Absence of Formal Gift Deed does not render Transaction Unexplained u/s 69 of Income Tax Act: ITAT [Read Order]

A Division Bench of the Income Tax Appellate Tribunal (ITAT), Mumbai, has held that the absence of a formal gift deed cannot, by itself, render a transaction unexplained under Section 69 of the Income Tax Act, 1961, when the source of funds is duly established through documentary evidence and banking records.

The appeal was filed by the assessee challenging the addition of ₹1.10 crore made by the Assessing Officer (AO) under Section 69 of the Income Tax Act by treating the investment made towards the purchase of an immovable property as unexplained investment taxable under Section 115BBE of the Income Tax Act.

During the assessment proceedings, the assessee explained that she was a homemaker with no independent source of income and that the entire consideration for the purchase of the property had been paid directly by her father from his own bank account. In support of her claim, she furnished the registered sale deed, her father’s bank statements, and complete details evidencing the payments made to the seller.

The AO, however, rejected the explanation on the ground that although the father's bank statement had been furnished, the source of credits appearing in his bank account had not been explained. The AO also noted that no formal gift deed had been produced to substantiate the transfer of funds. On this basis, the AO concluded that the source of investment remained unexplained and consequently made an addition of ₹1.10 crores under Section 69 of the Income Tax Act.

Examining the facts of the case, the Tribunal found that the entire transaction was supported by documentary evidence and a clear banking trail demonstrating that the payments had been made directly by the assessee’s father to the seller of the property.

The Bench comprising Amit Shukla, Judicial Member and Prabhash Shankar, Accountant Member observed "Here, the transaction is fully corroborated by banking records, direct transfer of funds to the seller and documentary evidence placed before the Assessing Officer himself. Once the payment trail stood duly established and the source of payment was identified, then absence of a formal gift deed by itself could not render the transaction unexplained or ingenuine. The entire addition, therefore, has been made merely on surmises and presumptions without any legally sustainable basis."

The Tribunal further noted that the explanation offered by the assessee had been rejected on wholly flimsy and hyper-technical grounds despite the availability of substantial evidence establishing the source of funds and the genuineness of the transaction. While deleting the addition in its entirety, the Bench observed that remanding the matter for fresh proceedings would serve no useful purpose and would only prolong unnecessary hardship to the assessee, a homemaker with no independent source of livelihood.

Accordingly, the Tribunal held that where the source of investment is satisfactorily explained through documentary evidence and identifiable banking transactions, the absence of a formal gift deed cannot be the sole basis for invoking Section 69 of the Income Tax Act and treating the investment as unexplained.

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