When Mr Agarwal originally from Goregaon East, but now living in Hong Kong for the past 15 years, gave his father Rs 5 lakh by withdrawing cash from his NRE account, he had no idea that this would entangle him in a dispute with the Income Tax Department in India.
In this case, his father deposited the cash given by Agarwal in his own savings account and later withdrew it to buy an insurance policy in his son (Agarwal’s) name by paying cash. This event trigged a red flag in the he Income Tax Department’s system and since they were unaware of their family arrangement, they sent Agarwal a tax notice.
When the tax department asked Agarwal about cash payment for the insurance policy, he initially denied it as he was unaware of it at that time. In fact, in the bank’s withdrawal form, he wrote that he needs the money for expenses related to a family funeral.
However, the insurance company informed the Income Tax Department that the insurance premium for the policy in Agarwal’s name had been received in cash. After being confronted with a statement from the insurance company showing the case payment he discussed this with his family and then accepted it.
Agarwal claimed that he was initially unaware of the cash payment, as the transaction had been handled by his father and had not been disclosed to him before this family discussion.
During the assessment proceedings, when confronted with the issue, Agarwal said that after the family discussion he learnt that the Rs 5 lakh he had withdrawn from his HSBC NRE account and handed to his father had subsequently been deposited into his father’s Bank of Baroda account in Jaipur. Since his father’s account already had a balance of Rs 4.59 lakh, thus he (father) withdrew some cash from that account and paid an insurance premium of Rs 8.45 lakh in cash for a policy taken in his son (Agarwal’s) name.
However the Income Tax Assessing Officer (AO) disbelieved him and the story. The AO deemed that Agarwal’s explanation seemed unreasonable and ambiguous, as the cash withdrawn for the funeral was deposited in a savings bank account which was later used to buy the insurance policy in cash and in his name.
Moreover, the AO also pointed out that insurance policy premium can also be paid by cheque and a review of his father’s bank statement (Bank of Baroda, Jaipur branch), revealed that most payments were made through cheques, except this cash payment to the insurance company.
So, the AO deemed this cash as unexplained cash credit under Section 69 and accordingly started the proceedings. The Dispute Resolution Panel (DRP) dismissed Agarwal’s appeal, and thus, he filed an appeal before the Income Tax Appellate Tribunal (ITAT), Mumbai.
Agarwal’s authorised representative, Mahesh Saboo, told ITAT Mumbai that he (Agarwal) is a non-resident Indian (NRI) and settled in Hong Kong, and he is not required to file an income-tax return (ITR) in India, as he has no taxable income here except the interest earned on NRO/NRE accounts, on which full tax at 30% has been deducted.
Saboo told ITAT Mumbai that although Agarwal initially denied the payment, claiming that it did not originate from his NRE account, he later provided proof that the payment was made by his father from his (father’s) Bank of Baroda account in Jaipur. Agarwal submitted evidence of a withdrawal of the Rs 5 lakh from the NRE account on April 11, 2016, which was deposited in his father’s Bank of Baroda account on the same day.
Saboo also said that the money, as per the narration in the bank’s withdrawal form, was for funeral expenses. However, it was not used, as his elder brother bore all the funeral expenses. Saboo also told ITAT Mumbai that there was already an old balance of Rs 4,59,967 in the said BOB account of the father, which was also accumulated from the past by transfer of funds from the NRE account.
Saboo said that thereafter, on April 25, 2016, Agarwal’s father withdrew Rs 8.5 lakh from the said account and secured an insurance policy in his son’s name. Thus, Saboo contended that the entire source of the funds for this cash payment was well explained to the AO, as well as to DRP; however, they had not considered this in the right perspective and misunderstood the same.
On April 17, 2026, ITAT Mumbai understood Agarwal’s contentions and gave him relief from the tax notice regarding an unexplained cash credit.
ITAT Mumbai order and discussion
ITAT Mumbai heard this case on February 16, 2026 and gave its judgement (ITA No.6472/MUM/2025 ) on April 17, 2026.
ITAT Mumbai said that on careful consideration of the facts, they find that Agarwal has been able to satisfactorily explain the purchase of the insurance policy through cash. Relevant bank accounts of the assessee and his father were duly filed to explain the issue.
ITAT Mumbai said: “However, the AO as also the hon’ble DRP have apparently not taken due consideration of such vital pieces of evidence, which have been rejected on flimsy ground. Relevant copies of bank statements have also been placed before us, which have been perused.”
The ITAT Mumbai also said that both the authorities (AO and DRP) have also not rebutted such evidence in any manner whatsoever, apart from doubting the transaction.
Also read: Rs 1.91 crore ‘unexplained cash’: HC grants relief to taxpayer despite ITR lapse by cash giver
ITAT Mumbai said that they (AO and DRP) failed to appreciate the fact that Agarwal, an NRI for the last several years in Hong Kong was indeed a man of means and was having sufficient funds in hand, though transferred to his father’s account, quite possibly due to convenience for making any such investment in India.
Order:
- Accordingly, ITAT Mumbai does not find any merit in the assessment order as also the DRP direction, which are set aside with a direction to the AO to delete the impugned addition, thus allowing the above grounds.
- Ground nos. 3 and 4 pertain to proceedings initiated for proposed levy of penalty. Since the grounds are premature and do not arise from the impugned order, they do not require any adjudication at this stage.
- In the result, the appeal of the assessee is allowed.
- Order pronounced in the open court on 17/04/2026.
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