When Bollywood celebrity Shilpa Shetty Kundra received a gift of ₹12,54,54,594 from her husband Raj Kundra (Ripu Sudan Kundra) and declared it in her Income Tax Return for A.Y. 2020-21, she presumably believed it was a straightforward, legally exempt transaction. After all, gifts between spouses are fully exempt under Section 56(2) of the Income Tax Act. But what followed was a multi-year tax battle that eventually reached the Income Tax Appellate Tribunal (ITAT), Mumbai and it ended not in relief, but in a remand back to the Assessing Officer for a fresh look.
This case is a masterclass in what not to do when receiving or gifting large sums of money and what every taxpayer must ensure when claiming gift exemptions.
Background: How Did a Legitimate Spousal Gift Become Taxable?
Shilpa Shetty filed her return for A.Y. 2020-21 declaring a total income of ₹10,84,45,500. Her case was selected for complete scrutiny, initially on two very unrelated grounds that were discrepancy in brought-forward TDS credit and large payments under Section 194C to non-filers.
During scrutiny, the Assessing Officer (AO) noticed a gift entry of ₹12,54,54,594 in the assessee’s capital account. The AO issued show cause notices and asked for details including name, address, PAN, amount, mode of payment, and relationship with the donor.
The assessee’s reply: her husband had gifted this amount out of “natural love and affection” pursuant to a Gift Deed dated 05.03.2020. This is where the real problem began and it’s not the intent of the gift, but the inability to prove it.
What the Assessing Officer Found & Why It Mattered the Most
The AO was not satisfied. Despite multiple opportunities, the following critical gaps remained:
1. No Bank Statements: The assessee failed to submit bank statements of either herself or her husband showing the actual transfer/receipt of the gifted amount.
2. Donor’s Income Not Commensurate: Raj Kundra’s declared income for A.Y. 2020-21 was ₹27,71,020, now this is a figure which is vastly disproportionate to the gift of ₹12.54 crore given. This raised serious questions about the donor’s creditworthiness.
3. PAN Disclosed at the Last Minute: The assessee provided her husband’s PAN only on 15.09.2022, which was just a handful of days before the case became time-barred on 30.09.2022, leaving the AO with no time to conduct independent inquiries under Section 133(6).
4. Gift Deed Silent on Mode of Transfer: The gift deed mentioned no bank account details, no mode of payment, and no source of funds.
On these grounds, the AO added ₹12,54,54,594 as unexplained cash credit under Section 68 of the Income Tax Act, chargeable at special rates under Section 115BBE.
The First Appeal & Why It Failed
The Commissioner of Income Tax (Appeals) confirmed the AO’s addition. The CIT(A) noted that:
- The assessee submitted only the gift deed & no bank statement of the assessee or her husband was ever produced.
- Raj Kundra’s declared income of ₹27,71,020 could not explain a gift of over ₹12.54 crore, making the donor’s creditworthiness unestablished.
- The assessee relied on case laws arguing that once PAN and address are furnished, the burden shifts to the department. The CIT(A) rejected this argument given the specific gaps in this case.
What Happened Before ITAT : A Revealing Examination
Before the Tribunal, the assessee’s counsel argued that all primary documents were submitted, i.e. PAN, ITR acknowledgment, gift deed, donor’s address and that the department failed to conduct any inquiry under Section 131 or 133(6), which in itself should have shifted the evidentiary burden back to Revenue.
However, the ITAT dug deeper. On the Tribunal’s repeated insistence, the assessee finally produced:
a) A Joint PNB Bank Statement: The assessee and her husband held a joint account with Punjab National Bank. A credit of ₹12,81,41,672 appeared on 12.02.2020 with a narration referencing a remittance ID and a foreign entity “Kuki Investment.” However, there was no distinct movement of ₹12,54,54,593 as a gift transfer within this account. As on 31.03.2020, the account showed a balance of ₹24,82,29,633 — with no entry clearly traceable to the gifted sum.
b) ITR of the Husband for A.Y. 2019-20 and 2020-21 (Schedule FA): These revealed foreign assets like investments in a Bahamas-based entity “Kuki Investments” with total investment declared at ₹72,12,33,650 in one year and ₹22,81,85,851 in the next. Crucially, no income was shown from these assets in either year, and there was no correlation between the foreign remittance appearing in the PNB account and any Schedule FA entry.
c) Clarificatory Affidavits: Filed before the Tribunal by both the assessee and her husband, but neither of these affidavits ever mentioned the mode of payment or how the gift was actually transferred.
The Tribunal found numerous discrepancies and loose ends, including inconsistencies in the Schedule AL entries across ITRs, and concluded that the assessee had not fully discharged the prima facie burden under Section 68.
The ITAT’s Decision: Remand, Not Relief
Rather than confirming the addition outright, the ITAT, duly noting that this was the first time complete ITRs and the bank statement had been produced (never before the AO or CIT(A)), had remanded the matter to the Jurisdictional AO for a de novo (fresh) decision, with two significant directions:
1. The assessee must file all complete details, clarifications, and documents before the JAO without any default.
2. In case of any further default, no leniency will be shown.
The appeal was technically “allowed for statistical purposes”, but in substance, the assessee got a second chance, not an acquittal.
