Anikesh Banerjee, Judicial Member, and Om Prakash Kant, Accountant Member of ITAT Mumbai, recently provided relief from an unexplained cash tax notice under Section 69A to a man from Maharashtra. A tax search operation (raid) was conducted in his house by the Income Tax Department. This search operation (raid) lead to seizure of Rs 16 lakh in cash.
When asked about this cash, this man firmly stated that he had opted for the presumptive taxation scheme and that the cash belonged to him, his father, mother, wife, daughter and son. However, the Income Tax Assessing Officer (AO) did not believe him, so he started taking action agaisnt him. This led to him filing an appeal in ITAT Mumbai.
When the case reached ITAT Mumbai the tribunal observed that the accumulation of cash by a housewife or a senior citizen mother out of decades of household savings, pin money, and traditional ‘stridhan’ or gifts is a fundamental part of Indian culture. Expecting a senior citizen mother to maintain regular commercial books of account to justify a lifetime saving of Rs 4.8 lakh is simply unrealistic.
Additionally, ITAT Mumbai pointed out that it’s completely normal for minor children to receive cash gifts from close relatives during celebrations like Diwali, birthdays, and family events. These small cash presents don’t require exact calculations or formal accounting.
So on July 20, 2026, Chandak won the case in ITAT Mumbai. Chartered Accountant Vishwas Agrawal had represented him before ITAT Mumbai.
Mihir Tanna, associate director, S.K Patodia LLP says that an individual can keep a “reasonable” amount of cash in hand. However, where required, the Income-tax Department may seek an explanation regarding the source of such cash, supported by relevant documents, wherever applicable.
Interestingly, Tanna says that what constitutes “reasonable” cannot always be determined through mathematical precision. So in such cases the courts have recognised that it must be examined considering socio-cultural realities and normal human behaviour prevalent in Indian society.
Tanna says: "In theITAT Mumbai judgement as narrated in this article the tax tribunal accepted that, in certain circumstances, maintaining formal records or mathematical precision for every component of cash savings may not be necessary."
How did Chandak get into tax troubles?
This ITAT Mumbai unexplained cash case revolved around Mr Chandak from Kothrud, Maharashtra. On December 31, 2022, Chandak filed his income tax return (ITR) for AY 2022-2023 and opted for presumptive taxation scheme. Under this scheme, you can pay a specified percentage as tax, based on your turnover or gross receipts and you don’t need to maintain books of accounts.
In his ITR, Chandak declared an annual income of Rs 12.35 lakh.
However, not long after, the Income Tax Department decided to carry out a search and seizure operation (raid) in his residential and business premises under Section 132. During this tax raid, the officers discovered Rs 19.14 lakh in cash and seized Rs 16.64 lakh cash. When he was asked to clarify the source of this cash, Chandak explained to the Income Tax Assessing Officer (AO) from Central Circle, Mumbai, Kautilya Bhavan, that the cash came from his family and he gave a breakdown of it as follows:
Chandak himself: Rs 1.78 lakh (evidence: cash book)
Wife: Rs 43,500
Father: Rs 8.05 lakh (explained as his agricultural income, bank withdrawals)
Mother: Rs 4.8 lakh (her lifetime savings)
Daughter: Rs 2.25 lakh (she got shagun money)
Son: Rs 1.81 lakh (his savings accumulated via customary family gifts)
The AO was not convinced and brushed aside Chandak’s explanations and observed that since Chandak had filed his ITR under the presumptive taxation scheme of Section 44ADA and did not maintain regular books, the cash books prepared subsequently were a mere afterthought.
So, the Income Tax Assessing Officer held that in the absence of exact calculations 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 lakh was liable to be taxed as unexplained money. Accordingly, the tax officer added Rs 16.64 lakh income to Chandak’s file under Section 69A and made him liable to pay tax.
Why did Chandak win the case?
Chartered Accountant Suresh Surana said to ET Wealth Online that the Income Assessing Officer rejected Chandak’s explanation, principally on the ground that regular books of account had not been maintained and adequate documentary evidence was not given for the mother’s savings and the gifts received by the minor children.
Feeling aggrieved, Chandak filed an appeal in CIT (A). The Commissioner of Income-tax (Appeals) granted him partial relief but sustained an addition of Rs 8.87 lakh relating to the cash attributed to Chandak’s mother and his minor children.
The ITAT Mumbai observed that tax authorities must assess explanations taking note of the surrounding circumstances, human conduct and prevailing socio-cultural practices.
Surana says that relying on the principles recognised by the Supreme Court in CIT v. Durga Prasad More and Sumati Dayal v. CIT, the ITAT Mumbai held that the explanation should be evaluated on the basis of human probabilities and not merely through strict or technical accounting standards.
ITAT Mumbai also observed that the non-filing of an income-tax return by a non-earning senior citizen or a minor child is not, by itself, an incriminating circumstance.
Surana says that an ITR needs to be filed only where the statutory conditions are satisfied, including where the person’s income exceeds the applicable exemption limit.
Surana says: “Therefore, the absence of ITRs or independent commercial income could not automatically establish that the cash did not belong to Chandak’s mother or children.”
According to Surana, Chandak also won on the alternative ground of telescoping. In Assessment Year 2019–20, cash receipts of Rs 20.61 lakh arising from the sale of agricultural land had been accepted by the CIT(A) as part of exempt sale proceeds.
The Income Tax Department could not prove that this cash had subsequently been spent or invested elsewhere.
Accordingly, the Hon’ble ITAT Mumbai held that the previously accepted cash remained available with the family and was enough to account for the Rs 19.15 lakh discovered during the search.
Surana says: “The Income Tax Department could not recognise the availability of the cash in an earlier year while denying its availability in the year of search without evidence showing its utilisation.”
Accordingly,Chandak won because his explanation was found reasonable when assessed in light of ordinary family practices and human probabilities.
Surana says: “Independently, the entire cash found during the search was covered by the previously accepted cash availability of Rs. 20.61 lakh under the principle of telescoping.”
The ITAT Mumbai therefore directed the Assessing Officer to delete the remaining addition of Rs 8.87 lakh under Section 69A and allowed Chandak’s appeal.
