Question And Answer
Subject: Section 68 of Income Tax Act
Querist: Manoj Jain
Answered by:
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Date: May 21, 2022
Query asked by Manoj Jain

In the F.Y 2019-2020, assessee received gift of Rs. 1 crores from his grandfather by account payee cheque and supported by proper gift deed. Grandfather is assessed to tax regularly and had income of Rs. 5,00,000/- for the F.Y 2019-2020 which comprises of income from House Property and interest.

During the course of assessment proceedings, assessing officer issued a show cause to the assessee asking him as to why the addition u/s 68 of the Act should not be made in respect of receipt of gift from the grandfather as grandfather had only income of Rs.5,00,000/-. Assessee submitted the affidavit of the grandfather giving the explanation that even though the income of Rs. 5,00,000/-, he had collected his deposits which he has given in the earlier years and given the gift out of said funds. Further, he has also submitted the balance sheet for the preceding 3 years which indicates that his capital account is more than Rs. 1.5 crores in each of the said years.

The AO issued summons to the grandfather, however, he did not appear before the AO.

The AO therefore made an addition u/s 68 in hands of the individual amounting to Rs. 1 crores on the ground that grandfather does not have proper source and has not appeared before the AO.

Is the action of AO legally justified?

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Mere filing an affidavit is not sufficient to prove the creditworthiness of the grand father .Grand father should have appeared before the Assessing Officer in response to summons issued by the Assessing Officer. It may be desirable to get the third party confirmation or affidavit and make an application for filing for additional evidence before CIT(A) as per rule 46A. It may be desirable for the grand father to file an letter or affidavit explaining the reasons for not appearing in response to summons and willingness to appear in appellate proceedings . All the facts may be stated in the statement of facts to be filed before the CIT(A). After considering the reply the CIT( A) may call for remand report and thereafter decide the matter on merits. In Sunil Thomas v. ITO (2017)394 ITR 619/ 294 CTR 129 /248 Taxman 85/149 DTR 142 (Ker.) (HC) the assessee received gift from brother , however capacity of the brother to give gift was not established . Addition was held to be justified . In Pandit Vijay Kant Sharma v. CIT (2018) 402 ITR 358 / 169 DTR 108 / 304 CTR 102 (All.) (HC) the Court held that failure to produce evidence of credit worthiness and genuineness of gifts , addition as unexplained deposits was held to be justified.
Each case has to be decided on facts .

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