Customary household savings, gifts, and past family cash inflows explain cash found during search, invalidating Section 69A addition.

ORDER

Om Prakash Kant, Accountant Member. – This appeal filed by the Assessee is directed against the appellate order dated 21/03/2026 passed by the Learned Commissioner of Income-tax (Appeals)-Mumbai [hereinafter referred to as ‘Ld. CIT(A)’], under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), arising out of an assessment order passed under Section 143(3) of the Act for the Assessment Year (AY) 2022-23. The Assessee has raised the following grounds of appeal:

2. The material facts necessary for the adjudication of the controversy are that the Assessee filed his Return of Income for the year under consideration on 31st December 2022, declaring a total income of Rs. 12,35,980/-. A search and seizure operation under Section 132 of the Act was executed on 23rd September 2021 on the residential and business premises of the Assessee along with other connected entities. In the course of the search action, cash aggregating to Rs. 19,14,500/- was found, out of which Rs. 16,64,500/- was seized by the Revenue. During the course of the assessment proceedings, the Assessing Officer (AO) called upon the Assessee to demonstrate the nature and source of the cash so found, backed by regular books of account. In response, the Assessee submitted a comprehensive, individual-wise breakdown explaining the possession of cash across six family members as follows:

3. The Assessing Officer, however, remained unconvinced and summarily brushed aside the Assessee’s explanations. The AO observed that since the Assessee had filed his return under the presumptive taxation scheme of Section 44ADA and did not maintain regular books, the cash books prepared subsequently were a mere afterthought. He further held that in the absence of absolute mathematical proof regarding the gifts received by the minors, the agricultural income of the father, and the savings of the mother, the entire cash balance of Rs. 16,64,500/- was liable to be taxed as unexplained money. Accordingly, the AO made an addition of Rs. 16,64,500/- under Section 69A of the Act. The relevant finding of the ld AO is reproduced as under

” 6.2 Assessee’s explanation has been perused and the same is not acceptable due to the following:

In view of the these facts, the copies of cash book showing cash balances in the hands of the assessee and his family members is rejected and therefore the cash seized of Rs. 16,64,500/- is added to the total income u/s.69A of the I.T.Act, 1961. Penalty proceedings u/s.271AAC(1) of the I.T.Act, 1961 are initiated separately. Penalty proceedings u/s.271AAB(1A)(b) of the I.T.Act, 1961 are also separately initiated.

4. Aggrieved, the Assessee preferred an appeal before the Ld. CIT(A). The ld First Appellate Authority, upon evaluation of the evidences, partly accepted the Assessee’s contentions. He accepted the availability of cash in the hands of the Assessee (Rs. 1,78,200/), his wife (Rs. 43,500/-), and his father (Rs. 8,05,400/-), taking due note of their past tax returns and filing histories. Consequently, the Ld. CIT(A) deleted the addition to the extent of Rs. 7,77,100/-. However, the Ld. CIT(A) sustained the remaining addition of Rs. 8,87,400/- relating to the mother and the minor children, observing inter alia:

“7.3.1. It is noticed that the assessee did not and could not explain the sources of cash to the extent of Rs. 16,64,500 seized out of the cash found of Rs. 19,14,500 at the time of search on 23.09.2021. Indeed, non-explanation for the sources was the reason for seizure of Rs. 16,64,500. During post search inquiries i.e., on 31.01.2022 and 07.02.2022 (i.e., after 3 months from the search date) the assessee submitted to the DDIT an explanation for the sources of cash seized stating that this cash belonged to all the six family members. It appears from the submissions of the appellant made before the DDIT, the AO and the CIT(A) that the explanation for the sources of cash seized of Rs. 16,64,500 is an afterthought because he distributed the sources of cash among the family members. There are certain loose ends in assessee’s explanation, though his explanation cannot be entirely rejected.

