ACIT., CIRCLE-5(1), HYDERABAD vs. SATISH KUMAR AGARWAL, HYDERABAD

Succinctly stated, the assessee is a proprietor of a concern which is engaged in trading/export of jewellery, viz. M/s. Kundan Jewellers & Exporters. The case of the assessee was selected for scrutiny assessment, and a notice was issued to him under section 143(2) of the Act, dated 01/06/2023. 3. During the course of the assessment proceedings, the AO observed that the assessee in the subject year had claimed to have received gifts from his family members aggregating to Rs. 2,88,00,000/-

The AO observed that the assessee during the subject year had claimed the deduction of interest on unsecured loans amounting to Rs.

The assessee, on further being queried about the aforementioned gift transactions, submitted copies of the bank statements and returns of income of the donors, confirmations of the donors, and ledger confirmations. Apart from that, the assessee, on being queried about the source of the money received as gifts, submitted that the donors were in regular receipt of interest income from bank deposits and loans advanced to third parties.

The assessee, on being queried about the gifts that he had claimed to have received from his parents, viz. (i). Shri Purushottam Das Agarwal (Father): Rs. 1,65,00,000; and (ii). Smt. Vijay Lakshmi Agarwal (Mother): Rs. 1,17,00,000/-, submitted that both of his parents had initially advanced interest-bearing loans to his proprietary concern, viz. M/s. Kundan Jewellers & Exporters. It was stated that while taking further financial assistance from ICICI bank, i.e., an Overdraft/CC facility, he had, as per the banker’s requirement that the unsecured loans be cleared from the books of accounts of his proprietary/business concern, he had repaid through proper banking channels the loans to both of his parents. Elaborating further, it was stated that post- repayment of loans, he had re-borrowed in his individual name the same amounts from both of his parents, viz. (i). Shri Purushottam Das Agarwal (Father) : Rs. 3,20,00,000/- (received in October, 2021); and (ii). Smt. Vijay Lakshmi Agarwal (Mother): Rs. 1,65,00,000/- (received in September, 2021). The assessee submitted that, thereafter, both of his

Accordingly, the AO vide his order passed under section 143(3) r.w.s 144B of the Act, dated 21/03/2024, determined the income of the assessee at Rs.5,44,00,090/-, i.e., after treating the aforementioned amounts claimed by him to have been received as gifts from his parents amounting to Rs.2.82 crores as an unexplained cash credit under section 68 of the Act.

Aggrieved, the assessee carried the matter in appeal before the CIT(A), who deleted the addition of Rs. 2.82 crores made by the AO and allowed the appeal. The CIT(A) after considering the submissions of the assessee and the material available on record, observed that since the identity and creditworthiness of the donors, and the genuineness of the gift transactions stood established, the addition of Rs. 2.82 crores made by the AO under section 68 of the Act based on assumptions and conjectures could not be sustained. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under:

The revenue aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

We have heard the Learned Authorised Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

Shri AV Raghuram, Advocate, Learned Authorised Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal, submitted that both the lower authorities had grossly erred in law and facts of the case in making/sustaining the addition of Rs.2.82 crores (supra) by treating the respective gifts received by the assessee from his parents as bogus. Elaborating further on his contention, the Ld. AR submitted that the AO has erroneously observed that the assessee had failed to substantiate the source of the respective gifts that were received by the assessee from his parents, as well as had not substantiated their creditworthiness to gift the respective amounts. The Ld. AR submitted that the source of the amounts gifted by the assessee’s parents to him during the subject year could be traced in their respective bank accounts. Elaborating further on his contention, the Ld. AR submitted that both parents had initially advanced amounts as loans to M/s. Kundan Jewellers & Exporters, i.e., the proprietary concern of the assessee, viz., Shri Purushottam Das Agarwal: Rs. 3.20 crores; and (ii) Smt. Vija Laxmi Agarwal: Rs.1.65 crores. The Ld. AR submitted that the loans advanced by both of his parents were interest-bearing and the corresponding interest paid to them had been allowed by the AO as a deduction while computing the business income of the assessee for the year under consideration. Carrying his contention further, the Ld. AR submitted that the source of the abovementioned loans advanced by both of his parents could safely be gathered from their respective bank accounts, viz., (i) Smt. Vijay Laxmi Agawwal (Bank account No.22510200000295 with DCB Bank, Branch Banjara Hills, Page Nos.55 to 61 of APB; and (ii) Shri Purushottam Das Agarwal (a) Account No. 22512500000657 with DCB Bank, Branch Banjara Hills, Page Nos.68 to 72 of APB; (b) OD Account No.225XXXXXXX0295 with DCB Bank, Branch Banjara Hills (copy placed on record).

