Top Stories ITAT upholds AO’s Addition of Rs. 9.65 Lakh u/s 56(2)(x) as Gift not Qualifying from a Relative [Read Order] The Tribunal concluded that the AO correctly assessed the situation, noting that the gift was received without any consideration and thus was subject to taxation By Sneha Sukumaran Mullakkal – On November 4, 2024 8:36 pm – 2 mins read The Visakhapatnam Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Assessing Officer’s ( AO ) addition of ₹9.65 lakh under section 56(2)(x), of Income Tax Act,1961 ruling that the gift received from the father’s Hindu Undivided Family ( HUF ) did not qualify as a relative under the Act and was therefore taxable.

Aravind Reddy Devagiri, appellant-assessee, was a managing partner in M/s. A.R. Constructions, with a 75% profit share, and also held partnership interests in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. For the Assessment Year ( A.Y ) 2017-18, he filed his income tax return on March 8, 2018, reporting a total income of Rs. 7,54,800. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here During the assessment process, the AO observed that while the assessee had disclosed a capital balance of Rs. 48,53,245 in M/s. A.R. Constructions, he had not accounted for capital introduced in M/s. Lakshmi Cold Storage and M/s. Vigneswara Cold Storage. Specifically, his investments amounted to Rs. 1,45,64,960 and Rs. 86,64,883, representing his 40% partnership shares in these firms. Believing that income had escaped assessment under section 147, the AO issued a notice under section 148 on March 12, 2020, after receiving prior approval from the Joint Commissioner of Income Tax ( JCIT ).

The assessee did not submit a revised return but responded to notices issued under section 142(1) of the Act. Following an examination of these responses, the AO proceeded with additions, including Rs. 11,40,665 for cash introduced in the firm under section 68 read with section 115BBE, Rs. 24,50,000 for capital introduced, Rs. 1,94,99,178 for investments in the two firms, Rs. 1,40,000 as an additional investment, and Rs. 9,65,000 under section 56(2)(x) of the Act. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here Challenging these additions, the appellant filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], reiterating the submissions made to the AO. However, the CIT(A) dismissed the appeal, upholding the AO’s additions in their entirety. Aggrieved by the decision of the CIT(A), the assessee appealed before the tribunal. The assessee challenged an addition of Rs. 9,65,000 made under section 56(2)(x) of the Act, asserting that this amount was received as a gift from his father’s HUF account. The representative argued that the source of the funds was adequately explained, warranting the deletion of the addition. The Departmental Representative ( DR ) defended the decisions of the Revenue Authorities. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The two member bench comprising Duvvuru RL Reddy ( Judicial Member ) and S.Balakrishnan ( Accountant Member ) after considering the arguments,acknowledged that the assessee received Rs. 9,65,000 from Shri Devagiri Lakshmi Narsimha Reddy HUF, with the assessee’s father acting as Kartha. The AO correctly noted that the gift was received without any consideration and did not meet the definition of a relative under the Act. Thus, the tribunal found no reason to interfere with the Revenue Authorities’ decision and upheld the addition made by the AO. The appeal was not allowed