Income Tax Tribunal exempts NRI gift from taxation due to proven genuineness

• The ITAT ruled that the Rs 20 lakh gift was legitimately exempt under Section 56(2)(x) of the Income Tax Act, as gifts from relatives are not taxable

• As a result, the tribunal directed the Assessing Officer to delete the Rs 20 lakh addition and allowed the taxpayer’s appeal

• This decision underscores the importance of verifying the genuineness of gifts and the relationships involved to ensure accurate tax assessments

PRAVASISAMWAD.COM

The Income Tax Appellate Tribunal (ITAT) recently ruled that a gift of Rs 20 lakh received by a taxpayer from his Non-Resident Indian (NRI) brother is exempt from taxation. The Mumbai bench, comprising Accountant Member Prashant Maharishi, directed the Assessing Officer to remove the Rs 20 lakh from the taxpayer’s total income, citing the genuineness of the gift and the donor’s close familial relationship with the recipient.

The tribunal’s decision, dated August 16, clarified that gifts received from a brother fall under the category of tax-exempt gifts when the recipient can prove the identity, creditworthiness, and genuineness of the donor. “A gift from a brother is not chargeable to tax for the recipient, provided the relationship is established and the gift is genuine,” the ITAT noted. Despite this, the lower authorities had previously included the amount in the taxpayer’s total income, prompting the tribunal to intervene and instruct the deletion of the addition.

The tribunal also found that the donor and the taxpayer were indeed real brothers, as indicated by their shared father’s name. Additionally, the ITAT pointed out that the taxpayer had already disclosed Rs 40,500 as income from other sources, which had been erroneously added again by the CPC

The case came before the ITAT following an appeal by the taxpayer against the order of the National Faceless Appeal Centre (NFAC) for the Assessment Year 2021-22. The NFAC had dismissed the taxpayer’s appeal against a rectification order passed by the Central Processing Centre (CPC), which had included the Rs 20 lakh gift in the taxpayer’s income calculation.

The taxpayer, a trader of plastic granules, had originally declared an income of Rs 19.88 lakh in his Income Tax returns filed in January 2022. However, the CPC recalculated his income at Rs 40.29 lakh, which included Rs 39.88 lakh as business income and Rs 40,500 as income from other sources. The CPC added the Rs 20 lakh gift from the taxpayer’s NRI brother to the total income, leading to the taxpayer’s appeal for rectification under Section 154 of the Income Tax Act.

The NFAC dismissed the appeal, raising doubts about the donor’s creditworthiness and the genuineness of the gift. This prompted the taxpayer to approach the ITAT. Upon reviewing the documents, including the cheques issued from the donor brother’s NRE Savings Bank Account, the ITAT confirmed the gift’s creditworthiness. The tribunal also found that the donor and the taxpayer were indeed real brothers, as indicated by their shared father’s name. Additionally, the ITAT pointed out that the taxpayer had already disclosed Rs 40,500 as income from other sources, which had been erroneously added again by the CPC.

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