ITAT Chennai Deletes Rs.85.30 Lakh Section 68 Addition on Cash Gifts

Selvaraj Amirtharaj Vs ITO (ITAT Chennai)

ITAT Chennai Deletes Rs.85.30 Lakh Section 68 Addition on Cash Gifts

The Chennai Bench of the Income Tax Appellate Tribunal has held that where an assessee furnishes gift deeds, confirmations, income-tax returns and financial statements of the donors, and the donors themselves respond to notices issued under Section 133(6) confirming the gifts, the addition cannot be sustained merely because the Assessing Officer considers the donors’ returned income inadequate in comparison with the amounts gifted. Once the assessee discharges the initial burden under Section 68, the Revenue must rebut the evidence by bringing positive material on record. Suspicion regarding the source available with the donors cannot substitute legal evidence.

The assessee, an individual, filed his return of income for Assessment Year 2017-18 declaring a total income of Rs.43,21,490. During scrutiny proceedings, the Assessing Officer noticed substantial cash deposits in the assessee’s bank account and called upon him to explain their source.

The assessee explained that part of the deposits represented cash gifts aggregating to Rs.85,30,000 received from five close relatives. The gifts comprised Rs.8.70 lakh from his maternal uncle, Rs.29 lakh from his wife, Rs.9.30 lakh each from two paternal uncles and Rs.29 lakh from his sister’s husband. The assessee produced gift deeds, confirmations, copies of the donors’ income-tax returns, statements of account and financial statements. All five donors were regularly assessed to tax and the gifts were also recorded in their respective financial statements.

The donors responded independently to notices issued by the Assessing Officer under Section 133(6) and confirmed that they had made the gifts. Therefore, their identities and their relationship with the assessee were not disputed.

The Assessing Officer nevertheless held that the assessee had failed to prove the source in the hands of the donors. According to him, the income and capital disclosed by the donors were not sufficient to establish their capacity to make such substantial cash gifts. He consequently treated the entire sum of Rs.85.30 lakh as unexplained cash credit under Section 68 and subjected it to tax under Section 115BBE. A separate amount of Rs.20 lakh stated to have been received from the father’s estate was also assessed as income from other sources, but the appeal before the Tribunal concerned the addition of Rs.85.30 lakh.

The CIT(A) confirmed the addition. In the case of the assessee’s sister’s husband, the CIT(A) observed that the income disclosed from prayer offerings and worship meetings and the capital shown in his balance sheet did not support a cash gift of Rs.29 lakh. Similarly, the assessee’s wife had primarily disclosed salary income, which, according to the CIT(A), did not demonstrate her capacity to gift Rs.29 lakh.

In the cases of the two paternal uncles, the CIT(A) relied upon adverse findings recorded in their assessments for earlier years concerning birthday gifts and property advances. The CIT(A) also held that the enhanced rate of tax under Section 115BBE was applicable from Assessment Year 2017-18.

Before the Tribunal, the assessee demonstrated that the donors had filed returns declaring income ranging from approximately Rs.5.25 lakh to Rs.25.38 lakh. It was emphasised that all the donors had disclosed the gifts in their financial statements and confirmed the transactions directly before the Assessing Officer. The assessee argued that once the identity, genuineness and basic creditworthiness of the donors were established, he could not be compelled to prove the “source of the source.”

The Tribunal found that there was no dispute about the identity of the donors. All of them were close relatives falling within the statutory definition of “relative,” and each donor had confirmed the gift in response to the statutory notice. The assessee had also furnished the gift deeds, returns of income, statements of income and financial statements of the donors. Thus, the foundational documentary evidence required under Section 68 had been produced.

The Tribunal observed that the lower authorities had primarily compared the annual income returned by each donor with the amount gifted. Such a comparison, by itself, was insufficient. Creditworthiness cannot be determined merely by looking at one year’s returned income without examining the donor’s accumulated capital, past savings, withdrawals, cash balances and other available financial resources.

Once confirmations, gift deeds, tax returns and financial statements had been furnished, and the donors themselves admitted the transactions, the assessee’s initial burden stood discharged. If the Assessing Officer still doubted the actual source of funds in the hands of the donors, the appropriate course was to conduct further enquiry or take action in the assessments of the respective donors. The addition could not be made in the recipient’s hands merely because the Assessing Officer suspected that the donors might not have possessed sufficient funds.

