Unaccounted cash paid for property by NRI medical professionals is plausible from accumulated cash salaries earned abroad.

ORDER

Amit Shukla, Judicial Member.- The aforesaid appeal has been preferred by the assessee against the final assessment order passed under section 144C(13) read with sections 147 and 144 of the Income-tax Act, 1961 (“the Act”) for the assessment year 2020-21, pursuant to the directions of the Dispute Resolution Panel-2, Mumbai (“DRP”). Though various grounds have been raised, the principal issue requiring our adjudication is the addition of Rs. 30,00,000 made under section 69A, being cash paid by the assessee over and above the consideration recorded in the agreement for purchase of Flat No. C-1502 in the project known as “Midas-Bhoomi Harmony”, Nehru Nagar, Kurla (East), Mumbai. The consequential application of section 115BBE has also been challenged. The assessee had originally filed his return of income on 29.12.2020 declaring total income of Rs. 3,47,470. Subsequently, information was received by the Assessing Officer from DCIT, Central Circle-8(4), Mumbai, emanating from a search action under section 132 conducted on 31.12.2021 in the case of Bhoomi Group, which included M/s Midas & Bhoomi Associates (AOP), the developer of the aforesaid project. During the search, certain loose papers/material were found recording unaccounted cash receipts against sale of various units. Insofar as the assessee is concerned, the material contained two entries relating to Flat No. C-1502, namely Rs. 21,00,000 dated 09.12.2019 and Rs. 9,00,000 dated 25.02.2020, aggregating to Rs. 30,00,000, containing the identifying particulars of the assessee including his PAN and the concerned flat. The agreement for purchase was thereafter executed on 20.03.2020 through the assessee’s father acting as Power of Attorney holder.

2. Based upon the aforesaid information, notice under section 148 was issued on 26.03.2024. Though the assessee did not file a return in response thereto, he furnished replies dated 24.10.2024 and 16.01.2025 in response to notices issued under section 142(1). The assessee did not dispute that Rs. 30,00,000 had been paid in cash over and above the registered consideration and that no receipt therefor was issued by the builder; rather, his specific explanation was that the source of such payment was the salary/professional income earned by him abroad. The Assessing Officer thereafter required the assessee to furnish evidence regarding the mode and source of payment, bank withdrawals, customs declaration in case the money had been brought from abroad and evidence of conversion of foreign currency into Indian rupees. According to the assessee, the subsequent communications could not be properly attended to since they were received on the email address of his father, who at the relevant time was away on Haj pilgrimage. The Assessing Officer ultimately held that the assessee had failed to establish the source of the cash and accordingly treated the entire Rs. 30,00,000 as unexplained money under section 69A and subjected the same to tax under section 115BBE. The DRP substantially endorsed this conclusion and the addition consequently found its way into the final assessment order.

3. Since the factum of payment itself is not in dispute, the controversy before us lies essentially in the explanation regarding its source, which therefore needs to be examined in the backdrop of the assessee’s financial profile during the years preceding the transaction. The assessee is a medical professional, being a diabetologist specialising in diabetic-foot care, and had been working in the Democratic Republic of Congo from the year 2014 onwards. He was initially employed with Pediyath Medicity du Cinquantenaire, Kinshasa, and, after leaving the said employment in April 2019, joined Mining Engineering Services in December 2019. It was explained that during his employment in Congo, he was earning salary ranging from approximately US$60,000 to US$78,000 per annum and that the salary was received in cash. Apart therefrom, he was also stated to be carrying on part-time private medical practice, receipts wherefrom were also claimed to have been received in cash. The assessee’s wife, Smt. Nazia Zari, is a dentist and was also employed in Congo during the relevant period and earning salary there. In support of these facts, the assessee had furnished, inter alia, employer’s confirmation, salary certificates and documents relating to professional qualifications. Thus, the explanation tendered by the assessee was not based upon any unidentified or subsequently introduced source; the source pleaded was the accumulated savings out of substantial foreign earnings of the assessee and his wife over several years immediately preceding the transaction.

