Cash With Mother and Minor Children Cannot Be Rejected Ignoring Social Realities: ITAT Mumbai

Pawan Onkardas Chandak Vs ACIT (ITAT Mumbai)

Household Savings and Customary Gifts Can Explain Search Cash; Section 69A Addition Deleted Considering Household Savings, Gifts and Telescoping; Past Recognised Cash Availability Can Explain Cash Found During Search; ITAT Mumbai Deletes ₹8.87 Lakh Section 69A Addition for Family Cash Savings

Summary: The Mumbai Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal concerning an addition of Rs. 8,87,400/- sustained under Section 69A of the Income-tax Act, 1961 in respect of cash attributed to the assessee’s mother and minor children. The Tribunal directed the Assessing Officer to delete the remaining addition.

The appeal arose from the order dated 21/03/2026 passed by the Learned Commissioner of Income-tax (Appeals), Mumbai under Section 250 of the Act, arising from an assessment completed under Section 143(3) for AY 2022-23. The assessee had declared total income of Rs. 12,35,980/- in the return filed on 31st December 2022. A search and seizure operation under Section 132 was conducted on 23rd September 2021 at the residential and business premises of the assessee and connected entities. Cash aggregating to Rs. 19,14,500/- was found, of which Rs. 16,64,500/- was seized.

During assessment proceedings, the assessee furnished an individual-wise explanation of the cash among six family members. The explanation attributed Rs. 1,78,200/- to the assessee, Rs. 43,500/- to his wife, Rs. 8,05,400/- to his father, Rs. 4,80,600/- to his mother, Rs. 2,25,300/- to his minor daughter and Rs. 1,81,500/- to his minor son. The assessee relied upon cash books for the assessee, his wife and father, while the amounts attributed to the mother and minor children were explained as lifetime savings and customary gifts received from relatives.

The Assessing Officer rejected the explanation and treated the entire seized cash of Rs. 16,64,500/- as unexplained money under Section 69A. The AO observed, among other things, that the assessee had filed his return under the presumptive taxation scheme of Section 44ADA, that the cash books had been prepared subsequently, and that evidence regarding gifts to the minors, agricultural income of the father and savings of the mother was not sufficient in the AO’s view. Penalty proceedings under Sections 271AAC(1) and 271AAB(1A)(b) were also initiated separately.

The CIT(A) partly accepted the assessee’s explanation. He accepted Rs. 1,78,200/- belonging to the assessee, Rs. 43,500/- belonging to his wife and Rs. 8,05,400/- attributed to his father. Accordingly, the CIT(A) deleted Rs. 7,77,100/- from the addition. However, the CIT(A) sustained Rs. 4,06,800/- relating to the minor children and Rs. 4,80,600/- relating to the mother, aggregating to Rs. 8,87,400/-.

In relation to the minor children, the CIT(A) observed that the assessee had not explained the occasions on which the gifts were received, the persons who gifted the cash or why the cash was retained at home. He also referred to the provisions concerning clubbing and gifts and rejected the explanation for Rs. 4,06,800/-.

In relation to the mother, the CIT(A) rejected the explanation that Rs. 4,80,600/- represented lifetime savings. He observed that she had no independent source of income and reasoned that cash would not accumulate over a lifetime merely to be found during a search.

Before the Tribunal, the assessee relied upon a paper book and a cash reconciliation statement showing total cash of Rs. 19,14,500/- corresponding with the cash found as per the panchnama. Counsel submitted that the CIT(A) had applied standard corporate accounting metrics to a traditional Indian household. It was submitted that the mother, being a senior citizen and matriarch of the family, had accumulated savings from household expenses, pin money, family gifts and stridhan. The assessee also submitted that the minor children could have accumulated the relatively small amounts of Rs. 2,25,300/- and Rs. 1,81,500/- through customary gifts received on various occasions.

