When money has percolated to assessee from son, no addition u/s 56 can be made

When it is demonstrated that money has percolated to assessee from son though through companies in which he was a director, no addition can be made under section 56 – ITAT

In a recent judgment, ITAT Chandigarh deleted addition under section 56 observing that once it is demonstrated that the money had percolated to the assessee from his son through companies in which he was a director, then no addition ought to have been made.

ABCAUS Case Law Citation:
4514 (2025) (04) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the addition made by the Assessing Officer (AO) towards a deemed gift under Section 56 of the Income Tax Act, 1961 (the Act).

The case of the appellant assessee was selected for a limited scrutiny and a notice under Section 143(2) was issued and served upon the assessee.  The AO passed a scrutiny assessment under Section 143(3) accepting the returned income of the assessee.

The Commissioner of Income Tax (CIT) thereafter took cognizance under Section 263 of the Act.  He was of the opinion that the AO had not investigated the issue of foreign remittance which was alleged to be received by the assessee from his son as a gift.  The CIT passed a 263 order and set aside the assessment order directing the AO to frame denovo assessment.

In the denovo assessment, the assessee contended that the foreign remittances were a gift from his son which is not taxable under Section 56(ii)vii) of the Act, being taken from blood relative.  However, the AO disbelieved this fact and passed a fresh assessment order under Section 143(3) read with Section 263 of the Act and made the impugned addition under section 56 towards foreign remittance claimed to be a gift from the son of the assessee.

The Tribunal observed that the assessee’s son was resident abroad.  He was a director and shareholder in two companies. The said company had given loan to the son of the assessee which was transferred to the assessee.  The only fault at the end of the assessee was that his son, instead of first transferring the amounts to his personal account and thereafter transferring it to India, directly requested his companies where he was a director to transmit the money from the company’s accounts to his father’s bank account. 

The Tribunal noted that the said company had shown assessee’s son as the debtor in its audited account. The assessee had submitted complete details before the AO. However, AO erred in appreciating the facts in right perspective.

The Tribunal opined that once it had been demonstrated that the money had percolated to the assessee from his son, then no addition ought to have been made.  The alleged irregularity by receipt of money directly from the company’s accounts had duly been explained by the assessee. 

Accordingly, the Tribunal allowed the appeal of the assessee and deleted the additions

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