THIRUMALAI ARANGANNAL, ,RASIPURAM vs. ACIT, CIRCLE-1, SALEM

The brief facts of the case emanating from the records are that the assessee is an individual, engaged in educational consultancy, filed his return of income for the AY 2016-17 on 02.03.2017 by declaring a total income of Rs.40,20,930/-. The case was selected for scrutiny under CASS to verify the sources of cash deposits aggregating to Rs.1,04,50,116/- in his bank accounts during the financial year 2015-16. Accordingly, the AO issued statutory notices to the assessee by calling for the details in support of the return of income filed. In response, the assessee filed the submissions explaining the sources for cash deposits as detailed below:-

On perusal of the submissions made by the assessee along with supporting documents, the AO considered the following amounts as explained sources and the balance amount of Rs.37,22,090/- out of total cash deposit of Rs.1,04,50,116/- as unexplained cash deposits for want of evidence and brought to tax u/s.69A of the Act, apart from Rs.22,15,000/- as unexplained cash credit u/s.68 of the Act on account of gift received from various people, and passed an assessment order u/s.143(3) of the Act dated 24.12.2018 by holding as under:- “Hence, it is clear that in the earlier submissions the assessee was not claiming that the source of cash deposits was arising out of deposits from others. It is only in response to the final show cause notice that the assessee has laid out a new claim, which is nothing but an afterthought. Also to be noticed is the point that with respect to this claim the assessee has failed to provide any confirmation from the parties from whom the deposits were taken or any confirmation with respect to the payment of the liabilities on behalf of these parties. Therefore this claim of the assessee cannot be accepted. The summary of these explanations is as follows:

Further, the assessee submitted that an amount of Rs.10,75,000/- has been reimbursed by the family members for having remitted their advance tax payments through online, out of his available funds in the bank.

Apart from that, the assessee submitted that he had made a repayment of housing loan taken jointly with his wife to the tune of Rs.9,54,975/-. Out of which, Rs.6.00 Lakhs belonging the share of the assessee’s wife was reimbursed to the assessee by cash has been utilised for depositing to the bank account. In view of the above, the assessee prayed the ld.CIT(A) to delete the additions made by the AO. On perusal of the submissions made by the assessee, the ld.CIT(A) remitted the issue of Rs.22,15,000/- gift from other persons to the files of the AO and directed to verify the claim of the assessee and to take the action as per law in case the same income is found to be offered in the return of income by the assessee. However, in respect of the additions made of Rs.37,22,909/-, the ld.CIT(A) confirmed the addition made by the AO by dismissing the grounds of appeal raised by the assessee and passed an order dated 30.07.2025.

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. The ld.AR for the assessee submitted that the ld.CIT(A) has erred in confirming the additions of Rs.37,22,909/- by brushing aside the submissions and supporting evidences filed in support of the source of cash deposits. The ld.AR submitted that the assessee had received Rs.20.00 lakhs in cash during the financial year 2015-16 after the demise of his mother, out of her savings, who was assessed to Income-tax regularly upto the AY 2015-16. Further, the assessee filed an affidavit given by his three sisters jointly confirming the cash gift given by assessee’s mother out of her savings just before her death, i.e., on 02.05.2016 on her 83rd year. Therefore, the ld.AR prayed for deleting the addition to the tune of Rs.20.00 lakhs as the source for cash deposits made in his bank account during the impugned year has been clearly explained.

Further, the ld.AR submitted that out of the bank balance held, the assessee had made payment of advance tax of his relatives (wife Rs.6.00 lakhs, his HUF Rs.3.00 lakhs, his father Rs.35,000/-, his father’s HUF Rs.35,000/-, his mother Rs.1,05,000/- totalling to Rs.10,75,000/-), which was reimbursed in cash by the respective assesses’ and the same has been deposited to the bank account of the assessee. The ld.AR further submitted that the assessee along with his wife had taken a housing loan jointly, which was repaid by the assessee through his bank account regularly. The share of his wife on account of repayment of housing loan to the tune of Rs.6.00 lakhs were also reimbursed by cash to the assessee. Therefore, these reimbursement of tax amount along with the housing loan by his relatives was deposited to the bank account. Therefore, the assessee has successfully explained the source of cash deposits to the tune of Rs.37,22,909/- also and hence prayed for deleting the additions made by the AO, which was confirmed by the ld.CIT(A).

