Assessee Justifies Family-Sourced Funds with Clear Evidence Before Tax Authorities

Background of the Case

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, “C” Bench, delivered its judgment on January 24, 2025, in the case of Kshama Sanjay Tripathi (Appellant) vs. The Income Tax Officer, Ward-4(2)(2), Ahmedabad (Respondent). This judgment pertains to an appeal filed by the assessee for the assessment year 2010-11. The core issues revolved around additions made to the assessee’s income regarding unexplained investments and expenditures.

Key Grounds of Appeal

1. The confirmation of an addition of ₹40,00,000 as unexplained investment in property purchase by the Commissioner of Income Tax (Appeals) [CIT(A)].
2. The enhancement of the assessment by ₹2,10,000 as unexplained expenditure without issuing the mandatory notice of enhancement.

The assessee contended these actions and sought relief from the ITAT.

Case Facts

The case originated when the Non-filer Management System flagged the assessee for not filing a return of income for AY 2010-11. Based on the Annual Information Return (AIR), it was noted that the assessee purchased an immovable property worth ₹40,00,000 and made cash deposits of ₹17,58,500 in her bank account. Consequently, the case was reopened under Section 148 of the Income Tax Act. The Income Tax Officer assessed the total income as ₹57,58,500 under Section 144.

Proceedings Before the CIT(A)

The CIT(A) provided partial relief by deleting the addition of ₹17,58,500 relating to cash deposits. However, the CIT(A) enhanced the assessment by ₹2,10,000, citing unexplained expenditure. Aggrieved by this decision, the assessee approached the ITAT.

Arguments Presented

Assessee’s Argument
The assessee’s Authorized Representative (AR) argued that the amount of ₹40,00,000 used for purchasing the property was received from family members, including her husband, father, brother, and father-in-law. Details of the sources were presented:

• ₹28,50,000 from her brother, Deb Brat Mishra
• ₹4,90,000 from her husband, Sanjay Tripathi
• ₹1,40,000 from her father, Prabhakar Mishra
• ₹5,00,000 from her father-in-law, Yugal Kishore Tripathi

Bank statements and other evidences substantiating these transactions were submitted.

1. Revenue’s Argument
   The Revenue’s Departmental Representative contended that the assessee failed to file confirmations and adequately prove the creditworthiness of the family members who lent the money.

Tribunal’s Observations and Decision

After evaluating the submissions and evidence, the ITAT made the following observations:

• The bank statements provided by the assessee clearly demonstrated the transfer of funds from family members to her account. This substantiated the claim that the sources of ₹40,00,000 were genuine and adequately explained. The Tribunal found no grounds for treating this amount as unexplained investment.
• Regarding the enhancement of ₹2,10,000 as unexplained expenditure, the Tribunal held that the CIT(A) acted without issuing a statutory notice of enhancement, a legal requirement. Consequently, this enhancement was deemed invalid.

Conclusion and Judgment

The ITAT allowed the assessee’s appeal, setting aside the additions made by the CIT(A). The Tribunal’s order reflects a careful consideration of the evidence provided and adherence to procedural requirements.

Key Takeaways

1. Proper documentation and evidences, such as bank statements, are critical in proving the genuineness of transactions.
2. Revenue authorities must comply with procedural requirements, such as issuing notices before enhancing assessments.
3. Appeals to the ITAT can provide relief when assessees face unjustified or procedurally flawed assessments.

Citation: Kshama Sanja y Tripathi vs The Income Tax Officer I.TA. No. 450/Ahd/2020 Assessment Year: 2010-11