4. The assessee had also furnished a year-wise working of the salary earned by him and his wife, remittances made to India and the amount remaining available towards expenditure and savings. As per the details placed on record, the assessee’s salary was shown at US$78,000 per annum for financial years 2015-16 to 2018-19 and US$60,000 for financial year 2019-20. His wife’s salary, wherever considered in the working, was US$42,000 in financial years 2017-18 and 2018-19 and US$48,000 in financial year 2019-20. Thus, the combined salary was shown at US$1,20,000 for each of financial years 2017-18 and 2018-19 and US$1,08,000 for financial year 2019-20. Against these earnings, the assessee had separately identified remittances to India of US$29,300 in financial year 2016-17, US$58,981 in financial year 2017-18, US$47,499 in financial year 2018-19 and US$27,573 in financial year 2019-20. Even after reducing these remittances, substantial amounts remained available out of the stated foreign earnings towards living expenditure and savings. Significantly, the computation did not take into account the alleged income from part-time private medical practice. These figures assume relevance not because earning capacity by itself establishes the source of every subsequent cash payment, but because they demonstrate that during the period immediately preceding the transaction there existed a substantial and identifiable stream of foreign income from which the amount in question could reasonably have been accumulated.

5. The next part of the assessee’s explanation was regarding availability of such foreign savings in India. The assessee had furnished details of his visits to India during the relevant years and explained that whenever he and his wife visited India, they used to carry foreign currency in amounts within the permissible limit which did not require declaration before the Customs authorities. According to him, given the conditions prevailing in Congo, expatriates generally preferred not to retain their savings there and would carry permissible amounts to their home country during visits. The assessee and his wife, being two separate travellers, could thus bring reasonable amounts of their accumulated cash earnings on their visits to India, which were thereafter kept with the assessee’s father/family in Mumbai. Much emphasis was also placed in the submissions upon the fact that the assessee’s father and brothers were medical practitioners and their spouses were also dentists. In our view, however, the professional standing or independent earning capacity of other family members need not be treated as a separate source for the impugned payment, because the assessee’s own case does not really require support from such a hypothesis. Their relevance is confined to the assessee’s explanation that the money brought by him and his wife was retained with the family. The substantive source pleaded throughout remains the foreign earnings of the assessee and his wife. Another circumstance specifically relied upon was that the remittances made from Congo to the assessee’s Indian bank account had been accepted as the source of the cheque payments towards acquisition of the very same flat. According to the assessee, when the underlying foreign earnings were accepted as the source of the recorded payments, the availability of cash savings out of the same stream of earnings could not be rejected altogether merely because such savings had been brought and retained in cash.

6. The DRP rejected the aforesaid explanation principally on the ground that, though the salary material might establish foreign earnings, it did not establish the actual movement of those earnings into India and their utilisation towards the impugned payment. It emphasised that no customs declaration, foreign bank withdrawal record, encashment slip or other contemporaneous evidence showing transportation and conversion of foreign currency was furnished. It further observed that no confirmation or affidavit had been furnished from the relatives with whom the cash was allegedly kept and considered the claim that amounts brought during different visits remained accumulated for several years to be improbable. On this premise, it concluded that mere capacity to earn abroad could not establish the source of Rs. 30,00,000 paid to the builder and, accordingly, upheld the invocation of section 69A. The DRP also made certain observations regarding the conduct expected from professional persons and the assessee’s participation in an unaccounted transaction with the developer. However, for the purpose of deciding the addition in the hands of the assessee, what is germane is not the character of the payment in the hands of the recipient-builder, but whether the assessee has satisfactorily explained the source from which such payment came to be made.

7. Before us, learned counsel reiterated that the authorities below have looked at the explanation in a fragmented manner rather than examining the financial circumstances of the assessee cumulatively. He submitted that the assessee and his wife were both earning substantial salary abroad, that the salary was received in cash, that their employment and earnings were supported by material, and that they had repeatedly visited India during the relevant period. Therefore, according to him, there was nothing inherently improbable in a part of such savings being carried to India during those visits and retained here. He further submitted that absence of customs declarations could not be held against the assessee when his very case was that the amount carried on each occasion was within the permissible non-declarable limit. Learned DR, on the other hand, strongly relied upon the findings of the Assessing Officer and the DRP and submitted that proof of earning capacity cannot be equated with proof of the source of an admitted unaccounted cash payment. According to him, there was no documentary trail identifying the particular foreign currency brought into India, its conversion into rupees and its continued availability until December 2019 and February 2020 when the payments were made.

