Man deposits Rs 85.3 lakh given to him as cash gifts, gets notice; ITAT gives relief

In a recent case in Chennai, a man received a substantial amount of cash gifts worth Rs 85.03 lakh from his relatives. When the Income Tax Department discovered this, it sent tax notices to the man and his relatives, questioning the source of the unexplained cash. The man responded by formalising the gifts through gift deeds and depositing the money into his bank account.

He provided copies of the gift deeds, income tax returns, and financial statements of his relatives as proof. However, the Income Tax Assessing Officer initially doubted the donors' ability to afford such large gifts, leading to an addition of the entire Rs 85.03 lakh to the man's taxable income.

The man challenged this assessment in the Income Tax Appellate Tribunal (ITAT) Chennai, arguing that the tax department should have conducted a proper enquiry into the donors' financial capacity instead of simply assuming it was unexplained. The ITAT Chennai sided with the man, stating that unless specifically required by law, an assessee should not have to prove the source of funds in the hands of a creditor.

The tribunal noted that the donors had already acknowledged the gifts in their financial statements, and the Income Tax Department had not presented any evidence proving the money had originated from the man himself. SARTHAK PRASAR, a director at Grant Thornton Bharat, noted that the man won the case because he provided sufficient evidence to establish the legitimacy of the transactions and the donors' financial position.