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On October 28, 2025, The Income Tax Appellate Tribunal (ITAT) Mumbai provided relief to Mr. Nilawar from Pune in an unexplained cash credit case amounting to Rs 7.11 crore. The evidence presented, which included a black diary, another pocket diary, some paper receipts, chats, and more were considered fully explainable.
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To give you a quick overview of this case, Mr. Nilawar provides consultancy services related to land aggregation and acquisition. For the Assessment Year 2022-23, he filed his income tax return (ITR) on November 5, 2022, declaring a total income of Rs 3 crore (3,87,39,970), which include income from house property, business, capital gains, and other sources.
On September 23, 2021 a search and seizure operation under Section 132 was carried out concerning a company, but, Mr. Nilawar was also included in the said search action.
Subsequently on March 2, 2022, the case was centralised with the Assistant Commissioner of Income Tax, Central Circle-6(1), Mumbai, following the CCIT’s order. The case was selected for compulsory scrutiny with the prior approval of the Pr. CIT (Central)-3, Mumbai. Statutory tax notices under Sections 143(2) and 142(1) were issued and served to Mr. Nilawar, who responded by providing the requisite details and explanations over time.
On March 24, 2024, the Income tax Assessing Officer (AO) completed the assessment under Section 143(3) after thorough proceedings and issued an order that determined Mr. Nilawar’s total income as Rs 11 crore (11,11,29,155) compared to Rs 3 crore (3,87,39,970) declared in his ITR. T
Upset with the additions, Mr. Nilawar decided to appeal to CIT(A). After reviewing the evidence and arguments presented, the CIT(A), partially granted the appeal through the impugned order dated February 26, 2025 (read with the corrigendum of the same date).
As a result, the Income Tax Department, feeling dissatified, filed an appeal with the ITAT Mumbai. Mr. Nilawar also submitted a cross-appeal regarding the relief that was not granted. On October 28, 2025 he won the case in ITAT Mumbai. Shri Nishit Gandhi and Ms.Adnya Bhandari represented him.
Also read: Rs 1.91 crore ‘unexplained cash’: HC grants relief to taxpayer despite ITR lapse by cash giver
Additionally, ITAT Mumbai referenced the Supreme Court ruling in the Common Cause v. Union of India [2017] 394 ITR 220 (SC) stating that loose papers and unauthenticated notes are inadmissible under Section 34 of the Evidence Act, and cannot serve as evidence for transactions unless supported by credible materials.
Summary of the judgement
Chartered Accountant (Dr.) Suresh Surana said that in this case (ITA No.2318/Mum/2025), a search was carried out under Section 132 at the Rucha Group, where a spiral-bound black diary, certain loose papers, cash, foreign currency and gold jewellery were found at the taxpayer’s residence and at premises of third parties connected with him.
Surana mentions that the Assessing Officer treated the notes in the seized diaries as unaccounted expenditure and made extensive additions under Sections 69A, 69B and 69C aggregating several crores on the premise that the entries reflected undisclosed outgoings and assets.
The assessee explained that the diary pages reflected the following:
- (i)cash carried during business travel for Rucha Group, and
- (ii) monthly or quarterly internal summaries of expenses of Rucha Group LLP that were fully recorded in its audited books.
Surana says that the assessee further demonstrated that the cash found during search belonged to Rucha Group LLP (Rs 53.02 lakh), duly recorded in its cash book, and his late father’s declared cash balance (Rs 1.13 crore) accepted in assessment, along with minor household savings. The assessee also provided authenticated foreign exchange purchase bills, travel records and family explanations for jewellery, contending that none of the items represented unexplained assets or expenditure.
Also read: Tax Dept accuses lady of taking Rs 3 crore cash in property deal; ITAT Mumbai disregards WhatsApp chat evidence, says no proof, no tax
According to Surana, the ITAT Mumbai accepted the taxpayer’s position and deleted the additions in entirety. It held that the foundational requirement for invoking section 69C i.e. proof of actual unrecorded expenditure was completely absent.
The notes in the seized diary were found to be neither reliable evidence of any expenditure nor corroborated by any material. The Tribunal observed that pages 7–10 of the diary corresponded exactly to expense summaries already recorded in the audited books of Rucha Group LLP, and the Revenue could not point to a single discrepancy in the reconciliation.
With respect to certain specified pages (1–6), the Tribunal noted that the entries reflected cash-in-hand movements, not expenditure, and that the assessee’s cash balance was already accepted in his books.
Surana says that when the availability of recorded cash exceeded the amount of cash found, no presumption under Section 69C could survive. The Tribunal also held that selective acceptance and rejection of the same explanation by the CIT(A) was illogical, and therefore even the addition of Rs. 11.20 lakh was deleted.
Surana says that similarly, additions based on documents seized from third parties were rejected for lack of nexus and absence of corroboration. The Tribunal emphasised that retracted statements of third persons, without supporting evidence, could not constitute a valid basis for additions. Loose sheets with vague notations such as “Boss” or random figures had no evidentiary value under the principles laid down in Common Cause v. Union of India (SC).
