S. 68 “Gifts” + S. 147 Reopening + “Matching Principle”

U/s 68, the burden is on the assessees to show that the amount received by purported gift(s) from the donors is a “gift” in the legal sense. The assessee has to show whether the donors have the financial capacity to make the gift(s) in favour of the assessees. The fact that the two are assessed to tax at Singapore does not answer the question. The assessees has to lead evidence to show that the alleged donors had adequate funds in their respective accounts to make the purported gift(s) in accordance with CIT vs. P. Mohanakala 2007 (6) SCC 21.

When the assessment order was passed, the law as declared by the jurisdictional High Court was that the civil construction work carried out by the assessee would be entitled to the benefit of s. 80HH. This was reversed in CIT vs. N.C. Budharaja 204 ITR 412 (SC). The subsequent reversal of the legal position by the judgment of the Supreme Court does not authorise the Department to reopen the assessment, which stood closed on the basis of the law, as it stood at the relevant time.

Interest (difference between purchase & redemption price) not assessable in year of allottment of debenture

The assessee’s act of offering the interest income arising on the difference between purchase price of the debenture and redemption price after six years on an amortization basis is in accordance with the “matching principle” laid down in Taparia Tools 260 ITR 102 (Bom) and the real income principles. Such interest cannot be taxed on accrual basis in the year of allotment of debenture itself but has to be taxed on spread-over basis.