7.3.2. During the assessment proceedings as well as appellate proceedings the assessee submitted the sources of cash found of Rs. 19,14,500 as follows:

“7.3.3. However, the assessee did not explain on what occasions his minor children received gifts to the extent of Rs.2,25,300 and Rs.1,81,500, who all gifted cash on those occasions, why the cash gifts were kept idle in home, etc. Even if presumably those cash gifts were received what prevented the assessee from clubbing the income of his children with his income in his return of income. Presumably further, even if his children received gifts from their relatives what prevented the assessee from claiming deduction/exemption after clubbing those cash gifts received from relatives as mentioned u/s.56(2)(vi). Therefore, the assessee’s claim with regard to children receiving cash gifts is rejected and hence the addition to the extent of Rs.4,06,800 (Rs.2,25,300 + Rs.1,81,500) is confirmed.

7.3.4. The assessee could not explain what could be the sources of his mother’s lifetime savings especially because she did not have her own sources of income at all. Further, it is understandable if some old jewellery of her mother was found in his house and thereby that reasonable relief could be granted on that count considering the custom that the women must have been wearing the daily usage jewellery. But what was claimed to belong to the assessee’s mother is not jewellery but cash. Cash would never get accumulated over someone’s lifetime only to be found at the time of search. Moreover, she did not have any independent sources of income as no Rols were filed by her but rather she was dependent on the assessee being her son. Therefore, the assessee’s claim with regard to mother having lifetime savings of Rs.4,80,600 is rejected and hence the addition to the extent of Rs.4,80,600 is confirmed.

7.3.5. The assessee claimed that sum of Rs.8,05,400 belonged to his father and submitted cash book to the AO with opening cash balance of Rs.5,80,679 and agriculture income of Rs.2,76,600 cash withdrawals from bank of Rs.25,000. The so-called cash book submitted to the DDIT was not as per the requirement of any law and hence, this cash book is ignored by me. However, since assessee’s father had been filing ITRs regularly showing incomes in the order of Rs.4,00,000 [Rs.3,86,449 in AY 2019-20, Rs.4,38,530 in AY 2020-21 & Rs.4,89,367 in AY 2022-23] the assessee’s claim that his father had accumulated cash to the extent of Rs.8,05,400 cannot be ignored. Also, the assessee claimed that sums of Rs.1,78,200 and Rs.43,500 respectively belonged to himself and his wife. Considering that the assessee had been filing ITRs regularly and also that these amounts are in reasonable proportion to be kept for household purposes out of accounted sources, the total amount of Rs.2,21,700 (Rs.1,78,200 + Rs.43,500) cannot be unaccounted money.

Since the addition to the extent of Rs.8,87,400 (Rs.4,06,800 + Rs.4,80,600) u/s.69A is confirmed as discussed in paras 7.3.3 and 7.3.4, the balance addition of Rs.7,77,100 (Rs. 16,64,500 Rs.8,87,400) is deleted.”

4.1 Before us, the Learned Counsel for the Assessee filed a comprehensive Paper Book (pages 1 to 78), drawing our attention to the cash reconciliation statement at page 37. For ready reference, said reconciliation is reproduced as under;-

5. The Ld. Counsel vehemently argued that the Ld. CIT(A) erred in applying standard corporate accounting metrics to a traditional Indian household. It was submitted that Mrs. Kanta Chandak, being a senior citizen and the matriarch of the family, had accumulated her lifetime savings out of household allowances, pinned money, and family gifts. Ld. counsel for the assessee submitted that his mother is a senior citizen, was saving money out of the household expenses and which was kept in the form of stridhan, and therefore, no reason to doubt the availability of a sum of Rs. 4,80,600/- in the hands of a senior citizen. Similarly, Ld. Council submitted that in respect of the availability of the cash of Rs. 2,25,300/- and Rs. 1,81,500/- in the hands of minor daughter Itisha Chandak and minor son Rishik Chandak respectively was also explained during the course of search proceeding as out of the money received from gifts on various occasions. Ld. Counsel submitted that in view of the customary tradition, it is not impossible that two children might have possessed such a small amount in their hands. Learned CIT(A) has merely sustained the addition in respect of source of money explained in the hands of his mother and minor children only for the reason that they did not file return of income for the year under consideration. The learned counsel submitted that the assessee has declared return of income in his hand, which is sufficient to even explain the money against the minor children.