Surana mentions that on the issue of cash found, the Tribunal noted that the assessee had established two independent, verifiable and fully disclosed sources — the LLP’s closing cash balance and the father’s assessed cash balance — which together far exceeded the amount found during search.
Surana says that once the source was demonstrated, Section 69A could not be invoked. No enquiry was conducted by the AO to contradict the explanation. The foreign currency addition was deleted because the assessee substantiated the acquisition through banking channels and frequent family travel.
Surana says that the AO’s view that such currency should have been immediately reconverted into rupees was held to be unrealistic and contrary to common human conduct. The jewellery addition was also deleted based on CBDT Instruction No. 1916 and judicial precedent, particularly given the family’s social status and the mother’s age.
Surana says: “Thus, the Tribunal held that the AO’s approach was based on suspicion and assumption rather than evidence, whereas the assessee’s explanation was supported by books of account, audited financial statements, reconciliations, foreign exchange bills, and accepted past records. Since the Revenue (IT department) failed to discharge its burden to rebut these explanations, all additions were deleted.”
Also read: Lady sells property for Rs 94 lakh, gets Rs 38 lakh in cash; files no ITR, gets tax notice for unexplained income, wins case in ITAT Mumbai
Any advice for taxpayers who keep gold in their home?
Neeraj Agarwala, Partner, Nangia & Co LLP, says that tax officials place considerable weight on statements recorded during search operations, and experience shows that clear, consistent explanations at this stage can significantly reduce future litigation. Equally crucial is maintaining proper documentation, especially when jewellery has been inherited across generations.
Agarwala says: “Families should retain balance sheets, wills, wealth disclosures, or any other papers belonging to the deceased from whom the jewellery has passed down. Even simple correspondence or family records showing how ornaments were transmitted to heirs can strengthen the taxpayer’s position.”
According to Agarwal, this approach proved decisive in the present case. The Tribunal accepted the assessee’s explanation regarding his mother’s jewellery because her holding was fully in line with her age, social background, and long-married life.
ITAT Mumbai: During income tax raid a black diary was found with names, dates and figures
ITAT Mumbai in its judgement dated October 28, 2025, said that the income tax department in its appeal (ITA No. 2896/Mum/2025) challenged the deletions made by the CIT(A).
The first and principal ground of the Revenue (income tax department) relates to the deletion of addition of Rs 5 crore (5,23,95,187) made under Section 69C, whereas the assessee’s (Mr. Nilawar) Ground Nos. 1 to 1.3 in its appeal (ITA No. 2318/Mum/2025) relate to the sustenance of Rs 11,20,000 on the same issue. Since both arise from the same seized material and share a common substratum of facts, they are taken up together for adjudication.
ITAT Mumbai said that during the course of the search, a spiral-bound black coloured pocket diary was found and seized from the residence of the assessee (Mr. Nilawar). The Assessing Officer (AO) reproduced the contents of the said diary in his order and observed that the notings therein represented unrecorded cash expenses.
ITAT Mumbai said that as the diary contained names, dates, and figures of certain persons and alleged expenses, and since the assessee (Mr. Nilawar), according to the AO, failed to explain their source, the entire sum aggregating to Rs 5 crore (5,35,15,187) was treated as unexplained expenditure under section 69C.
Before the CIT(A), Mr. Nilawar submitted an elaborate explanation. It was contended that the seized diary comprised ten pages out of which six (pages 1-6) merely recorded the cash movements carried by him while travelling for business purposes of the company, and the remaining four (pages 7-10) contained summaries of expenses actually recorded in the books of the company.
Nilawar also explained that the cash mentioned therein formed part of his disclosed cash balances, duly reflected in the books, and not any expenditure incurred outside the accounts. He also submitted as evidence the lLedger extracts and reconciliations to substantiate this claim.
The CIT(A), after a detailed analysis, partly accepted the explanation. Insofar as pages 1-6 were concerned, he held that the entries largely represented explained transactions, except for three amounts Rs 6 lakh (opening), Rs 3.2 lakh (02.09.2021), and Rs 2 lakh (17.09.2021) whose sources were not satisfactorily established. Accordingly, CIT (A) sustained an addition of Rs 11.2 lakh and deleted the balance.
With respect to pages 7-10, the CIT(A) found the explanation fully acceptable. The said entries, CIT (A) noted, related to salary and recurring office expenses of the company and all were duly recorded in its audited books of account. These were mere internal workings maintained by the staff and verified by Mr. Nilawar and his spouse.
The CIT(A) verified the ledgers and reconciliations filed by Mr. Nilawar which have been tabulated at pages 20-22 of his order and found them in harmony with the accounts of Rucha Group LLP. On this basis, the CIT(A) restricted the addition to Rs 11.2 lakh, thereby granting relief of Rs 5 crore (5,23,95,187) to Mr. Nilawar.
