Genuine gift and banking trail can defeat unexplained cash credit treatment in a firm's capital account.

A receipt credited to a partner's capital account was considered in the context of unexplained cash credit in the firm's hands, but the analysis turned on whether the alleged gift was genuine. The relevant test required identifiable donor property, voluntariness, absence of consideration, acceptance, and the donor's ability to make the transfer. On the stated facts, the donor was identified, the funds came from an NRE account, the remittance reflected foreign earnings, and the transfer was made by cheque through banking channels. Where these elements are established, circumstantial objections alone do not displace the genuineness of the gift or justify treating the amount as unexplained income.

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Issues: Whether the addition of Rs. 25,000 in the partner's capital account could be treated as unexplained cash credit in the hands of the firm, and whether the Tribunal was justified in holding the gift genuine.

Analysis: The Tribunal's finding that the gift was genuine rested on established facts: the donor was identified, the amount came from an NRE account, the remittance reflected foreign earnings, and the gift was made by cheque through banking channel. The legal test for a valid gift required existing property, voluntariness, absence of consideration, acceptance, and sufficient funds or legal ability to effectuate the transfer. On those facts, the essential ingredients of a valid gift were satisfied, and the Revenue's attempt to displace them by circumstantial evidence could not prevail. The challenge also sought to reopen factual findings rather than a question of law.

Conclusion: The addition could not be sustained as unexplained income of the firm, and the question referred was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Where the donor's identity, source of funds, genuineness of the account, and transfer through banking channel are established, and the essential elements of a valid gift are satisfied, a receipt credited in the partner's capital account cannot be treated as unexplained cash credit in the firm's hands merely on circumstantial considerations.

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