RAKESH KUMAR GARG,FIROZABAD vs. INCOME TAX OFFICER WARD-2(2)(1), FIROZABAD

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ITA 59/AGR/2026Status: DisposedITAT Agra19 May 2026AY 2016-20178 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that gifts from relatives, even if received shortly after the donors received loan repayments, are valid if supported by evidence and exempt under Section 56(2)(vii). It also found that advances from customers and unsecured loans were explained by the assessee with documentary evidence. The ad-hoc disallowance of expenses was also deemed unsustainable.

What were the facts?

The assessee, a proprietor of a chemical trading firm, declared an income of Rs. 9,77,180/- for AY 2016-17. The Assessing Officer made additions totaling Rs. 90,40,000/- as unexplained gifts, Rs. 5,32,000/- as advances from customers, Rs. 13,27,930/- as unsecured loans, and Rs. 17,343/- as disallowance of expenses.

What were the issues?

Whether additions made on account of gifts from relatives, advances from customers, and unsecured loans are justified, and if an ad-hoc disallowance of business expenses is sustainable.

Which sections of the Income-tax Act were involved?

Section 68,Section 56(2)(vii)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AGRA (DB

Before: SHRI M BALAGANESH & SHRI SUNIL KUMAR SINGH

For Appellant: Shri Gaurav Goyal, CA
For Respondent: Shri Shailendra Srivastava, Sr (DR)
Hearing: 18.03.2026Pronounced: 19.05.2026

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA (DB) BENCH, AGRA BEFORE: SHRI M BALAGANESH, ACCOUNTANT MEMBER AND SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. 59/Agr/2026 Assessment Year: 2016-17 Rakesh Kumar Garg Vs. ITO Ward-2(2)(1) 118, Ganesh Nagar, Firozabad-283203 Firozabad-283203 PAN : ABCPG5110G (Appellant) (Respondent) Assessee by Shri Gaurav Goyal, CA Department by Shri Shailendra Srivastava, Sr (DR) Date of hearing 18.03.2026 Date of pronouncement 19.05.2026 ORDER

PER: SUNIL KUMAR SINGH, JM. This appeal has been preferred against the impugned order dated 20.11.2025 passed in Appeal No CIT(Appeal) 2, Agra/10542/2018-19 by the ld Commissioner of Income Tax/NFAC, Delhi [hereinafter referred to as the “CIT(A)] u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act), for the A.Y. 2016-17, wherein ld CIT(A) has partly allowed assessee’s appeal. 2. The brief facts of the case are that the assessee is a proprietor of M/s Garg Chem Corporation, engaged in trading of chemicals and filed return of income for A.Y. 2016-17 on 15.08.2016, declaring total income of Rs. 9,77,180/-. The case was selected for complete scrutiny under CASS.

ITA No.59/Agr/2026

Statutory notices u/s. 143(2) and 142(1) were issued and served upon the assessee seeking to produce necessary documents, complete books of accounts and squared up loan details and the source of addition to his capital account to the extent of Rs. 99,03,855.86. Ld assessing officer found the submissions and explanations of the assessee unsatisfactory and made addition of Rs. 90,40,000/- claimed as gift received from relatives, Rs. 5,32,000/- claimed as advance from customers, Rs. 13,27,930/- claimed as unsecured loan and Rs. 17,343,/- being 20% of the total amount of Rs. 86,714/- (24879+29031+32804) claimed as mobile expenses, car insurance expenses and travelling expenses respectively, vide assessment order dated 22.12.2018 passed u/s. 144 of the Act etc. These additions are the impugned additions for the purpose of this appeal, hence other additions deleted by ld CIT(A) are not being mentioned herein. 3. Appellant assessee filed first appeal against the assessment order before ld CIT(A), who confirmed the aforesaid four additions, which are impugned under appeal. 4. Appellant assessee has raised following grounds under appeal: “1. That on the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the addition of Rs.90,40,000/- made u/s 68 of the Act on account of gifts received from relatives, by wrongly holding the same as unexplained, ignoring the evidences filed regarding identity, genuineness and creditworthiness of the donors. 2. That the learned CIT(A) has failed to appreciate that the gifts were received from close relatives, duly supported by gift deeds, PAN, ITRs and bank statements, and were exempt under section 56(2)(vii) of the Act, and therefore the addition sustained u/s 68 is bad in law. 2 | P a g e

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3.