Elaborating further on his contention, the Ld. AR submitted that the loans advanced by his parents were accepted by the department, and though the corresponding interest paid on the same was initially proposed to be disallowed, but the same was not disallowed in the final

Per contra, Shri D Praveen, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”), relied upon the assessment order. The Ld. Sr-DR submitted that as the assessee had failed to substantiate the creditworthiness of the respective donors and also the genuineness of the gift transactions, the AO has rightly held the same as unexplained cash credit under section 68 of the Act.

We have given thoughtful consideration to the contentions advanced by the Learned Authorised Representatives of both parties, perused the orders of authorities below and the material available on record, as well as considered the judicial pronouncements that have been relied upon by the Ld.AR to drive home his contentions.

Admittedly, it is a matter of fact borne from record that the respective gifts (as claimed by the assesse) aggregating to Rs. 2.82 crores, were received by the assessee was from his parents, viz., (i) Shri Purushottam Das Agarwal, PAN: ACNPA5404H (father): Rs. 1.65 crores; and (ii) Smt. Vijay Laxmi Agarwal, AFIPA6465J (mother): Rs. 1.17 crores. Ostensibly, the AO had doubted the veracity of the gift transaction for multiple reasons, viz., (i) that the assessee had not received the money from the donors directly but had claimed to have received the same by shifting part of the outstanding loans from his business concern to his individual name; (ii) that the returned income of the respective donors which was within the range of Rs.15 to Rs.16 lakhs did not inspire any confidence regarding their creditworthiness to gift the substantial amounts to the assessee; and (iii) the genuineness of the gift transactions were not proved beyond doubt.

We may herein observe, that as the amounts have been received by the assessee from his parents, the genuineness of the gift transaction cannot be doubted based on the relation of the donors and the donee. Our aforesaid view is supported by the judgment of the Hon’ble High Court of Andhra Pradesh in the case of Pendurthi Chandrasekhar Vs. DCIT (2018) 407 ITR 179 (AP). In the case before the Hon’ble High Court, it was observed that as the assessee before them had received the gift from his maternal Aunt, i.e., a relative defined under “Explanation” to section 56(2)(v) of the Act, the AO could not 14 (Father); and (ii) Smt. Vijay Laxmi Agarwal (Mother), we deem it apposite to deal with them separately as under:

