The Income Tax Appellate Tribunal, Kolkata Bench, in Deb Prasanna Choudhury v. ADIT/DCIT (International Taxation) (ITA No. 2199/KOL/2024), examined the taxability under Section 56(2)(x) of the Income-tax Act, 1961, of monetary gifts received by an individual assessee from his brother-in-law through normal banking channels.

The assessee, a non-resident individual, had filed his return of income for A.Y. 2012–13 declaring total income of ₹20,28,740. During reassessment proceedings initiated under Sections 147/148, the Assessing Officer treated a sum of ₹80 lakh received by the assessee as taxable income from other sources, disputing the validity and genuineness of the gift, inter alia, on the ground that the gift deed was executed abroad and did not bear the signature of the recipient.

In appeal, the CIT(A) granted partial relief but sustained the addition to the extent of ₹55 lakh, holding that the source of funds in the hands of the donor was not satisfactorily explained. Aggrieved, the assessee carried the matter in further appeal before the Tribunal.

The Tribunal noted that the assessee had received the amount from the spouse of his sister, who squarely falls within the definition of “relative” as provided in Explanation to Section 56(2)(x). It was observed that Section 56 does not mandate execution of a gift deed for monetary gifts and that the Gift-tax Act has ceased to operate with effect from 01.10.1998. The Tribunal further noted that the transactions were routed through normal banking channels, supported by NRE bank statements and other documentary evidence.

The Tribunal held that once the relationship between the donor and the recipient is established and the receipt is through banking channels, the amount received from a relative cannot be brought to tax under Section 56(2)(x). It was further observed that any enquiry regarding the source of funds should be directed, if at all, at the donor and not the recipient, particularly when the relationship and receipt are undisputed.

Relying on judicial precedents including Atul H. Patel v. ITO [2022] 138 taxmann.com 454 (Ahmedabad ITAT), the Tribunal concluded that the addition sustained by the CIT(A) was unsustainable. Accordingly, the Tribunal allowed the appeal and directed deletion of the addition made under Section 56(2)(x).

Source- https://itat.gov.in/public/files/upload/1762260663-GQjt89-1-TO.pdf

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