The Tribunal also held that adverse findings recorded in the assessments of two donors for earlier years could not automatically be imported into the assessee’s assessment. There had to be independent evidence connecting the impugned gifts with the assessee’s own unexplained money. The Revenue had not produced any material to show that the money deposited in the assessee’s bank account had actually originated from the assessee himself and was merely routed through the relatives.

Relying upon the decisions in PCIT v. Ami Industries (India) Pvt. Ltd., CIT v. Suresh Kumar Kakar, CIT v. R.S. Sibal, CIT v. T.B. Kunhimahin Haji, V.R. Global Energy Pvt. Ltd., Lalitha Jewellery Mart Pvt. Ltd. and CIT v. Mark Hospitals Pvt. Ltd., the Tribunal reiterated that the burden shifts to the Revenue after the assessee furnishes the primary evidence.

Accordingly, the Tribunal deleted the addition of Rs.85,30,000 under Section 68. As the principal addition itself was deleted, the question of applying the special rate under Section 115BBE did not survive for consideration.

Author’s Comments

The decision does not mean that every cash gift from a relative must automatically be accepted. The assessee must still establish the identity of the donor, genuineness of the transaction and basic financial capacity of the donor. In the present case, the relief was granted because the donors were identifiable taxpayers, responded directly to notices under Section 133(6), confirmed the gifts and reflected them in their financial statements.

The significant principle is that returned income alone is not the complete measure of creditworthiness. A person may make a gift out of accumulated savings, capital, earlier withdrawals or other disclosed resources. If the Revenue doubts those resources, it must conduct a focused enquiry and bring positive evidence showing that the alleged gift was not genuine or that the money belonged to the recipient. A cash gift may invite deeper scrutiny, but suspicion—even strong suspicion—cannot replace proof.

Cases Discussed

• Karunamoorthi Kavitha vs. ACIT (ITA No.1732/Chny/2024)
• SMILE Microfinance Ltd. v. Assistant Commissioner of Income Tax (W.P. (MD) No. 2078 of 2020 & W.M.P. No. 1742 of 2020)
• Maruthi Babu Rao Jadav v. ACIT (W.A. No.984 of 2019)
• Karthick Natarajan v. DCIT (ITA No.382/Chny/2023)
• Ahmedabad Mfg. and Calico Printing Co. Ltd. v. S.G. Mehta, ITO [1963] 48 ITR 154
• PCIT v. Ami Industries (India) Pvt. Ltd. [2020] 424 ITR 219 (Bom)
• CIT v. Suresh Kumar Kakar [2010] 324 ITR 231 (Del)
• CIT v. R.S. Sibal [2004] 269 ITR 429 (Del)
• CIT v. T.B. Kunhimahin Haji and Others [2019] 415 ITR 491 (Ker)
• PCIT v. Chain House International (P.) Ltd., Rohtak Chain Co. (P.) Ltd. and Bharat Securities Ltd. [2018] 408 ITR 561 (MP)
• V.R. Global Energy Pvt. Ltd. v. Income-Tax Officer [2018] 407 ITR 145 (Mad)
• Lalitha Jewellery Mart P. Ltd. v. Deputy Commissioner of Income-Tax and Another [2017] 399 ITR 425 (Mad)
• CIT v. Mark Hospitals (P.) Ltd. [2015] 373 ITR 115 (Mad)

FULL TEXT OF THE ORDER OF ITAT CHENNAI

The present appeal has been preferred by the Assessee against the order dated 29.12.2025 passed by the Learned Commissioner of Income Tax (Appeals), Chennai – 20 [hereinafter referred to as “the Ld. CIT(A)”], arising from the assessment order dated 20.12.2019 passed by the Income Tax Officer, Corporate Ward 5(4) Chennai [hereinafter referred to as “the AO”], u/s.143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year (A.Y.) 2017-18.

