ITAT: Gift from Brother-in-Law Held Genuine and Tax-Free Under Income Tax

A taxpayer received Rs. 80 lakh from his brother-in-law as a gift in his bank account. The tax authority treated this amount as unexplained income; however, the Tribunal ruled that gifts from relatives are exempt, and no formal deed is required. Therefore, the addition was cancelled, and the final decision was announced in favour of the taxpayer.

The appeal has been filed by a taxpayer named Deb Prasanna Choudhury (Appellant), against the ADIT/DCIT (IT)-1(1), Kolkata (Respondent), in the Income Tax Appellate Tribunal (ITAT) Kolkata ‘C’ Bench, Kolkata, before Shri George Mathan (Judicial Member) and Shri Rakesh Mishra (Accountant Member). The case is related to the assessment year 2012-13.

Background of Case:

The assessee is an NRI (Non-resident of India) residing in the UAE. The assessee filed his income tax return (ITR) for the assessment year 2012-13, declaring his total income of Rs. 20.28 lakh. Later, the case was reopened by the Income Tax Department under Section 147, considering the assessee received Rs. 80 lakh in his bank account, which was treated as income by the assessing officer under Section 56(2)(vii) of the Income Tax Act.

Assessee claimed that Rs. 80 lakh was gifted from his brother-in-law via normal banking channels and therefore claimed this amount should not be taxed, since gifts from relatives are not taxable under Section 56 of the Income Tax Act.

Before CIT(A)

Assessee dissatisfied with the action of the assessing officer, then approached the CIT(A). The authority deleted Rs. 50 lakh but upheld an addition of Rs. 55 lakh, saying the gift deed was made outside India (USA). Additionally, it did not bear the recipient’s signature and was made 9 years after the gift. Only the source of Rs. 55 lakh in the donor’s bank account was not properly explained. Hence, CIT(A) treated Rs. 55 lakh as unexplained money and taxable. Meaning, the Commissioner of Income Tax (Appeals) partly allowed the appeal.

Before ITAT:

The assessee was still not satisfied with the ruling of CIT(A) and thereafter filed an appeal in the Income Tax Appellate Tribunal (ITAT), Kolkata. The tribunal noted that the assessee has received the gift from his brother-in-law (relative), which is covered under the definition of “relative” in Section 56 of the Income Tax Act.

• The money was transferred through normal banking channels, and both the donor’s and recipient’s bank statements were submitted.
• No law requires a formal gift deed for exemption under Section 56, especially since the Gift Tax Act was abolished in 1998.
• If there was any issue about the source of the donor’s funds, that could be questioned in the hands of the donor, not the recipient.
• The Tribunal also observed that the Assessing Officer did not object to the documents during the remand stage, even after being given a chance.

Tribunal’s Decision:

In the final decision, the tribunal held that the Rs. 80 lakh gift was genuine and from a relative. The CIT(A)’s ruling of partially upholding the addition made by the assessing officer (AO) was not justified. Hence, the entire addition was deleted, and the appeal was allowed in full. Meaning, the tribunal has announced the decision in favour of the assessee.