ITAT Deletes Rs. 59.9 Lakh Additions, Grants Major Relief to Taxpayer in Cash Deposit, Gift, Capital Gains Case

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has provided significant relief to an assessee by deleting multiple income additions made by the tax department relating to alleged unexplained cash deposits, a family gift transaction, and wrongful denial of capital gains exemption. The bench of Anubhav Sharma (Judicial Member) and S. Rifaur Rahman (Accountant Member) has observed that allowed the entire appeal and set aside additions totalling nearly ₹60 lakh. Cash Deposits of ₹16.41 Lakh Not “Unexplained” One of the primary issues before the Tribunal pertained to an addition of ₹16.41 lakh made under Section 69A of the Income Tax Act, 1961, treating cash deposits in the assessee’s bank account as unexplained money. The Assessing Officer had rejected the taxpayer’s explanation that the cash deposits were made from earlier withdrawals from the same bank account. According to the revenue, once cash was withdrawn, it had to be presumed that the money had been spent and therefore could not be redeposited later. The appellate authority had also sustained the addition on the ground that a formal cash book was not produced. However, the Tribunal noted that the assessee had withdrawn a total of ₹62.38 lakh during the relevant year and redeposited only ₹16.41 lakh. The stated purpose of withdrawal was for investment in property, and since the deal did not materialise, part of the withdrawn sum was redeposited. The Tribunal ruled that once the assessee established a trail through bank records, the burden shifted to the department to prove that the funds had been spent. Mere assumption, without evidence, could not justify invoking deeming provisions. “Bald allegation is not sufficient,” the Tribunal observed while setting aside the addition. Gift of ₹10 Lakh from Mother-in-Law Accepted Another disputed addition involved a gift of ₹10 lakh received by the assessee from his mother-in-law, which was treated as unexplained by the tax authorities due to the fact that a deposit appeared in the donor’s account shortly before the gift was made. The Tribunal strongly rejected the department’s view that the assessee had to prove the “source of source” of the gift. It emphasized that gifts from close family members are on a different footing from commercial transactions. The donor had confirmed the transaction and her bank statement showed that the money had come through banking channels. The Tribunal held that it was natural for a person to make a financial gift after funds become available and there was nothing unusual about the timing of the deposit. The bench remarked that if the department had doubts, it ought to have conducted inquiries from the donor rather than disbelieving the gift merely on suspicion. Accordingly, the ₹10 lakh addition was deleted. Illegal Enhancement by CIT(A) Quashed The most critical legal issue in the appeal involved enhancement made by the Commissioner of Income Tax (Appeals). While deleting an addition of ₹1.10 crore relating to alleged undisclosed sale proceeds of a property, the CIT(A) simultaneously disallowed exemption claimed under Section 54B, thereby introducing an entirely new basis for taxation. This resulted in an additional tax liability of ₹33.49 lakh. The Tribunal held that such enhancement was made without issuing any show-cause notice to the assessee, which is mandatory under law. The ruling emphasized the enhancement cannot be done without notice. A new source of income cannot be introduced at the appellate stage. Denial of exemption amounts to enhancement of income and requires an opportunity of hearing. The Tribunal relied on multiple judicial precedents, including Supreme Court and Delhi High Court rulings, to strike down the enhancement as legally invalid. As a result, the denial of exemption under Section 54B was overturned. Appeal Fully Allowed With all three major additions—cash deposits, gift, and capital gains disallowance—being decided in favour of the assessee, the Tribunal allowed the appeal in entirety. Case Details Case Title: Shri Ashok Kumar Versus ITO Case No.: ITA No.498/Del/2025 Date: 26.11.2025 Counsel For Appellant: Mansi Jain, Advocate & Siddharth Bajaj, Advocate Counsel For Respondent: Rajesh Kumar Dhanesta, Sr. DR Click Here To Read Order Read More: FM Nirmala Sitharaman Rebuts Claim That GST Compensation Cess Was Used for Centre’s Debt Repayment

ITAT Deletes Rs. 59.9 Lakh Additions, Grants Major Relief to Taxpayer in Cash Deposit, Gift, Capital Gains Case

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