2. The brief facts of the case are that the assessee is an individual, filed his return of income for the AY 2017-18 on 31.01.2018 by declaring a total income of Rs.43,21,490/-. The case was selected for scrutiny under CASS and accordingly statutory notices were issued to the assessee. The AO found that during the impugned assessment year, the assessee had huge cash deposits in his bank account. In that connection, the assessee was asked to furnish cash book, cash flow statement and sources for cash deposits made in the bank account. In response, the assessee filed details stating that some amounts were received as gift from his wife, paternal uncle, maternal uncle, sister’s husband and father’s estate along with own earnings during the year. Further, the assessee stated that he has received a cash advance for sale of land and building at Perur to the tune of Rs.1.85 crores on various dates from19.07.2016 to 07.09.2016. In support of the same, he furnished confirmation letter from Mr.Alexander Rajadurai along with the copy of sale agreement dated 12.09.2016. Further, in respect of cash gifts received, the assessee furnished copy of gift deeds, return of income for the AY 2017-18 and statement of accounts in respect of all the parties. On perusal of the submissions and the documents filed during the assessment proceedings, the AO was not convinced and stated that the source in the hands of the persons, who had given gift had not been proved by the assessee and hence the entire cash deposit of Rs.85,30,000/- was brought to tax u/s.68 r.w.s. 115BBE of the Act. Further, the AO brought to tax the gift from father’s estate of Rs.20 lakhs as income from other sources of the assessee, since the assessee had accepted to offer Rs.20 lakhs as his own income and concluded the assessment by passing an order u/s.143(3) of the Act dated 20.12.2019.

3. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). Before the first appellate authority, the assessee submitted that he has received Rs.85,30,000/- in cash as gift from his relatives as defined in Explanation 2 to section 56(2)(VI) of the Act and had filed all the evidences to establish the relationship with the persons and their sources of gifts given along with their statement of accounts and copy of income tax returns filed, as detailed below:-

4. The assessee submitted that all the afore mentioned relatives also confirmed in writing about the gift given in response to notice u/s.133(6) of the Act dated 04.12.2019 along with furnishing of their statement of accounts as on 31.03.2017 to prove the source for gifts given. The assessee further claimed that the AO has erred in making the addition in case if he had doubted the genuineness of the source instead of referring the matter to the respective AO’s of the assessee for further verification. The assessee also filed copies of gift deeds obtained from the relatives dated 01.08.2019 before the AO. Further, the assessee also relied on various judicial precedents including the decision of the Hon’ble Madras High Court, wherein it was stated that if the creditworthiness of the donor and genuineness of the transaction is proved, no addition u/s.68 of the Act can be made. On perusal of the submissions made by the assessee along with the case laws relied on, the ld.CIT(A) was not convinced and hence confirmed the addition of Rs.85,30,000/- on account of gifts received and passed an order dated 29.12.2025 by holding as under:-

“6.3. I have perused the assessment order and the submissions made by the appellant. On perusal of the same, it is noted that the AO did not dispute the existence of family members and relatives, whereas, he had not accepted only the creditworthiness of the family members who had claimed to have made gifts in cash to the appellant on the basis of ITRs filed by them for the AY 2017-18 and the finding in the assessment made in the case of Mrs. Nalini Selvaraj (appellant’s mother) and Shri D. Gnanaraj (appellant’s uncle).

It is also noted that the AO was not satisfied with the explanation furnished by the appellant and the confirmations submitted by the said relatives for the reason that the said relatives’ Income Tax Return had failed to prove their creditworthiness/ capability to make gifts to the appellant. In this regard, I have also examined the details furnished by the appellant in the course of appeal proceedings and the return of income filed by the said relatives and observed the following:

i. Mr. Joel Raja is husband of appellant’s sister, has confirmed that he had signed the gift deed submitted by the appellant and claimed to have gifted Rs.29,00,000/- to the appellant in the year under consideration by cash. However, on perusal of the return of income filed by Mr. Joel Raja, it is observed that he had offered only Rs.7,38,310/- from his prayer offerings and worship meetings as gross receipts for the year under consideration. Further, it is also noted that his balance sheet as on 31.03.2017 does not indicate sufficient amount of capital/other funds to support his claim that he is capable of making gift of Rs.29,00,000/- by cash. In these facts and circumstances, it is held that Mr. Joel Raja does not have sufficient creditworthiness/capability to make cash gift of Rs.29,00,000/- to the appellant in the year under consideration.

