S. 68 — cannot be invoked when source of the gift is properly explained and when the donor himself appears before the AO, confirming the gift.

1. The assessee received an
amount of Rs.2,50,000 as a gift from Mr. Rakesh Walia (donor), a resident of
Delhi. The donor was friend of the assessee’s father, and had received some help
from the assesse’s father earlier. So he had made a gift to the assessee.

2. The assessee, during
assessment, produced before the AO copy of deed of declaration of gift dated
24-1-2002 executed by the donor, his affidavit confirming the gift with his
complete address, a copy of his PAN Card and proof that he is an old income
tax-assessee, a photocopy of his ration card, a copy of accounts of the donor in
the books of Balaji Trading Corporation, Delhi (Balaji) and his Balance Sheet as
on 31-3-2001. Also the donor himself was produced before the AO and he confirmed
the gift and also gave reasons to the AO for giving the gift.

3. The AO observed that the
donor himself was a person of low financial status having monthly income of
Rs.5,000. He has no fixed assets of his own including any immovable property or
fixed deposits. He had a deposit of Rs.1,25,000 with Balaji, from which he
received Rs.2,46,000 which he forwarded to the assessee as gift. However the
reason of deposit with Balaji was not explained.

4. The Assessing Officer was
satisfied with the identity of the owner, however he was not satisfied with the
source of the income. So he invoked the provisions of S. 68 which was upheld by
the CIT(A).

1. The ITAT observed that
there could be two possibilities of the situation :

Genuiness of the gifts
stands to be proved in the lights of all the evidences brought on record by the
assessee (in the favour of the assessee).

Considering the
creditworthiness and capacity of the donor and closeness and natural love and
affection between the donor and the donee, the source of the gift is doubtful
(in the favour of Revenue).

2. S. 68 provides for
charging the sum credited in the books of the assessee as the income of the
assessee, if the assessee offers no explanation as to the nature and source of
the same.

3. Since the assessee has
explained the nature and sources of the credit by way of a gift, which
satisfactorily explains the genuineness of the gift, it cannot be added to the
income of the assessee as unexplained income u/s.68.