8. We have heard the rival submissions and perused the material placed on record. At the outset, the factual parameters of the dispute need to be clearly delineated. The assessee does not dispute payment of Rs. 30,00,000 in cash towards acquisition of Flat No. C-1502. Consequently, it is unnecessary to enter into any elaborate discussion regarding the evidentiary value of the seized papers found from the developer or whether those papers, standing alone, could establish payment by the assessee. The assessee himself has accepted the payment. The enquiry, therefore, shifts to the source thereof. Section 69A, insofar as relevant, contemplates a situation where an assessee is found to be the owner of money not recorded in the books, if any, maintained for a source of income, and either offers no explanation regarding its nature and source or the explanation offered is found unsatisfactory; it is only then that the amount may be deemed to be income. Thus, the statutory enquiry is directed towards the acceptability of the explanation regarding the nature and source and not towards requiring an assessee, irrespective of the facts of a case, to establish an impossible mathematical identity between each unit of accumulated savings and its eventual utilisation. (Etds(OBJ)) Here the explanation has to be examined objectively against the assessee’s known financial circumstances and the material contemporaneously available.

9. When examined from this perspective, there are certain facts which assume considerable significance. The assessee was residing and working outside India for several years immediately preceding the transaction. He is a qualified medical professional and had an identifiable employment in Congo. His salary particulars indicate earnings ranging from US$60,000 to US$78,000 per annum. His wife, also a medical professional, was independently employed there and had her own salary income. Their combined disclosed salary for financial years 2017-18 and 2018-19 alone was stated at US$1,20,000 per annum and US$1,08,000 for financial year 2019-20. These are not stray figures introduced merely by way of an oral explanation; the assessee had furnished employer confirmation/salary material in support of his foreign employment and earnings. More importantly, the specific case of the assessee is that his salary abroad was received in cash. Therefore, this is not a situation where the entire known income stood deposited in a banking account and, despite such fact, an independent cash accumulation is sought to be presumed. Cash was, according to the very mode of remuneration explained by the assessee, generated from his disclosed foreign employment itself. Further, part of those foreign earnings was admittedly remitted to India through banking channels, and those remittances have not been doubted while examining the source of the recorded consideration paid towards the same property. The amount of Rs. 30,00,000, though by no means insignificant in isolation, is relatively modest when viewed against the magnitude of the foreign earnings of the assessee and his wife accumulated over several years. These circumstances, in our opinion, provide a real and proximate economic source for the availability of the cash rather than a merely theoretical capacity to possess it.

10. There is yet another important aspect which cannot be overlooked. Nothing has been brought on record by the Revenue to indicate that during the relevant period the assessee had any business, professional activity or other source in India from which corresponding undisclosed income of Rs.30,00,000 could have been generated. No unaccounted receipt or other income-generating activity in India has been identified. The entire genesis of the addition is the payment recorded in the material seized from the developer; but evidence of application of money and evidence of generation or source of that money are two different facets. Once the assessee accepts the application and points towards a demonstrated source of substantial foreign earnings, the explanation has to be tested with reference to that source. The absence of an identified undisclosed income-generating activity in India may not, standing alone, prove the assessee’s explanation; but it is undoubtedly an important surrounding circumstance when the assessee has simultaneously established a known foreign source of sufficient magnitude. Thus, there is nothing on record to suggest that the impugned Rs. 30,00,000 necessarily represented some independent undisclosed income generated by the assessee in India, whereas there is positive material demonstrating substantial earnings abroad from which such availability could reasonably emanate.

