Unexplained Bank Deposits, AIS Alerts & Section 69: What the Courts Really Say

✍️ Introduction

With the Annual Information Statement (AIS) now tracking every high-value cash deposit, many taxpayers are receiving notices under Section 69 of the Income Tax Act for unexplained money. One of the most common reasons? Cash gifts.

This blog will help you understand:

• How AIS entries can lead to tax additions

• The rules on cash gifts and deposits

• What documentation is needed

• How courts have interpreted these issues

📊 Section 69 – The Core Risk

Section 69 allows the Income Tax Department to deem any unexplained cash deposit as income if:

1. You do not record it in your books of account, and

2. You fail to provide a satisfactory explanation for the deposit.

📌 AIS is Watching: What Gets Captured

AIS auto-records:

• 🏦 All cash deposits over ₹2 lakh in savings accounts

• 📟 High-value fixed deposits

• 💳 Credit card spends

• 🏡 Property transactions

• 💰 Gifts received (reported via donor’s filings or banking trail)

• 🌍 Foreign currency transactions, including:

  • Credit card payments in foreign currency

  • Foreign exchange purchases

  • Remittances under LRS (education, travel, investments)

• 🏠 Cash purchases of property, where:

  • Cash component exceeds ₹30,000 in one or more installments

  • Total transaction value exceeds ₹10 lakh (reported by registrar)

If your cash gift, deposit, foreign spend, or property purchase is not reflected in your ITR or not properly explained, the system flags it for potential scrutiny.

🌍 Foreign Currency Spends in AIS: The Hidden Trigger

Apart from domestic transactions, AIS also captures foreign currency-related expenses:

• 💳 Foreign credit card transactions

• ✈️ Remittances under LRS (Liberalised Remittance Scheme)

• 💵 Foreign exchange purchases from authorized dealers

⚠️ What This Means:

If you:

• Spend ₹10 lakh on foreign education/travel,

• But declare only ₹4 lakh income in ITR,

👉 AIS will flag a mismatch, and the AO may question source of funds.

📆 Can Foreign Spends Lead to Section 69 Additions?

Yes, especially when:

• No record is found in books, and

• No satisfactory explanation is offered,

It may be taxed as:

• Section 69 (Unexplained investment), or

• Section 69C (Unexplained expenditure)

✅ How to Stay Safe

Scenario	Risk	What to Do
Foreign travel/spends > declared income	High	Show savings, withdrawals, or family support
LRS remittances under own PAN	Medium	Retain bank records, purpose declaration, and remitter source
Expenses paid by relative abroad	Low	Retain relationship proof and remittance documentation

🏠 Cash Purchase of Property Now in AIS

AIS includes information from property registrars and sub-registrars under the Annual Information Return (AIR) system. So if you:

• 🏡 Purchase or sale of immovable property where the total value exceeds ₹30 lakh is reported in AIS (irrespective of whether cash is involved)

👉 It gets reported and reflected in your AIS.

⚠️ Risk of Section 69 In Such Cases:

If your ITR does not show adequate disclosed income, and AIS reflects a cash property transaction, then:

• It may trigger scrutiny

• And lead to addition under Section 69 if source is unsubstantiated

✅ What You Should Do:

Scenario	Risk Level	Action Required
Cash paid for stamp duty or registration	Medium	Retain receipts, show linkage to withdrawals or savings
Property purchased in cash but not declared in ITR	High	File updated ITR or reply with proper documentation
Property gifted/inherited but reported under your PAN	Low	Submit gift/inheritance deed, legal and registry records

🏰 The Truth About Cash Gifts

Gifts are tax-exempt under Section 56(2)(x) when:

• Given by a relative (parent, spouse, sibling, etc.)

• OR on specified occasions (like marriage)

But only if the gift:

• Is properly documented, and

• The donor has the capacity to give the amount

🔍 What the AO Will Ask (In Case of Scrutiny)

1. Who gave the gift? (relationship proof)

2. How did they give it? (cash or bank)

3. Did they have the money?

   • For bank gift: Bank transfer proof suffices

   • For cash gift: AO will demand proof of cash availability in donor's records

📒 Checklist for Defending Cash Gifts Shown in AIS

Requirement	Why It's Needed	What to Prepare
💳 Gift deed	To prove the intention of gifting	Notarized deed with donor, donee, amount, reason
👨‍👧 Relationship proof	To claim exemption from tax	PAN, Aadhaar, birth/marriage certificate
📋 Donor’s cash balance	To prove they had the cash	Donor’s ITR, balance sheet, or cash book
🏦 Recent withdrawals	To show availability of funds	Donor’s bank statement with cash withdrawal before gift
📂 Disclosure in ITR	To avoid mismatch with AIS	Mention in exempt income (Schedule EI)

⚖️ How Courts Have Ruled

✔️ Accepted:

• CIT vs. Ravi Kumar – Gift not taxable when donor identity, capacity, and genuineness proven.

• Krishnaveni Ammal vs. ITO – Bank deposits not taxable unless income character is proven.

❌ Rejected:

• Where donor had no records, or

• Cash gift was large and not supported by withdrawals or balance,Courts allowed addition under Section 69.

📅 Real-Life Example

Case: Mr. A received ₹4,00,000 in cash from his uncle. He deposited it in his savings account. AIS flagged the deposit.AO’s Query: Uncle didn’t file ITR. No cash balance in his books.Outcome: Addition under Section 69 upheld.

📅 If the uncle had withdrawn ₹4 lakh from his account 2 days prior, and given a notarized gift deed, the outcome would have been different.

🧐 Summary: Best Practices for 2025 and Onwards

• 📟 Document every gift, especially in cash

• 🏦 Use banking channels where possible

• 🧰 Reconcile all deposits with AIS before filing

• 📂 Keep donor’s tax trail & bank proof ready

• 🚬 Respond to any notices within deadlines with explanations and documents

📥 Need Help?

If you've received a notice under Section 69 or found a cash deposit mismatch in AIS, reach out to our team. We'll help you:

• Draft explanations

• Compile necessary documents

• Avoid unnecessary tax burdens