ii. Mr. D. Gnanaraj is appellant’s paternal uncle, has confirmed that he had signed the gift deed submitted by the appellant and claimed to have gifted Rs.9,30,000/- to the appellant in the year under consideration. However, the assessing officer was able to find that Mr. D. Gnanaraj did not have sufficient creditworthiness to make the said cash gift to the appellant for the reason that the birthday gifts and the property advances claimed to have been received by him was found to be not genuine and an amount of Rs.1.38 crores was brought to tax in his hands in AY 2016-17. The above findings of the AO in the case of Mr. D. Gnanaraj clearly proves that he is not capable of gifting cash of Rs.9,30,000/- to the appellant in the year under consideration.

iii. Mr. D. Victor is appellant’s paternal uncle, has confirmed that he had signed the gift deed submitted by the appellant and claimed to have gifted Rs.9,30,000/- to the appellant in the year under consideration. However, the assessing officer was able to find that Mr. D. Victor did not have sufficient creditworthiness to make the said cash gift to the appellant for the reason that the property advances of Rs.2.80 crores claimed to have been paid by him to the appellant’s mother Mrs. Nalini Selvaraj was found to be not genuine in AY 2016-17. The above findings of the AO in the case of Mr. D. Victor clearly proves that he is not capable of gifting cash of Rs.9,30,000/- to the appellant in the year under consideration.

iv. Mrs. Merlyn Jemimah is appellant’s wife, has confirmed that she had signed the gift deed submitted by the appellant and claimed to have gifted Rs.29,00,000/- to the appellant in the year under consideration. However, on perusal of the return of income filed by Mrs. Merlyn Jemimah, it is observed that the only major source of her income was gross salary received from M/s Rajam Hotels Pvt Ltd for the year under consideration and her balance sheet as on 31.03.2017 does not indicate sufficient amount of capital/other funds to support her claim that she is capable of making gift of Rs.29,00,000/- by cash. In these facts and circumstances, it is held that Mrs. Merlyn Jemimah does not have sufficient creditworthiness/capability to make cash gift of Rs.29,00,000/- to the appellant in the year under consideration.

v. Mr. J Alexandra Rajadurai is appellant’s maternal uncle, has confirmed that he had signed the gift deed submitted by the appellant and claimed to have gifted of income filed by Mr. Joel Raja, it is observed that he had offered only Rs.7,38,310/- from his prayer offerings and worship meetings as gross receipts for the year under consideration. Further, it is also noted that his balance sheet as on 31.03.2017 does not indicate sufficient amount of capital/other funds to support his claim that he is capable of making gift of Rs.29,00,000/- by cash. In these facts and circumstances, it is held that Mr. Joel Raja does not have sufficient creditworthiness/capability to make cash gift of Rs.29,00,000/- to the appellant in the year under consideration.

ii. Mr. D. Gnanaraj is appellant’s paternal uncle, has confirmed that he had signed the gift deed submitted by the appellant and claimed to have gifted Rs.9,30,000/- to the appellant in the year under consideration. However, the assessing officer was able to find that Mr. D. Gnanaraj did not have sufficient creditworthiness to make the said cash gift to the appellant for the reason that the birthday gifts and the property advances claimed to have been received by him was found to be not genuine and an amount of Rs.1.38 crores was brought to tax in his hands in AY 2016-17. The above findings of the AO in the case of Mr. D. Gnanaraj clearly proves that he is not capable of gifting cash of Rs.9,30,000/- to the appellant in the year under consideration.

iii. Mr. D. Victor is appellant’s paternal uncle, has confirmed that he had signed the gift deed submitted by the appellant and claimed to have gifted Rs.9,30,000/- to the appellant in the year under consideration. However, the assessing officer was able to find that Mr. D. Victor did not have sufficient creditworthiness to make the said cash gift to the appellant for the reason that the property advances of Rs.2.80 crores claimed to have been paid by him to the appellant’s mother Mrs. Nalini Selvaraj was found to be not genuine in AY 2016-17. The above findings of the AO in the case of Mr. D. Victor clearly proves that he is not capable of gifting cash of Rs.9,30,000/- to the appellant in the year under consideration.

