Cash gifts from close relatives accepted as genuine; addition deleted as creditworthiness proven

Cash gifts from close relatives accepted as genuine; addition deleted as creditworthiness proven

Issue

Whether an addition of Rs. 36,05,000/- made by the Assessing Officer treating cash gifts received from close relatives as “unexplained income” is sustainable when the assessee provides documentary evidence (affidavits and audited accounts) and the creditworthiness of the donors is not disputed by the authorities.

Facts

• Appeal: The assessee appealed against the order of the Commissioner of Income Tax (Appeals), NFAC, for the Assessment Year 2017-18.

• Disputed Addition: The Assessing Officer (AO) had added Rs. 36,05,000/- to the assessee’s income, treating cash receipts from close relatives as income from unexplained sources.

• Assessee’s Evidence: The assessee submitted affidavits from close relatives (father, mother, wife, brother, and father-in-law) confirming the gifts.

• Corroboration: Crucially, the assessee furnished copies of the audited accounts and balance sheets of the donors, where the specific gift amounts were duly reflected.

• AO’s Stance: The Assessing Officer did not doubt the creditworthiness of the donors during the proceedings.

• Revenue’s Stance: The Departmental Representative (DR) could not rebut the factual evidence provided by the assessee regarding the source and documentation of the gifts.

Decision

• The Income Tax Appellate Tribunal (ITAT) allowed the appeal in favor of the assessee.

• The Tribunal observed that the gifts were received from close relatives, and the primary evidences (audited accounts) established the transaction flow.

• Since the creditworthiness of the donors was not doubted by the lower authorities and the transactions were reflected in books, the Tribunal held there was no justification for the addition.

• The impugned addition of Rs. 36,05,000/- was ordered to be deleted.

Key Takeaways

• Gifts from Relatives: Cash gifts from defined “close relatives” are generally exempt from tax under the Income Tax Act, provided the genuineness is established.

• Documentation is Vital: The mere claim of a gift is insufficient; furnishing affidavits and, more importantly, the audited balance sheets of the donors is critical to proving the transaction.

• Creditworthiness Test: If the tax authorities do not challenge the financial capacity (creditworthiness) of the donor, the addition under unexplained income generally cannot survive.

• Burden of Proof: Once the assessee provides documentary evidence of the donor’s identity, capacity, and the genuineness of the transaction, the burden shifts to the Revenue to disprove it.

THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH
BENCH “SMC” CHANDIGARH
Shri Rajneesh Narula,
Astha Hospital, Dabwali Road,
Near Shakti Motors, Sirsa.
Vs
The DCIT,
Circle,
Sirsa.