That the learned CIT(A) has erred in confirming the addition of Rs.5,32,000/- u/s 68 on account of advances received from customers, without appreciating that the same were business advances received in the normal course of business and could not be treated as unexplained cash credits. 4. That the learned CIT(A) erred in confirming the addition of Rs. 13,27,930/- u/s 68 in respect of unsecured loans, ignoring the fact that the loans were from known persons/relatives with opening balances and that necessary details were available on record. 5. That the learned CIT(A) has wrongly held that the appellant failed to discharge the onus under section 68, without appreciating the documentary evidences and the past accepted transactions. 6. That the learned CIT(A) erred in confirming the ad hoc disallowance of Rs.17,343/-out of business expenses, without pointing out any specific defect or establishing any personal use, and thereby sustaining an arbitrary and unjustified disallowance. 7. That the learned CIT(A) has failed to appreciate that no books of account were rejected for this purpose and no cogent basis was given for making ad hoc disallowance of expenses. 8. That the learned CIT(A) erred in law and on facts in upholding the action of the Assessing Officer in making and sustaining the above additions without granting proper opportunity of cross-examination and without considering the submissions and evidences in their correct perspective, thereby violating principles of natural justice. 9. That the order of the learned CIT(A) is bad in law, perverse, based on surmises and conjectures, and liable to be quashed to the extent additions have been confirmed. 10. That the appellant craves leave to add or alter the grounds of appeal.”

5.

Perused the records and heard ld representative for the appellant assessee and ld Sr DR for the respondent revenue. 6. The main point for determination under appeal is as to whether ld CIT(A) has erred in (i) confirming the addition of Rs. 90,40,000/- on account of gifts received from relatives. (ii) confirming the addition of Rs. 5,32,000/- on account of advances received from customers. (iii) confirming addition of 3 | P a g e

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Rs. 13,27,930/- on account of unsecured loans from known persons/ relatives. (iv) in confirming the adhoc disallowance of Rs. 17,343/- out of business expenses? 7. Ld representative for the assessee has submitted that the identity, credit-worthiness and genuineness of the gift of Rs. 50,00,000/- from father, Rs. 40,00,000/- from mother and Rs. 40,000/- from uncle to assessee, was proved with documents before the revenue authorities, however, the same has been wrongly treated as unexplained gift. Similarly the remaining additions of Rs. 5,32,000/- on account of advances received from customers, Rs. 13,27,930/- on account of unsecured loan and Rs. 17,343/-, being 20% of total expenses of Rs. 86,714/- in the head, mobile/insurance/travelling expenses as business expenses, have also been made as unexplained expenditures despite cogent and convincing evidence produced by the assessee. Ld AR, further submits that the confirmations and the ledger of various business expenses have not been considered by the first appellate authority. Prayed to allow assessee’s appeal. 8. Ld Sr DR for the respondent revenue supports the impugned order. 9. As regards the addition of Rs. 90,40,000/- as gift received by the assessee from relatives, assessee explained before the ld assessing officer that he received gift of Rs. 50,00,000/- from his father Mr. Ramesh Chand Garg in two trenches at the rate of Rs 25,00,000/- each, Rs. 40,00,000/- 4 | P a g e

