2016 (5) TMI 26 - AT - Income Tax

Addition on account of gift - Held that - The provision of section 56(2)(v) has been amended by inserting clause(v) by Finance Act, 2004 and the same was applicable on the transactions taken place between 01.09.04 to 01.04.06 wherein in the present case the transaction had taken much before the said time i.e. on 02.07.04 therefore amendment provision of section 56(2)(v) are prospective in nature and not retrospective in nature and thus are applicable w.e.f. 1.09.04. Ld. CIT(A) has applied the amended provision with retrospective effect. This interpretation of CIT(A) is improper and bad in law and is thus unsustainable. Further as per the facts of the present case a sum of 2, 00, 000/- were delivered as gift by Jitesh Mehta to the assessee through account payee cheque and the said amount has been credited in the account of the assessee which means that the gift amount was transferred by Jitesh Mehta to the assessee and the same was also accepted by the assessee. There is no pre condition in section 122 or123 of Transfer of Property Act which defines gift that the donor or donee should be related to each other. However in the Income Tax Act there was an amendment in section 56(2)(v) which was brought into effect by Finance Act 2004 and was effective from 1st September 2004. However in the present case the gift was received before the amendment provision come on to the statute books i.e. 02.07.2004 therefore amended provisions are not applicable to the facts of the case. And even otherwise as per the facts brought out on the record Shri Jitesh Mehta was having friendly relation with the assessee therefore he was competent to give the said amount by way of gift to the asessee. Thus we direct the AO to delete the addition. - Decided in favour of assessee

Summary

Issues Involved:
1. Addition of ?2,00,000 received as gift during F.Y. 2004-05 as unexplained cash credit.
2. Applicability of provisions of S.56(2)(v) as amended by Finance Act, 2004.

Analysis:
1. Issue 1 - Addition of ?2,00,000 as unexplained cash credit:
The appellant contested the addition of ?2,00,000 received as a gift, arguing that it was a genuine gift from a close family friend. The appellant provided evidence such as a confirmation letter from the donor, bank statements, and income tax return copy to support the claim. The appellant highlighted the long-standing friendship between the donor and the donee, both being from the same native place. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld the addition, questioning the donor's capacity to gift such a substantial amount based on his salary. The CIT(A) deemed the gift unexplained and upheld the addition. However, the Tribunal found that the provision of section 56(2)(v) was not applicable in this case as the transaction occurred before the amendment came into effect. The Tribunal directed the Assessing Officer (AO) to delete the addition, considering the facts and law provisions.

2. Issue 2 - Applicability of provisions of S.56(2)(v):
The Tribunal analyzed the applicability of section 56(2)(v) of the Income Tax Act, as amended by the Finance Act, 2004. The Tribunal noted that the amendment was effective from 1st September 2004, while the gift in question was received on 2nd July 2004, making the amended provisions not applicable. The Tribunal emphasized that the relationship between the donor and donee was not a prerequisite for a gift under the Transfer of Property Act. The Tribunal concluded that the CIT(A) incorrectly applied the amended provision retrospectively, leading to an unsustainable decision. The Tribunal allowed the appeal, directing the AO to delete the addition.

3. General Ground:
The third ground of appeal was of a general nature and did not require separate adjudication in light of the decisions made on the previous grounds.

In conclusion, the Tribunal allowed the appeal, directing the AO to delete the addition of ?2,00,000 as unexplained cash credit, based on the inapplicability of the amended provision of section 56(2)(v) and the established friendly relationship between the donor and the donee.