Per contra, the Ld. DR strongly relied upon the orders of the authorities below and submitted that the assessee had failed to satisfactorily substantiate the sources of the cash deposits with cogent and reliable documentary evidence. Accordingly, the Ld. DR supported the findings of the Ld.CIT(A) in sustaining the addition made by the AO and prayed that the impugned order be upheld.

We have heard the rival submissions and perused the materials available on record. The solitary issue that arises for our consideration is whether the Ld.CIT(A) was justified in sustaining the addition of Rs.37,22,909/- made by the AO u/s.69A of the Act towards unexplained cash deposits in the bank accounts of the assessee. It is an admitted position that during the relevant previous year, aggregate cash deposits of Rs.1,04,50,116/- were found in the bank accounts of the assessee. Out of the said deposits, the AO accepted sources aggregating to Rs.67,27,207/- and treated the balance amount of Rs.37,22,909/- as unexplained money u/s.69A of the Act.

Before us, the Ld.AR has reiterated that the balance cash deposits are substantially explained by three sources, namely: (i) cash gift of Rs.20,00,000/- received from the assessee's mother; (ii) reimbursement aggregating to Rs.10,75,000/- from family members towards advance-tax payments made by the assessee on their behalf; and (iii) reimbursement of Rs.6,00,000/- from the assessee's wife towards her share of repayment of the jointly availed housing loan. According to the assessee, these receipts aggregating to Rs.36,75,000/- were available with him for making the cash deposits in question. We, therefore, proceed to examine these explanations independently.

As regards the sum of Rs.20,00,000/-, it is the case of the assessee that the amount was received in cash as gift from his mother, Smt.T.Saraswati, out of her accumulated savings. The assessee has stated that his mother was regularly assessed to income-tax up to AY 2015-16 and that she passed away on 02.05.2016 at the age of 83 years. In support of the transaction, the assessee has also placed reliance upon a joint affidavit executed by his three sisters confirming that their mother had gifted a sum of Rs.20,00,000/- to the assessee out of the funds available with her prior to her demise.

We find that the explanation of the assessee cannot be rejected merely for the reason that the gift was received in cash or that confirmation could not subsequently be obtained from the donor, when the donor had expired shortly thereafter. At the same time, an affidavit from the assessee's sisters, by itself, would not conclusively establish the availability of Rs.20,00,000/- in cash with the donor. For accepting a cash gift as the source of a substantial bank deposit, the assessee is required to establish, on the touchstone of preponderance of probabilities, not merely the identity of the donor and relationship with the assessee, but also the financial capacity of the donor and availability of the amount with her at the relevant point of time.

In the present case, the identity of the donor and her relationship with the assessee are not in dispute. The assessee has also specifically asserted that the donor was regularly assessed to income-tax up to AY 2015-16 and has furnished her PAN particulars. Further, because the donor expired on 02.05.2016, direct confirmation from her during the assessment proceedings completed subsequently was an impossibility. The affidavit furnished by the assessee's sisters is, therefore, a relevant corroborative piece of evidence and could not have been brushed aside without examining the surrounding circumstances and the financial records of the deceased donor.

We further observe that the Ld.CIT(A), while sustaining the entire addition u/s.69A of the Act, has not undertaken any meaningful examination of the donor's past income-tax returns, capital position, bank accounts, withdrawals, accumulated savings or other material which could demonstrate whether she possessed sufficient funds to make the impugned gift. Equally, there is no finding that the affidavit furnished by the assessee's sisters was false or that the persons affirming the affidavit were examined and their statements found to be unreliable. In our considered view, where the assessee has placed prima facie material explaining the source, the explanation is required to be tested with reference to the relevant evidence and surrounding circumstances and cannot be rejected merely on suspicion or on the ground that the transaction was in cash.

Therefore, considering the peculiar facts that the donor was the assessee's mother, was stated to be an income-tax assessee, had expired shortly after the relevant financial year and that the assessee has produced affidavits from the other legal heirs in support of the transaction, we are of the view that the claim requires verification with reference to the income-tax records, capital position, bank statements/withdrawals and other available financial records of the deceased mother. If such records demonstrate availability of funds commensurate with the gift, the source to that extent

The next explanation relates to cash reimbursement of Rs.10,75,000/- by various family members. It is the case of the assessee that, out of the funds available in his bank account, he had made online advance-tax payments on behalf of his wife, his HUF, his father, his father's HUF and his mother and that the respective persons subsequently reimbursed the amounts to him in cash. The details placed before us are as under:

We find considerable force in the contention of the Ld.AR that this explanation is capable of objective verification. If the assessee's bank statements establish corresponding payments of advance tax on behalf of the aforesaid persons and the respective challans and income-tax records establish that such payments were actually credited against their PANs, the first limb of the assessee's explanation would stand corroborated by independent statutory records. Thereafter, what remains to be examined is whether the corresponding reimbursement by such persons and their capacity to make the reimbursement are reasonably established.

