ITAT Overrules CIT(A), Declares Gifted Shares Exempt from Unexplained Credit Under Income-Tax Act Section 68.

The ITAT ruled in favor of the assessee, overturning the CIT(A)'s decision. The Tribunal determined that the difference in the cost of shares gifted by a relative, recorded at fair market value, should not be treated as unexplained credit under section 68 of the Income-Tax Act. The shares were exempt under section 56(2)(X), and the AO's addition was deemed incorrect. The Tribunal instructed the AO to delete the addition, emphasizing that the shares were properly recorded and exempt. The appeal was allowed, resolving the issue against the revenue department.

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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.

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