2024 (12) TMI 909 - AT - Income Tax

Unexplained credit u/s. 68 - difference in the cost of shares donated by the assessee s relative to assessee and that recorded at fair market value by the assessee - HELD THAT - We notice that the assessee received the gift of shares from the brother of her spouse, who is a relative in terms of explanation (a) attached to the proviso to clause (xiii) r/w explanation to clause (vii) of section 56(2) of the Act. The gifted shares were recorded by the assessee in her account exhibiting the cost of gifted shares at fair market value @ Rs. 7,76,25,000/-. Such a gift is wholly exempt u/s. 56(2)(X) of the Act. The aforesaid issue is accordingly determined in negative against the revenue and in favour of the assessee. AO is directed to delete the said addition - Assessee s appeal is allowed.

Summary

Issues:
- Whether the difference in the cost of shares donated by the relative and recorded at fair market value by the assessee should be treated as unexplained credit under section 68 of the Income-Tax Act.

Analysis:
1. The appeal was filed against an order passed by the Commissioner of Income-tax (Appeals) dismissing the assessee's appeal for the assessment year 2018-19. The case involved a substantial increase in capital due to a gift of equity shares. The assessing officer added the difference in the cost of shares received by the assessee as unexplained credit under section 68 of the Act, which was contested by the assessee in the appeal.

2. The appellant argued that the difference in the cost of shares gifted by a relative and recorded at fair market value by the assessee should not be treated as unexplained credit. The shares were gifted by the brother of the assessee's spouse and were wholly exempt under section 56(2)(X) of the Act. The assessing officer's addition was based on a misunderstanding of the nature of the gift and its tax treatment.

3. The Tribunal examined the facts and legal provisions related to the gift of shares. It was established that the gifted shares were exempt from tax as they were received from a relative. The assessing officer's decision to treat the difference in the cost of shares as unexplained credit was found to be incorrect. The Tribunal referred to relevant case law to support its conclusion that no profit or gain arises on the receipt of such gifts from relatives.

4. The Tribunal noted that the assessee had not sold the gifted shares during the relevant year. The decision of the Commissioner of Income-tax (Appeals) was overturned, and the addition made by the assessing officer was directed to be deleted. The Tribunal emphasized that the gifted shares were recorded at fair market value and were wholly exempt under the Act.

5. In conclusion, the Tribunal allowed the assessee's appeal, determining the issue in favor of the assessee and against the revenue department. The assessing officer was instructed to delete the addition made based on the difference in the cost of shares received as a gift. The judgment was pronounced on 16.12.2024.