Genuineness of gifts under income tax law failed where donor identity and creditworthiness were not proved for cash credit treatment

Gifts credited to the assessee's capital account were held not to be genuine because the assessee failed to prove the donors' identity, creditworthiness and the genuineness of the gifts. The evidence showed meagre incomes for several donors, inadequate explanation of capacity by the donors who appeared, and only bare confirmations for NRI donors without sufficient corroboration of identity or financial capacity. As no real relationship of natural love and affection was established and the explanation for the credits was unacceptable, the amounts were rightly treated as unexplained cash credits under section 68.

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Issues: Whether gifts credited in the assessee's capital account were genuine so as to avoid treatment of the amount as unexplained cash credit under section 68 of the Income-tax Act, 1961.

Analysis: The assessee was required to establish the identity of the donors, their creditworthiness and the genuineness of the gifts. The record showed that several donors had meagre income, the two donors who appeared did not satisfactorily explain their capacity to make substantial gifts, and the NRI donors were supported only by confirmations without adequate corroborative material such as proof of identity and financial capacity. The evidence did not establish any real relationship of natural love and affection, and the explanation offered for the gifts was found unacceptable on the facts. In a case governed by section 68, once the explanation regarding the nature and source of the credits is not satisfactory, the amount may be treated as income of the assessee.

Conclusion: The gifts were correctly treated as unexplained cash credits and the addition under section 68 was justified.

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