Shifting Explanations for Large Cash Gifts Fail the Genuineness Test Under Section 68.

The Dispute: The Shifting Story of the ₹1.83 Crore Gift

The Conflict: The assessee’s cash book showed a massive negative balance of ₹1.82 crores (meaning she spent more cash than she officially had).

The Initial Explanation: During the assessment, she claimed the deficit was covered by cash gifts from “others” and produced self-signed vouchers. She provided no names or PAN cards.
The Appeal Stage Shift: After the Assessing Officer (AO) added the amount as unexplained income, she changed her story. She now claimed the entire ₹1.83 crores came from a single donor—her grandmother.

The Judicial Verdict: Failure of the “Triple Test”

The Court ruled in favour of the Revenue, sustaining the addition under Section 68 based on two critical legal failures:

1. The Identity, Creditworthiness, and Genuineness Test

Under Section 68, the burden of proof is on the assessee to prove the “Triple Test.”

Identity: While she eventually named her grandmother, she initially claimed “others,” creating serious doubt about the genuineness.
Creditworthiness: She claimed her grandmother withdrew the money from a partnership firm. However, the Revenue found that the firm had not filed its return, meaning there was no official record of such a large capital withdrawal.
Source of the Source: The Court held that simply naming a donor is not enough; the assessee must prove that the donor actually had the capacity to give such a large amount in cash.

2. Contradictory Stands (Shifting Goalposts)

The Court took a dim view of the assessee changing her stance between the assessment and the appeal.

The Principle: A taxpayer cannot offer a vague explanation (“others”) at the first instance and then “invent” a specific relative as a donor once the tax demand is raised. This inconsistency was treated as evidence that the gift was an afterthought to cover up unexplained cash.

Strategic Takeaways for Taxpayers in 2026

The Negative Cash Balance Trap: A negative cash balance is a “red flag” that almost always leads to a Section 68 addition. Ensure your cash book is updated daily and that every deposit has a documented source before the expenditure occurs.
Documentation of Gifts: If you receive a gift from a relative, ensure you have:
1. A Gift Deed executed at the time of the gift.
2. The Donor’s PAN and their Income Tax Returns (ITR).
3. Evidence of the Source of Funds (e.g., the donor’s bank statement showing the withdrawal).
The “Banking Channel” Rule: In 2026, receiving a gift of ₹1.83 crores in cash is not only a tax risk under Section 68 but also a violation of Section 269SS/269T, which can lead to a 100% penalty. Always receive large gifts via banking channels (cheque/NEFT).
Consistency in Representation: Your first response to an AO is the most important. If you state “gifts from others” in your initial reply, it becomes nearly impossible to successfully “narrow it down” to a specific relative later in the High Court or Tribunal.

HIGH COURT OF ANDHRA PRADESH

Bathina Srilakshmi

Income-tax Officer^*

R RAGHUNANDAN RAO and T.C.D. Sekhar, JJ.

ITT APPEAL NO. 53 of 2025

MARCH 6, 2026

P Pavan Kumar Rao for the Appellant. Y N Vivekananda for the Respondent.

ORDER

R. Raghunandan Rao.J-. Heard Sri P. Pavan Kumar Rao, learned counsel appearing for the appellant, and Sri Y.N. Vivekananda, learned Standing Counsel appearing for the respondents.

2. This appeal is filed against the judgment of the Income Tax Appellate Tribunal Hyderabad ‘B’ Bench, Hyderabad ‘B’ Bench, Hyderabad, dated 16.05.2025 in ITA.No.83/Hyd/2019 relating to the assessment order 2014-15 of the appellant.

3. The appellant had initially filed a return of income declaring her income as Rs.2,48,490/-. In the course of the assessment proceedings, the assessing authority found that the appellant had a cash balance of Rs.2,01,83,834/- on 01.03.2014 but had made certain cash payments, which exceeded the amount available with her. On that basis, the assessing authority took the view that no explanation has been given regarding the deficit/negative cash balance of Rs.1,82,34,150/-, as on 26.03.2014, and therefore, held the said negative cash balance as her income from unexplained sources. This view was taken by the Assessing Officer, after rejecting the contention of the appellant that she had received cash gifts of Rs.1.83 crores.

4. Aggrieved by the said order of assessment, the appellant approached the Commissioner of Income Tax, Appeal, Tirupathi. The Commissioner accepted the explanation given by the appellant as to how she had received such cash gifts and allowed her appeal. Against this order, dated 28.11.2018, the department went in appeal before the Appellate Tribunal which reversed the order of Commissioner, Appeals, by the aforesaid order dated 16.05.2025.

5. The appellant, before the assessing officer had filed a letter, dated 05.12.2016, stating that cash gifts were received by her from “others” and had filed self signed receipt vouchers, for the amount of Rs.1.83 crores. As the details of these “others” were not furnished, the assessing officer had rejected such a claim on the ground that the appellant had not established the identity or creditworthiness of the donors or the reasons for which she received such gifts. The assessing officer took the view that the said exercise, by the appellant, was only to cover up the negative cash balance.

6. At the stage of appeal, the appellant contended that she had received a cash gift of Rs.1.83 crores on 05.03.2014, from her grandmother and that this gift, though received on 05.03.2014, was wrongfully posted in the books of account on 31.03.2014. The appellant was called upon to explain the source of income of the grandmother of the appellant, who is said to have given such a gift to the appellant. In response, the appellant contended that her grandmother had withdrawn Rs.3.5 crores from her capital account in a firm, named M/s. R.R Estates and Projects, Bangalore, in which she was a partner. This claim of the appellant was disputed by the assessing authority, before the Commissioner, Appeals. The Assessing Officer obtained information in relation to the accounts of M/s. R.R Estates and Projects from the Income tax authorities in Bangalore. In response to the query raised by the Assessing Officer, the income tax authorities in Bangalore informed the assessing officer that M/s. R.R. Estates and Projects had not filed its return of income for the assessment year 2014-15. The assessing officer on this basis had contended that no sanctity can be given to such claims as M/s. R.R. Estates and Projects, Bangalore itself had not filed any income tax returns. The Commissioner of Income Tax had held that the objections of the assessing officer were not justified as a declaration had been given by the grandmother of the appellant regarding the gift made by her and the same should be accepted. The Appellate Tribunal did not accept this view of the Commissioner and had held that the alleged gift of Rs.1.83 crores in cash, to the appellant cannot be believed as the source of income of the donor herself was suspect and there was no material to show that she had such a source of income. It may also be noted that the grandmother of the appellant had passed away in the year 2016 itself.

7. Sri P. Pavan Kumar Rao would contend that the Tribunal could not have taken such a view, as the Commissioner was correct in accepting the declaration made by the grandmother of the appellant.

8. We are in agreement with the view of the Tribunal that the claim of the appellant, that she received a cash gift from her grandmother cannot be accepted as the sources of such funds, in the hands of the grandmother of the appellant, have not been placed before the authorities. Another aspect, which has also been raised by the Tribunal, is the fact that the appellant, at the stage of assessment, had merely stated that she had received cash gifts from “others” while she took the stand, at the stage of appeal, that such cash gifts had been given to her by her grandmother. If this was true, the appellant would have named her grandmother as the source of her gift, and would not have stated that she had received gifts from “others”.

9. For all the aforesaid reasons, we do not find any ground to interfere with the order of Tribunal and this Appeal is dismissed.

As a sequel, pending miscellaneous petitions, if any, shall stand closed. There shall be no order as to costs.