Cash Gift on Marriage Anniversary Backfires: ITAT Confirms Tax Addition

The ITAT partly allowed the Revenue’s appeal against Varun Manchanda, sustaining the Rs. 10.44 lakh cash-gift addition but deleting the additions for Rs. 29.54 lakh credit-card payments and Rs. 1.51 crore received as advance for the sale of agricultural land.

The Present appeal has been filed by ITO against Varun Manchanda in the ITAT Delhi, challenging the order dated February 11, 2025, passed by CIT(A) u/s 250 of the Income Tax Act, 1961.

The assessee filed his income tax return for AY 2021-22, declaring an income of Rs. 526,990. The case was selected for scrutiny mainly because he had claimed a large amount of exempt income. During the assessment, the AO made three additions to his income.

First Addition: Cash Gifts u/s 56(2) Rs. 10,43,998

The first matter relates to an amount of Rs. 10.43 lakh shown as cash gifts, allegedly received by the assessee from family members on the occasion of his 10th marriage anniversary. However, AO asked him to provide more details, like the names of the people who gave the gifts, their relationship with him, PAN details, and the amount given by each person. According to AO, he did not provide the required details; as a result, AO treated the entire amount as taxable income under the law related to gifts (Section 56(2)(x)).

Later, CIT(A) accepted the assessee’s argument that gifts from relatives are exempt from tax. However, it was notjustified in deleting the same in the absence of required details. But when the matter went to the Tribunal, the Tribunal agreed with the AO and held that the amount was correctly added to the assessee’s income.

Second Addition: Credit card bill payment Rs. 29,54,493

The second matter relates to payments made by the assessee of Rs 29,54,493 towards credit card bills through ICICI Bank, Kotak Mahindra Bank, and HDFC Bank. The AO observed that the payments were actually made by M/s Limestone Developers India Private Limited on behalf of the assessee, but the assessee did not clearly explain his relationship with the company or why the company made those payments for him. As a result, AO treated this amount as an unexplained expenditure under Section 69C and added it to the income.

The assessee challenged this addition before the CIT(A). However, CIT(A) was satisfied that the source of payment was properly explained and therefore deleted the addition.

The assessee then approached the tribunal, and during the hearing, the tribunal held that the credit card payments were properly explained and that the addition made by the AO had no basis. Accordingly, the addition was deleted, and the Revenue’s appeal on this issue was dismissed.

Third Addition: Claim of exempt income of agricultural land of Rs. 1,51,00,000.

The third matter relates to an amount of Rs. 1,51,00,000 shown by the assessee in his income tax return as exempt income. The agreement for the sale of this land was signed on March 06, 2018, between the assessee and buyers, Shri Sushil Kumar and Smt Seema Sushil Kumar. As per the agreement, the total sale price of the land was Rs. 2,21,00,000 out of which Rs. 1,51,00,000 was received in March 2018 as an advance. The AO treated this advance amount as income from other sources and added it to the taxable income of the assessee. The CIT(A) examined the agreement and found that the land was clearly agricultural land located about 20 km away from the Sub-District Headquarters at Abohar, Punjab. As a result, the CIT(A) deleted the addition.

The Revenue was not satisfied with this decision and filed an appeal before the Tribunal. The Tribunal concluded that the amount received was simply an advance for the sale of agricultural land during the financial year 2017-18. Because the land was not a capital asset under the law, the transaction did not attract capital gains tax and was therefore not taxable.

Accordingly, the Tribunal agreed with the CIT(A)’s decision and upheld the deletion of the addition of Rs. 1,51,00,000. The Revenue’s appeal on this issue was therefore dismissed. As a result, the appeal of the revenue is partly allowed.