5.1 Ld. Counsel alternatively also submitted that in AY 2019- 20, addition for cash amounting to Rs. 20,60,970/- was made for sale proceeds of the agriculture income. However, Ld. CIT(A) deleted the said addition. Therefore, the said amount of Rs. 20,60,970/- is now available in the hands of the assessee as opening cash in hand for the year under consideration and sufficient to explain the cash found from the premises of the assessee.

6. On the other hand, Ld. DR relied upon the order of the lower authorities.

7. We have heard the rival submissions, perused the material placed on record, and carefully considered the facts in light of applicable legal precedents.

The short issue that arises for our adjudication is whether the Ld. CIT(A) was justified in sustaining the addition of Rs. 8,87,400/-under Section 69A of the Act, representing cash attributed to the Assessee’s mother and minor children.

7.1 It is a well-settled judicial tenet that in tax assessment proceedings, the tax authorities cannot function in a vacuum, completely detached from the socio-cultural realities and human behavior native to Indian society. The Supreme Court in the landmark case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and subsequently in Sumati Dayal v. CIT 214 ITR 801 (SC) held that the test of human probabilities and the surrounding circumstances are deeply relevant in evaluating the reality of a transaction. In the case before us, the Ld. CIT(A) has sustained the addition primarily on the hyper-technical ground that these three individuals do not file regular returns of income and lack independent commercial income streams. We find this logic inherently flawed. Under the scheme of the Act, an individual is required to file a return of income only if their total income exceeds the maximum amount not chargeable to tax. The non-filing of a return by a non-earning senior citizen mother or minor children is a compliance reality, not an incriminating fact. The accumulation of cash by a housewife or senior citizen mother out of decades of household savings, pin money, and traditional ‘stridhan’ or gifts is an foundational aspect of Indian social practice. To demand that a senior citizen mother maintain regular commercial books of account to justify a saving of Rs. 4,80,600/- over her lifetime is to expect the impossible. Similarly, minor children receiving cash gifts from close relatives on celebratory occasions like Diwali, birthdays, and family milestones is completely customary. Such small cash presents do not demand mathematical precision or formal reporting in accounts. The lower authorities have completely overlooked these deep-rooted societal habits, replacing objective evaluation with subjective suspicions.

7.2 Even if we overlook past the customary nature of these savings, the alternative plea of telescoping raised by the Assessee carries substantial legal weight. The Assessee has demonstrated that in the immediate preceding years (specifically AY 2019-20), an amount of Rs. 20,60,970/- was structurally deleted by the Ld. CIT(A) itself, recognizing the sum as nontaxable agricultural land sale proceeds in the hands of the family. Ld. CIT(A) has held the availability of the cash amounting to Rs. 20,60,970/- as under;-

“10.2.2. Therefore, the cash component of Rs.20,60,970 received by the assessee is held to be part of the sale proceeds of the agriculture land but held to be exempt from tax due to the fact that the underlying asset transferred was not a capital asset u/s.2(14). Accordingly, the addition of Rs.20,60,970 as unexplained money u/s.69A is deleted by treating the receipt of Rs.20,60,970 as part of the sale proceeds of the agriculture land, not being capital asset.”

7.3 Once a large cash inflow has been judicially recognized as entering the family pool in a prior year and has not been shown by the Revenue to have been invested or expended elsewhere, that cash remains legally available as a liquid cushion to explain any subsequent cash found during a search. The Revenue cannot accept a cash pool on one hand and deny its existence or availability on the other. Applying the judicially recognized principle of telescoping, the cash found at the time of the search (Rs. 19,14,500/-) is entirely covered by the past realized cash availability of Rs. 20,60,970/-. Therefore, looking at the case from either the lens of customary household savings or the doctrine of telescoping, the addition sustained under Section 69A cannot be sustained in law.

7.4 We therefore direct the Assessing Officer to delete the remaining addition of Rs. 8,87,400/-. The grounds raised by the Assessee are accordingly allowed.

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