Hyderabad ITAT rules gift from mother cannot be treated as unexplained investment if source is proved

The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that money received as a gift from a mother cannot be treated as “unexplained” if the taxpayer proves the source and establishes that the gift is genuine, TaxGuru reported.

The ruling came in the case of Manikanta Prudhvi Prabhakar Jonnala vs Income Tax Officer (ITO), where the Tribunal deleted an addition of ₹5.72 lakh made under Section 69 of the Income Tax Act, 1961.

Why was taxpayer taxed?

The taxpayer had purchased a residential property. During assessment, the Income Tax Department questioned the source of ₹5.72 lakh used for the purchase.

Since the Assessing Officer (AO) was not satisfied with the explanation, the amount was treated as an unexplained investment under Section 69 of the Income Tax Act.

Under this Section, if a taxpayer makes an investment that is not recorded in their books of account and cannot satisfactorily explain the source, the AO can treat the value of that investment as income for that financial year.

To avoid this addition, the taxpayer argued that the money was not his undisclosed income but a gift received from his mother.

If the gift was accepted as genuine and its source was established, the amount cannot be taxed as an unexplained investment under the law.

How did taxpayer support his claim?

To prove that the amount was a genuine gift, the taxpayer submitted a gift confirmation letter from his mother along with her bank statements.

The bank records showed that his mother had received a credit of ₹8.42 lakh on 8 January 2020. Two days later, on 10 January 2020, she withdrew ₹8 lakh in cash, of which ₹5.72 lakh was gifted to her son for purchasing the property.

The taxpayer argued that these documents clearly established the source of the money and showed that the gift was genuine.

What did ITAT observe?

The Tribunal noted that there was no dispute about the identity of the donor or the mother-son relationship between the parties. According to the Tribunal, the gift confirmation letter and the donor's bank records were sufficient to establish the source of the funds and the genuineness of the transaction.

The ITAT noted that the Income Tax Department did not produce any evidence to show that the documents were false or that the gift transaction was not genuine.

Based on the evidence, the Hyderabad ITAT directed the AO to delete the addition of ₹5.72 lakh made under Section 69 of the Income Tax Act, 1961.

Since the facts were established, the Tribunal ruled that the amount could not be treated as an unexplained investment merely because it was used to purchase a residential property.

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