2025 (9) TMI 1026 - AT - Income Tax

Addition under s.68 deleted where taxpayer proved cash gift from adult daughter and source satisfactorily explained

ITAT DELHI - AT deleted additions made under s.68 where cash credited as a gift from the assessee's adult daughter was satisfactorily explained. The ... Addition u/s 68 - unexplained cash credit - assessee is an individual and a teacher by profession and engaged in the tuition activity - main grievance of the assessee is that addition made by the AO u/s. 68 on account of gift received by the assessee from her daughter without appreciating the reply and documents submitted during the assessment proceedings - HELD THAT:- As far as during the demonetization period is concerned, only the currency of Rs. 500/- and Rs. 1000/- were scraped leaving the small currency intact. The daughter of the assessee has small savings from last many years, she had only small currency with her, making no direct impact of demonetization. It is also undisputed that her daughter is not a minor, she is 25 years old and in this modern world she is capable to run the saving account by way of her earnings, which is of course below the prescribed limit of assessment, but she is very much capable to gift any amount kept in her saving account to her mother in the form of love and affection. It is also noted that source of transaction is not disputed in this case by the Revenue. Assessee has truly and fully explained the source of transaction which has been received in the form of gift from her daughter in the form of love and affection, who was having sufficient balance in her account at that point of time, therefore, the addition in dispute made in the hands of the assessee is not sustainable in the eyes of law, hence, the same is deserved to be deleted. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the addition of Rs. 3,50,000 made under section 68 as unexplained cash credit was sustainable where the assessee claimed the amount was a gift from her adult daughter and produced bank statements, deposit slips, declaration of gift and cash flow explanation. 2. Whether the Assessing Officer and the first appellate authority correctly rejected the assessee's explanation by relying on inferences about the donor's alleged lack of creditworthiness, pattern of withdrawals/deposits and perceived improbability, without adequately appreciating documentary evidence and the nature of the transaction. 3. Whether evidence of cash deposits in various denominations, contemporaneous bank deposit slips and consistent pattern of maintaining cash-in-hand by the donor can constitute sufficient explanation to discharge the assessee's burden under section 68. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of addition under section 68 where amount claimed to be gift from daughter Legal framework: Section 68 treats unexplained cash credits as income where the assessee fails to satisfactorily explain the nature and source of the credit; when a sum is claimed to be received as gift, the assessee must satisfactorily explain the source and genuineness of the transaction and, where applicable, the capacity of the donor. Precedent Treatment: No judicial precedents were directly cited or relied upon by the authorities in the record; the Tribunal adjudicated on the documentary and factual matrix before it. Interpretation and reasoning: The Tribunal examined the documentary evidence - bank statements, deposit slips (showing denominations deposited on specified dates), declaration of gift and cash flow explanation - and the factual context (donor's age, long-standing practice of keeping cash and making short-term deposits/withdrawals, absence of dispute by Revenue about the source of the transaction). The Tribunal found these materials collectively provided a satisfactory and plausible explanation of the cash credit as a gift from the donor. The AO's contrary inference rested on perceived improbability and an assessment of the donor's creditworthiness from a selective reading of bank balances and withdrawal/deposit pattern, rather than on positive evidence disproving the donor's capacity or the genuineness of the transaction. Ratio vs. Obiter: Ratio - The Tribunal held that contemporaneous bank deposit slips and documentary evidence, together with a plausible explanation about the donor's habitual cash management and adult status, can discharge the assessee's burden under section 68 and render the addition unsustainable. Obiter - Observations about general banking habits during demonetisation and comments on improbability are ancillary and fact-specific. Conclusion: The addition under section 68 of Rs. 3,50,000 was not sustainable; the assessee satisfactorily explained the source and nature of the cash credit as a gift from her adult daughter, therefore the addition was deleted. Issue 2 - Legitimacy of AO/CIT(A) reliance on inferences about donor's creditworthiness and deposit/withdrawal pattern Legal framework: An assessing authority may draw adverse inference where explanations are not credible or supported by evidence; however, adverse inferences must be grounded in material inconsistency, contradiction, or positive evidence showing the alleged source could not have existed. Precedent Treatment: The authorities below relied on factual inferences; no case law was invoked by them in the record before the Tribunal. Interpretation and reasoning: The Tribunal found the AO's and CIT(A)'s conclusions were speculative and based on surmise: (a) emphasis on donor's 'meagre bank balance' ignored contemporaneous deposit slips demonstrating cash deposits in small denominations; (b) inference that a person with sufficient cash would not make frequent deposits/withdrawals failed to account for the donor's stated habitual practice of maintaining cash-in-hand and periodically banking small sums; and (c) assertion that the recipient (assessee) being 'more financially sound' made it improbable to be a donee is an argument from perceived probability, not rebuttal evidence. The Tribunal emphasized that Revenue did not put forth positive evidence disproving the donor's capacity or the genuineness of the gift; mere suspicion and conjecture are insufficient to sustain an addition under section 68. Ratio vs. Obiter: Ratio - Adverse inferences under section 68 cannot rest on conjecture about bank habits or perceived improbability; they require positive material undermining the explanation. Obiter - Commentary on typical banking behavior during demonetisation and its limited relevance to small-denomination cash holdings. Conclusion: The AO and the CIT(A) erred in sustaining the addition by relying on speculative inferences regarding the donor's creditworthiness and deposit/withdrawal patterns; such reasoning did not negate the documentary explanation provided by the assessee. Issue 3 - Sufficiency of contemporaneous documentary evidence (deposit slips, bank statements, gift declaration) to discharge burden under section 68 Legal framework: The assessee must furnish a satisfactory explanation and corroborative evidence (bank records, declarations) to establish the nature and source of cash credits; contemporaneous documents that show the flow of funds and declarations may satisfy this requirement unless convincingly rebutted by Revenue. Precedent Treatment: No authorities were cited; the Tribunal applied the statutory standard to the materials on record. Interpretation and reasoning: The Tribunal treated the bank deposit slips (showing denominations and dates), the bank statement balance as on a prior date, and the gift declaration as coherent documentary proof aligning with the assessee's account of events. The donor's access to small-currency holdings (post-demonetisation logic explained factually) and her adult status were relevant contextual facts supporting the plausibility of the gift. Because Revenue did not present positive evidence contradicting these documents (for example, evidence that the deposit slips were fabricated or that funds originated from an undisclosed source), the documentation was sufficient to discharge the assessee's burden under section 68. Ratio vs. Obiter: Ratio - Contemporaneous bank deposit slips and related documentary evidence, when consistent with the claimed transaction and not positively contradicted by Revenue, can be sufficient to discharge the assessee's onus under section 68. Obiter - Observations about habits of maintaining cash and their interaction with demonetisation are fact-specific and not general propositions of law. Conclusion: The deposit slips, bank statements and gift declaration constituted sufficient evidence to explain the cash credit; absence of rebuttal evidence from Revenue mandated deletion of the addition. Cross-Reference and Outcome Cross-reference: Issues 1-3 are interlinked - the central legal consideration was whether the explanation and documentary evidence met the statutory test under section 68 and whether the Revenue's contrary inferences were supported by positive evidence. The Tribunal concluded that the explanation and contemporaneous documents met the statutory standard and that adverse inferences drawn by the AO and CIT(A) were speculative. Final conclusion: The Tribunal allowed the appeal and deleted the addition of Rs. 3,50,000, holding that the assessee had satisfactorily explained the source and genuineness of the cash credit claimed as a gift from her adult daughter; the assessments under section 68 were therefore unsustainable on the record.