The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that Rs. 3 crores gift received by the assessee from her NRI son was deemed valid and non-taxable under the Income Tax Act citing the Donor’s sufficient funds.
Lalita Devi Agarwal, the assessee received a gift of Rs 3 crores from her son, Barun Agarwal, a Non-Resident of India. She received the gift via RTGS transactions on 14.03.2011 and 17.03.2011.
The son was a hedge fund operator based in Hong Kong and transferred the funds from his Hong Kong account to his Indian account before gifting the amount. The assessee used the gifted amount to provide an unsecured loan of Rs.2.7 crores to Mangalam Vanijya Pvt. Ltd. and purchased shares in the same company.
Know Practical Aspects of Tax Planning, Click Here
The Assessing Officer (AO) reopened the case under section 147 of the Income Tax Act, 1961, citing information from the Director of Investigation, and added Rs. 3 crores as unexplained cash credit under section 68 of the Income Tax Act.
The AO raised doubts about the donor’s creditworthiness and the genuineness of the transaction. The AO found that the hedge fund operated by the donor was banned by SEBI in India.
The assessee provided evidence including bank statements to prove the identity and financial capacity of the donor and the genuineness of the gift. The AO relied on Google searches and local newspaper reports to challenge the credibility of the donor but did not perform any independent inquiry or verification.
Know Practical Aspects of Tax Planning, Click Here
On appeal, the CIT(A) ruled in favor of the assessee holding that she had sufficiently discharged the burden of proof required under section 68 of the Income Tax Act, 1961, and the AO’s reliance on unverified media reports was deemed insufficient to counter the evidence submitted by the assessee. Aggrieved, the revenue appealed before the Mumbai Bench of ITAT.
The two-member bench comprising B.R. Baskaran (Accountant Member) and Anikesh Banerjee (Judicial Member) observed that the donor’s bank statements reflected sufficient funds before and after the gift which confirmed his creditworthiness.
The tribunal confirmed that the SEBI ban on the son of the assessee had been withdrawn and criticized the AO for making additions based on Google’s unverified information. The tribunal upheld the CIT(A)’s order and deleted the addition of Rs. 3 crores as unexplained cash credit. The appeal of the revenue was dismissed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
