Alimony Received on Divorce is not Unexplained Cash Credit u/s 68, not Taxable u/s115BBE: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Raipur Bench, has recently held that alimony received on divorce is not unexplained cash credit under Section 68, and that the same is not taxable under Section 115BBE of Income Tax Act, 1961.

The aforesaid observation was made by the Raipur ITAT when an appeal was preferred before it by the assessee, as directed against the order passed by the Pr. Commissioner of Income Tax, Raipur (Pr. CIT) under Section 263 of the Income Tax Act, 1961, which in turn arises from the order passed by the A.O. under Section 143(3), for A.Y. 2017-18.

The ground of the assessee’s appeal being that the order passed under Section 263 of the Income Tax Act is unsustainable, being passed without properly appreciating the facts and evidence on record, the brief facts of the case were that the case of the assessee was selected for scrutiny assessment under CASS, in order to verify substantial cash deposits made in her bank account during the demonetization period.

During the course of assessment proceedings, it was observed by the A.O that the assessee, who was working as a bank employee since 1991 with Chhattisgarh Rajya Gramin Bank, had obtained a decree of divorce from the Family Court, Rajnandgaon, and that the assessee had received deposits from her ex-husband in her bank account during the year under consideration.

On being called upon to put forth an explanation as regards the source of the aforesaid deposits, it was submitted by the assessee that the said amount was received during the year under consideration in her bank account, from her ex-husband in consequence of her divorce.

The A.O holding a conviction that the amount of receipt could not be held as alimony, as the same would have otherwise either been a periodic receipt or a combination of both, thus concluded that the amount being in the nature of a revenue receipt, was liable to be brought to tax in her hands.

Subsequently, the Pr. CIT after the culmination of the assessment proceedings that were framed by the A.O vide his order passed under Section 143(3) of the Income Tax Act dated 30.11.2019 called for the records of the assessee and was of the view that the A.O had erred in not treating both the aforesaid additions as unexplained credits under Section 68 of the Income Tax Act, and subjecting the same to tax in her hands under Section 115BBE.

Accordingly, the Pr. CIT vide his order passed under Section 263 of the Income Tax Act held the order passed by the A.O, as erroneous in so far it was prejudicial to the interest of the revenue and directed the A.O to frame a fresh assessment, after affording a reasonable opportunity of being heard to the assessee. And it is being aggrieved by this order of the Pr CIT, that the assessee has preferred the instant appeal before the Raipur ITAT.

Hearing the opposing contentions of both sides as presented by Shri R.B Doshi, CA, on behalf of the assessee, and Smt. Ila M Parmar, the CIT-DR, on behalf of the Revenue, as well as perusing the materials available on record, the ITAT coram of Arun Khodpia, the Accountant Member, and Ravish Sood, the Judicial Member, held:

“We, thus, in terms of our aforesaid deliberations modify the order passed by the Pr. CIT under Section. 263 of the Act dated 02.03.2022, and therein restrict the setting aside of the order passed by the A.O under Section. 143(3) dated 30.11.2019 by him for the limited purpose of verifying the veracity as regards the nature and source of the respective receipts by the assessee.”

“In case the A.O finds the claim of the assessee as regards the nature and source of the aforesaid receipts in order, then no modification of the order passed by him under Section.143(3) dated 30.11.2019 shall be carried out. At the same time, in case the explanation of the assessee as regards the nature and source of the aforesaid receipts is found to be incorrect, then the aforementioned receipts shall be held as unexplained cash credits under Section 68 of the Income Tax Act and brought to tax by triggering the provisions of Section 115BBE. Thus, the Ground of appeal raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations”, the Raipur ITAT concluded.

To Read the full text of the Order CLICK HERE

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