Aggrieved by CIT (A)’s order, both sides are before ITAT Mumbai. The Income Tax Department disputes the deletion of Rs 5.23 crore, whereas Mr. Nilawar contests the sustenance of Rs 11.20 lakh.
ITAT Mumbai analysis of the facts of the case
ITAT Mumbai said that the issue before them revolves around the proper characterization of certain notings found in a spiral-bound pocket diary seized from Mr. Nilawar’s residence. The additions made thereon rest on the premise that such notings represented unaccounted cash expenditure.
ITAT Mumbai said that at the threshold, it is imperative to delineate that the seized material comprises two distinct sets of pages, each with a wholly different context and evidentiary complexion pages 1 to 6, and pages 7 to 10.
The former pages are claimed to reflect the cash physically carried by the assessee during business travel undertaken for the company, while the latter pages are explained as monthly or quarterly internal summaries of expenses of the company, an entity in which the assessee (Mr. Nilawar) is a partner, duly recorded in its regular books of account.
ITAT Mumbai said: “Therefore, it is neither legally sound nor factually prudent to paint both sets of papers with a common brush.”
ITAT Mumbai analyses Section 69C
ITAT Mumbai said that at this juncture, one must also bear in mind the settled principle that for invoking Section 69C, a fundamental requirement is actual expenditure incurred by the assessee, and only when such expenditure is found to have been incurred without an identifiable source can the statutory presumption be drawn.
ITAT Mumbai said: “A mere discovery of some notings without any material corroboration of real outgo or payment, does not by itself lead to the conclusion that any unaccounted expenditure has been incurred.”
ITAT Mumbai said that the presence of figures, devoid of transactional context, cannot be held as proof of expenditure.
ITAT Mumbai said: “The Assessing Officer, before invoking Section 69C, was thus duty-bound to first establish that there existed a tangible and real outflow of money. That indispensable step is conspicuously absent in the present case.”
The CIT(A) has carefully examined the explanations, verified the corresponding entries from the books of Rucha Group LLP, and found them to be reconcilable.
ITAT Mumbai said: “The Revenue has not pointed to a single figure that fails this reconciliation exercise. It is also significant that the statements of the assessee, recorded during the search and relied upon by the Assessing Officer, in fact, support the explanation rather than contradict it. Therefore, when both the seized document and the contemporaneous explanation speak the same language, the inference of unaccounted expenditure becomes wholly untenable.”
ITAT Mumbai analyses the Rs 11.2 lakh income addition
ITAT Mumbai said that they find that the CIT(A) sustained an addition of Rs 11,20,000 solely on the reasoning that the immediate source of three particular entries namely, Rs 6,00,000 (opening), Rs 3,20,000 (02.09.2021), and Rs 2,00,000 (17.09.2021) was not satisfactorily explained, even though he accepted the very same explanation for the other entries of similar nature contained in those pages.
ITAT Mumbai said: “Such selective acceptance, when all the entries emanate from the same document and pertain to the same factual backdrop, appears inconsistent with judicial logic. Once the explanation of the assessee—that these notings represented the cash physically carried during travel for business purposes—was accepted as plausible for a substantial part of the diary, there remained no cogent reason to reject that very explanation for a trifling portion of the same.”
ITAT Mumbai said that it is equally pertinent to note that the Assessing Officer has, in another part of his order, himself accepted the existence of the assessee’s (Mr. Nilawar) cash balance as reflected in his books of account while dealing with additions under section 69A.
ITAT Mumbai says: “The ledger and the balance sheet on record clearly disclose an opening cash balance of Rs 11,32,525 and a closing balance of Rs 10,82,378. When the same cash balance has been accepted as part of the assessee’s regular accounting system, it logically follows that any cash carried during travel out of such recorded funds cannot, by any stretch of reasoning, be characterised as unexplained. The entire factual premise of the addition, therefore, collapses.”
Moreover, ITAT Mumbai said that the very entries forming the basis of this addition are ―inward entries depicting amounts received or brought in and not ―outward payments.
ITAT Mumbai says: “Even on a plain reading of Section 69C, it is abundantly clear that the provision applies only to cases where expenditure has been actually incurred and remains unexplained as to source. A receipt or circulation of cash cannot fall within the mischief of this provision. Hence, even on the strict statutory interpretation, the addition does not withstand scrutiny.”
ITAT Mumbai said that when viewed holistically, the CIT(A)’s reasoning in deleting Rs 5 crore (5,23,95,187) is fully borne out by the evidence, and his order calls for affirmation.
ITAT Mumbai said: “In our considered view, even the residual addition of Rs 11,20,000/- deserves to be deleted, since the same is based not on proof of expenditure but on mere conjecture drawn from uncorroborated notings.”
ITAT Mumbai said that the settled principle that suspicion, however strong, cannot take the place of proof finds apt application here.
Where the Income Tax Department itself relies on the assessee’s (Nilawar’s) books to establish part of the cash flow, it cannot, in the same breath, invoke Section 69C to treat another part of that very cash as unexplained.