iv. Mrs. Merlyn Jemimah is appellant’s wife, has confirmed that she had signed the gift deed submitted by the appellant and claimed to have gifted Rs.29,00,000/- to the appellant in the year under consideration. However, on perusal of the return of income filed by Mrs. Merlyn Jemimah, it is observed that the only major source of her income was gross salary received from M/s Rajam Hotels Pvt Ltd for the year under consideration and her balance sheet as on 31.03.2017 does not indicate sufficient amount of capital/other funds to support her claim that she is capable of making gift of Rs.29,00,000/- by cash. In these facts and circumstances, it is held that Mrs. Merlyn Jemimah does not have sufficient creditworthiness/capability to make cash gift of Rs.29,00,000/- to the appellant in the year under consideration.

v. Mr. J Alexandra Rajadurai is appellant’s maternal uncle, has confirmed that he had signed the gift deed submitted by the appellant and claimed to have gifted appellant.

6.6. The decision of the Hon’ble ITAT, Chennai in the case of Karunamoorthi Kavitha vs. ACIT (ITA No.1732/Chny/2024) relied on by the appellant is also distinguishable on facts. In the said case, without conducting any enquiries, the AO had simply rejected the creditworthiness of the parties from whom gift was received. Further, the Hon’ble ITAT had noted that the assessee had received cash gift of Rs.35,00,000/- from her mother, who was a practicing doctor for more than 35 years and cash gift of Rs. 10,00,000/- from her brother who was a professional software engineer working from past 12 year and both these relatives had regularly filed their return of income. Furthermore, the Hon’ble ITAT had also noted that apart form the regular source of income from their respective profession and employment, the mother and brother along with the assessee had entered into three sale agreements with prospective buyers for sale of agricultural property and received an advance of Rs.32,19,450/-. In view of these facts, the Hon’ble ITAT had allowed relief to the assessee.

6.7. With regard to the contention of the appellant that the enhanced rate of tax u/s 115BBE is applicable from AY 2018-19, it is noted that the tax rate u/s 115BBE of the Act was increased from 30% to 60% by the Taxation Laws (Second Amendment) Act, 2016 w.e.f. 01.04.2017. Meaning thereby, the said amendment is clearly applicable from AY 2017-18 onwards. Though the appellant has placed reliance on the judgment rendered by the Hon’ble High Court of Madras in the case of S.M.I.L.E. Microfinance Limited vs ACIT (W.P.(MD) No.2078 of 2020), it is noted that a larger bench of the Hon’ble High Court of Kerala in the case of Maruthi Babu Rao Jadav vs. ACIT (WA.No.984 of 2019) has held that as under:

“12. The assessee contends that the seizures were made prior to the amendment. The affidavits admitting the ownership of amounts seized were also submitted prior to the amendment. The assessee was not aware of the enhanced tax liability when the admissions were made before the authorities. The assessee has also made an attempt to relate the amendments to the demonetization of the specified currencies announced on 8-11-2016 which contention we reject at the outset. The subject amendments which are relevant for our consideration have no direct link with the demonetization introduced or the taxation and investment regime of Pradhaan Mantri Garib Kalyan Yojana 2016 brought in under Chapter IX A of the 2nd amendment Act. The 2nd amendment Act is clear from the Statements of Objects and Reasons, was to curb, evasion of tax and black money as also plug loopholes in the IT Act and to ensure that defaulting assessees are subjected to higher tax and stringent penalty provision. Both the measures spoken of herein were to further the said objects and there cannot be any nexus assumed nor is it discernible.

13. Section 115 BBE was inserted by Finance Act 2012 w.e.f 1-4-2013. As on 1-4-2016 the financial year in which the subject seizures occurred Section 155BBE provided for 30% tax on income referred to in Sections 68, 69, 69A, 69B, 69C and 69D. The same was amended by the 2nd Amendment Act; w.e.f. 1-4-2017, enhancing the rate to 60%. Hence there was no new liability created and the rate of tax merely stood enhanced which is applicable to the assessments carried on in that year. The enhanced rate applies from the commencement of the assessment year, which relates to the previous financial year.”

