Property received from relative is exempt u/s 56(2)(x) cannot be taxed u/s 68 indirectly

Receipt of immovable property from relative is not taxable u/s 56(2)(x) and cannot be brought o tax u/s 68 for difference in stamp duty valuation and value declared in gift deeds.

In a recent judgment, ITAT Chennai has held that receipt of immovable property from a ‘relative’ is excluded from the ambit of taxation u/s 56(2)(x) of the Income Tax Act, the same cannot be indirectly brought o tax by invoking the provisions of section 68 of the Act for the reason of difference in stamp duty valuation and gift deeds.

ABCAUS Case Law Citation:
4943 (2025) (12) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A),  National Faceless Appeal Centre in confirming the addition under section 68 of the Income Tax Act, 1961 (the Act) towards gift received by the appellant in the form of property settlements from his father and brother.

The case of the assessee was selected for limited scrutiny assessment for inter alia verification of increase in capital. During the course of the assessment proceedings, the AO noted from the capital account of the assessee that there was a substantial increase in closing capital balance than the opening balance. The assessee was called upon to explain the source and justification for such substantial accretion in capital.

The assessee explained that part of the increase was attributable to receipt of immovable properties by way of gifts from his father and brothers which had been credited to the capital account.

With respect to the gifts credited in the capital account, the AO found that substantial discrepancies existed between the market value declared in the registered gift deeds and the values adopted in the valuation report. The AO therefore treated the enhanced valuation of gifted properties as artificially inflated and unacceptable.

In view of the above, the AO held that the assessee had failed to substantiate the increase in capital and treated the same as unexplained cash credit under section 68 of the Act.

The CIT(A) noted that although copies of gift deeds were furnished, the assessee had failed to rebut the discrepancies pointed out by the AO in respect thereof. The CIT(A) held that the assessee had not established the identity and creditworthiness of the donors nor the genuineness of the alleged gift transactions. The CIT(A) therefore concluded that the assessee failed to discharge the onus cast upon him u/s 68 of the Act, and accordingly confirmed the addition.

The Tribunal observed that it was an admitted and undisputed fact that the assessee had received the impugned immovable properties through duly registered settlement/gift deeds executed by his father and brothers. The relationship between the assessee and the donors had not been doubted by the AO. It was also not in dispute that the transfer of the properties stood completed in accordance with the provisions of the Transfer of Property Act, 1882, and the entries in the capital account of the assessee were supported by such registered instruments.

The Tribunal opined that the approach adopted by the lower authorities was not sustainable in law. Once the receipt of the properties was evidenced by duly registered settlement deeds and the relationship of the donors with the assessee stood admitted, the identity of the donors was conclusively established. The donors being the father and brothers of the assessee, their existence and capacity cannot be doubted merely on account of a difference in valuation. The genuineness of the transactions was also established by the execution and registration of the settlement deeds, which had neither been alleged nor proved to be sham, bogus or fictitious. It is well settled that a registered document carries a strong presumption of genuineness, unless rebutted by cogent evidence, which is conspicuously absent in the present case.

On the applicability of the section 68 of the Act, the Tribunal observed that the said provision deals with unexplained cash credits. In the instant case, the credit in the capital account did not represent any receipt of money but represents the value of immovable properties received by way of gift/settlement. The source of such credit was clearly identifiable and traceable to registered settlement deeds. Merely because the assessee had adopted a value based on a valuation report which was higher than the value mentioned in the settlement deeds, the same cannot, by itself, lead to the conclusion that the credit represents unexplained income of the assessee. The law does not mandate that the value recorded in the books must necessarily be identical to the value stated in the registered document, particularly when the underlying transaction itself is not in dispute.

The Tribunal further observed that the objection of the Revenue based on alleged abnormal or excessive valuation was also misplaced. Valuation is inherently a matter of estimation and opinion. Unless the statute specifically provides for substitution of value or adoption of a deemed value, mere variation in valuation cannot give rise to a taxable addition. The AO had not brought on record any material to show that the assessee introduced any unaccounted money in the guise of gifts, nor has any evidence been produced to demonstrate that the donors lacked the capacity to own or transfer the properties in question or that the transactions were colourable devices.

Further, the Tribunal opined that the provisions of section 56(2)(x) of the Act squarely apply to the facts of the case. The said provision expressly excludes from taxation any receipt of immovable property from a ‘relative’ as defined therein. It was an undisputed position that the father and brothers of the assessee fall within the definition of ‘relative’. Once the receipt itself is excluded from the ambit of taxation u/s 56(2)(x) of the Act, the same cannot be indirectly brought o tax by invoking the provisions of section 68 of the Act, in the absence of any independent incriminating material. It is a settled principle of law that what is expressly excluded by the statute cannot be taxed indirectly by resorting to a general provision.

The Tribunal rejected the argument of the Revenue that alleged abnormal valuation disentitles the assessee from the benefit of section 56(2)(x) of the Act as devoid of merit.

The Tribunal observed that the statute does not provide for any such exception based on valuation differences for the purpose of making additions under the provisions of the Act. When the legislature, in its wisdom, has granted an unconditional exclusion in respect of gifts received from relatives, the tax authorities cannot read into the provision conditions which are not expressly provided therein.

Accordingly, the Tribunal deleted the addition. 

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