Taxpayer with unexplained investment gets part relief in ITAT Delhi due to his socio-economic status, know what it means

Taxpayer with unexplained investment gets part relief in ITAT Delhi due to his socio-economic status, know what it means

Sep 27, 2025

Synopsis
On September 2, 2025, ITAT Delhi granted partial relief to taxpayer Husain, reducing his unexplained investments from Rs 7.82 lakh to Rs 1.32 lakh. The tribunal considered his socio-economic status and family's past savings for the Rs 6.5 lakh relief. The tax department will now calculate dues for the remaining Rs 1.32 lakh.

On September 2, 2025, the Income Tax Appellate Tribunal (ITAT), Delhi provided partial relief to Mr. M.H, a taxpayer, by removing Rs 6.5 lakh from his income which was deemed as unexplained investments by the tax department.

The Income Tax Department deemed he had Rs 7.82 lakh unexplained investments and had started Section 144 proceedings against him. However, since ITAT Delhi eliminated Rs 6.5 lakh income out of the total Rs 7.82 lakh unexplained investments, he is now left with Rs 1.32 lakh unexplained income added to his total income and ITAT did not dismiss it. The ITAT Delhi instructed the tax department to do the necessary calculations (tax due, interest, penalty, etc) for this Rs 1.32 lakh unexplained income.

The primary reason he got relief for the Rs 6.5 lakh that was considered as unexplained investment income is due to his socio-Economic status and his family’s past savings.

ITAT Delhi said this

ITAT Delhi in its order ( ITA No. 1772/Del/2025) dated September 2, 2025 said that the taxpayer filed this appeal for AY 2012-13 and against the CIT (A) Mumbai’s order dated January 3, 2025. This is a proceeding under Section 144 of the Income Tax Act, 1961.

The Income Tax Department’s representative said that during the course of the hearings, the lower authorities (CIT (A) have rightly assessed an amount of Rs 7.82 lakh as unexplained investment in his hands. The Income Tax Department said that in the assessment order dated December 19, 2019 which was upheld by the lower appellate authority (CIT A), Husain’s voluminous submissions attributing the source of the investments to his brother’s income was rejected.

He filed an affidavit dated September 8, 2022 telling that this investment was to be attributed to his brother’s income.

ITAT Delhi said: “We find no reason to sustain the impugned addition in entirety. This is for the precise reason that both the learned lower authorities have not considered the assessee’s socio economic status as well as his family’s past savings which could be deemed to have been invested in acquisition of the asset in question.”

ITAT Delhi said that the fact further remains that it was the assessee’s (his) onus to plead and prove all the relevant facts for the purpose of verification thereof, before the learned lower authorities (CIT (A)).

The ITAT Delhi judgement was: “Be that as it may, we deemed it appropriate in these peculiar facts that a lump sum addition of Rs 1,32,000 only would be just and proper with a rider that the same shall not be treated as a precedent. The assessee gets relief of Rs 6,50,000 in other words. Necessary computation shall follow as per law. This assessee’s (Hhis) appeal is partly allowed. Order pronounced in the Open Court on September 2, 2025.”

What does it mean?

CA (Dr.) Suresh Surana, says: The case arose from an assessment under section 144 of the Income-tax Act, 1961 (hereinafter referred to as ‘the IT Act’), wherein the Assessing Officer treated an amount of Rs 7,82,000 as unexplained investment in the hands of the assessee. The assessee attempted to justify the source of the investment through voluminous submissions, including an affidavit from his brother claiming to have contributed funds. However, both the Assessing Officer and the Commissioner of Income-tax (Appeals) rejected these explanations and confirmed the addition in full.

Surana said: "On further appeal, the Income Tax Appellate Tribunal (Delhi Bench) considered the matter ex parte, as the assessee did not appear at the hearing. The Tribunal noted that the assessee had not fully discharged the onus of proving the source of investment. Nevertheless, it found merit in the broader argument that the lower authorities failed to account for the assessee’s socio-economic background and his family’s past savings, which could reasonably explain part of the investment."

Surana says: "Balancing these considerations, the ITAT restricted the addition to Rs 1,32,000/- on a lump-sum basis, thereby granting relief of Rs 6,50,000. Importantly, the Tribunal clarified that this decision was based on peculiar facts and should not be treated as a precedent."

The ruling demonstrates the ITAT’s pragmatic approach, where it sought to balance the strict evidentiary requirements under the IT Act with equitable considerations based on the taxpayer’s circumstances. The case highlights following key aspects:

Onus of proof lies on the assessee to substantiate the source of investments.

Socio-economic background and family savings may be considered as mitigating factors, even if not formally documented, provided the circumstances warrant such an approach.
Relief granted on such grounds is fact-specific and does not dilute the statutory requirement for documentary evidence in other cases.

This judgement emphasis that while unexplained investment additions are generally upheld in absence of adequate proof, appellate authorities may grant partial relief where rigid application of the law would cause undue hardship, particularly in cases involving small taxpayers with modest socio-economic backgrounds.

Surana says: "These cases show that while the law generally requires strict proof for unexplained investments / income (or cash gifts, etc.), tribunals have in several instances considered the context of the taxpayer: family background, customary practices, prior savings, source credibility, whether the taxpayer can show consistency with his socio-economic status."

Case	Facts / Key Issues	Case Judgement and Rationale
Shri Gyanendra Singh Shekhawat vs ACIT ITA No. 49/JP/2022 ITAT Jaipur – Addition of “Streedhan” (jewellery) treated as unexplained investment	The assessing officer treated “streedhan” (jewellery given to a daughter or wife) as unexplained investment, though the assessee claimed it was traditional in their Rajput family, obtained from parents/spouse/ancestors, and used in the family; family background and customs were material.	ITAT deleted the addition, i.e. no unexplained investment applied, because the AO ignored the factual position including that the assessee lived with parents, belonged to a family where it is traditional to receive jewellery, etc. The evidence was such that the addition was unjustified. This case has a high similarity to the given case considering the family tradition, socio‐economic background and savings / customary practices (not formal investments) used as evidence to justify the asset.
ACIT vs Chander Arjandas Manwani ITA No. 2733/Mum/2025 ITAT Mumbai – Gifts from Relatives	Assessee introduced large cash amount (Rs. 89 lakh) as gifts from relatives; AO doubted genuineness and questioned creditworthiness of donors.	ITAT Mumbai ruled in favour of the assessee and found that the conditions under section 68 were satisfied due to availability of fund trails, transparency, corroboration from donors etc. AO’s suspicion was not considered sufficient and the addition rejected. Though not exactly socio-economic status, this is a case where despite AO’s doubts, the taxpayer was given relief because of credible explanations, documentation, transparency and reasoning.