Cash gifts are taxable in the year they are received rather than the year they are traced
Facts and issues of the case
The appeal has been filed by the assessee against the order of the ld. CIT(A)-III, Lucknow, dated 22.07.2019 for Assessment Year 2017-18. The grounds of appeal taken by the assessee are reproduced below:
- Because the CIT(A) has erred on facts and in law in upholding the additions of Rs.5,38,000/- in the hands of the appellant u/s 56(2)(vii) read with 64(1A) of the Act 1961 being amount received on the occasion of the birthday of his minor son, which addition is contrary to facts, bad in law and be deleted.
- Because the amount of Rs.5,38.000/- was received on the occasion of the birth day of the minor son celebrated during the financial year 2013-14, relevant for A.Y. 2014-15 the addition made in the financial year 2016-178 relevant for assessment year 2017-18 is bad in law and be deleted.
- Because the CIT(A) has erred on facts and in law in not considering the submissions advanced by the appellant and has arbitrarily held, that the amount of Rs.5,38,000/- is unexplained and has upheld the addition.”
The ld. AR submitted that only issue involved in this appeal is the action of ld. CIT(A) by which he has sustained the addition of Rs.5,38,000/- u/s 56(2)(vii) r.w.s. 64(1A) of the Act. Explaining the facts of the case, the ld. AR submitted that a search and seizure operation u/s. 132 of the Act was carried out on 21.04.2016 wherein certain documents were seized. From the examination of such documents the Assessing Officer observed that assessee had received cash gifts of Rs.5,38,000/- in the name of his minor son. The Assessing Officer issued show cause notice to explain the cash gift received of Rs.5,38,000/- by minor son on the occasion his birthday. In the reply, the assessee submitted that part of cash gift received was spent in organizing the get together by family members and remaining amount was within the limit of provisions of Section 56 of the Act.
The Assessing Officer held that the cash gift received by minor son falls in the ambit of Section 56(1)(vii) of the Act and thus added the same to the income of the assessee. The ld. AR further submitted that before the ld. CIT(A), a specific ground was taken that the amount of Rs.5,38,000/- falls in the previous year 2014-15 relevant to the AY 2015-16 but the ld. CIT(A) instead of deleting the addition held that since the diary was seized in F.Y. 2016-17 relevant to the AY 2017-18 and, therefore he sustained the addition. The ld. AR also submitted that it is an admitted fact that such amount of gift was received in the previous year 2014-15 and therefore, it can be taxed only in the AY 2015-16. In view of above, it was prayed that the addition sustained by ld. CIT(A) be deleted.
Observation by the court
Court had heard rival parties and have perused the material placed on record. We find that the assessee in his written submissions before ld. CIT(A) had specifically raised the issue of year of tax of such gift, which is apparent from the order of ld. CIT(A), where he has reproduced the written submissions of the assessee. The relevant part of the written submission as reproduced in the order of ld. CIT(A) are reproduced below:
- Now it is to be seen in which year, the id AO can make addition of this income,
- Date of birthday celebration was 11th December, 2014, so that addition can be made in AY 2015-16 as the date fall in the previous year 2014- 15.
- Birthday date before the date of search is 11th December, 2015, in this case addition can be made in AY 2016-17 as the date fall in the previous year 2015-16.
- Date of search is 21.04.2016 which falls in the financial year 2016-17, on this date diary was seized. Therefore, birthday celebration must have been celebrated before 01.04.2016.
- Under the circumstances, the Ld. AO cannot made addition of gift received in the financial year 2016-17 pertaining to Assessment Year 2017-18.
Copy of the concerned pages of the diary are enclosed for your ready reference.On the basis of above it is submitted that the addition of Rs.5,38,000.00 made by the id AO is wrong and is to be deleted.”The ld. CIT(A) instead of deleting the addition, which apparently falls in the AY 2015-16 sustained the addition and did not consider the submissions of the assessee. Admittedly by both the parties, the gift was received in the previous year 2014-15 which falls in AY 2015-16 and the present case pertains to AY 2017-18, therefore, in this year the gift received in AY 2015-16 cannot be taxed, therefore, the grounds taken by the assessee are accepted and the appeal filed by the assessee is allowed.
The appeal filed by the assessee is allowed by the court.Gaurav-Agarwal-Vs-DCIT-ITAT-Lucknow