u i n e n e s s o f t h e t r a n s a c t i o n . U n d e r t h e s e c i r c u m s t a n c e s s e c t i o n 6 8 o r
6 9 o r 6 9 A w i l l n o t b e a p p l i c a b l e . I n o r d e r t o s a v e i t s e l f f r o m t a x a t i o n , t h e
t r u s t m a y a p p l y 8 5 % o f s u c h c o n t r i b u t i o n s t o c h a r i t a b l e p u r p o s e s .
A s p e r s e c t i o n 1 1 5 B B C ( 1 ) , i f a n y i n s t i t u t i o n , t r u s t , u n i v e r s i t y c o v e r e d u / s
1 0 ( 2 3 C ) (
iiiad
) , o r 1 0 (
23C
) (
vi
) , o r 1 0 (
23C
) (
iiiae
) , o r 1 0 ( 2 3 C ) (
via
) , o r 1 0 (
23C
)
(
iv
) , o r 1 0 (
23C
) (
v
) r e c e i v e s a n y a n o n y m o u s d o n a t i o n s , t h e n t h e y w i l l h a v e
t o p a y i n c o m e t a x @ 3 0 % o n a g g r e g a t e a m o u n t o f d o n a t i o n s e x c e e d i n g
` 
1
l a k h o r 5 % o f t o t a l d o n a t i o n ( w h i c h e v e r i s h i g h e r ) .
T h e p r o v i s i o n s o f s e c t i o n 1 1 5 B B C ( 1 ) w i l l n o t a p p l y t o r e c e i p t o f a n o n y
-m o u s d o n a t i o n s b y a n y t r u s t o r i n s t i t u t i o n c r e a t e d o r e s t a b l i s h e d w h o l l y
f o r r e l i g i o u s p u r p o s e s . T h u s , a n o n y m o u s d o n a t i o n s r e c e i v e d b y a t r u s t
r u n n i n g a t e m p l e w i l l b e e x e m p t u / s 1 0 ( 2 3 C ) (
v
) p r o v i d e d t h e t r u s t / i n s t i
-t u t i o n i s r u n n i n g (
i
) w h o l l y f o r p u b l i c r e l i g i o u s p u r p o s e s o r (
ii
) w h o l l y f o r
p u b l i c r e l i g i o u s a n d c h a r i t a b l e p u r p o s e s (
iii
) W h i c h m a y b e a p p r o v e d b y
t h e p r e s c r i b e d a u t h o r i t y .
T h e p r o v i s i o n s o f s e c t i o n 1 1 5 B B C ( 1 ) w i l l a l s o n o t a p p l y t o r e c e i p t o f
a n o n y m o u s d o n a t i o n s b y a n y t r u s t o r i n s t i t u t i o n s c r e a t e d o r e s t a b l i s h e d
“ w h o l l y f o r r e l i g i o u s a n d c h a r i t a b l e p u r p o s e s ” w h e r e s u c h d o n a t i o n s a r e
f o r a s p e c i f i c d i r e c t i o n t h a t s u c h d o n a t i o n i s f o r a n y u n i v e r s i t y o r o t h e r
e d u c a t i o n a l i n s t i t u t i o n o r a n y h o s p i t a l o r o t h e r m e d i c a l i n s t i t u t i o n s r u n b y
s u c h t r u s t o r i n s t i t u t i o n .
41
D O N A T I O N S R E C E I V E D B Y A T R U S T
Para 3.4

Thisbookisareadyreferencertounderstandthetaximplicationofcashdeposited
duringdemonetizationorinroutinecourse,andtheguidanceonhowtogivere-
sponsetothenoticesofDepartment.Italsoprovidesacompleteunderstandingof
theprovisionsrelatingtounexplainedIncomeandProhibitionofBenamiProperty
TransactionAct,1988.Thisbookhasbeenwrittenwiththefollowingobjectives:
Providesanideaaboutthetaxconsequencesofdemonetization;
Providesaninsightintovariousmodesusedbythetaxpayerstoexplaintheircash
depositedinthebank;
ExplainstheconditionsunderwhichvariousdeemingprovisionsunderIncomeTax
Actcanbeapplied;
HighlightstheHighlightstherequirementofdocumentaryevidenceinsupportofexplanationfur-
nishedbytheassessee;
Coversthecircumstancesunderwhichenhancement,revisionorreopeningcanbe
done
Highlightthecircumstancesunderwhichpenalprovisionsinrelationtocashdepos-
itscanbeinvoked.

Taxmann's Taxation of Cash Deposits

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