11. We also find that undue emphasis has been placed upon absence of customs declarations. The assessee’s consistent explanation is that he and his wife carried foreign currency during their respective visits in amounts which did not require declaration. If the amount carried on an individual occasion was below the prescribed threshold requiring declaration, nonexistence of a customs declaration cannot logically be treated as affirmative evidence that no currency was brought at all. No doubt, an encashment slip or other contemporaneous record would have furnished a more direct evidentiary trail; and equally, the assessee has not been able to establish with mathematical precision the amount brought on each particular visit and its exact retention until the dates of payment. But that evidentiary gap has to be appreciated in the context of cash savings accumulated over a number of years and cannot obliterate the underlying source itself. The Revenue has accepted that the assessee had foreign earnings and has not disputed the remittances made therefrom to India. The same foreign earnings cannot, on the facts of this case, be regarded as a genuine and acceptable source when transmitted through banking channels but treated as wholly incapable of explaining any cash availability merely because a portion of earnings, stated to have been received abroad in cash, was brought and retained in cash. What section 69A requires is a satisfactory explanation of the nature and source; it does not mandate that an otherwise demonstrated economic source must be rejected merely because the historical movement of every part of accumulated cash cannot, after passage of several years, be reconstructed with documentary exactitude.

12. Now, in the aforesaid factual background, what needs to be examined is whether the explanation of the assessee regarding the source and availability of Rs. 30,00,000 can be rejected merely for want of a precise documentary trail of the movement of cash from Congo to India. Section 69A proceeds on the premise that where an assessee is found to be the owner of money which is not recorded in the books of account, and either offers no explanation regarding its nature and source or the explanation so offered is found to be unsatisfactory, the amount may be deemed to be his income. Thus, what the provision requires is a satisfactory explanation of the nature and source of the money; and the satisfaction as to such explanation necessarily has to be formed objectively upon the material available and the surrounding circumstances. Here, the source propounded by the assessee is neither nebulous nor some explanation devised without any corresponding financial foundation. The assessee is a qualified medical professional who had been working in Congo for several years preceding the transaction. His wife, also a medical professional, was employed there. The material placed before the authorities demonstrates substantial salary earnings of both spouses over those years and the assessee’s specific case throughout has been that his salary was received in cash. The year-wise particulars furnished by him show substantial foreign earnings and also substantial remittances made to India, leaving sufficient amounts available towards expenditure and savings. The Department has not disputed the employment of the assessee abroad or the salary particulars forming the basis of his explanation. Thus, there existed an identifiable and demonstrated source of foreign earnings from which the impugned cash could reasonably have emanated.

13. There is yet another significant aspect which, in our opinion, has not received its due consideration from the authorities below. The assessee was residing and earning outside India during the relevant period. Nothing has been brought on record by the Assessing Officer to show that the assessee was carrying on any business, profession or other income-generating activity in India from which undisclosed cash of Rs. 30,00,000 could have been generated. There is no identification of any undisclosed receipt, unexplained transaction or independent source of unaccounted income in India. On the contrary, the known financial profile emerging from the material is that of a medical professional employed abroad and earning substantial foreign income. His wife was also professionally employed abroad. The assessee’s explanation, therefore, has to be examined in the setting in which the income was actually earned and the cash became available. Once it is shown that the assessee had substantial foreign earnings which, according to the material and explanation placed on record, were received in cash, the availability of cash savings cannot be regarded as inherently improbable. The amount of Rs. 30,00,000, though undoubtedly a substantial amount when viewed in isolation, assumes a different complexion when juxtaposed against the magnitude of the combined foreign earnings of the assessee and his wife accumulated over several preceding years. The assessee’s year-wise working itself shows salary ranging between US$60,000 and US$78,000 per annum in his own hands, besides the salary earned by his wife and without even taking into account the alleged receipts from his part-time medical practice. The explanation, therefore, is supported by a known source of sufficient magnitude and cannot be rejected as a mere assertion of financial capacity.