Further, by relying on the above judgment of the Hon’ble High Court of Kerala, the Hon’ble ITAT, Chennai in a recent decision in the case of Karthick Natarajan v. DCIT (ITA No. 382/Chny/2023) has held as under:

“10.2 We noted from the taxation law, Second Amendment Act, 2016 that the Income-tax payable shall be the aggregate of the amount of income-tax calculated on the income referred to clause (a) and clause (b) of section 115BBE(1) of the Act at the rate of 60% w.e.f. 1-4-2017 that means from assessment year 2017-18 relevant to financial year 2016-17 rate of tax will be at sixty percent. In our view and as held by Hon’ble Kerala High Court, there was no new liability created and the rate of tax merely stood enhanced which is applicable to the assessment year 2017-18. The enhanced rate applies from the commencement of the assessment year 2017-18, which relates to previous financial year 2016-17 as the case in the present assessee and not on the date of commencement of the amendment. The reasoning for the same is that the date of amendment on which an amendment comes into force is the date of the commencement of the amendment. It is read as amended from that date. Under the ordinary circumstances, and Act does not have retrospective operation on substantial rights which have become fixed before the date of the commencement of the Act. But, this rule is not unalterable. The legislature may affect substantial rights by enacting laws which are expressly retrospective or by using language which has that necessary result. And this language may give an enactment more retrospectivity than what the commencement clause gives to any of its provisions. When this happens the provisions thus made retrospective, expressly or by necessary intendment, operates from a date earlier than the date of commencement and affect rights which, but for such operation, would have continued undisturbed. This view has been held by Hon’ble Supreme court in the case of Ahmedabad Mfg. and Calico Printing Co. Ltd. v. S.G. Mehta, ITO [1963] 48 ITR 154.”

Thus, it is held that there is no merit in this contention of the appellant.

6.8. On the basis of the above discussion, since the enquiries conducted by the AO proved that the said family members and relatives did not have creditworthiness/capability to give cash gift of Rs.85,30,000/-, it is held that the source for the cash deposits to the tune of Rs.85,30,000/- is not satisfactorily explained by the appellant. Therefore, the addition made by the AO of Rs.85,30,000/- u/s 68 rws 115BBE of the Act is confirmed and all the grounds raised by the appellant are dismissed.”

5. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee assailing the action of the ld.CIT(A) submitted that both the lower authorities have erred in making the addition of gifts received of Rs.85,30,000/-, though the assessee has proved with the substantial evidences about the genuineness, identity and creditworthiness of the donors. In support of the same, the ld.AR filed a paper book of 212 pages consisting of written submissions filed before the ld.CIT(A), return of income, statement of income and financials of the assessee for the AYs 2017-18 and 2016-17, gift deeds executed by the relatives, return of income, statement of income and financials of Mr.J.Alexander Rajadurai, Mrs.Merilyn Jemimah, Mr.D.Victor, Mr.D.Gnanaraj and Mr.Joel Raja.

6. The ld.AR further drew our attention to the financials of the donors in page Nos.101, 119, 125, 133, 140 of the paper book and submitted that all the five donors have recorded the ‘gifts given’ during the impugned assessment year to the assessee in their respective financials. Further, the ld.AR stated that all the five donors have been assessed to income tax regularly and also filed return of income for the impugned assessment year 2017-18 by declaring the income as detailed below:-

• Mr.J.Alexander Rajadurai — Rs. 9,79,409/-
• Mrs.Merilyn Jemimah — Rs.25,38,639/-
• Mr.D.Victor — Rs.22,41,814/-
• Mr.D.Gnanaraj — Rs.21,29,338/-
• Mr.Joel Raja — Rs. 5,25,442/-

7. In view of the above details, the ld.AR submitted that the assessee has proved the identity of the persons along with the genuineness by showing the return of income filed for the impugned assessment year and also proved the creditworthiness of the donors. The ld.AR further stated that once the assessee has proved the source of the gifts received, the AO cannot ask for the source for source as held by the various Hon’ble Courts.

