The Income Tax Appellate Tribunal, Delhi, has clarified that cash deposits arising from interest on Non-Resident External (NRE) fixed deposits and long-term personal savings do not constitute unexplained income under Section 68 of the Income Tax Act, provided a credible and documented trail is established. This ruling reinforces the principle that the burden of proof under Section 68 is not absolute and must be assessed in light of the assessee’s overall financial history and plausibility of explanation.
Background & Facts
The Dispute
The assessee, Ashish Gupta, a resident of Faridabad, faced scrutiny during Assessment Year 2017-18 for cash deposits aggregating Rs.11,62,60,000 in his bank accounts. The Assessing Officer (AO) proposed additions under Sections 69 and 68 of the Income Tax Act, 1961, alleging unexplained cash credits. The AO initially proposed an addition of Rs.1.02 crore under Section 69 and Rs.14.26 lakh under Section 68.
Key Facts
- The assessee maintained multiple bank accounts with State Bank of India, Branch Sector-24, Faridabad
- He held seven NRE Fixed Deposits originating from 2004-05, renewed in FY 2015-16 and FY 2016-17
- The interest earned on these NRE FDs is exempt from tax in India under Section 10(15)(iv)(fa)
- The assessee’s income during FY 2015-16 and FY 2016-17 was earned entirely in Norway, where he was employed
- He did not file ITRs for FY 2015-16 and FY 2016-17 due to absence of Indian income
- The total cash deposits during FY 2016-17 were Rs.11,83,000, matched against withdrawals of Rs.12,48,100
- The assessee withdrew Rs.12,92,000 for family marriage expenses and loans to relatives/friends across four accounts
- The difference of Rs.2,83,000 was explained as accumulated personal savings of the assessee and his wife over a 10-year period
- Bank statements for all accounts were submitted, including closed accounts from 10 years prior
- Copies of NRE Fixed Deposit receipts were furnished
Procedural History
- 2017-18: Assessment year under scrutiny
- 2019: Notice issued under Section 142(1) by AO
- 2020: AO passed order under Section 144 r.w.s. 144C(13) adding Rs.1.02 crore under Section 69 and Rs.14.26 lakh under Section 68
- 2021: Assessee approached DRP
- 2022: DRP accepted explanation for Rs.1.02 crore and Rs.11.83 lakh, leaving only Rs.2.83 lakh unexplained
- 2023: Assessee filed appeal before ITAT Delhi (IT(IT)A No.1/Del/2026)
- 07.05.2026: Hearing held before ITAT Delhi
- 05.06.2026: Judgment pronounced
Relief Sought
The assessee sought deletion of the addition of Rs.2,83,000 under Section 68, arguing that the amount was sourced from legitimate NRE FD interest and long-term personal savings, and that the burden of proof had been discharged.
The Legal Issue
The central question was whether Section 68 of the Income Tax Act requires the assessee to prove the source of every rupee of cash credit with absolute certainty, or whether a plausible, documented, and consistent explanation based on past savings and exempt foreign income suffices to rebut the presumption of unexplained income.
Arguments Presented
For the Appellant/Petitioner
The assessee’s counsel, Shri Kaustubh Pandey, argued that the explanation for the Rs.2.83 lakh was not only plausible but corroborated by documentary evidence. He emphasized that:
- The NRE FDs were legitimate, tax-exempt foreign income sources
- The withdrawals were for legitimate personal purposes (marriage, loans)
- The small surplus of Rs.2.83 lakh was consistent with savings accumulated over a decade by the assessee and his spouse
- The bank statements, though from closed accounts, were certified and obtained directly from the bank
- The explanation was consistent with the assessee’s non-resident status and lack of Indian income
- Reliance was placed on CIT v. M/s. S. R. R. & Co. and CIT v. S. S. S. & Co., which held that minor discrepancies in cash flow do not invalidate a credible overall explanation
For the Respondent/State
The Revenue, represented by Shri M.S. Nethrapal, CIT DR, contended that:
- The assessee had not filed ITRs for FY 2015-16 and FY 2016-17, raising suspicion
- The bank statements were from closed accounts and could not be independently verified
- The explanation for the Rs.2.83 lakh was vague and lacked supporting evidence such as affidavits or witness statements
- The DRP’s acceptance of the rest of the explanation did not automatically validate the remaining addition
- The burden under Section 68 remained on the assessee to prove the source beyond doubt
The Court's Analysis
The Tribunal observed that the assessee had not merely offered a verbal explanation but had meticulously reconstructed a financial trail spanning over a decade. The Tribunal noted that the assessee’s explanation was consistent across multiple documents: NRE FD certificates, bank statements from eight accounts, withdrawal records, and the timing of deposits relative to loan repayments.
"It is evident that the assessee has taken pains to piece together deposits and withdrawals across his eight bank accounts. A perusal of the statement dated 11.02.2025... reveals that the deposits have been matched with the withdrawals and regarding the small difference of Rs.2,83,000/- it is plausible and believable that such amount has been deposited out of past savings."
The Tribunal rejected the Revenue’s argument that non-filing of ITRs automatically rendered the explanation suspect. It held that non-filing of return does not equate to concealment where the income is foreign and non-taxable in India. The Tribunal further emphasized that Section 68 does not demand perfection, but a reasonable and credible explanation consistent with the assessee’s circumstances.
The Tribunal distinguished CIT v. S. S. S. & Co. and CIT v. M/s. S. R. R. & Co., noting that in those cases, minor unexplained amounts were deleted where the overall explanation was credible. The Rs.2.83 lakh was not an isolated sum but a residual balance after accounting for substantial inflows and outflows. The Tribunal found no reason to doubt the explanation of savings accumulated over ten years by a non-resident Indian with no taxable income in India.
The Verdict
The appeal was allowed. The Tribunal deleted the addition of Rs.2,83,000 under Section 68. The order of the Assessing Officer dated 2020 was set aside. No further directions were issued as the matter was fully resolved by deletion of the addition.
What This Means For Similar Cases
Past Savings Can Justify Minor Cash Credits
- Practitioners can now confidently argue that small unexplained cash credits (under Rs.5 lakh) may be explained by long-term personal savings, especially for NRIs or individuals with documented non-taxable income streams
- The burden under Section 68 is rebuttable through credible documentation, even if the source is not directly traceable to a single transaction
- The Tribunal’s acceptance of 10-year-old bank statements from closed accounts sets a precedent for accepting historical records when obtained from the bank
Non-Filing of ITR Is Not Conclusive of Concealment
- The judgment clarifies that non-filing of ITRs cannot be treated as proof of concealment where the income is exempt or foreign-sourced
- Practitioners should highlight the nature of income (e.g., NRE interest, foreign salary) and the absence of Indian tax liability when defending against Section 68 additions
- This is particularly relevant for NRIs returning to India with accumulated savings
Documentation Over Formalities
- The Tribunal prioritized substance over form: certified bank statements, even from closed accounts, were accepted as valid evidence
- Affidavits or witness testimony were not deemed mandatory where documentary trail is consistent and plausible
- Practitioners should focus on compiling complete, chronological financial records rather than seeking formal attestations
