You get a lot of gifts in the form of cash and you deposit the amount in your bank account. But, what if the Income Tax Department treats them as unexplained income and sends you a notice.In one such case in Chennai, a man received cash gifts of Rs 85.03 lakh from his relatives. After learning of this the Income Tax Department sent notices to the man and his relatives. The man eventually won relief in ITAT Chennai.
What the case is about
In this case the man who received the cash gifts formalised the transactions through gift deeds and deposited the money into his bank account. He had received money from his wife, paternal uncles, maternal uncle and sister’s husband, all of whom fall within the definition of “relative” under Income Tax law.Also Read | Man enters JDA for land, gets 6 flats from builder and transfers 5 to wife, but gets tax notice; ITAT Delhi deletes Rs 4.14 crore additions after finding no stock-in-trade conversion or saleUnder Income Tax law, banks are required to report specified financial transactions (SFT) when customers deposit or withdraw large amounts of cash. In this case, the bank reported the transaction involving the Rs 85.03 lakh cash deposit to the Income Tax Department.After receiving the information, the Income Tax Department began making enquiries into the source of the Rs 85.03 lakh deposited by the man. The department also sent tax notices to the relatives who had given him the cash. The donors responded to the notices and confirmed the gifts. According to their responses, the gifts had been made between April and September 2016.The man also submitted documents to substantiate his claim. These included copies of the gift deeds, acknowledgements of the donors’ income tax returns, their income statements and financial statements.However, the Income Tax Assessing Officer (AO) in Chennai questioned whether the donors had sufficient financial capacity to give such substantial amounts in cash. According to the AO, the income disclosed by the relatives in their ITRs and the capital reflected in their balance sheets did not correspond with the value of the gifts they had made to the man.The Income Tax Department therefore treated the cash deposited in the bank account as unexplained and passed an order holding that the amount represented a violation of Income Tax law.The man challenged the addition before the Commissioner of Appeals (CIT A), but the CIT (A) was also not persuaded by his explanation. The appellate authority upheld the addition of Rs 85.3 lakh in respect of the gifts received and passed its order on December 29, 2025.The man eventually succeeded before the Income Tax Appellate Tribunal (ITAT) Chennai on September 18, 2026.Also Read | Woman declared Rs 67.4 lakh ancestral jewellery in her ITR which led to additions by tax department; ITAT Mumbai deleted it on basis of old records, but rejected her Rs 12 lakh HUF brokerage claim
Why did the man win cash gifts case in ITAT?
The key question before ITAT Chennai was whether the Rs 85.3 lakh in cash gifts received by the man could actually be treated as unexplained cash credits under Section 68, as the Income Tax Department had concluded.ITAT Chennai said that, in its considered opinion, the man had discharged the initial burden placed on him under Section 68 once he furnished confirmations from the donors, gift deeds, copies of their income tax returns (ITRs) and financial statements. The donors had also personally acknowledged having made the gifts in response to notices issued under Section 133(6).The tribunal observed that if the AO still had doubts about the actual source of funds available with the respective donors, it was for the Income Tax Department to conduct the necessary enquiry while assessing those donors, according to an ET report.ITAT Chennai said: “The addition in the hands of the recipient cannot be sustained merely because the AO entertains suspicion regarding the source available with the donors, particularly when the identity of the donors and the genuineness of the transactions have not been disputed.”ITAT Chennai noted that the established legal position is that, unless a particular provision of law specifically requires otherwise, an assessee generally cannot be required to prove the source of funds in the hands of a creditor once the creditor’s identity, the genuineness of the transaction and basic creditworthiness have been established.The tribunal made a similar observation in relation to the other donors. It found that the authorities had essentially compared the income disclosed by the relatives in their ITRs with the amounts they had gifted, without examining their overall financial position, including accumulated capital, withdrawals, cash balances and other resources available to them.Also Read | Man paid Rs 1.73 crore for Gurgaon flat, waited over a decade without possession; builder alleges homebuyer bought it for commercial gain, consumer commission awards refund with 12% interest & Rs 4 lakhITAT Chennai said: “Suspicion, however strong, cannot take the place of legal evidence.”The tribunal further noted that the donors themselves had disclosed the gifts in their respective financial statements and that the Income Tax Department had not controverted this fact.ITAT Chennai also observed that the Income Tax Department had failed to place any material on record to show that the cash deposited into the bank account had, in fact, originated from him.Sarthak Prashar, Director, Global People Solutions at Grant Thornton Bharat, told ET that the man succeeded before ITAT Chennai because he produced adequate evidence to establish the identity of the relatives who had given him the cash gifts. The documents also supported the genuineness of the gift transactions.Prashar says gifts received from certain specified relatives are not taxable even when their value is more than Rs 50,000. Section 92(5) (g) sets out the specified relatives, which include parents, grandparents, spouse, brother, sister and others.However, the ITAT Chennai case highlights the difference between the tax treatment of a gift and the need to substantiate the transaction. A gift may be exempt from tax because it comes from a specified relative, but the tax authorities can still examine whether the transaction is genuine and whether it is backed by appropriate evidence.Prashar says receiving a gift from a relative that is exempt from tax does not, by itself, mean that the recipient must file an income-tax return. Whether an ITR needs to be filed depends on the recipient’s total income and the other provisions governing return filing.Also Read | Man sells ancestral agricultural land for Rs 8 crore, buys two properties and claims LTCG exemption; faces Rs 6.36 crore tax additions, why ITAT Chandigarh gave relief under Sections 54B and 54F
