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ITAT Dismisses AO's Addition of Rs3 Crore as Cash Credit for Gift Received from NRI Son
Moneylife Digital Team 12 December 2024
Economy & Nation
Rapping the assessment officer (AO) of the income-tax (I-T) department for relying on information sourced from a Google search and local newspaper reports to make an addition under Section 68 of the I-T Act, the Mumbai bench of the income-tax appellate tribunal (ITAT) dismissed the appeal filed by tax authorities. 
 
In an order on 10 December 2024, the bench of BR Baskaran (accountant member) and Anikesh Banerjee (judicial member) says, "The AO appears to have undertaken verification through online searches and local media reports about the donor, but even these steps did not provide conclusive evidence to challenge the donor's credibility. The actions of the assessee for investing the gifted amount in an Indian company and subsequently receiving and returning the funds to the donor are unrelated to the issue of addition under Section 68 of the Act."
 
The case is related to Rs3 crore received by Mumbai-based Lalita Devi Agarwal from her son Barun Agarwal, a non-resident Indian (NRI), as a gift in two transactions in March 2011. 
 
From the gifted money, Ms Agarwal and her husband gave Rs2.7 crore to Mangalam Vanijya Pvt Ltd as an unsecured loan and also purchased some shares. Mangalam Vanijya repaid some principal and interest. Ms Agarwal transferred the money to her son.
 
Ms Agarwal was a non-tax filer in assessment year (AY)11-12. The case was reopened based on information received from the director of I-T (investigation ) and a notice under Section 148 of the I-T Act was issued to Ms Agarwal. In response to the notice, she filed her tax return on 8 August 2018, declaring an income of Rs18,840. During the reassessment proceeding, the AO asked about the genuineness of the transaction related to the Rs3 crore gift received by the assessee from her son.  
 
Finally, the assessment was framed under Section 144 of the I-T Act and the AO added Rs3 crore as unexplained cash credit under Section 68 of the Act for the absence of creditworthiness of the donor, i.e., the son of Ms Agarwal.
 
Aggrieved by the addition, Ms Agarwal challenged the assessment order before the commissioner of I-T (appeals) (CIT(A)). On appeal, the CIT(A) decided the issue favouring Ms Agarwal. Aggrieved by the appellate order, the tax department filed an appeal before the ITAT, Mumbai.
 
The bench observed that Ms Agarwal submitted documents related to the gift, including a declaration of gift and the bank transfer, which established that Barun Agarwal, the donor, had sufficient funds to make the gift to his mother. 
 
Concerning the Securities and Exchange Board of India (SEBI) guidelines referred by the tax department, counsel for Ms Agarwal submitted that the SEBI order imposing the alleged ban was duly withdrawn. 
 
Despite this, the Tribunal says, "...for making the addition, the AO primarily relied on information sourced from a Google search and local newspaper reports, without conducting any cross-verification or independent inquiry to substantiate the claims. The addition appears to have been made in a baseless manner, solely relying on unverified newspaper reports." 
 
"Notably, the evidence provided by Ms Agarwal is not rebutted or discredited by the AO. The genuineness of the gift has not been questioned, and the donor's financial capacity to provide the gift was sufficiently demonstrated. The donor's bank account showed adequate funds at the time of executing the gift, thereby establishing creditworthiness," it says.
 
While dismissing the appeal, the ITAT bench says the tax department could not provide any evidence or bring forth any material to contradict the submissions of Ms Agarwal. "Upon review, we find no infirmity in the appellate order under challenge."
 
(I-T A No500/Mum/2024 Date: 2 December 2024) 
 
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