NRI Non-Filer, Hyderabad - Section 69A Cash Deposit Addition - ₹29.5L Deleted at CIT(A)

If you are an NRI who received a Section 148 notice because of cash deposits or a property purchase - and the Assessing Officer has rejected your explanation and added it back as unexplained income - this case is directly relevant to you.

The Problem

An NRI residing and working abroad held no taxable income in India during FY 2019-20 except routine bank interest. No ITR was filed under Section 139 for AY 2020-21.

CBDT's Insight Portal flagged the case based on two transactions visible in third-party data - cash deposits of around ₹29.5L in an Indian bank account, and a property purchase worth around ₹1.22 Cr. A Section 148 reassessment notice was issued. The assessee did not file a return in response to the notice.

The Assessing Officer examined the transactions during assessment proceedings. The property purchase was funded largely through a home loan with the balance paid by bank transfer - the AO accepted this explanation with documentary support. The cash deposits were a different matter.

The assessee submitted that the ₹29.5L in cash deposits came from gifts received from a close family member, sourced from that person's own FD redemptions and savings withdrawals. A gift confirmation letter was submitted along with bank statements. The AO rejected this - noting that the cash withdrawals in the donor's account did not fully match the deposits, and no formal affidavit or sworn declaration had been submitted. The entire ₹29.5L was treated as unexplained money under Section 69A and taxed at special rates under Section 115BBE. Penalty proceedings under Section 271AAC were initiated separately.

Section 69A is a serious provision. Once the department treats a deposit as unexplained money, the tax rate under Section 115BBE is 60% plus surcharge - far higher than normal slab rates. The burden falls entirely on the assessee to prove the source. Simply claiming a gift is not enough without a verifiable banking trail.

What We Did

Choosing CIT(A) as the Right Forum and Building the Appeal Strategy The assessment order had been passed under Section 147 read with Section 144. The correct remedy was an appeal before CIT(Appeals)-10, Hyderabad under Section 250. Rather than contesting every procedural point, the appeal was focused on one core legal issue - whether the cash deposits were genuinely sourced from family gifts supported by a verifiable banking trail, and whether the AO was justified in rejecting that explanation solely for want of a formal affidavit when independent banking records told the same story.

Establishing the Complete Money Trail Through Banking Records The foundation of the appeal was a transaction-level reconciliation showing chronological alignment between the donor's cash withdrawals and the assessee's deposits. Each deposit was traced to a corresponding withdrawal from the donor's account, supported by FD redemption entries and account balances. The reconciliation was presented in a clear format to show the CIT(A) that the fund movement was not a claim - it was visible in the banking record of both accounts independently.

Addressing the AO's Specific Objections The AO had noted a gap between the donor's total withdrawals and the total deposits claimed. Written submissions before the CIT(A) addressed this directly - clarifying that certain transactions flagged by the AO were non-cash electronic transfers that had been incorrectly included in the withdrawal count, and that the remaining gap was explained by accumulated cash balances from the preceding year. The submissions also addressed the absence of a formal affidavit, citing settled legal position that Section 69A cannot be invoked on the basis of absent documentation alone when the banking trail independently establishes the source.

The Result

CIT(A)-10, Hyderabad reviewed the assessment order, the written submissions, and the banking records submitted on appeal. The CIT(A) held that the assessee had discharged the burden of proof by establishing the source of the cash deposits through independent banking evidence. The addition of ₹29.5L under Section 69A was directed to be deleted in full. The appeal was allowed.

With the Section 69A addition deleted, the consequential Section 271AAC penalty proceedings also lose their foundation.

Key Takeaway: When an NRI's cash deposits are questioned under Section 69A, a gift claim alone is not enough - the AO needs to see a verifiable banking trail, not just a confirmation letter. If the source is genuinely a family member's savings or FD redemptions, every withdrawal and deposit needs to be chronologically matched and reconciled before the department. And if the AO still rejects it, CIT(A) is a real remedy - provided the reconciliation is tight and the legal position on Section 69A's burden of proof is correctly argued.