Mr Mills, who acted as Berlusconi’s tax lawyer, was giving evidence yesterday in relation to corruption charges brought in Italy against the former leader.
Appearing by videolink from Westminster Magistrates’ Court in central London to the hearing in Milan, Mr Mills described what he had written as “a scenario that I invented in order to be presented to the Inland Revenue”.
“It’s pure imagination. It’s fiction. It’s a novel,” he added.
Mr Mills, who gave the letter to his accountant Bob Drennan in early 2004, told the court the money had actually come from his friend and associate Diego Attanasio.
“I had two major worries,” he told the court. “The first was that I had to be able to justify to the Inland Revenue why I had registered it as a gift and therefore not taxable.
“My second concern was in relation to Diego Attanasio. I had two reasons to be worried about him as I didn’t want to cause him trouble in Italy and, secondly, because I was investing in his affairs and I didn’t wish that to be a subject of any interest either.”
Mr Mills, who is separated from his wife, former Labour cabinet minister Tessa Jowell, was charged along with Berlusconi with corruption in Milan and was convicted in his absence in February 2009. But he was acquitted by the Italian supreme court under Italy’s statute of limitations a year later.
Berlusconi, who stepped down as prime minister on 12 November, is now facing a trial, on bribery allegations involving Mr Mills. He denies wrongdoing, calling the charges politically motivated.