14. The principal reason assigned by the Assessing Officer and the DRP for rejecting the explanation is that the assessee could not furnish customs declarations, foreign currency encashment slips or a contemporaneous record showing the exact amount carried to India on each visit and thereafter retained with his family. In our view, this approach places an evidentiary burden upon the assessee which does not properly appreciate the very nature of the explanation offered. The assessee’s consistent case is that during his visits to India he and his wife carried amounts of foreign currency which were within the permissible limit and consequently did not require declaration before the Customs authorities. If the amount carried on an individual visit was below the prescribed declarable limit, there could obviously be no customs declaration in respect thereof; and, therefore, absence of such declaration cannot itself be converted into affirmative evidence that no foreign currency was brought into India. The assessee had furnished the particulars of his visits to India and had explained that the savings were brought on different occasions rather than in one single transaction. Whether each dollar so brought several years ago can now be traced to a particular encashment document is quite a different matter from determining whether there existed a credible source from which such cash could have been available. The two enquiries cannot be conflated. A deficiency in establishing the precise movement of every part of the cash may have evidentiary relevance, but it cannot, by itself, obliterate an otherwise demonstrated economic source. The details furnished by the assessee show that he and his wife had been visiting India during the relevant years and the explanation regarding periodic carriage of savings has to be appreciated in conjunction with their substantial foreign earnings and not in isolation.

15. In this regard, another circumstance assumes significance. The assessee had also made remittances from Congo to his bank account in India, and those remittances have been accepted as the source of the payments made through banking channels towards purchase of the very same flat. This circumstance does not, by itself, establish that the cash component of Rs. 30,00,000 necessarily came out of those foreign earnings; however, it provides an important corroborative link in appreciating the overall explanation. It establishes that the foreign earnings were real, that funds were available with the assessee abroad, and that such funds were in fact being transmitted to India during the relevant period. Once the same foreign earnings constitute an accepted source of the recorded payments towards the property, it would require some cogent reason to hold that those earnings were wholly incapable of explaining any availability of cash merely because another portion of the savings is stated to have been brought physically during visits to India. More so, when the assessee’s specific case is that his salary itself was received in cash abroad. The source remains the same foreign employment income; what differs is only the mode in which a part thereof reached or remained available in India. The Department can certainly require the assessee to explain that distinction, but once the explanation is tested against the salary evidence, remittance history, travel particulars and overall financial capacity, the absence of an exact dollar-to-rupee trail cannot, in the peculiar facts of the present case, be regarded as sufficient to treat the entire Rs. 30,00,000 as income from an unexplained source. The assessee had specifically relied upon this common source of cheque as well as cash payments before the authorities.

16. We also find that the reference made before the lower authorities to the earning capacity of the assessee’s father, brothers and their spouses does not really advance the matter and, in our view, is not necessary for deciding the controversy. The assessee does not need to establish the source by borrowing the financial capacity of other family members when his own foreign earnings, coupled with those of his wife, provide an identifiable source of sufficient magnitude. The relevance of the family members is limited to the assessee’s explanation that the amounts brought to India from time to time were kept with his father or other members of the family. Merely because contemporaneous confirmations regarding such custody were not furnished would undoubtedly leave a gap in the documentary trail, but that gap has to be weighed against the positive evidence demonstrating the underlying source and availability. What is required to be seen under section 69A is whether the explanation regarding the nature and source is satisfactory in the totality of circumstances; it does not follow that an explanation otherwise supported by a demonstrated source must necessarily fail because every intermediate stage in the physical custody of accumulated cash cannot be reconstructed after passage of several years. The test cannot be one of mathematical identity between each unit of foreign currency earned, each amount carried on a particular visit, its exact date of conversion and the very currency ultimately handed over to the developer. Such an approach would substitute proof of an uninterrupted cash trail for the statutory enquiry concerning satisfactory explanation of its nature and source.

17. Thus, when the entire material is appreciated cumulatively, certain facts stand out clearly. The assessee was working abroad for several years immediately preceding the transaction; he had substantial and identifiable salary income in Congo; his wife was also earning there; the assessee’s case is that salary was received in cash; substantial remittances from the same foreign earnings were admittedly made to India; the assessee and his wife visited India during the intervening period; and there is no material whatsoever indicating any corresponding generation of undisclosed income by the assessee in India. Against this factual substratum, what the Revenue essentially relies upon is the absence of documentary evidence tracing the precise physical movement and retention of the cash. In our opinion, such absence, by itself, cannot outweigh the demonstrated source and surrounding circumstances. The amount of Rs. 30,00,000 has to be considered in relation to the scale of the foreign earnings shown over several years and not as an isolated cash amount divorced from the assessee’s financial history. Once there is an identifiable source capable of yielding savings substantially in excess of the amount sought to be explained, and the surrounding circumstances are consistent with availability of such savings, the explanation cannot be rejected merely because the assessee is unable, several years later, to reconstruct the movement of every tranche of foreign currency with documentary exactitude.