As had been brought to our notice, the aforesaid donor, i.e., the assessee’s mother, had in the immediately preceding year, i.e., period relevant to the AY 2021-22, advanced an amount of Rs.1.65 crores to M/s. Kundal Jewellers & Exporters, a proprietary concern of the assessee over the period 26/05/2020 to 24/06/2020. We find that the aforesaid factual position can safely be gathered on a conjoint perusal of the ledger account of Smt. Vijay Laxmi Agarwal in the books of account of M/s. Kundan Jewellers & Exporters for the Financial Year 2020-21, Page No. 2 r.w Page No. 35 of APB. Thereafter, the entire amount of Rs. 1.65 crore was repaid by M/s. Kundan Jewellers & Exporters to Smt. Vijay Laxmi Agarwal during the year under consideration on 17/09/2021. The said fact can safely be gathered on a 15 Smt. Vijay Lakshmi Agarwal had advanced a loan of Rs.1.65 crores on 04/10/2021 to the assessee (in his individual capacity), which can safely be gathered on a conjoint perusal of Page No.1 r.w Page No. 36 of APB. Thereafter, assessee had partly repaid the loan of Rs. 20 lakhsto Smt. Vijay Lakshmi Agarwal on 01/11/2021, which can safely be gathered on a conjoint perusal of Page No. 1 r.w Page No. 32 of APB. Thereafter, Smt. Vijay Laxmi Agarwal had gifted an amount of Rs. 1.17 crores on 22/01/2022 to the assessee by giving up a part of the outstanding loan to the said extent as was due by the assessee towards her. The aforesaid fact can safely be gathered on a conjoint perusal of Page No. 1 r.w. Page 32 of APB. Accordingly, the assessee based on the aforesaid facts had an outstanding balance of Rs. 28 lakhs due towards Smt. Vijay Laxmi Agarwal on 31.03.2022, Page No. 1 r.w. Page 32 of APB.

Considering the aforesaid facts, we find that the source of the amount of Rs.1.17 corers, i.e., which is claimed by the assessee to have been received as gift from his Mother, viz., Smt. Vijay Laxmi Agarwal was sourced out of the loan of Rs.1.65 crores that was advanced by her to M/s. Kundan Jewellers & Exporters, i.e., the proprietary concern of the assessee during the Financial Year 2020-21. At this stage, we may herein observe that as the source of the amount of Rs.1.17 crores received by the assessee from Smt. Vijay Laxmi Agarwal found its genesis in the amount of Rs.1.65 crores that was advanced by her as a loan to the assessee in the preceding year, therefore, there could be no justification to the AO to have drawn adverse inferences regarding the source of the subject amount received by the assessee during the year in question. Also, we find substance in the Ld. AR’s contention that as the revenue had at no stage doubted the genuineness of the loan transaction and the creditworthiness of Smt. Vijay Laxmi Agarwal to advance the loan of Rs.1.65 crores to the assessee during the preceding year, i.e., during the period relevant to AY 2021-22, there can be no justification for him to have observed that the creditworthiness of the said person to have gifted an amount of Rs.1.17 crores (out of Rs.1.65 crores) was not established in respect of the gift received by the assessee during the year under consideration. To sum up, now when the source of the amount of Rs.1.17 crores received by the assessee from his mother, viz., Smt. Vijay Laxmi Agarwal can safely be traced and related to the loan of Rs.1.65 crores that was advanced by her to M/s. Kundan Jewellers & Exporters (supra) during the Financial Year 2020-21, there can be no justification to characterise the amount of Rs.1.17 crores (out of Rs.1.65 crores) received by the assessee from the aforementioned person as an unexplained cash credit under section 68 of the Act.

Coming to the fact that the AO had doubted the veracity of the gift transaction, i.e., the amount received by the assessee during the year

In our view, as the relation between the assessee and the aforesaid donor, i.e., son & mother is established; the source of the gift of Rs. 1.17 crores (forming part of Rs.1.165 crores) finds its genesis in the loan advanced by the aforementioned person to M/s. Kundan Jewellers & Exporters, i.e., the proprietary concern of the assessee in the preceding year, i.e., AY 2021-22; and further it is not the case of the Department that there is a money trail which would prove that it was the money belonging to the assessee which has been routed back to him in the garb of the alleged gift received from the aforementioned person, therefore, we are unable to persuade ourselves to concur with the 18 ACIT vs. Satish Kumar Agarwal authorities below who had dubbed the subject gift transaction as bogus/sham. Before parting, we may further observe that the fact that the loan of Rs.1.65 crores (supra) advanced by Smt. Vijay Laxmi Agarwal in AY 2021-22 has not been doubted by the Department, can safely be gathered from the fact that the corresponding interest paid on the said loan was not disallowed while framing the assessment for the year under consideration.

