2022 (8) TMI 742 - AT - Income Tax

Addition u/s 68 - gift received from mother-in-law - HELD THAT - Once the identity and creditworthiness of the donor is established and the gift deed was duly furnished and nothing wrong has been found except the variance in the dates mentioned in the gift deed and the amount reflected in the Bank statement which is due to delay in presentation for clearance etc., the assessee, in our opinion, has established all the 3 ingredients of provisions of section 68 i.e. identity and capacity of the creditor/donor and the genuineness of the transaction. Once the gift is treated as genuine, it is immaterial what the assessee does with that money thereafter. So far as the allegation of the learned CIT (A) that the assessee did not furnish the details of the person to whom the transfer is made is concerned, we find she is a Partner in Shree Packaging Corporation which fact has been admitted by the learned CIT (A) in her order. Since the assessee in the instant case has provided the identify and creditworthiness of the donor and the genuineness of the transaction, therefore, the addition made by the Assessing Officer and sustained by the learned CIT (A) received as gift from her mother-in-law, in our opinion, cannot be sustained. Accordingly, the order of the learned CIT (A) on this issue is set aside and the grounds raised by the assessee are allowed. Addition being the share of profit earned by the assessee from the partnership firm - Share of profit is exempt u/s 10(2A) of the I.T. Act and it cannot be added to the total income of the assessee. Therefore, the order of the learned CIT (A) sustaining the addition being the share of profit from the partnership firm being not in accordance with law is set aside and the Assessing Officer is directed to delete the addition. Appeal of assessee allowed.

Summary

Issues Involved:
1. Addition of Rs. 1,00,00,000/- as gift received from mother-in-law.
2. Addition of Rs. 1,00,419/- as share of profit from partnership firm.

Issue-wise Detailed Analysis:

1. Addition of Rs. 1,00,00,000/- as Gift Received from Mother-in-Law:
The assessee, a Non-Resident Indian, filed her return of income for A.Y. 2016-17 declaring an income of Rs. 1,27,330/- and claimed exempt income of Rs. 1,01,00,419/-. The case was selected for scrutiny, and the Assessing Officer (AO) issued statutory notices under section 143(2), but received no response from the assessee. Consequently, the AO completed the assessment under section 144, adding the claimed exempt income to the total income.

The assessee contended before the CIT (A) that the exempt income included Rs. 1 crore received as a gift from her mother-in-law, Smt. Nirmala Jayanarayan Rathi, and Rs. 1,00,419/- as share of profit from a partnership firm. The CIT (A) called for a remand report and, after considering the reports and additional submissions, dismissed the appeal. The CIT (A) doubted the genuineness of the gift, citing discrepancies in the dates mentioned in the gift deed and bank statements, and the immediate transfer of the gifted amount to another individual without explaining the purpose.

The Tribunal found merit in the assessee's argument that the identity and creditworthiness of the donor were established, and the gift deed was duly furnished. The Tribunal noted that minor discrepancies in dates due to delays in cheque presentation should not invalidate the gift. The Tribunal emphasized that once the gift is established as genuine, the subsequent use of the money is immaterial. Therefore, the addition of Rs. 1 crore by the AO and sustained by the CIT (A) was not justified and was set aside.

2. Addition of Rs. 1,00,419/- as Share of Profit from Partnership Firm:
The assessee also claimed Rs. 1,00,419/- as exempt income being her share of profit from the partnership firm, Shree Packaging Corporation. The CIT (A) sustained the addition made by the AO without assigning specific reasons, merely stating the transaction was contrived.

The Tribunal held that the share of profit from a partnership firm is exempt under section 10(2A) of the I.T. Act. Since this income is statutorily exempt, it cannot be added to the total income of the assessee. Therefore, the addition of Rs. 1,00,419/- was not in accordance with the law and was directed to be deleted.

Conclusion:
The appeal filed by the assessee was allowed. The Tribunal set aside the additions made by the AO and sustained by the CIT (A) regarding both the Rs. 1 crore gift and the Rs. 1,00,419/- share of profit from the partnership firm. The judgment emphasized the importance of establishing the identity, creditworthiness, and genuineness of transactions, and upheld the statutory exemptions provided under the I.T. Act.