18. We may also observe that the case of the assessee does not rest merely upon a theoretical proposition that, being a doctor, he could have earned sufficient income. There is a material distinction between a bare assertion of capacity and the existence of an identified source actually shown to have yielded income. Here, the assessee has identified his foreign employer, period of employment and salary earnings and has also furnished the corresponding particulars relating to his wife. There were actual remittances from the foreign earnings to India which have not been disputed. Therefore, the explanation travels considerably beyond a mere plea of social status or earning capacity. The evidentiary gap pointed out by the Revenue pertains essentially to the manner in which a portion of those savings was brought and retained in cash and not to the existence of the underlying source itself. This distinction is material. Section 69A cannot be invoked merely because the explanation is incapable of being demonstrated with the precision of a banking transaction, where the surrounding material otherwise establishes a credible and sufficient source. The statutory expression is a “satisfactory” explanation of the nature and source, and satisfaction has to be arrived at from the cumulative weight of the evidence and circumstances rather than from the absence of one particular form of evidence.

19. We are therefore unable to concur with the conclusion of the DRP that the explanation is inherently improbable merely because cash savings were stated to have been accumulated and retained over a period of time. Human conduct in financial matters cannot be reduced to a uniform pattern, particularly when the person concerned was residing and earning in a foreign jurisdiction and, according to the unrebutted explanation regarding the mode of remuneration, was receiving his salary in cash. More importantly, there is no positive material brought by the Revenue to demonstrate an alternative source from which the assessee could have generated the impugned cash in India. The seized material found from the builder proves the application of Rs. 30,00,000 towards purchase of the flat, which the assessee himself accepts; but the seized material does not establish an independent or undisclosed source from which the assessee generated that amount. Once the application stands admitted, the enquiry under section 69A has to concentrate upon the explanation of source. On that aspect, the assessee has placed before the authorities a definite, identifiable and financially sufficient source in the form of foreign earnings accumulated over the preceding years. The Revenue has doubted the manner of accumulation and movement of the money, but has not brought any material which dislodges the existence or sufficiency of the source itself. In such circumstances, mere inability to produce documentary evidence for every intermediate movement of cash cannot justify treating the entire amount as unexplained income.

20. Accordingly, considering the peculiar facts of the case in their entirety—the assessee’s prolonged employment abroad, substantial salary income earned in Congo, the independent foreign earnings of his wife, the stated mode of receipt of such earnings in cash, the remittances made from the same source to India, the visits undertaken by the assessee and his wife during the relevant period, and, importantly, the absence of any material indicating generation of undisclosed income in India—we find that the explanation regarding availability of Rs. 30,00,000 for making the impugned payment is reasonable and satisfactory. The amount, though substantial in absolute terms, is relatively modest when considered against the cumulative foreign earnings demonstrated over several years. In our opinion, the authorities below have laid disproportionate emphasis upon the absence of a precise cash trail while not giving due weight to the demonstrated source from which the cash was capable of being accumulated. Section 69A does not warrant conversion of an otherwise explained economic source into unexplained income merely because the historical movement of cash from that source cannot subsequently be reconstructed with mathematical precision. On the facts before us, the explanation is supported not merely by financial capacity but by an identifiable and demonstrated source of sufficient magnitude and proximity to reasonably explain the amount in question. We, therefore, hold that the assessee has satisfactorily explained the nature and source of the sum of Rs. 30,00,000 and the addition made under section 69A cannot be sustained. The same is accordingly deleted.

21. Once the addition made under section 69A itself stands deleted, the consequential application of section 115BBE does not survive and the ground raised in this regard is rendered academic. Insofar as the other grounds relating to validity of reassessment proceedings are concerned, no separate adjudication is called for in view of the relief granted to the assessee on merits and the same are left open. Accordingly, the Assessing Officer is directed to delete the addition of Rs. 30,00,000.

22. In the result, the appeal of the assessee is allowed.