In our considered view, the explanation cannot be rejected merely because the reimbursement was made in cash. The crucial question for the purpose of section 69A is whether the assessee has satisfactorily explained the

We, therefore, consider it appropriate that the claim of reimbursement of Rs.10,75,000/- be verified with reference to the assessee's bank statements, advance-tax challans, PAN-wise tax records and confirmations/financial capacity of the respective family members. To the extent that a clear nexus is established between the payments made by the assessee and the corresponding reimbursement received, such amount cannot be treated as unexplained money of the assessee.

The third explanation concerns Rs.6,00,000/- allegedly received from the assessee's wife towards her share of repayment of the housing loan jointly availed by the assessee and his wife. The Ld.AR submitted that although the housing loan was jointly taken, repayments were made by the assessee through his bank account and the proportionate liability of his wife was subsequently reimbursed to him in cash. Here again, the explanation is capable of verification from contemporaneous documentary evidence. The AO can ascertain whether the housing loan was in fact jointly availed by the assessee and his wife; the amount of instalments actually paid by the assessee; the extent of liability attributable to his wife; her independent source of income/funds; and whether

Once the assessee demonstrates through the loan account and bank statements that he had discharged the liability attributable to his wife and further establishes that she possessed sufficient explained sources to reimburse him, the cash so received would partake the character of reimbursement and could not again be regarded as unexplained money merely because the reimbursement was in cash. Conversely, if the factual foundation of the reimbursement is not established, the AO would be entitled to deal with the amount in accordance with law.

In the facts before us, the assessee has identified specific sources for the disputed cash deposits and has also identified the persons from whom the amounts were allegedly received. The explanations are not incapable of verification. The gift from the deceased mother can be tested against her income-tax and financial records; the advance-tax reimbursements can be cross-verified from the challans, bank entries and tax accounts of the respective persons; and the housing-loan reimbursement can similarly be verified from the loan account, bank statements and financial records of the assessee's wife. We are, therefore, unable to approve the approach of sustaining the entire addition merely on the ground that sufficient confirmations were not furnished during assessment or that part of the explanation was advanced at a later stage.

At the same time, we are also not persuaded to accept the entire explanation straightaway merely on the basis of the assertions made before us. The availability of cash with the respective persons, the dates of reimbursement/gift, the proximity of such receipts with the cash deposits and the financial capacity of the persons concerned require factual verification. These matters have not been examined in their proper perspective by the authorities below.

We further notice that the three principal sources now relied upon by the assessee aggregate to Rs.36,75,000/- [Rs.20,00,000 + Rs.10,75,000 + Rs.6,00,000], whereas the addition sustained u/s.69A is Rs.37,22,909/-, leaving a difference of Rs.47,909/-. The assessee shall, therefore, also be required to explain the source of the said balance amount of Rs.47,909/- with supporting evidence, and the AO shall adjudicate the same independently in accordance with law. 26. In view of the foregoing discussion and considering the totality of the facts and circumstances of the case, we deem it appropriate, in the interest of substantial justice, to set aside the finding of the Ld.CIT(A) sustaining the addition of Rs.37,22,909/- u/s.69A of the Act and restore the issue to the file of the Jurisdictional Assessing Officer (JAO) for limited verification of the sources explained by the assessee. The JAO shall examine: (i) the financial capacity and availability of funds with the assessee's deceased mother for making the alleged gift of Rs.20,00,000/-, having regard to her past income-tax returns, capital account, bank statements, withdrawals and other relevant material, together with the affidavits furnished by the assessee's sisters; (ii) the claim of reimbursement of Rs.10,75,000/- towards advance-tax payments with reference to the assessee's bank statements, tax-payment challans, PAN-wise tax records, confirmations and financial capacity of the respective persons; (iii) the reimbursement of Rs.6,00,000/- by the assessee's wife towards repayment of the jointly availed housing loan, with reference to the loan documents, loan account, bank statements and her explained sources; and (iv) the source of the remaining amount of Rs.47,909/-.

The assessee is directed to furnish all relevant documentary evidence available with him in support of the aforesaid claims and shall extend necessary cooperation in the proceedings. If, upon verification, the assessee establishes

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.