ITAT Mumbai says: “The explanation tendered by the assessee is reasonable, coherent, and unrefuted. Consequently, the deletion directed by the learned CIT(A) stands fully justified, and the addition sustained requires to be effaced in the interests of justice and consistency.”
ITAT Mumbai analyses the second part of the seized black diary
ITAT Mumbai says that the second segment of the seized material is Pg 7 to 10 of the black diary.
ITAT Mumbai says that they find that the CIT(A) has, after an extensive examination, rightly accepted the assessee’s (Nilawar’s) explanation.
ITAT Mumbai says that on a careful scrutiny of these papers, as well as the reconciliation statements furnished, it is evident that the figures therein correspond exactly with the monthly or quarterly summaries of expenses duly recorded in the books of the company.
ITAT Mumbai says: “The assessee, in his statement recorded during the course of search, had also clarified that the notings were prepared by his wife and domestic staff for internal record-keeping and that such expenses were subsequently entered in the firm’s accounts.”
The CIT(A) verified this position through the ledgers produced and confirmed that each figure was traceable to a legitimate accounting entry.
ITAT Mumbai says that when every number on those pages finds reflection in the audited books of the company, it is difficult to comprehend how these could still be treated as unaccounted or unexplained expenditure.
ITAT Mumbai said: “The statutory presumption attached to a seized document is indeed rebuttable, and once such reconciliation is demonstrated by contemporaneous records, that presumption stands fully discharged.”
ITAT Mumbai says that in their view, it is wholly illogical to disregard documentary reconciliation and rely instead upon conjectural ―human probabilities.
ITAT Mumbai says that the doctrine of probabilities is a judicial aid for inference, not a substitute for proof. It can supplement evidence, not supplant it.
ITAT Mumbai says: “In this case, the Revenue has brought no contrary evidence whatsoever. It would be contrary to both fairness and jurisprudence to brand a reconciled accounting entry as an unrecorded expense simply because it happens to be found in a handwritten form. The law cannot sanction such a dual approach.”
At page 27B of the paper book, Mr. Nilawar has furnished the reconciliation showing how the figures from the seized pages match exactly with the expense heads and ledger totals of the company.
ITAT Mumbai said: “The Departmental Representative could not dispute this factual reconciliation. Once the notings stand merged into regular accounting records of the firm, no adverse inference can survive in the assessee’s hands. The CIT(A), having examined this reconciliation in paragraph 7.3.4 of his order, deleted the corresponding addition with due reasoning and prudence. We see no infirmity in that conclusion.”
ITAT Mumbai said that the matter may also be viewed from another perspective
ITAT Mumbai said that the notings are not in the handwriting of the assessee (Mr. Nilawar) but admittedly that of his wife and staff. Even if one were to invoke the presumption under section 132(4A) or section 292C, such presumption attaches primarily to the author or possessor of the document, and not automatically to every family member. Furthermore, where the entries are demonstrably reflected in audited books of a known entity, the presumption itself dissolves.
ITAT Mumbai said: “The concept of presumption cannot override the certainty of reconciled evidence.”
ITAT Mumbai said that in fact, the Income Tax Department’s attempt to apply the doctrine of probability selectively accepting part of the same diary as reliable for additions while rejecting the remaining part as improbable is self-contradictory.
ITAT Mumbai said: “Judicial reasoning must be even-handed; the same piece of evidence cannot be both credible and incredible in alternate breaths.”
ITAT Mumbai said: “It is thus clear that, on a cumulative appreciation of facts, the addition deleted by the learned CIT(A) of Rs 5 crore (5,23,95,187) rests on sound reasoning. The deletion is not only plausible but compelled by the record itself. The Assessing Officer’s approach, based on conjecture rather than corroboration, cannot be sustained.”
Accordingly, the reasoning of the CIT(A) in deleting Rs 5 crore (5,23,95,187) is upheld.
ITAT Mumbai said that they found nothing wrong with CIT (A)’s findings. On the contrary, CIT (A) order embodies the correct appreciation of fact and law.
ITAT Mumbai said: “Simultaneously, as discussed earlier, even the residual addition of Rs 11,20,000 sustained by him deserves to be deleted, for it neither represents any real expenditure nor satisfies the conditions precedent of section 69C. The deletion by the CIT(A) is therefore affirmed in toto, and the corresponding ground of the Revenue is dismissed while that of the assessee stands allowed.”
ITAT Mumbai analyses 2nd issue: Diary seized from personal assistant
ITAT Mumbai said that the next issue raised by the Revenue (Income Tax Department) in ground no. 2 relates to the deletion of addition of Rs 1,84,650 made by the Assessing Officer under section 69C on the basis of a diary seized from Mr. Chhangani, who was stated to be the personal assistant (PA) of the assessee (Nilawar).
The Assessing Officer inferred that since the diary was found with the PA, and since some of the entries therein appeared to relate to cash expenses, the same must pertain to the assessee.
