I-T relief over flat from dad sans gift deed

MUMBAI: The income tax appellate tribunal’s (ITAT) Mumbai bench has held that the absence of a formal gift deed cannot, by itself, justify treating a property purchase as an ‘unexplained investment’ when the source of funds is clearly identifiable. Under I-T laws, if income or an asset is treated as unexplained, it is subjected to a steep punitive tax rate.The ITAT held in its May 27 order that a man purchasing a property in his daughter’s name out of natural love and affection cannot be treated as a suspicious transaction merely because no formal gift deed was executed.The daughter, a Mumbai-based homemaker with no independent source of income, came under the tax department’s scanner after information surfaced that she had purchased an immovable property valued at Rs 1.1 crore in 2015-16.During assessment proceedings, she explained that the property had been bought by her late father, who was a businessman and regular taxpayer. She furnished the registered sale deed, her father’s death certificate and his bank statements showing two payments of Rs 55 lakh each made from the bank account directly to the property seller.The I-T officer rejected the explanation, pointing out that the source of credits in the father’s bank account had not been explained and that no formal gift deed had been produced. The I-T officer consequently treated the entire investment as unexplained under Section 69 of Income Tax Act and taxed it accordingly. This meant that the sum would face an effective tax rate of over 70%.The ITAT observed that the woman had discharged the primary burden of explaining the source of funds by producing documentary evidence establishing that the money had flowed directly from her father’s bank account.The bench pointed out that in an ordinary Indian family setup, it is “neither uncommon nor unusual” for a man to acquire property in the name of his daughter out of natural love and affection without executing formal gift documentation.It held that human probabilities and surrounding circumstances cannot be ignored while evaluating such transactions among close family members. Once the payment trail is established through banking records and the source of payment identified, the absence of a formal gift deed by itself cannot render the transaction as ‘unexplained’, it said.The ITAT frowned on the action of the first appellate authority (the appellate commissioner) who had dismissed the daughter’s appeal over a 79-day delay without examining the case merits. It observed that substantial justice should prevail over technical considerations.Tax professionals said the ruling reinforces an important principle: where a parent with disclosed sources of income directly funds the purchase of property in the name of a child and the money trail is fully documented, additions for unexplained investment may not survive merely because no gift deed was executed or because the department seeks further explanation regarding the parent’s finances.