Alternatively, the assessee relied upon telescoping. Counsel submitted that in AY 2019-20 an addition of Rs. 20,60,970/- relating to agricultural land sale proceeds had been deleted by the CIT(A). The Tribunal recorded the CIT(A)’s finding that the cash component of Rs. 20,60,970/- represented part of the sale proceeds of agricultural land and was exempt because the underlying asset was not a capital asset under Section 2(14). The assessee therefore contended that the recognised cash availability from the earlier year was sufficient to explain the cash found during the search.

The Revenue relied upon the orders of the lower authorities.

The Tribunal framed the short issue as whether the CIT(A) was justified in sustaining the Rs. 8,87,400/- addition under Section 69A representing cash attributed to the assessee’s mother and minor children.

The Tribunal referred to the Supreme Court decisions in CIT vs. Durga Prasad More, [1971] 82 ITR 540 (SC), and Sumati Dayal vs. CIT, [1995] 214 ITR 801 (SC), concerning the relevance of human probabilities and surrounding circumstances in tax assessment proceedings.

The Tribunal held that tax authorities cannot function in a vacuum detached from socio-cultural realities and human behaviour native to Indian society. It found the CIT(A)’s reasoning inherently flawed to the extent it treated non-filing of regular returns and absence of independent commercial income as decisive against the cash attributed to the mother and minor children. According to the Tribunal, non-filing of returns by a non-earning senior citizen mother or minor children was a compliance reality and not, by itself, an incriminating fact.

The Tribunal further observed that accumulation of cash by a housewife or senior citizen mother from household savings, pin money, traditional stridhan or gifts, and receipt of cash gifts by minor children from relatives on celebratory occasions, were matters that had to be considered in their social context. It held that such circumstances could not be rejected merely because formal commercial books or mathematical precision were absent.

The Tribunal also considered the alternative telescoping plea. It noted that Rs. 20,60,970/- had been recognised by the CIT(A) in the earlier year as part of agricultural land sale proceeds and had been treated as exempt from tax because the underlying asset was not a capital asset under Section 2(14). The Tribunal held that where a large cash inflow had been judicially recognised as entering the family pool in a prior year and the Revenue had not shown that the amount was subsequently invested or expended elsewhere, the cash remained legally available to explain subsequent cash found during search.

On that basis, the Tribunal held that the cash found during the search of Rs. 19,14,500/- was entirely covered by the past recognised cash availability of Rs. 20,60,970/-. It concluded that, whether viewed through the lens of customary household savings or the doctrine of telescoping, the addition sustained under Section 69A could not be sustained.

The Tribunal accordingly directed the Assessing Officer to delete the remaining addition of Rs. 8,87,400/-. The grounds raised by the assessee were allowed and, in the result, the assessee’s appeal was allowed.

Cases Discussed

• CIT West Bengal Vs. Durga Prasad More, [1971] 82 ITR 540 (SC) — considered for the relevance of surrounding circumstances and the test of human probabilities in evaluating the reality of transactions.
• Sumati Dayal vs. CIT, [1995] 214 ITR 801 (SC) — considered along with Durga Prasad More on the relevance of human probabilities and surrounding circumstances in tax assessment proceedings.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT MUMBAI

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:

i. On the facts and circumstances of the case and in law, the Ld. A.O. has erred in passing the order u/s 143(3) of the 1. T. Act, 1961 without understanding the facts and circumstances of the case and the same is grossly incorrect. invalid and bad in law.

ii. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the part addition of Rs. 8,87,400/- u/s 69A of the Income Tax Act, 1961 out of Rs. 16,64,500/- by treating the cash found during search as unexplained money, without properly appreciating the facts, evidences, and explanations furnished by the appellant.

iii. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in rejecting the detailed explanation submitted by the appellant related to cash belongs to his family members (i.e. mother and minor children’s), which clearly explained the nature and source of cash found during search.

iv. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming addition of Rs. 4,80,600/- allegedly belonging to the appellant’s mother by holding that lifetime savings cannot be accumulated in cash, which is based on assumptions, presumptions, and general observations, and not on any material evidence.

v. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming addition of Rs. 4,06,800/- relating to minor children’s savings received from gifts by ignoring general social practices and without appreciating that gifts received on various occasions are customary in Indian families and maintenance of books is not required for minors and mathematical precision cannot be expected in such cases.

vi. On the facts and circumstances of the case and in law, the Ld. CIT(A) has adopted an arbitrary and ad-hoc approach by partly accepting and partly rejecting the explanation without any logical or legal basis.

vii. Without prejudice to the above in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the addition in respect of unexplained cash for AY2022-23, without appreciating that cash of Rs. 20,60,670/- was available with the appellant and which has been accepted by the Ld. CIT(A) himself in his order for AY 2019-20 and as such the amount added in AY 2022-23 stood explained (since telescoped from AY 2019-20) and therefore the addition made u/s 69A deserves to be deleted and it is prayed accordingly.

viii. The appellant craves leave to add, alter, amend or modify any or all grounds till the disposal of the 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:

i. Mr. Pawan Chandak (self) – Cash in hand of Rs. 1,78,200/-, derived from an opening cash balance of Rs. 2,27,151/- as on 01/04/2021, duly reflected in the cash book produced.

ii. Mrs. Jaya Chandak (wife) – Cash in hand of Rs. 43,500/-, derived from an opening balance of Rs. 63,350/- as on 01/04/2021, as evidenced by the cash book.

iii. Mr. Onkardas Bansilal Chandak (father) Cash in hand of Rs. 8,05,400/-, originating from an opening balance of Rs. 5,80,679/- as on 01/04/2021, supplemented by agricultural income of Rs. 2,76,600/- and bank withdrawals of Rs. 25,000/-, corroborated by the cash book.

iv. Mrs. Kanta Chandak (mother) – Cash in hand of Rs. 4,80,600/-, representing her lifetime savings as a senior citizen. Being a non-earning individual below the taxable threshold, she was neither required to maintain books of account nor file statutory returns of income.

v. Miss. Itisha Chandak (daughter) – Cash in hand of Rs. 2,25,300/-, representing accumulated customary gifts (shagun) received from relatives on various social occasions over time.

vi. Master Rishik Chandak (son) Cash in hand of Rs. 1,81,500/-, similarly representing minor savings accumulated through customary family gifts.

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 asunder:

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

(a) Assessee has explained in his letter to the DDIT on 07-02-2022 that the seized cash includes cash belonging to Mrs. Kanta Chandak of Rs.4,80,600/- and cash belongs to Miss. Itisha Chandak and Master Rishik Chandak who are minors. It was explained that cash belongs to theassessee father Shri Onkardas Bansilal Chandak of Rs.8,05,400/-as on 16-09-2021. During the assessment proceedings, vide letter dated 12-02-2024, assessee explained that Mrs. Kanta Chandak is non filing of I.T. returns due to her income below the taxable limits, Master Rishi Chandak and Miss Itisha Chandak are minors and they received gifts from relative on various occasions and being minor they are not liable to file their income tax return. In respect of cash balance of your father you have explained that his cash balance as on 16-09-2021 is out of opening cash as on 01-04-2021 of Rs.5,80,679/- and agricultural income of Rs.2,76,600/-.

(b) Perusal of the submissions filed show that the assessee has given copy of cash book of his and of his family members though the assessee and their family members are not maintaining regular books of accounts. The assessee himself is not mainting books of account and filed his return of income by disclosing income u/s.44ADA. Further, the assessee’s mother and two children viz. Master Rishik Chandak and Ms. Ishika Chandak who are minors and no evidence has been furnished to show that they have received cash. Further, the assessee has submitted that his father has earned agricultural income and his cash is out of agricultural receipts, however, no source of earning agricultural income is filed.

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.е., 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. 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 vs. Durga Prasad More [1971] 82 ITR 540 (SC) and subsequently in Sumati Dayal vs. CIT [1995] 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.

Order pronounced in the open Court on 20/07/2026.