Grandmother's ₹24.06 lakh gift: How land records and affidavit helped taxpayer win ITAT income tax case ruling in Jaipur
Receiving a large gift from a family member such as your father, mother, grandmother, or grandfather can invite tax scrutiny, particularly when there is no formal documentation or clear banking transaction trail to establish the gift records.
Still, a recent Income Tax Appellate Tribunal (ITAT) ruling from Jaipur has categorically clarified that the absence of a gift deed or a clearly defined banking transaction does not automatically render a family gift unexplained income. What matters is the fairness of the source, the intention of the gifting parties, the relationship with the receiver and the integrity of the documents.
Subsequently, the tribunal deleted a tax addition of ₹24,06,121 that a contractor had received from his late grandmother, accepting the explanation and justification for the gift, along with the supporting evidence backing the claim.
Why did the Income Tax Department question the gift?
The taxpayer in this case, Anil Sharma, a contractor based in Bharatpur, Rajasthan, claimed that his grandmother had gifted him ₹24.06 lakh. Even then, the tax authorities, after going through the basic facts, treated this amount as ‘unexplained income ’; furthermore, the Commissioner of Income Tax (Appeals) upheld this decision.
The reason for the same was that the appellate authority questioned the absence of a clearly defined gift deed, the date and mode of transfer, and supporting bank statements evidencing the movement of funds.
To resolve this, Sharma even presented an affidavit from his uncle, his grandmother's younger son, confirming the gift. He also convincingly explained the basic source of the funds of his grandmother:
- Agricultural income of ₹9,27,121, supported by land records.
- ₹5,54,000 returned by a partnership firm as repayment of a loan.
- ₹9,25,000 received from the sale of plots, supported by a notarised agreement.
When the above amount is added, the total is about ₹24,06,121.
Why did the ITAT overturn the tax addition?
Later, after reviewing the case facts, the defendants' pleas, and other relevant details, the Jaipur bench of the ITAT observed that the taxpayer had explained the source of the grandmother’s funds and supported it with documentary evidence.
Furthermore, the tribunal noted that none of the documents put on record had been found to be false, fabricated, or inappropriate. The tribunal also rejected the argument that a gift should definitely be supported by a formal deed.
Based on these facts and observations, the bench held that the source of the gift was fully and adequately explained, and instructed the deletion of the entire ₹24.06 lakh addition from the taxpayer’s income.
What can taxpayers learn from this judgment?
This ruling explains that a fair and genuine gift can be established through credible evidence, even in the absence of a formal gift deed or bank trail. Still, in their own interest, it is prudent for taxpayers to properly document all transactions, obtain a gift deed where possible, and provide basic banking details of the transaction to avoid deeper scrutiny and possible legal complications later on if the transaction is noticed by tax authorities.
In summary, this decision also reinforces the principle that taxpayers should focus on collecting all essential documents explaining a transaction, and that tax authorities should ensure they continue to educate taxpayers on new rules and regulations.
Hence, tax compliance is a two-way process that requires taxpayers to abide by the rules and regulations, and tax authorities and officials to educate taxpayers appropriately about changes to those rules and regulations, so that any discrepancies can be eliminated at the earliest and meaningful tax compliance is ensured.