MUMBAI: The Income Tax Appellate Tribunal (ITAT) Mumbai bench has ruled that not having a formal gift deed does not automatically classify a property purchase as an ‘unexplained investment’ if the funding sources are clearly identifiable. Under tax laws, unexplained income or assets incur a harsh punitive tax rate.
The ITAT stated in its May 27 ruling that a property’s purchase by a father in his daughter’s name, motivated by familial love and affection, should not be deemed questionable simply due to the absence of formal documentation.
The daughter, a homemaker in Mumbai without a personal income, came under scrutiny from the tax office after her acquisition of property worth ₹1.1 crore in 2015-16 came to light. She clarified that this property was purchased by her late father, a businessman and regular taxpayer, presenting the registered sale deed, death certificate, and bank statements showing two payments of ₹55 lakh made from her father’s account to the seller.
The income tax officer dismissed her explanation, citing the lack of clarification regarding the source of funds for her father’s bank credits and the missing gift deed. Consequently, the entire investment was assessed as unexplained under Section 69 of the Income Tax Act, leading to a punitive effective tax rate of over 70%.
The ITAT pointed out that the daughter had met the initial burden of proof regarding the funds’ origin by submitting relevant documents confirming the direct flow from her father’s account.
The bench noted that in typical Indian families, it is quite common for a father to purchase property in his daughter’s name out of love, without formal gift documentation. It emphasized that human probabilities and familial circumstances should be accounted for in evaluating transactions among close relatives. Once a clear payment trail is established, the lack of a gift deed alone cannot class the transaction as ‘unexplained’.
The ITAT criticized the appellate authority’s decision to reject the daughter’s appeal due to a 79-day delay without considering the case’s merits, asserting that substantial justice should take precedence over technicalities.
Tax experts have remarked that this ruling underscores a vital principle: when a parent with transparent income funds a property purchase directly in their child’s name and the money trail is documented, claims of unexplained investments are unlikely to hold, even without a gift deed or further clarification on the parent’s finances.
