In a recent case, the Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) held that a gift received from a Non-Resident Indian ( NRI ) relative is not chargeable to income tax if genuineness is proved.
The assessee/appellant, Abul Wais Abdus Salam, is an individual, proprietor of A-1 Trading Company engaged in the business of trading in plastic granules. He filed his return of income on 01.01.2022 declaring total income of Rs. 19,88,600/-.
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During the assessment, a sum of Rs. 20,00,000/-, received as gift from the non-resident (NRI) brother of the assessee, was added into the income of the assessee by the AO.
Aggrieved, the assessee preferred an application under section 154 of the Income Tax Act (ITA).
To elaborate, Section 154 of ITA is designed to rectify discrepancies and errors in tax records, such as those resulting from mistakes made by Assessing Officers.
However, the order under section 154 ITA was passed on 02.08.2022, rejecting the request for rectification.
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Aggrieved, the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)] against the AO’s order.
The assessee, before CIT (A), submitted that the gift from his brother, who resides at UAE, was out of natural affection.
The passport of the said brother was also provided to prove his identity. Additionally, bank statement of the brother was submitted along with copies of the cheques given by him.
The CIT(A) however, upheld the AO’s order noting that although the assessee proved the donor’s/brother’s identity, he could neither prove the genuineness of the gift, nor the creditworthiness of the donor.
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Aggrieved again, the assessee appealed before the ITAT against the above order.
Before the ITAT, the assessee submitted a 55-page paper book with copies of three cheques issued by the donor, the donor’s passport, and the gift deed.
The assessee claimed that his brother, Mr. Abul Khair Shaikh, an NRI running a laundry business in Dubai for over 25 years, gifted him ₹20,00,000 out of natural love and affection. The gift was made via three cheques from Bank of Baroda and ICICI Bank accounts.
The audit report provided showed the amount as a gift excluded under section 56(2)(x) of the ITA. The assessee also provided the non-resident external bank statement, donor’s passport, investor class visa, and gift deed dated 26.08.2022 to establish the identity, creditworthiness, and genuineness of the gift, arguing it is not taxable income.
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On examining the above submissions of the assessee, the single bench of Mr Prashant Maharishi observed that the assessee had in fact, satisfactorily proved the genuineness of the gift received, as well as the relationship with the donor.
As gifts received from an NRI relative are not chargeable to tax, the tribunal directed the addition of 20,00,000/- made towards the income of the assessee to be deleted.
In result, the appeal was allowed.
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