ITAT: Cash Gifts Taxable, Credit Card and Agricultural Land Additions Deleted

Tribunal Partly Allows Department’s Appeal for AY 2021–22

In a recent ruling, the Income Tax Appellate Tribunal examined multiple additions made by the Assessing Officer relating to cash gifts, credit card expenses, and sale of agricultural land. The Tribunal delivered a balanced verdict, sustaining the addition in respect of cash gifts while deleting other major additions.

Let’s break down what really happened.

1. Addition on Account of Cash Gifts – Sustained

The assessee had received certain cash gifts during the relevant assessment year. However, during assessment proceedings, the assessee failed to satisfactorily establish:

Identity of the donors

Creditworthiness of the donors

Genuineness of the transaction

The Tribunal observed that merely stating that the amounts were gifts is not enough. When transactions are in cash, the burden of proof becomes even stricter. Since proper documentary evidence was not produced, the addition was confirmed.

Key takeaway: Cash gifts without strong supporting evidence are highly vulnerable in scrutiny proceedings.

2. Credit Card Expenditure – Addition Deleted

The Assessing Officer had made an addition treating certain credit card expenses as unexplained expenditure.

However, during appellate proceedings, it was demonstrated that:

The payments were routed through disclosed bank accounts

The source of funds was already reflected in the books

There was no independent evidence of undisclosed income

The Tribunal held that once the source of payment is explained and reflected in the financial records, addition cannot be sustained merely on suspicion.

Accordingly, the credit card addition was deleted.

3. Sale of Agricultural Land – Addition Removed

Another addition was made on account of sale proceeds of agricultural land.

The Tribunal examined:

Nature and location of the land

Revenue records

Evidence of agricultural operations

It was observed that the land qualified as agricultural land and was not a capital asset within the meaning of the Income-tax Act, subject to location conditions. Therefore, capital gains provisions were not attracted.

The addition made by the Assessing Officer was deleted.

Legal Position Reinforced

This judgment reinforces three important principles:

Burden of proof lies heavily on the assessee in case of cash transactions.

Additions cannot be sustained purely on assumption when source is properly disclosed.

Agricultural land outside notified limits may not attract capital gains tax.

Practical Implications for Taxpayers

If you are handling scrutiny cases, especially involving:

Cash credits or gifts

High credit card usage

Agricultural land transactions

Documentation is everything. Identity, creditworthiness, and genuineness must be demonstrated clearly.

What this really means is simple:
Where evidence is weak, additions survive.
Where records are clean, additions fall.

Summary

In a recent decision, the Income Tax Appellate Tribunal partly upheld the additions made by the Assessing Officer for AY 2021–22. The Tribunal sustained the addition in respect of cash gifts, holding that the assessee failed to properly establish the identity, creditworthiness, and genuineness of the donors. Since the transactions were in cash and not backed by strong documentary evidence, the addition was confirmed.

However, the Tribunal granted relief on other issues. The addition made towards credit card expenses was deleted after it was shown that the payments were routed through disclosed bank accounts and supported by financial records. Similarly, the addition relating to sale of agricultural land was removed after examining the nature and location of the land and confirming that it qualified as agricultural land under the Income-tax Act.

The ruling highlights an important principle: cash transactions demand strict proof, while properly documented transactions reflected in books cannot be taxed merely on suspicion.