ITAT Shifts Burden Of Proof In Gift Tax Cases: Documentation Can Shield Taxpayers

A recent decision passed in dated September 12, 2025, in the Income Tax Appellate Tribunal (ITAT) depicts a significant shift in the onus of proof or evidence in gift taxation matters.  “ITAT has held that when taxpayers provide reasonable documentation and explanation for gift transactions, the department cannot dismiss them based on superficial assessments of donor creditworthiness,” says Vineet Kumar, senior associate, SKV Law Offices.

The Case And The Judgement 

In this case, Ms. Dubey, a teacher, received Rs 3.5 lakh from her 25-year-old daughter for property purchase. The assessing officer questioned the daughter's financial capacity, noting her bank balance and frequent deposit-withdrawal patterns.

However, ITAT firmly rejected this approach, observing that "It is also undisputed that her daughter is not a minor, she is 25 years old and in this modern world she is capable to run the saving account by way of her earnings, she is very much capable to gift any amount kept in her saving account to her mother in the form of love and affection.”

The judgment emphasizes that once the taxpayer establishes the basic framework, like the gift deed, bank statements, deposit slips showing currency denominations, and donor identity, then the burden shifts to the department to prove the transaction's falsity with concrete evidence rather than assumptions.

The ruling doesn’t alter the principles where the taxpayer needs to prove and establish the genuineness of the transaction. “It essentially establishes that if the taxpayer can prove and justify it as bonafide, the department can’t just treat it as bogus based on its own assumptions/suspicions; they will need to have corroborative evidence to establish the fact that it is either from unexplained sources or is for tax evasion,” says Ritika Nayyar, partner, Singhania & Co.

A Chance Of Being Misused 

“While this ruling strengthens protection for legitimate family gifts, it does create potential avenues for sophisticated tax planning strategies that could be exploited by some taxpayers,” says Kumar. The judgment's liberal interpretation of donor capacity could encourage families to structure their finances more strategically.

ITAT's acceptance of the daughter's practice of "maintaining cash in hand since a long time" and her "regular practice of depositing and withdrawing the amount in a very short span of time" as normal behaviour could be misused.

Families might create artificial patterns of cash accumulation and transfers to justify large gifts, particularly given the judgment's emphasis that adult children can gift any amount kept in their savings account regardless of their declared income levels.

Documentation Is Key

This judgment provides a practical blueprint for documentation that taxpayers should maintain to successfully defend gift transactions during income tax scrutiny proceedings. The case demonstrates that basic compliance requirements, when properly documented, can withstand Revenue challenges.

“It is recommended to maintain a 'gift register' detailing the name and relationship of the person who gave the gift, the date on which it was received, a description, and the value of the gift, etc, bank statements for cash gifts, invoices/ valuation reports for gifts in kind (e.g. jewellery),” says Nayyar.

If a gift is from a specified "relative" (making it tax-exempt), a formal gift deed could be considered. This transparent approach helps to substantiate the source of funds and prevent tax scrutiny.​

Essential documentation includes comprehensive banking records showing the complete transaction trail. In this case, the taxpayer provided bank statements, deposit slips dated March 9 and 12, 2018, showing specific currency denominations and cash flow statements. These deposit slips were crucial as they demonstrated the donor's actual cash holdings and the genuine nature of the transfer.

Legal documentation should encompass properly executed gift deeds, donor identification documents, and declarations establishing the familial relationship.

“The judgment emphasizes maintaining evidence of the donor's financial capacity through bank statements and account running history, even if the donor's income falls below assessment thresholds,” says Kumar.

Additional protective measures include maintaining evidence of the donor's cash handling practices and financial behavior patterns. Taxpayers should also maintain records showing the purpose of the gift, as done here for the purchase of immovable property.