Facts of the Case

·         Sh. Vipin Khanna, the father of the assessees (Arvind Khanna, Navin Khanna, Aditya Khanna, and Vinita Singh), remitted varying amounts to his children as gifts across separate Assessment Years.

·         The Assessing Officer (AO) rejected the genuineness of these transactions and added the amounts back to the assessees' income under Section 68 of the Income Tax Act, 1961.

·         Upon appeal, the CIT (Appeals) accepted the explanation that the amounts were genuine gifts, relying on notarized statements of foreign trusts and entities confirming credit entries in favor of the donor.

·         The CIT (Appeals) concluded that the assessees had successfully discharged their initial burden of proving the transaction's genuineness and the donor's credibility, a decision which the ITAT later confirmed.

Issues Involved

·         Whether the assessees satisfied the strict requirements of Section 68 of the Income Tax Act, 1961 regarding unexplained cash credits.

·         Whether the creditworthiness of the donor and the genuineness of the transactions were independently and adequately established for the respective Assessment Years.

Petitioner’s Arguments

·         The Revenue (Commissioner of Income Tax) argued that the foundational requirements of Section 68 were not met by the assessees.

·         The Revenue contended that relying merely on notarized statements of foreign entities is insufficient to prove the actual creditworthiness of the donor or the genuineness of the underlying transactions.

Respondent’s Arguments

·         The assessees maintained that the remittances were genuine gifts received from their father.

·         They asserted that the notarized statements from foreign trusts effectively proved the credit entries, thereby discharging their initial burden of proof.

·         It was additionally submitted that the donor had mortgaged certain properties to secure the credit used to settle the gift amounts for his children.

Court Order / Findings

·         The Delhi High Court noted that for the detailed reasoning, the judgment dated April 15, 2015, in the connected matter (ITA 180/2015) must be referred to.

·         The Court ruled that under Section 68, placing reliance solely on certificates and notarized statements of foreign entities may establish the identity of the creditors, but it does not independently establish the creditworthiness of the donor.

·         Relying on the precedent set in CIT vs. Lovely Exports Pvt. Ltd., the Court held that the donor’s economic capacity must be independently verified through bank statements and other supporting evidence.

·         If properties were indeed mortgaged to avail credit for the gifts, bank-certified copies of such related documents should have been produced on record.

·         The Court set aside the impugned ITAT order and, with the agreement of both parties, remanded the matter back to the CIT (Appeals) to examine the additional documents (such as the bank-certified mortgage copies) and record fresh findings.

Important Clarification

·         The primary directive from this judgment is that under Section 68, proving the identity of the fund source is only the first step. The assessee must also irrefutably prove the financial capacity (creditworthiness) of the donor to make such a gift.

Section Involved

·         Section 68 of the Income Tax Act, 1961 (Cash Credits).


Link to download the order: https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:3358-DB/RKG15042015ITA1832015.pdf 

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