Key Lessons and Tax Planning Pointers Every Taxpayer Must Know
This case carries critical lessons, i.e. whether you are a high-net-worth individual, a salaried professional, or a business owner dealing with large transactions.
1. Spousal Gift Exemption Is Not Automatic, and Assessee must Document Everything
Section 56(2) exempts gifts between spouses from tax in the hands of the recipient. However, the exemption does not mean the transaction escapes scrutiny. The AO can and will demand proof of genuineness, creditworthiness of the donor, and the actual mode of transfer.
2. A Gift Deed Alone Is Insufficient
A registered or even unregistered gift deed is just the starting point. For large monetary gifts, with especially above ₹1 crore, assessee/ taxpayer must specifically maintain:
(a) bank statements showing the actual transfer,
(b) source of funds of the donor, and
(c) financial capacity of the donor corroborated by ITR/balance sheet.
3. The Donor’s Declared Income Must Match the Gift Amount
This is arguably the most important pointer from this case. If the donor’s ITR shows income of ₹27 lakh but the gift is ₹12.54 crore, one must always expect scrutiny. The donor must be able to explain the source that whether the gift was given from savings, investments, foreign remittances, or otherwise alongside legible documentary proof.
4. Never Delay Furnishing PAN and Identifying Documents
The assessee provided the husband’s PAN only at the “fag end” of assessment proceedings, leaving the AO unable to conduct third-party verification under Section 133(6). Courts have consistently held that such delay prejudices the assessee’s case. Proactively furnish all counterparty details at the earliest opportunity.
5. For Foreign Remittances — Ensure ITR Schedules Are Consistent
Where the source of a gift involves foreign money (here, from “Kuki Investments” in the Bahamas), Schedule FA of the donor’s ITR must reflect this clearly. Any mismatch between the remittance appearing in bank statements and Schedule FA disclosures will invite adverse inference.
6. Joint Bank Accounts Are Not a Substitute for Separate Transfer Entries
Where the donor and recipient hold a joint bank account, a gift cannot be proven by merely pointing to the account balance. There must be a clear, identifiable debit from the donor’s individual account or a specific credit to the donee’s individual account, or at minimum, a notarial record of internal appropriation.
7. Produce All Documents at the First Opportunity — Not Before ITAT
The Tribunal specifically noted that the complete ITRs and PNB bank statement were produced for the first time before the ITAT, but never before the AO or CIT(A) despite specific requests. This delay cost the assessee the benefit of judicial precedents she relied on. Courts routinely disfavour fresh evidence at appellate stages.
8. Section 68 Places the Initial Burden on the Assessee
Under Section 68, where any sum is found credited in the books of an assessee and they offer no satisfactory explanation about the nature and source of that sum, it may be charged as income. The three-pronged test for discharging this burden is:
a) identity of the creditor
b) creditworthiness of the creditor,
c) and, genuineness of the transaction, these all three must be established with documentary evidence.
9. Section 115BBE Means No Deductions and High Tax Rate
Once an addition is confirmed under Section 68, it is taxed under Section 115BBE at a flat rate of 60% (plus surcharge and cess, i.e. effectively ~78%). This is punishing. Proactive documentation is far cheaper than litigation followed by adverse assessment.
10. A Second Chance Is Rare, so Use It Wisely
The ITAT has given the assessee a second chance by remanding to the AO. The Tribunal was explicit: any further default will attract no leniency. For taxpayers in similar positions, this is a reminder that tribunals exercise significant discretion and that discretion is not unlimited.
Conclusion
The Shilpa Shetty Kundra case is not just celebrity tax gossip, but it is a substantive ruling with practical implications for every taxpayer who deals in large monetary transactions, gifts, or foreign remittances. The law does not penalize spousal gifts. What it penalizes is the inability to prove them.
In the era of data analytics, AI-driven scrutiny, and cross-border information exchange under FATCA and CRS, the tax department has never had more tools to probe large unexplained credits. The only antidote is meticulous, contemporaneous, and complete documentation.
Get your paperwork right before the AO asks for it.
Source: ITA No. 996/M/2025 | ITAT Mumbai Bench “B” | A.Y. 2020-21 | Pronounced: 13.03.2026
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Disclaimer: This article is intended for general informational and educational purposes only. It does not constitute legal, tax, or financial advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before acting on any information contained herein. The facts discussed are based on the publicly available order in ITA No. 996/M/2025 pronounced by the ITAT Mumbai Bench “B” on 13.03.2026. The author bears no responsibility for any action taken or not taken in reliance upon this article. The reference to the name of the celebrity in this article is strictly for informational and educational purposes, based solely on a publicly pronounced judicial order. No insult, defamation, malicious intent, or disrespect is intended towards the individual or any person associated with her. The author neither seeks to sensationalise nor to cast aspersions on the character or reputation of any party mentioned herein.
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