High-Value Gifts & Section 68: The Burden of Proof

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Shilpa Shetty Kundra vs. DCIT: Why a Gift Deed alone is insufficient for high-value transfers.

In the notable case of Shilpa Shetty Kundra vs. Deputy Commissioner of Income-tax [2026], the Mumbai Tribunal addressed the stringent requirements for proving the genuineness of high-value gifts between spouses under Section 68 of the Income-tax Act, 1961. The ruling emphasizes that the mere existence of a relationship and a legal deed does not exempt the taxpayer from proving the creditworthiness of the donor and the trail of funds.

The Dispute: ₹12.54 Crore Spousal Gift

For the Assessment Year 2020-21, the assessee claimed a gift of ₹12.54 crores from her husband. While the assessee produced a scanned copy of the gift deed and eventually the donor's PAN, the Assessing Officer (AO) raised several red flags:

  • ❌ Missing Fund Trail: The assessee failed to provide bank statements for both parties showing the actual movement and transfer of the gifted amount.
  • ❌ Lack of Specificity: The gift deed did not specify the mode of transaction (cheque, RTGS, etc.).
  • ❌ Creditworthiness Issues: The donor’s reported income was found not to be commensurate with a gift of such a massive magnitude.

The Tribunal's Decision: Remand for De Novo Adjudication

The Tribunal observed that although the assessee filed the spouse's Income Tax Returns (ITRs) during the proceedings, she failed to establish the transaction and the source of funds clearly with substantive documents. Consequently:

  • The Tribunal held that the onus under Section 68—which requires proving the identity, creditworthiness of the donor, and genuineness of the transaction—was not discharged.
  • The matter was remanded back to the Assessing Officer for a fresh (de novo) adjudication to allow the assessee to produce complete details and clarifications.
  • The addition was originally taxed under Section 115BBE, which carries a much higher effective tax rate for unexplained credits.

The Three-Pronged Test 💡

This case serves as a critical reminder that "Gift Tax" is not just about the relationship between the donor and donee. For Section 68 purposes, the Department applies a three-pronged test: Identity, Creditworthiness, and Genuineness. Even in a spousal relationship, if the donor cannot demonstrate the financial capacity to give such a large amount, or if the "source of the source" is murky, the gift can be treated as unexplained cash credit and taxed at the punitive rate of 60% (plus surcharge and cess) under Section 115BBE.

Source Reference: Shilpa Shetty Kundra vs. DCIT [2026] 184 taxmann.com 318 (Mumbai - Trib.).

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