In an important reaffirmation of established tax jurisprudence, the Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Kavita Samtani vs. DCIT [2025] 174 taxmann.com 161, ruled that Section 68 of the Income Tax Act, 1961 cannot be invoked to tax amounts received from a related party when such transactions are duly recorded in the books of the transferor and are traceable to banking channels.
This judgment offers clarity on inter-family transactions, especially between spouses, and reiterates the principle that substance and verifiability take precedence over mere procedural non-disclosures.
Brief Facts of the Case
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The assessee, Smt. Kavita Samtani, filed her return declaring a total income of ₹1,80,220.
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During the assessment, it came to light that she had received sums aggregating to ₹8,20,000 from her husband's proprietorship concern—₹50,000, ₹1,90,000, and ₹4,65,000 (fresh transfers) and ₹2,90,000 (previously advanced).
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The Assessing Officer treated ₹5,30,000 as unexplained cash credit under Section 68, as the assessee had not disclosed the receipt in her return.
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The CIT(A) upheld the addition, but the matter was appealed before the ITAT Jaipur.
Key Legal Provision: Section 68 of the Income Tax Act, 1961
“Where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered is not satisfactory, such sum may be charged to income-tax as the income of the assessee.”
Three conditions must be satisfied by the assessee to avoid addition under Section 68:
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Identity of the creditor,
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Creditworthiness of the creditor,
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Genuineness of the transaction.
Tribunal’s Ruling and Interpretation
✅ 1. Transaction Fully Recorded and Traceable
The ITAT noted that the transactions were:
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Duly recorded in the books of accounts of the assessee’s husband,
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Supported by banking transactions, and
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Not denied or disputed in the assessment of the husband.
✅ 2. Source Already Assessed – No Double Jeopardy
The husband had filed his ITR for the relevant year, which included these transactions, and:
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The AO did not initiate scrutiny or reassessment of his return,
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The Department did not object to the source of funds in the transferor’s hands.
Hence, the Tribunal held that once the source is explained and tax-acknowledged in the originator’s hands, there’s no occasion to invoke Section 68 in the recipient's case.
✅ 3. Family Transactions – Law Looks Beyond Technical Disclosure
The Tribunal emphasized that intra-family transfers, particularly from husband to wife, cannot be treated as unexplained solely due to non-disclosure, if supported by evidence and banking trail.
Reaffirmed Judicial Principles
This case reiterates the core principles laid down by the Supreme Court and High Courts in earlier decisions:
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CIT v. Lovely Exports (P) Ltd. [(2008) 216 CTR (SC) 195] – Identity and disclosure of creditor sufficient.
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PCIT v. Veedhata Tower Pvt. Ltd. [(2022) 441 ITR 1 (Bom)] – Additions unsustainable when source is explained and accepted in creditor’s hands.
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CIT v. P.K. Noorjahan [(1999) 237 ITR 570 (SC)] – Additions cannot be made on suspicion or inadequate explanation alone.
"Where income is explained, and source is established through a disclosed and traceable transaction, Section 68 cannot be invoked on the basis of mere procedural lapses."
— ITAT Jaipur in Kavita Samtani
This judgment serves as a critical guidepost for
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Inter-spousal and intra-family transfers,
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Substance-over-form arguments in assessments,
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The importance of accounting records and bank trail even where disclosure in the return may be absent,
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Safeguards against arbitrary invocation of Section 68.
Conclusion
The ruling in Kavita Samtani vs. DCIT reminds us that tax law must balance procedural compliance with substantive fairness. It discourages overreach under Section 68 in genuine cases of related-party transfers that are otherwise explained, accounted for, and tax-acknowledged in the hands of the source.
For practitioners, this reinforces the legal strategy of evidentiary documentation, source validation, and the right to invoke precedent to resist unjust additions.