• [2020] 424 Itr 219 (Bom) Principal Commissioner Of Income-Tax Vs.Ami Industries (India) P. Ltd.
• [2010] 324 Itr 231 (Del) Commissioner Of Income-Tax Vs. Suresh Kumar Kakar.
• [2004] 269 Itr 429 (Del) Commissioner Of Income-Tax Vs. R. S. Sibal.
• [2019] 415 Itr 491 (Ker) Commissioner Of Income-Tax Vs.T. B. Kunhimahin Haji And Others
• [2018] 408 Itr 561 (Mp) Principal Commissioner Of Income-Tax Vs. Chain House International (P.) Ltd, Rohtak Chain Co. (P.) Ltd And Bharat Securities Ltd.
• [2018] 407 Itr 145 (Mad) V. R. Global Energy Pvt. Ltd. Vs. Income-Tax Officer
• [2017] 399 Itr 425 (Mad) Lalitha Jewellery Mart P. Ltd. Vs. Deputy Commissioner Of Income-Tax And Another.
• [2015] 373 Itr 115 (Mad) Commissioner Of Income-Tax Vs. Mark Hospitals (P.) Ltd.

8. The ld.AR further also submitted that the gifts cannot be taxed at special rate u/s.115BBE of the Act and relied on the decision of the Hon’ble Madras High Court in the case of SMILE Microfinance Ltd. v. Assistant Commissioner of Income Tax W.P. (MD) No. 2078 of 2020 & W.M.P. No. 1742 of 2020 dated 19.11.2024.

9. Per contra, the ld.DR strongly supporting the orders of the lower authorities, submitted that the assessee had failed to discharge the primary onus cast upon him u/s.68 of the Act to establish the identity, creditworthiness of the donors and genuineness of the alleged cash gifts aggregating to Rs.85,30,000/-. It was contended that though the donors were close relatives and had filed confirmations, gift deeds and copies of their returns of income, the enquiries conducted by the AO clearly revealed that none of the alleged donors possessed the financial capacity to make such huge cash gifts. The ld.DR pointed out that the returns of income and balance sheets of the donors did not disclose sufficient capital or cash resources to justify the gifts, while in the cases of certain donors, namely Mr. D. Gnanaraj and Mr. D. Victor, the very source of funds claimed by them had already been held to be non-genuine in their respective assessments. It was further submitted that mere filing of income-tax returns or confirmation letters would not establish creditworthiness when the financial capacity of the donors remained unproved. The ld.DR also distinguished the judicial precedents relied upon by the assessee on facts and submitted that the ld.CIT(A) had rightly held that the decision of the Chennai Bench in Karunamoorthi Kavitha v. ACIT was inapplicable to the present case, as the AO herein had conducted detailed enquiries before rejecting the claim. With regard to the levy of tax u/s.115BBE of the Act, the ld.DR submitted that the enhanced rate of tax was rightly applied by following the judgment of the Hon’ble Kerala High Court in Maruthi Babu Rao Jadav v. ACIT and the subsequent decision of the Chennai Bench of the Tribunal in Karthick Natarajan v. DCIT, wherein it has been held that the amended provisions are applicable to AY 2017-18. Accordingly, the ld.DR prayed that the addition made u/s.68 r.w.s 115BBE of the Act, as confirmed by the ld.CIT(A), deserves to be sustained and the appeal filed by the assessee be dismissed.

10. We have heard the rival submissions, perused the orders of the lower authorities, the material placed on record and the paper book filed by the assessee. The solitary issue arising for our consideration is whether the authorities below were justified in treating the cash gifts aggregating to Rs.85,30,000/- received by the assessee from his close relatives as unexplained cash credits u/s.68 of the Act and consequently subjecting the same to tax u/s.115BBE of the Act.

11. At the outset, we observe that there is no dispute regarding the identity of the donors. It is an admitted fact that the gifts were stated to have been received from the assessee’s wife, paternal uncles, maternal uncle and sister’s husband, all of whom fall within the definition of “relative” under the provisions of the Act. It is also not in dispute that each of the donors had responded to the notices issued u/s.133(6) of the Act by confirming the gifts made to the assessee. The assessee had further furnished copies of the gift deeds, acknowledgements of returns of income, statements of income and financial statements of all the donors. Therefore, the first limb of section 68 relating to the identity of the creditors stands duly established.