The CIT(A), after carefully examining the material, found no merit in such inference. He observed that the diary was seized not from the assessee but from the premises of Chhangani, who in his statement merely admitted that the notings were of payments made by him, without stating that they were on behalf of the assessee.
No corroborative material was found in the assessee’s premises to establish such linkage. Consequently, the CIT(A) concluded that there was no evidence of the assessee having incurred any such expenditure and deleted the addition.
ITAT Mumbai said: “It is trite that where an incriminating document is recovered from a third person, an addition in another’s hands can be sustained only upon establishing a clear and direct nexus between the two. Suspicion or proximity does not suffice. In this case, no such link has been established. The CIT(A) was, therefore, justified in deleting the addition.”
The Income Tax Department’s representative, however, contended that since Chhangani was the personal assistant of the assessee (Nilawar), the presumption ought to have been drawn that the expenses recorded by him were for and on behalf of his employer. It was argued that his statement recorded during the search, admitting that he had incurred cash payments, constituted sufficient evidence.
ITAT Mumbai says that they have examined the record and agree with the CIT(A).
ITAT Mumbai said that the diary forming the basis of this addition was not recovered from the assessee’s possession. It contains no reference to his name, and there is no independent evidence to show that the transactions recorded therein were made for or on behalf of him.
ITAT Mumbai said: “The retracted statement of a third party, without any corroboration, cannot form the edifice of an addition. In fact, in Rucha Consultancy LLP v. DCIT (ITA No. 4996/Mum/2024), a coordinate bench of this Tribunal, dealing with the same witness, held that such retracted statements cannot be the sole basis of addition. The principle squarely applies here. The deletion by the CIT(A) is therefore confirmed.”
ITAT Mumbai said that in the absence of any nexus or corroboration, the addition of Rs 1,84,650 made in the assessee’s hands has rightly been deleted. “The law does not authorise taxation by association or conjecture; it insists on proof by evidence. Accordingly, this ground of the Revenue’s appeal stands dismissed.”
ITAT Mumbai: Loose papers and unauthenticated notings, are inadmissible under Section 34 of the Evidence Act
ITAT Mumbai said that the income tax department’s next ground related to addition of Rs 1.5 lakh made on the basis of a loose paper seized from the residence of Mr. Wadepalle, who, according to the Assessing Officer, was a consultant associated with the assessee (Nilawar).
The said paper contained an entry of ―1.5 against the word ―Boss. Based solely on a statement of Wadepalle recorded during search, the Assessing Officer presumed that ―Boss referred to the assessee and accordingly treated the sum as unexplained income in his hands.
Before the CIT(A), Nilawar explained that the seized paper did not belong to him; that the entry in question mentioned another name ―Ankush alongside; and that there was nothing on record to show that ―Boss referred to him or that ―1.5 denoted Rs 1.5 lakh.
It was further submitted that Wadepalle had subsequently retracted his statement, clarifying that the earlier admission was made under stress. The CIT(A) accepted this explanation, observing that there was no corroborative evidence and that similar additions based on papers seized from Wadepalle had been deleted in the group concern’s cases as well.
ITAT Mumbai said: “The learned Departmental Representative reiterated that since Wadepalle had initially identified the entry as relating to the assessee, the Assessing Officer was justified in drawing the inference.”
ITAT Mumbai said that they find themselves unable to agree. The entire addition rests on an isolated entry of ―1.5 and a vague reference to ―Boss in a loose paper seized from a third party, unconnected with the assessee’s premises or handwriting.
ITAT Mumbai said that there is neither corroborative material evidencing receipt of cash by the assessee nor any inquiry to ascertain who ―Ankush was.
ITAT Mumbai said: “In the absence of any such investigation, the inference drawn by the Assessing Officer is wholly speculative.”
Case law cited: The Hon’ble Supreme Court, in Common Cause v. Union of India [2017] 394 ITR 220 (SC), has held that loose papers and unauthenticated notings, being inadmissible under section 34 of the Evidence Act, cannot constitute evidence of transactions unless supported by credible material. The present addition falls squarely within that prohibition.
ITAT Mumbai said: “Accordingly, we uphold the CIT(A)’s finding deleting this addition of Rs 1,50,000, as no corroborative evidence was brought on record to substantiate the Assessing Officer’s assumption.”
Third issue: Rs 31.8 lakh income addition on the basis of another pocket diary
ITAT Mumbai said that the subsequent issue pertains to the addition of Rs 31,80,000 made by the Assessing Officer under Section 69C, based on another pocket diary seized from the assessee’s residence, written in the handwriting of his wife, Smt Nilawar.
ITAT Mumba said: “The Assessing Officer presumed that the notings therein, though undated and unexplained, represented cash expenditure.”
