Summary of this article
ITAT Jaipur deleted tax addition on a cash gift.
Valid notarised gift deeds act as strong legal evidence.
Taxpayers must prove cash gift genuineness using paper trails.
Giving gifts to friends and family during the festive season is a cultural practice. Many, however, also give cash gifts to their loved ones during this time. However not knowing about the tax norms associated with receiving such cash gifts can lead to the income tax department scrutinising these gifts.
As such, keeping a proper record is essential if one wants to stay away from unwanted tax demands. A recent order by the Income Tax Appellate Tribunal (ITAT) in Jaipur also highlights the importance of maintaining proper documentation for cash gifts received from family members.
What Happened In The Case
The legal dispute began when Jhutha Ram, a taxpayer from Jaipur, did not file his income tax return (ITR) for the assessment year 2012-13. The tax department received information that he invested Rs 20,23,778 in immovable property and deposited Rs 13,04,900 cash in his bank account.
Acting on this information, the Income Tax Department reopened the assessment by issuing a notice in March 2019. The taxpayer then filed his ITR in December 2019 and admitted an income of Rs 2,14,997. The assessing officer added both the property investment and the bank cash deposit to his taxable income as unexplained money.
However, the taxpayer filed an appeal before the Commissioner of Income Tax (CIT), who deleted the property addition. But the appellate authority confirmed the addition of the cash deposit. The taxpayer then decided to challenge this decision before ITAT Jaipur.
During the hearings, the taxpayer argued that the cash deposit was a legitimate gift. The counsel representing the taxpayer highlighted the exact amount and the date of the transaction.
“Assessee has received a cash gift of Rs 16 lakh from his mother on 02.02.2012,” the taxpayer’s counsel said.
The taxpayer’s lawyer further clarified that his mother had raised the money by selling her old jewellery, valued at Rs 18,36,230 in March 2011. However, previously, the AO had rejected this explanation because the sale invoice lacked an itemised list of the sold ornaments. The taxpayer’s representative responded to the tax officer by explaining that it was a common industry practice to only show the total weight of the jewellery was shown instead of an itemised list.
“It is customary in the jewellery trade that in the sale of old jewellery, only the total weight is shown and no separate specification of items are given in the invoice,” the counsel said.
The tribunal reviewed the evidence, which also included a notarised gift deed. The tribunal noted that a gift from a mother falls under the definition of a relative according to Section 2(41) of the Income-tax Act, 1961. ITAT Jaipur concluded that the transaction was genuine because of the strong documentary evidence.
“Assesee’s mother in her old age gifted part of the amount from sale of her gold jewellery given as gift to the assessee, which cannot be doubted, since the same is supported by valid notarized Gift Deed,” ITAT Jaipur said.
Ultimately the tribunal ordered the deletion of the tax addition.
What ITAT’s Ruling Means For Taxpayers
The ITAT ruling underscores the importance of maintaining a paper trail of the cash gifts you receive. While income tax laws exempt gifts received from specified relatives, the burden of proving the genuineness of the transaction ultimately lies with the taxpayer. Thus, taxpayers have to ensure that they have a clear paper trail connecting the funds to the relative.
Additionally, a properly drafted and notarised gift deed signed by witnesses adds legal weight to the transaction and serves as strong evidence in court, if a taxpayer is brought to court due to the Income Tax Department’s scrutiny.
If the person giving the gift raised the cash by selling personal assets, having the sale invoices and valuation reports is also useful. The ruling shows that tax officers cannot arbitrarily reject a valid explanation if it is backed by a valid paper trail. Thus, it is important to keep proper documentation to avoid the Income Tax Department from seeing your cash gift as unexplained income.