12. The primary basis on which the AO as well as the ld.CIT(A) sustained the addition is that the donors did not possess the financial capacity to make the impugned cash gifts. On perusal of the assessment order and the appellate order, we find that the authorities have mainly proceeded on the basis that the income returned by the donors and the capital reflected in their balance sheets were not commensurate with the quantum of gifts made by them. In the cases of two donors, namely Shri D.Gnanaraj and Shri D.Victor, reliance has also been placed on certain adverse findings recorded in their individual assessments for earlier assessment years.

13. However, in our considered opinion, once the assessee had produced the confirmations of the donors, gift deeds, copies of returns of income, financial statements and the donors themselves had admitted having made the gifts in response to notices issued u/s.133(6) of the Act, the initial burden cast upon the assessee u/s.68 of the Act stood discharged. Thereafter, if the AO entertained any doubt regarding the actual source of funds available with the respective donors, it was incumbent upon the Revenue to undertake appropriate enquiry in the assessments of such donors. The addition in the hands of the recipient cannot be sustained merely because the AO entertains suspicion regarding the source available with the donors, particularly when the identity of the donors and the genuineness of the transactions have not been disputed.

14. We further find considerable force in the contention of the ld.AR that the Revenue has virtually proceeded to examine the “source of the source”. The settled position of law is that, except where the statute specifically mandates otherwise, an assessee cannot ordinarily be called upon to establish the source of funds in the hands of the creditor once the identity of the creditor, genuineness of the transaction and the basic creditworthiness have been established. The Hon’ble Bombay High Court in PCIT v. Ami Industries (India) Pvt. Ltd. (424 ITR 219), the Hon’ble Delhi High Court in CIT v. Suresh Kumar Kakar (324 ITR 231) and CIT v. R.S. Sibal (269 ITR 429), the Hon’ble Kerala High Court in CIT v. T.B. Kunhimahin Haji (415 ITR 491), the Hon’ble Madhya Pradesh High Court in PCIT v. Chain House International (P.) Ltd. (408 ITR 561) and the Hon’ble Madras High Court in V.R. Global Energy Pvt. Ltd. (407 ITR 145), Lalitha Jewellery Mart Pvt. Ltd. (399 ITR 425) and Mark Hospitals Pvt. Ltd. (373 ITR 115) have consistently held that once the primary evidences are furnished, the burden shifts upon the Revenue. The assessee has rightly placed reliance on the aforesaid judicial precedents.

15. We also note that the findings recorded by the ld. CIT(A) regarding the alleged lack of creditworthiness of Shri D. Gnanaraj and Shri D. Victor are founded upon additions made in their respective assessments. Such findings, in our considered opinion, cannot automatically be imported into the present proceedings without bringing any independent material on record to establish that the gifts received by the assessee represented his own unexplained money. Similarly, in the case of the other donors, the authorities have merely compared the returned income with the amount of gift without examining their overall financial position, accumulated capital, withdrawals, cash balances or other available resources. Suspicion, however strong, cannot take the place of legal evidence.

16. We further observe that the donors have themselves reflected the gifts in their respective financial statements and the said fact has not been controverted by the Revenue. The Revenue has also not brought on record any material to demonstrate that the cash deposited in the bank account of the assessee had actually emanated from the assessee himself. In the absence of any cogent evidence to disbelieve the confirmations furnished by the donors or to establish that the impugned amounts belonged to the assessee, the addition made solely on presumptions regarding the financial capability of the donors cannot be sustained.

17. Accordingly, having regard to the entirety of the facts and circumstances of the case, we hold that the assessee has satisfactorily established the identity of the donors, the genuineness of the gifts and discharged the initial burden cast upon him u/s.68 of the Act. The Revenue having failed to rebut the evidences produced by the assessee by bringing any positive material on record, the addition of Rs.85,30,000/- made u/s.68 of the Act and sustained by the ld.CIT(A) is liable to be deleted. Consequently, the question of taxing the said amount u/s.115BBE of the Act does not survive for consideration.

Accordingly, we set aside the order of the ld.CIT(A) and direct the AO to delete the addition of Rs.85,30,000/-. The grounds raised by the assessee are allowed.

18. In the result the appeal of the assessee is allowed.

Order pronounced in the court on 18th September, 2026 at Chennai.