Before the CIT(A), the assessee (Nilawar) clarified that the said diary comprised random household or personal scribblings by his wife, that no actual transaction could be discerned therefrom, and that neither dates, names of recipients, nor any corroborative evidence of payment existed. It was therefore contended that the document was a mere rough jotting of a ―dumb document incapable of yielding any inference of expenditure.
The CIT(A), after examining the pages, concurred by observing that the notings lacked any identifiable pattern or corroboration, and in the absence of any proof of real expenditure, no addition could be made merely on conjecture. Accordingly, the addition was deleted.
ITAT Mumbai said that after examining the material themselves, they find no reason to differ. The impugned diary contains only figures and stray notations such as ―Self or ―JI, without any corresponding details or evidence of payments.
ITAT Mumbai said: “The Assessing Officer’s approach of presuming that these notings represented expenditure merely because they contained numbers is unsustainable in law. Even if one were to treat the seized diary as evidence, its evidentiary worth is negligible in absence of proof of authorship and context.”
ITAT Mumbai said that a presumptive of expenditure cannot be drawn from numerical jottings whose very meaning remains uncertain. The deletion by the CIT(A) is thus well founded and calls for no interference.
ITAT Mumbai said: “Accordingly, the Revenue’s grounds on these three issues stand dismissed. The findings of the learned CIT(A) are upheld in entirety.”
ITAT Mumbai said that they now turn to the remaining issues relating to additions under section 69A on account of cash found during search, which are the subject of both appeals.
ITAT Mumbai examines the facts of the Rs 54 lakh cash found in his house
ITAT Mumbai says that they need to examine the next issue arising from the addition made on account of cash found during the course of search and seizure proceedings, which the Assessing Officer has brought to tax under section 69A of the Income-tax Act, 1961.
ITAT Mumbai said that during the course of search, cash aggregating to Rs 54 lakh (54,29,800) was found from the residence of the assessee (Nilawar). The Assessing Officer noted that the assessee had not, according to him, satisfactorily explained the source of the said cash and, therefore, treated the same as unexplained money, taxable under section 69A of the Act.
ITAT Mumbai said that the assessee (Nilawar), in response, explained that the entire cash so found was duly explained when seen in the proper factual context. It was submitted that the cash was not his individual undisclosed income but represented funds belonging to three distinct and legitimate sources.
Firstly, a sum of Rs 53,02,027 belonged to the company and was duly recorded as closing cash balance in its regular books of account, which had been subjected to audit and assessment.
Secondly, a sum of Rs 1,13,90,318 represented the personal cash balance of his late father, which was disclosed in his balance sheet as on March 31, 2017 and accepted in his assessment. Thirdly, the balance represented minor household savings held by the assessee’s mother, Smt. Nilawar, and other family members, accumulated over time and kept in the common residence.
The Assessing Officer, however, brushed aside the explanation, observing that the assessee (Nilawar) had not established a direct nexus between the cash found and the cash balance recorded in the books of the company or that of his father.
The tax officer was also of the view that after the demise of the assessee’s (Nilwar) father, no documentary declaration had been made showing succession of the said cash to the assessee or his mother. He thus concluded that the cash found was unexplained and liable to be taxed in the assessee’s hands.
On appeal, the CIT(A) examined the entire material and rendered a detailed finding. CIT (A) verified the books of the company and found that the figure of Rs 53,02,027 was indeed recorded in the cash book and reconciled with the balance sheet of the company as on the date of search.
CIT (A) also noted that the father’s balance sheet as on March 31, 2017 disclosed a closing cash balance of Rs 1,13,90,318, which had been accepted in assessment. On these facts, he held that the cash of Rs 53,02,027 representing the company’s funds stood fully explained and deleted the addition to that extent. However, he sustained an addition of Rs 1,27,773 on the reasoning that a minor portion of the balance cash could not be directly reconciled with the sources explained.
ITAT Mumbai said that they have carefully perused the orders of the authorities below and considered the submissions.
The total cash found during the search amounted to Rs 54,29,800, whereas the explained cash available from the two sources — the LLP and the father totalled more than Rs 1.66 crore.
When the explained availability of funds far exceeds the cash found, the statutory precondition for invoking Section 69A is no longer there. Section 69A is a deeming provision which can only apply when the assessee is found to be the owner of money or valuable article and fails to offer an explanation about the nature and source of acquisition, or when such explanation is not found satisfactory. Neither element is satisfied here.
ITAT Mumbai said: “The CIT(A) was correct in holding that the cash belonging to the company was duly recorded in its books and that the same books were produced before the Department during the assessment proceedings of the company.”
ITAT Mumbai said: “The figures of closing cash balance in the company’s audited financial statements matched exactly with the cash found during search. The Revenue has not demonstrated any inconsistency or falsity in those records. Once such cash is verifiably recorded in the books of a taxable entity, it cannot again be treated as unexplained in the hands of a partner merely because it was found at a common business or family premises.”
To do so would amount to taxing the same cash twice, once in the books of the company and again as unexplained income in the hands of the partner, a result which the law neither contemplates nor permits.
