A signed gift deed wasn’t enough. The ITAT Mumbai has sent the case back for re-examination and the reason reveals an uncomfortable truth about how large intra-family transfers get scrutinised under Indian tax law.
Raj Kundra, businessman and husband of Bollywood actress Shilpa Shetty, transferred ₹12.5 crore to her under a signed gift deed. The money moved. And since Indian tax law exempts gifts received from a spouse, Shetty’s side of the transaction appeared clean.
Except the Income Tax Appellate Tribunal wasn’t satisfied. And its reasoning laid out in a recent order directing the tax department to take a fresh look cuts to something that trips up a lot of taxpayers who assume a deed is a done deal.
It isn’t. Not always.
The question isn’t whether she got the money. It’s where he got it from.
Section 68 of the Income Tax Act is the provision at the centre of this. It deals with what the law calls “unexplained cash credits” amounts that show up in a taxpayer’s books without a satisfactory account of their origin. When that happens, the tax department has the power to treat the entire sum as income and tax it accordingly.
Now, Shetty wasn’t the one being asked to explain anything unusual. She received a gift from her husband. That’s the easy part. The harder part and the part the ITAT flagged is that the gift’s legitimacy under Section 68 doesn’t hinge only on what happened at the receiving end. It hinges on whether the person who gave the money demonstrably had it.
Kundra’s declared income, the tribunal noted, didn’t quite square with an ability to gift ₹12.5 crore. And that mismatch is exactly the kind of thing Section 68 was designed to catch.
What Section 68 actually requires
To clear a Section 68 scrutiny, three things need to be established: who the money came from, that the transaction genuinely happened, and critically that the source had the financial capacity to make it happen. All three. Not just one or two.
In this case, the first two were arguably satisfied. The third was the problem.
A gift deed proves a gift. It doesn’t prove the money existed.
This is the distinction that catches people off guard. A gift deed is a legal document confirming intent and transfer. It doesn’t, on its own, establish that the funds behind the transfer came from income that was ever declared, ever taxed, or ever legitimately earned in the first place.
“Show me the deed” is not the same question as “show me where the money came from.” The ITAT is asking the second one.
Think about what this means practically. If Kundra’s tax returns over recent years reflect income that, cumulatively, doesn’t plausibly add up to a surplus of ₹12.5 crore, after personal expenses, taxes paid, business reinvestment, and so on then the question of where that money actually came from is very much alive. The deed records the gift. It doesn’t answer that question.
Kundra would have to provide concrete proof to meet the tax department’s demands. He’d need to show documented sources: the income reported on his income tax returns, money from selling assets, distributions from his businesses, or dividends. Essentially, he’d need to connect the ₹12.5 crore to funds that had already been reported and taxed.
Bank statements, investment redemption records, audited accounts; the paper trail needs to go all the way back, not just to the moment of the gift itself.
Why intra-family gifts get this level of scrutiny
Indian tax authorities aren’t suspicious of gifts between spouses out of general mistrust. The concern is more specific and it’s well-founded in how certain evasion schemes have historically worked.
The pattern goes like this: unaccounted income (cash that was earned but never declared) gets introduced into the financial system through a gift deed to a family member. On paper, the recipient gets an exempt gift. In practice, untaxed money has just been laundered into legitimacy. The family as a unit ends up richer by an amount that was never taxed, and the deed provides cover.
Requiring the donor’s creditworthiness to be independently verified is the mechanism that closes this route. It doesn’t matter how clean the deed looks if the underlying funds can’t be traced to a legitimate, taxed source.
The spousal exemption: what it does and doesn’t cover
Gifts from a spouse are exempt from tax in the recipient’s hands. Shetty, as the recipient, benefits from this exemption. But the exemption is about her tax position, not his.
It does nothing to establish that the money Kundra gave was itself clean. That’s a separate question and it’s the one the ITAT is now directing the Assessing Officer to properly examine.
So what actually happens now?
The ITAT hasn’t declared the gift fake, nor has it imposed any additional tax. What it’s done is send the case back to the Assessing Officer essentially saying: you looked at the wrong thing. Look again, this time at Kundra’s financial capacity to make this transfer.
Whether the re-examination vindicates the gift or raises further questions depends on what Kundra’s financial records actually show. If the money can be credibly traced to legitimate, declared income, the case likely closes in their favour. If the numbers don’t add up then Raj Kundra should look forward to hiring a good advocate.
The takeaway for everyone else
If you’re planning a significant gift to a family member and you’re thinking a deed will cover you, this case is a useful reality check. Documentation matters, obviously. But documentation is the floor, not the ceiling, of what the tax department can ask for.
The size of the transfer matters too. A gift of a few lakhs between spouses is unlikely to attract this level of attention. Twelve and a half crore is a different story. At that scale, the question of where the money came from is not going to be considered impolite, it’s going to be considered mandatory.
Section 68, in the end, doesn’t care about intent. It cares about paper trails. And the trail, in this case, apparently had a gap the ITAT wasn’t willing to overlook.
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