By TIOL News Service

HYDERABAD, MARCH 19, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether receipt of gift by a family relative can be taxed as unexplained cash credits u/s 68, when the identity & relationship of donor along with the source was sufficiently explained by uncontroverted material. NO IS THE VERDICT.

Facts of the case:

The Assessee is an individual. During the relevant year, a search proceeding was carried out in the group entities of M/s. Ambience Property Private Ltd. As the assessee happens to be a Director of one of the group companies, namely, M/s. Dakshin Shelters Private Limited, a search took place at his residence also. Since the assessee had not filed any return prior to the search, the proceedings u/s 153-A were initiated against the assessee. Pursuent to the same, the assessee had filed his return for a total income of Rs.43,809/- for the A.Y 2006-07. The AO however did not accept the return, and issued a notice proposing to make certain additions to the income of assessee, on account of Gift of Rs.73,00,000/- received by assessee by his maternal aunt Smt. Mikkilineni Nirmala. When the Assessee approached the Tribunal, the addition of Rs.73,00,000/- as unexplained cash credit u/s 68 was upheld by holding that there should be sufficient reasons for receiving gifts though it was from mother's sister and the gift was covered by the provisions of Section 56.

High Court held that,

++ the provisions of Section 68 which deals with cash credits laid down that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of AO satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. This provision could be pressed into service where the assessee offers no explanation. However, in the present case, Section 68 is not attracted for the reason that the assessee has offered an explanation supported by uncontroverted material showing transfer of amount from the daughter of assessee's maternal aunt and the latter in turn transferring the money to assessee. In the instant case, though the AO has stated as a general proposition of law that creditworthiness and identity of the donor and the genuineness of the gift, apart from establishing the occasion are relevant, no specific finding was rendered by him that the assessee has not established the identity and relationship of the donor with him. The AO has primarily misdirected himself in thinking that the main ingredient for a valid gift is proof of existence of occasion. This demonstrably is a flawed reason as the same is in the teeth of Section 56(2)(v)(a) of the Act. The further observation of AO that the assessee appeared to have opened the bank account only for the purpose of receiving cash in the guise of a gift, is also flimsy. When the donor herself has given a confirmation letter clearly stating therein that she has transferred the amount of Rs.73,00,000/- to the account of the assessee and further declaring that she gave the said gift out of her natural love and affection towards her nephew, the AO ought not to have entertained further doubts. If for facilitating receipt of a gift, the assessee has opened an account, there is nothing wrong in that;

++ the findings of the CIT(A) that gifts are traditional in nature, that they are given in functions like marriages etc., that there was no such occasion warranting receipt of gift from Nirmala to the assessee, and that it is very odd to note that the entire amount received from her daughter has been diverted to assessee as a gift without any consideration, look to be empty sermons as the CIT(A) evidently judged the conduct of the parties from his personal perception, which is wholly impermissible. When the documents filed by assessee clinchingly establish that the donor's daughter, an NRI with independent source of income, transferred the money from her bank account to her mother's account and the latter in turn has transferred the money to the assessee, there is no justification for the AO to doubt the authenticity of these documents. If he had any such doubts, he should have referred those documents to the ING Vysya Bank, whose statements of account were filed by the assessee, to get their authenticity confirmed. No such effort was made by the AO.

(See 2018-TIOL-476-HC-AP-IT)