2010 (10) TMI 322 - AT - Income Tax

Addition on account of gifts - gifts from the relatives received out of maturity proceeds of 10% RBI Relief Bonds 1995 - after retiring from partnership firms he worked for some time as marketing executive and thereafter he was doing free lancing at a monthly income of Rs. 6,000/- to Rs. 7,000/- per month till the year 2000. Thereafter he had joined M/s.Set India Pvt. Ltd. as Web Designer at annual package of Rs.2.25 lacs which was raised to Rs. 4 lacs in the year 2005 in which year he joined M/s. Credance Analytics Pvt. Ltd. at annual package of Rs.4.25 lacs - genuineness of gifts cannot be doubted - plea of the revenue that the gifted amount is the accumulated income of the assessee in the name of donors and had been gifted to him as per his suggestion, the amount could not be taxed as the source is explained - income of the assessee if at all diverted to the donors, related to the years prior to 1992 and could be taxed only in these years - Decided in favor of the assessee

Summary

Issues:
Addition of Rs. 3,90,000 on account of gifts.

Analysis:
The case involved a dispute over the addition of Rs. 3,90,000 as gifts received by the assessee from three relatives. The Assessing Officer (AO) raised concerns about the genuineness of the gifts, noting the financial status of the donors and the unusual nature of the gifts. The AO suspected that the gifts were actually the assessee's own income transferred back in the guise of gifts. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, leading the assessee to appeal to the tribunal.

The assessee argued that the donors, who were close relatives and former partners in the assessee's business, had given the gifts out of the maturity value of RBI Bonds. The donors had been helped by the assessee during difficult times, and the gifts were a gesture of gratitude. The assessee contended that the financial conditions of the donors had improved over time, as evidenced by one donor's career progression. The assessee maintained that the gifts were genuine and not the assessee's own money recycled as gifts.

Upon careful consideration, the tribunal found that the gifts were indeed genuine. The tribunal noted that it was not uncommon for close relatives to exchange gifts out of natural love and affection. The tribunal accepted the explanation provided by the assessee regarding the source of the gifts and the improved financial status of the donors. Even if the gifts were considered as the assessee's accumulated income in the donors' names, the tribunal ruled that the amount could not be taxed as the source was explained. The tribunal concluded that the addition on account of gifts was unwarranted and deleted the addition.

In summary, the tribunal ruled in favor of the assessee, holding that the addition of Rs. 3,90,000 on account of gifts was unjustified. The tribunal found the gifts to be genuine, exchanged out of natural affection, and supported by the improved financial status of the donors. The tribunal emphasized the importance of considering the facts and circumstances of the case in determining the genuineness of gifts and upheld the assessee's appeal against the CIT(A)'s decision.