Be that as it may, we are of firm conviction that both the lower authorities had grossly erred in law and facts of the case in summarily treating the gift of Rs. 1.17 crores received by the assessee from his mother as an unexplained cash credit under section 68 of the Act.

We find on a perusal of the record that Shri Purushottam Das Agarwal had advanced a loan of Rs. 3.20 crores to M/s. Kundan Jewellers & Exporters (supra), viz. (i). AY 2021-22 (over the period 26/05/2020 to 07/07/2020): Rs. 95 lakhs; and (ii) AY 2022-23 (over the period 04/08/2021 to 08/09/2021): Rs. 2.25 crores. Thereafter, M/s. Kundan Jewellers & Exporters (supra) had in the subject year, i.e., AY 2022-23, repaid the entire loan to the aforementioned person (over the period 04/10/2021 to 11/10/2021). Thereafter, Shri Purushottam Das Agarwal had advanced a loan of Rs. 3.20 crores to the assessee (in his individual capacity) during the period relevant to AY 2022-23 (over the 19 ACIT vs. Satish Kumar Agarwal period 04/10/2021 to 11/10/2021). Thereafter, the assessee had during the period relevant to AY 2022-23 partly repaid the loan of Rs. 65 lakhs (out of Rs. 3.20 crores) to Shri Purushottam Das Agarwal (over the period 29/11/2021 to 01/12/2021). Also, we find that Shri Purushottam Das Agarwal had given up an amount of Rs. 1.65 crores (out of the outstanding loan due to him by the assessee) on 22/01/2022 by gifting the said amount to him. Accordingly, as on 31/03/2022, the loan outstanding by the assessee to Shri. Purushotham Das Agarwal on 31/03/2022, was reflected at Rs. 90 lakhs (in the individual books of accounts of the assessee)

Considering the aforesaid facts, we find that the amount of Rs. 1.65 crores gifted by Shri Purushottam Das Agarwal (Father) is partly sourced out of the amount of Rs. 95 lakhs which he had advanced to the assessee’s concern, viz., M/s. Kundan Jewellers & Exporters in the period relevant to AY 2021-22. Also, we find that the balance amount of loan of Rs. 2.25 crores (out of Rs. 3.20 crores) that was received by the assessee’s concern, viz., M/s. Kundan Jewellers & Exporters from Shri Purushottam Das Agarwal during the subject year, i.e., AY 2022-23, was sourced out of his bank account No.2251200000657 with DCB Bank, Branch Banjara Hills: Rs. 50 lakhs; and (ii). OD Account No.225xxxxxx0295 with DCB Bank, Branch Banjara Hills: Rs. 1.75 Purushottam Das Agarwal was either sourced from any cash deposits or in any way round-tripping of the funds of the assessee/assessee’s concern.

We thus, are of a firm conviction that as the amount of Rs.1.65 crores claimed by the assessee to have been received as gift from Shri Purushottam Das Agarwal (father) is in turn sourced out of the latter’s duly explained sources, therefore, there was no justification for the AO to have held the same as an unexplained cash credit in the hands of the assessee under section 68 of the Act.

Coming to the veracity of the subject gift transaction, we are of the view that the same can safely be gathered on a perusal of the “gift deed”, dated 22/01/2022, wherein the donor had confirmed of having gifted an amount of Rs. 1.65 crores to the assessee, which the latter had accepted. In our view, as the subject gift transaction is between a father and son, therefore, considering the relationship between them, the genuineness of the same cannot be doubted. Also, the fact that the amount in question had been gifted by the aforementioned donor by way of financial assistance to his son further fortifies the genuineness of the subject gift transaction.

Be that as it may, we are of firm conviction that as the assessee has duly established the genuineness of the gift transaction in question,

Accordingly, we find no infirmity in the order of the CIT(A), and uphold the deletion of the impugned addition of Rs. 2.82 crores made by the AO under Section 68 of the Act.

In the result, the appeal filed by the revenue is dismissed in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file