ITAT Mumbai said that as regards the cash balance declared by the assessee’s late father,, there is equally no scope for dispute.
The father’s balance sheet as on March 31, 2017, placed on record, clearly discloses a cash balance of Rs 1,13,90,318. This figure has been accepted in his income tax return and the assessment has attained finality.
Such an accepted declaration is conclusive evidence that the cash existed and was duly explained. When such legitimate and declared cash, accumulated during a lifetime, continues to remain in the family residence, its possession by the surviving spouse or children cannot, by any stretch of imagination, be treated as unexplained.
The Assessing Officer’s observation that no formal declaration of inheritance was made is misplaced. Section 69A does not concern itself with the mode of inheritance or devolution of property. It taxes only unexplained money, not inherited or disclosed wealth.
The fact that the father’s cash was disclosed and assessed is sufficient to explain its source. The mother’s possession of part of that cash, or its discovery at the family residence, is a natural corollary of familial continuity.
It is also significant that the Assessing Officer did not conduct any inquiry to contradict the explanation. No verification was made from the LLP’s cash book beyond a superficial observation, nor was any inquiry conducted into the father’s return of income, which was already on record.
ITAT Mumbai said: “The entire disallowance thus rests on conjecture rather than contradiction. When the assessee produces primary evidence of explanation, the onus shifts to the Revenue to rebut it. In this case, the Revenue (Income Tax Department) has neither examined nor disproved the explanation furnished.”
ITAT Mumbai analyses the minor income addition of Rs 1.27 lakh
ITAT Mumbai said that the small balance of Rs 1,27,773 sustained by the CIT(A) appears to have arisen from an arithmetical rounding difference rather than from any unexplained element. Since the aggregate of explained cash itself exceeds the quantum of cash found, there remains no legal or factual basis to sustain even that small portion.
The consistent position of law is that where the availability of funds has been demonstrated and the source established, no addition can be made merely on suspicion. Section 69A cannot be invoked to punish the possession of cash which stands fully explained. The presumption of unexplained money arises only where there is a demonstrable absence of source, not where the source is abundant and admitted.
ITAT Mumbai said: “In light of the above discussion, we hold that the learned CIT(A) was justified in granting substantial relief and that even the marginal balance of Rs 1,27,773 deserves to be deleted. The entire addition under section 69A is thus directed to be deleted.”
ITAT Mumbai analyses the income addition namely foreign currency
ITAT Mumbai says that they will analyse the issue concerning the addition of foreign currency of Rs 5,61,261 found during search, which was also treated by the Assessing Officer as unexplained under Section 69A.
The assessee (Nilawar) explained that the foreign currency represented legitimate accumulation from foreign trips undertaken by him and his family over several years.
He also placed on record documentary evidence such as bank statements, foreign exchange purchase bills issued by authorised dealers, passport entries evidencing international travel, and statements showing expenses abroad were furnished.
It was further submitted that his daughter was pursuing education overseas and his wife too had frequently travelled abroad during that period, thereby justifying retention of certain amounts in foreign currency.
However, the Assessing Officer rejected the explanation on the narrow ground that the purchase bills were of earlier dates and hence, in his view, could not be linked to the currency found during search. He did not, however, dispute the authenticity of the documents or the fact that the purchases were made through authorised channels.
The CIT(A), on a detailed verification, found that the foreign currency had indeed been purchased through banking channels from authorised dealers between January 2018 and August 2021, that the purchases were duly recorded, and that the assessee (Nilawar) and his family were frequent international travellers.
CIT (A) held that retention of the currency was perfectly natural and could not be treated as unexplained merely because it had not been reconverted into Indian rupees immediately upon return. Accordingly, the addition was deleted.
ITAT Mumbai said that after reviewing the material on record, they were in complete agreement with CIT(A).
The assessee (Nilawar) has substantiated the purchase of foreign exchange with credible documentation. The explanation fits squarely within the probabilities of normal human conduct. The expectation that a taxpayer must instantly encash every dollar or euro upon return is unrealistic and contrary to common experience.
ITAT Mumbai said: “So long as the initial acquisition of the currency stands proved, the mere fact of physical possession at a later point cannot attract the mischief of section 69A.”
ITAT Mumbai said: “In the absence of any evidence to show that the foreign currency represented an undisclosed source or transaction, the deletion by the CIT(A) is perfectly justified. The addition made by the Assessing Officer was founded not on facts but on assumption and therefore cannot be sustained.”
ITAT Mumbai analyses the gold jewellery addition
ITAT Mumbai said that they need to analyse the facts of the addition relating to gold jewellery found during the course of search. The search team inventoried jewellery aggregating to a total weight of [space for insertion of table showing quantity and valuation]. The Assessing Officer, applying his own discretion, allowed certain tolerance limits but treated part of the jewellery as unexplained under section 69B.
ITAT Mumbai said that regarding the jewellery belonging to the assessee’s mother, the learned CIT(A) found that she was aged about 67 years and that the quantity of jewellery in her possession about 263.83 grams was modest, customary, and commensurate with her age and status.