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from his mother Smt. Yashoda Rani Garg in two trenches at the rate of Rs. 20,00,000/- each and Rs. 40,000/- received from assessee’s uncle (brother of assessee’s father) Shri Murari garg. Undisputedly, all these gifts were transferred in assessee’s account from the above donors through banking channels only. The source of gifted amount received by assessee’s parents is stated to be the repayment of unsecured loan advanced to M/s Garg Chem Corporation (an assessee’s proprietory concern). Ld assessing officer did not accept the source of the above fund as genuine firstly, because the funds were transferred in the donors account one to three days prior to the date of transfer in assessee’s account. Secondly, the illegibility of date on the stamp paper over which the gift deed was written and thirdly, due to non-mentioning of any occasion for making gift, and fourthly, non-appearance of donors, were the main reasons to reject the claim of assessee. 10. Ld CIT(A), has mentioned in para 5.1 of the impugned order that the assessee submitted gift deeds, PAN’s, ITR’s, bank statements and ledger accounts of the donors, however observed that the gift within 1-3 days defeats commercial-prudence and held that this proximity nexus between inflow(loan repayment) and outflow (gift) establishes that the donors lacked independent financial capacity and affirmed the action of the assessing officer.

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11.

It is not in dispute that the assessee received the amount of Rs. 90,00,000/- from his parents through banking channels only. It is pertinent to note that assessee’s father or mother can gift any movable property to his/ her son even orally as the oral gift of movable property, such as cash to a son is valid under the law. The gift made immediately upon receipt of money, the illegibility of date on the stamp paper, absence of physical appearance of donors, the gift without an occasion, cannot be the grounds to reject assessee’s claim of gift, when the genuineness of transactions are not doubted. 12. In the instant case, ld CIT(A) has doubted the independent financial capacity of the donor/ father, merely by stating that the total income of Rs. 8,10,507/-, for A.Y. 2016-17, & total income of donor mother at Rs. 7,50,621/- without making an endeavour to ascertain their past financial credentials as both the parents are said to be retired and of above 70 years of age. The capacity of donors to advance unsecured loan to their son’s proprietorship concern cannot be doubted without first arriving at a proved conclusion that they had no past savings to advance the said unsecured loan to their assessee son or son’s proprietorship concern. In absence of such research work, the conclusion drawn up by ld CIT(A) is based on mere conjecture and surmises as it is not the mandate of law that such gifted amount should always be earned in the year under consideration only. The amount of Rs. 90,00,000/- gifted by the parents to the assessee 6 | P a g e

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son is exempt under clause (a) to fourth proviso to section 56(2) (vii) of the Act. This apart, a gift of Rs. 40,000/- is said to have been given to the assessee by his relative uncle/ (father’s brother). Even if this factum of relation is ignored, the gift, being below the exempt limit of Rs. 50,000/- to any person is also exempt from tax. Thus the addition to the extent of gifted amount of Rs. 90,40,000/- stands deleted. 13. For determining the second point, the addition of Rs. 5,32,000/- on account of advances received from the customers, assessee filed all evidences before Assessing Officer during the remand proceedings. Ledger account of one of the party namely AMKAP Marketing Pvt Ltd at page 53 of assessee’s paper book, shows an entry of Rs. 5,00,000/- dated 28.03.2016 and in ledger account of another party namely Super Shine Chemicals at page 52 of assessee’s paper book, shows an entry of Rs. 3,20,000/- received from customers is proved, hence addition of Rs. 5,32,000/- being explained one, stands deleted. 14. As regards the addition of Rs. 13,27,930 is concerned, confirmation was filed before the assessing officer on 29.10.2018, vide confirmation request at pages 54,62 and 71 of assessee’s paper book. After confirmation from parties concerned, this addition on account of unsecured loans is unsustainable, hence deleted. 15. The adhoc disallowance of business expenditure of Rs. 17,343/- on estimated basis, not being supported with any reason cannot be sustained, 7 | P a g e

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hence deleted. The second point is also determined in positive in favour of the assessee and against the revenue. The impugned order is set aside. The appeal is liable to be set aside. 16. In the result, the appeal is allowed. Order pronounced on – 19.05.2026

Sd/- Sd/- (M BALAGANESH) (SUNIL KUMAR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated: 19.05.2026 *Aamir Siddiqui, PS Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, Agra

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