The Income Tax Appellate Tribunal (ITAT) Mumbai bench has ruled that the lack of a formal gift deed does not automatically justify treating a property purchase as an 'unexplained investment' when the source of funds is clearly identifiable. Under income tax laws, unexplained income or assets attract a steep punitive tax rate.
Case Background
In its May 27 order, the ITAT held that a man purchasing a property in his daughter's name out of natural love and affection cannot be considered a suspicious transaction merely because no formal gift deed was executed. The daughter, a Mumbai-based homemaker with no independent income, came under scrutiny after information revealed she had bought a property worth Rs 1.1 crore in 2015-16.
During assessment, she explained that her late father, a businessman and regular taxpayer, bought the property. She provided the registered sale deed, her father's death certificate, and bank statements showing two payments of Rs 55 lakh each from his account directly to the seller.
Tax Department's Objection
The Income Tax officer rejected this explanation, citing that the source of credits in the father's account was not explained and no formal gift deed was produced. Consequently, the officer treated the entire investment as unexplained under Section 69 of the Income Tax Act, leading to an effective tax rate exceeding 70%.
ITAT's Observations
The ITAT noted that the woman had discharged her primary burden by providing documentary evidence showing the money flowed directly from her father's bank account. The bench emphasized that in an ordinary Indian family setup, it is common for a man to acquire property in his daughter's name out of love without formal gift documentation.
Human probabilities and surrounding circumstances cannot be ignored when evaluating such transactions among close family members, the ITAT said. Once the payment trail is established through banking records and the source identified, the absence of a formal gift deed alone cannot render the transaction 'unexplained'.
The ITAT also criticized the first appellate authority for dismissing the daughter's appeal over a 79-day delay without examining the case merits, stating that substantial justice should prevail over technical considerations.
Implications for Taxpayers
Tax professionals noted that this ruling reinforces an important principle: where a parent with disclosed income sources directly funds a property purchase in a child's name and the money trail is fully documented, additions for unexplained investment may not survive merely due to the absence of a gift deed or further queries about the parent's finances.
