ITAT Rules Cash Gifts from Sisters Are Valid, Quashes Tax Addition

ITAT Rules Cash Gifts from Sisters Are Valid, Quashes Tax Addition

Issue: Whether cash gifts received by a brother from his married sisters, who are classified as “relatives” under the Income Tax Act, should be treated as unexplained cash credit under Section 68 if the Assessing Officer (AO) deems the donor’s creditworthiness insufficient or questions the source, even when documents are provided.

Facts:

• The taxpayer, Mr. Maheshwari (a businessman from Agra), received substantial sums as gifts, including ₹10.94 lakh from one married sister and ₹6.25 lakh from another sister, which he utilized in his business ventures for AY 2016-17.
• The gifts were declared, but the Assessing Officer (AO) questioned the transaction’s genuineness and the sisters’ creditworthiness, particularly for two transactions of ₹5,00,000 each.
• The AO treated the gifts as unexplained cash credit under Section 68, leading to an addition to the taxpayer’s income.
• The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, prompting the taxpayer to appeal to the Income Tax Appellate Tribunal (ITAT), Agra.

Decision:

The ITAT, Agra Bench, ruled in favor of the taxpayer, quashing the addition made under Section 68. The Tribunal accepted the gifts as legitimate and properly explained.

Key TakeDowns:

• Gifts from Relatives are Exempt: Gifts received from sisters are between “relatives” and are generally exempt from tax under the Income Tax Act. The issue shifts only to proving the donor’s identity and creditworthiness.
• Burden on the Department: The Tribunal severely criticized the revenue for questioning the sister’s creditworthiness merely because her own tax returns were not selected for scrutiny (under Section 143(3)). The ITAT stated: “This cannot be a reason to disbelieve the gift and doubt the creditworthiness of her… The assessee cannot be faulted for an act which is not in his control”.
• Documentary Proof Accepted: The taxpayer was successful because he provided comprehensive documentary evidence, including Gift Declarations, Sale Deeds proving the sister’s large property sale proceeds, and Bank Statements validating the receipts, thereby fulfilling the requirements of Section 68.