ITAT Mumbai said: “Relying on the judgment of the Hon’ble Delhi High Court in Ashok Chadha v. ITO (337 ITR 399), he held that such possession was not abnormal and that no addition could be made merely because the jewellery was found during search. He accordingly deleted the addition of Rs 6,93,100.”
ITAT Mumbai said that they have considered the facts and the orders of the authorities below and the reasoning given by the CIT(A) deserves to be endorsed.
ITAT Mumbai said: “The quantities of jewellery in question are neither excessive nor disproportionate to the family’s social and economic standing. The CBDT Instruction No.1916, though administrative in form, has been judicially recognised as a fair and reasonable benchmark for assessing normal possession. Courts have repeatedly held that possession of jewellery up to the limits specified therein cannot, without further evidence, be regarded as unexplained investment.”
ITAT Mumbai said that the mother’s age and long married life, the family’s established financial means, and the cultural tradition of accumulating gold ornaments through generations all provide a natural and cogent explanation.
ITAT Mumbai said: “There is no material on record to suggest that the jewellery represented a recent purchase from undisclosed sources. In the absence of such evidence, the inference of unaccounted investment cannot be drawn merely on suspicion. The deletions directed by the CIT(A) are, therefore, affirmed.”
Thus the ITAT Mumbai said that in view of the foregoing, they hold that the entire addition made under section 69A on account of cash, the addition of Rs 5,61,261 on account of foreign currency, and the addition of Rs 11,32,420 on account of jewellery have been rightly deleted.
ITAT Mumbai said:“The explanations of the assessee are fully borne out by evidence, consistent with the probabilities of human conduct, and in conformity with the law.”
ITAT Mumbai judgement
ITAT Mumbai said that in light of the detailed discussions above, it is manifest that the learned CIT(A) has examined each issue with meticulous care and has recorded findings fully supported by the material on record.
The explanations of the assessee, both in respect of the seized documents as well as the assets found during search, are coherent, verifiable and consistent with the probabilities of business and family conduct. The Assessing Officer, on the other hand, has proceeded largely on conjectural assumptions, without bringing any independent material to dislodge the explanations furnished.
The approach of the CIT(A) is, therefore, in complete consonance with the settled principles governing search assessments. The law, as repeatedly expounded by the superior courts, mandates that additions under Sections 69, 69A or 69C cannot be made on mere suspicion or presumptions.
ITAT Mumbai said: “These provisions operate only where the nature and source of the asset or expenditure remain unexplained after the assessee has been afforded due opportunity. Once a satisfactory and plausible explanation supported by evidence is offered, the onus shifts back to the Revenue to rebut it through cogent material. In the present case, the Revenue has not discharged that onus.”
ITAT Mumbai said that they also take note of the fact that the explanations tendered by the assessee are not of a general or evasive nature but are founded on tangible documents—books of account of the company, audited financial statements, income-tax returns of the assessee’s father, foreign exchange purchase bills, and family balance sheets. Each of these has been examined by the learned CIT(A) and found to be authentic. When documentary evidence and human probability both align in the assessee’s favour, the additions made on surmise cannot be sustained.
ITAT Mumbai thus said that the findings rendered by the CIT(A) thus merit affirmation.
Judgement:
- We, therefore, uphold the order of the learned CIT(A) deleting the additions under sections 69A, 69B and 69C. The grounds raised by the Revenue on these issues are dismissed. Correspondingly, the cross-grounds of the assessee, seeking deletion of the residual amount sustained by the CIT(A), are allowed.
- Having considered all the issues arising in these appeals, we now summarise our conclusions. (i) The addition of ₹5,23,95,187 made under Section 69C, based on the seized diary, has been rightly deleted, and the small portion of ₹11,20,000 sustained by the CIT(A) also stands deleted in view of our findings.
- The addition of ₹1,84,650 made on the basis of a diary seized from the personal assistant of the assessee is unsustainable and stands deleted.
- The addition of ₹1,50,000 made on the basis of a loose sheet seized from a third party has rightly been deleted.
- The addition of ₹31,80,000 made on the basis of a diary written by the assessee’s wife has rightly been deleted as the same was uncorroborated.
- The addition under Section 69A of ₹54,29,800 on account of cash found during search is deleted in entirety.
- The addition of ₹5,61,261 on account of foreign currency found during search is deleted. (vii) The addition of ₹11,32,420 on account of jewellery is also deleted. 89. As a result of the above adjudication, the appeal filed by the Revenue fails on all grounds and stands dismissed.
- The cross-appeal filed by the assessee succeeds to the extent indicated hereinbefore. 90.
ITAT Mumbai said: “In the result, the appeal of the Revenue, being ITA No. 2896/Mum/2025, is dismissed, and the appeal of the assessee, being ITA No. 2318/Mum/2025, is allowed in terms indicated above. Order pronounced on 28th October, 2025.”
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