Flat, FDs worth Rs 69 lakh and a tax shock — ITAT Mumbai ends 6-year tax standoff with this twist
A modest ITR but big-ticket investments triggered a massive tax probe for one Mumbai engineer. The ITAT has overturned the case, raising questions about how such disputes are assessed.
- Nov 14, 2025,
- Updated Nov 14, 2025 8:52 PM IST
In a significant ruling that underscores the growing complexity of tax scrutiny in high-value financial transactions, the Income Tax Appellate Tribunal (ITAT) Mumbai has deleted a major addition made by tax authorities against an Indian engineer who allegedly under-reported income while making substantial financial investments. The verdict comes six years after the dispute began, bringing relief to the taxpayer and drawing attention to the wide-ranging digital monitoring tools now used by the Income Tax Department.
Tax advisory platform Tax Buddy explained the case revolved around an engineer who reportedly declared only minimal income in his Income Tax Returns (ITRs) but purchased a residential flat worth Rs 39 lakh and made fixed deposits (FDs) totaling Rs 30 lakh — amounting to Rs 69 lakh in combined investments. The Assessing Officer (AO) classified the sum as unexplained income, invoking Section 69 of the Income Tax Act, and raised a tax demand accordingly.
During the assessment, the tax officer concluded that the declared income did not justify the scale of investments made. The taxpayer argued, however, that the funds came from a combination of past savings, family support, and verifiable banking channels—assertions the AO found insufficient at the time. The additions were upheld in earlier stages of appeal before finally reaching the ITAT Mumbai.
In its decision, the Tribunal observed that the Assessing Officer had not adequately considered the explanations and supporting documents furnished by the taxpayer. ITAT held that once the source of funds is reasonably demonstrated, additions under unexplained income provisions cannot be sustained merely on assumptions. The Tribunal also emphasized the need for fair evaluation in cases where investments are made over several years or through non-taxable inflows.
The case highlights the increasingly data-driven environment surrounding financial compliance. Over the past decade, the Income Tax Department has significantly strengthened its surveillance capabilities through the Statement of Financial Transactions (SFT) system. This mechanism, integrated with PAN, AIS, and several reporting entities, allows the department to automatically flag unusual or disproportionate financial activity.
According to public domain information on SFT rules, the following eight categories of transactions are routinely monitored:
> Cash deposits in savings accounts
Cash deposits exceeding Rs 10 lakh in a financial year across all savings accounts—including post office accounts—are mandatorily reported. Splitting deposits across banks does not bypass the aggregate threshold.
> Cash in current accounts
Cash deposits or withdrawals totaling Rs 50 lakh or more in a financial year across current accounts are reported, often triggering scrutiny when business books do not align.
> Credit Card Bills
Cash payments of Rs 1 lakh or more towards credit card bills are recorded and monitored.
> Credit Card Bills — Non-Cash Payments
Payments of Rs 10 lakh or more through banking channels toward credit card dues are also flagged, highlighting a spending-income mismatch.
> Property purchases or sales of Rs 30 Lakh or More
Sub-registrars report such transactions, enabling authorities to identify circle rate discrepancies, cash components or benami-style arrangements.
> Fixed Deposits of Rs 10 lakh or More
Fresh time deposits above this limit, excluding renewals, are closely monitored.
Foreign Travel or Forex Purchases of Rs 10 lakh or more
High-value overseas tours or forex purchases alert the system when they contradict declared income.
Investments in Shares, Bonds, or Mutual Funds Above Rs 10 Lakh
Large capital market investments are automatically integrated into the Annual Information Statement (AIS).
The engineer’s case serves as a reminder that while the SFT system increases transparency, legitimate taxpayers must also receive fair and balanced assessments. With ITAT Mumbai’s order, the prolonged legal battle has finally concluded—bringing clarity not only to the taxpayer involved but also to countless individuals navigating India’s evolving tax compliance landscape.
In a significant ruling that underscores the growing complexity of tax scrutiny in high-value financial transactions, the Income Tax Appellate Tribunal (ITAT) Mumbai has deleted a major addition made by tax authorities against an Indian engineer who allegedly under-reported income while making substantial financial investments. The verdict comes six years after the dispute began, bringing relief to the taxpayer and drawing attention to the wide-ranging digital monitoring tools now used by the Income Tax Department.
Tax advisory platform Tax Buddy explained the case revolved around an engineer who reportedly declared only minimal income in his Income Tax Returns (ITRs) but purchased a residential flat worth Rs 39 lakh and made fixed deposits (FDs) totaling Rs 30 lakh — amounting to Rs 69 lakh in combined investments. The Assessing Officer (AO) classified the sum as unexplained income, invoking Section 69 of the Income Tax Act, and raised a tax demand accordingly.
During the assessment, the tax officer concluded that the declared income did not justify the scale of investments made. The taxpayer argued, however, that the funds came from a combination of past savings, family support, and verifiable banking channels—assertions the AO found insufficient at the time. The additions were upheld in earlier stages of appeal before finally reaching the ITAT Mumbai.
In its decision, the Tribunal observed that the Assessing Officer had not adequately considered the explanations and supporting documents furnished by the taxpayer. ITAT held that once the source of funds is reasonably demonstrated, additions under unexplained income provisions cannot be sustained merely on assumptions. The Tribunal also emphasized the need for fair evaluation in cases where investments are made over several years or through non-taxable inflows.
The case highlights the increasingly data-driven environment surrounding financial compliance. Over the past decade, the Income Tax Department has significantly strengthened its surveillance capabilities through the Statement of Financial Transactions (SFT) system. This mechanism, integrated with PAN, AIS, and several reporting entities, allows the department to automatically flag unusual or disproportionate financial activity.
According to public domain information on SFT rules, the following eight categories of transactions are routinely monitored:
> Cash deposits in savings accounts
Cash deposits exceeding Rs 10 lakh in a financial year across all savings accounts—including post office accounts—are mandatorily reported. Splitting deposits across banks does not bypass the aggregate threshold.
> Cash in current accounts
Cash deposits or withdrawals totaling Rs 50 lakh or more in a financial year across current accounts are reported, often triggering scrutiny when business books do not align.
> Credit Card Bills
Cash payments of Rs 1 lakh or more towards credit card bills are recorded and monitored.
> Credit Card Bills — Non-Cash Payments
Payments of Rs 10 lakh or more through banking channels toward credit card dues are also flagged, highlighting a spending-income mismatch.
> Property purchases or sales of Rs 30 Lakh or More
Sub-registrars report such transactions, enabling authorities to identify circle rate discrepancies, cash components or benami-style arrangements.
> Fixed Deposits of Rs 10 lakh or More
Fresh time deposits above this limit, excluding renewals, are closely monitored.
Foreign Travel or Forex Purchases of Rs 10 lakh or more
High-value overseas tours or forex purchases alert the system when they contradict declared income.
Investments in Shares, Bonds, or Mutual Funds Above Rs 10 Lakh
Large capital market investments are automatically integrated into the Annual Information Statement (AIS).
The engineer’s case serves as a reminder that while the SFT system increases transparency, legitimate taxpayers must also receive fair and balanced assessments. With ITAT Mumbai’s order, the prolonged legal battle has finally concluded—bringing clarity not only to the taxpayer involved but also to countless individuals navigating India’s evolving tax compliance landscape.