The officer has taxed money I received from someone who is not a relative under s.56(2)(x), and added the same amount under s.68 in the alternative at the higher rate - what is actually open to me?
The client is a salaried employee of a cement company, assessed at a ward in Nagpur. His father died on 9 February 2021 holding a two-thirds share in a fabrication firm. On 2 April 2021 the family and the surviving partner signed a memorandum recording an oral settlement of the father's capital and his share of goodwill, under which the partner was to pay the son Rs 25,00,000 and the family was to make no further claim on the firm. The money came by real time gross settlement on 14 September 2022. The partner's confirmation, drafted by his own accountant, describes it as a gift out of natural love and affection for his late partner's son and says nothing about the settlement. In the same year the client's Hindu undivided family transferred Rs 6,00,000 to him from its bank account on 3 January 2023. The return for AY 2023-24, filed on 26 July 2023, showed salary of Rs 18,40,000 and neither receipt. A notice under s.143(2) issued on 18 June 2024. The order under s.143(3) dated 12 December 2024 brings Rs 31,00,000 to tax under s.56(2)(x), records that if that clause does not apply the same sum is added under s.68, charges it under s.115BBE and initiates penalty under s.271AAC. The demand with interest is Rs 26,40,000. The appeal was filed on 8 January 2025. The client holds the memorandum, the firm's partnership deed, the bank statements and the family's return.
Separate the Rs 25,00,000 from the Rs 6,00,000 before drafting a single ground. They are different receipts with different answers and arguing them together is how both are lost. Then get the memorandum of 2 April 2021, the deceased partner's capital account in the firm's books and the surviving partner's own return and treatment of the payment onto the file this month. The whole of the larger limb turns on whether the money was received without consideration, and the confirmation the family itself obtained is the most damaging document in the file.
Section 56(2)(x) governs receipts on or after 1 April 2017; receipts up to 31 March 2017 fell under s.56(2)(vii). Both sums here were received in the year ended 31 March 2023, so the current clause applies and every decision this library holds on the gift exclusion was decided on the earlier one - say so when you cite them rather than leaving the bench to discover it. The library's statement of the clause is the starting point: it taxes the recipient and not the giver, on money or specified property received without consideration, once the Rs 50,000 threshold is crossed, and it does not apply at all where the giver is a relative as defined or the receipt falls in one of the listed exclusions. On the money limb the charge is on the whole of the aggregate received in the year, not on the excess over the threshold.
Two Tribunal Benches have held that a sum received by a member from his own Hindu undivided family is a capital receipt in his hands and not income, because the member has a pre-existing right in the property of the family. One set aside a revision built on the contrary view and recorded that the exemption for a member's share was also available; the other, on the same assessee and the same issue, declined to follow the Tribunal's own order for an earlier year and deleted the addition. The library's note on the relative definition cuts the other way on this direction: the two lists make a member a relative of his family but not the family a relative of the member, and the note records a Visakhapatnam bench upholding an addition on a receipt from the father's family and states that the point is not settled at Tribunal level.
The exclusion turns on a defined relationship, and the two entries this library holds on it mark out what is and is not open. One Bench held that the exclusion depends on the relationship and not on the paperwork, and kept Rs 80,00,000 received through banking channels from a sister's husband outside the charge although no contemporaneous deed existed and the deed produced had been drawn up nine years later. Another read the words brother and sister at common law, held that relationships by affinity come within them and kept a flat gifted by a step-sister outside the charge. Neither helps this client - a father's business partner is on no list - but they tell you which arguments exist where a relationship does, and they dispose of the officer's point that a gift without a registered deed is taxable for that reason alone.
The charge on the money limb is on a sum received without consideration. A payment made to buy off the family's claim on a dead partner's capital and goodwill is not received without consideration whatever the covering letter calls it; the consideration is the surrender of the claim. On the objection that the memorandum of 2 April 2021 was never registered, the Supreme Court has upheld an oral family arrangement acted on for years and held that where the settlement itself is oral, a document later filed only for the information of the authorities is a memorandum, creates no rights in immovable property and needs no registration. The step from there to this charge is taken from the words of the section and not from that decision: no entry in this library holds that a receipt under a family arrangement falls outside s.56(2)(x).
Section 68 operates on a sum found credited in the books of the assessee maintained for any previous year. This client is salaried and keeps no books. A High Court has held that a pass book supplied by a bank is a copy of the customer's account in the bank's own books, the relationship being debtor and creditor, so it is not the assessee's book; a Tribunal Bench has applied that to hold there is nothing for the section to attach to where the assessee is not required to keep books. The Board itself, after a compliance audit found officers invoking the wrong section and applying the wrong rate, has directed field offices that the officer has to satisfy himself as to the true nature and source of the amounts for which these sections are invoked. An order that taxes one sum under two inconsistent provisions belongs in the first ground.
The initial burden is on the assessee: who the payer is, whether he had the means, whether the transaction is real. The Supreme Court has held that furnishing particulars, payment by cheque and a confirmatory letter do not by themselves shift the onus; that the apparent is to be treated as real only until there is reason to believe otherwise, the authorities being entitled to look at the surrounding circumstances and to apply the test of human probabilities; and that where the assessee fails to prove the nature and source the officer may infer the receipt is assessable without proving a source of his own. Where names, addresses and departmental index numbers were given and the Revenue did no more than issue summonses that came back unserved, it declined to disturb a finding that the burden was discharged. A recent Bench held the burden shifted on confirmations, returns and bank records for every lender - an order marked no later treatment found and decided on the pre-amendment section for AY 2017-18.
An addition under the cash credit and unexplained money group is charged under s.115BBE at sixty per cent with a twenty-five per cent surcharge and cess, which the library puts at roughly seventy-eight per cent, with no deduction allowed and no set-off of any loss. A charge under s.56(2)(x) is income from other sources at the client's own slab rates. On Rs 31,00,000 that difference is the largest single number in the matter. The distinction is taken here from the words of s.115BBE, which lists the deeming sections and does not mention s.56(2)(x); no entry in this library decides it. On set-off, a High Court has held that the bar came in with effect from 1 April 2017 and cannot be applied to earlier years, and the Board's own circular records that a set-off is available up to AY 2016-17 - neither helps this year, and both are worth knowing before the ground is drafted.
The penalty follows the section the addition survives under. If it survives under the deeming group with the higher rate, one Bench has held that the penalty for that class of income is automatic and mandatory once the addition is sustained and the conditions of the proviso are not met, which they are not where the income was never shown in the return, and that the officer is left no discretion. If it survives under s.56(2)(x) the penalty is under s.270A, where one Bench has read the under-reporting scheme as dealing with deemed income only where the addition is made under the minimum alternate tax provisions, so a deeming addition falls outside it. The library's note on penalties where the addition is a deemed figure sets out the three separate answers the section itself gives, including the bona fide explanation with full disclosure.
The family limb turns on which Tribunal line the bench follows; the two orders held here favour deletion but the library records a contrary bench and no High Court decision either way. The settlement limb is harder and turns entirely on the documents: where the firm's books show the capital and goodwill being settled, benches have been willing to look past the word gift, and where the only paper is a confirmation calling it a gift the addition normally stands. The alternative charge under two sections is usually cured by the first appellate authority choosing one rather than by deletion, and the one chosen is more often the gift clause than the cash credit. Full deletion of both limbs is uncommon. A remand for verification of the settlement is the commonest real outcome, and it costs two more years.
