Tax raid finds Rs 1.12 crore cash and Rs 4.34 lakh foreign currency at Delhi man’s home; he fights case twice, sister-in-law’s explanation helps brother-in-law win ITAT battle
An income tax raid is conducted and foreign currency is found, but it doesn’t belong to you – what happens then? A few months after demonetisation, the Income Tax Department searched a man’s property in Delhi.During the operation, officials discovered Rs 1.12 crore in Indian currency and foreign currency worth Rs 4.34 lakh. The man was subsequently taken in for questioning by the tax authorities.
What the case is about
Explaining the large cash holding, the individual said he was a company director and that the company had withdrawn money from 11 of its bank accounts because it feared further action following demonetisation. The withdrawn cash was then kept at his residence.His advocates told the Income Tax Investigation Officers that the Rs 4.34 lakh worth of foreign currency belonged to his sister-in-law. She was employed with an airline and resided in the same house.The sister-in-law also submitted a written statement to support the man’s version. She confirmed that she had handed over the foreign currency recovered from her brother-in-law’s possession during the search for safekeeping.She explained that her job with the airline involved frequent travel, during which she often carried substantial amounts of foreign currency. The unused foreign currency she accumulated was therefore entrusted to her brother-in-law.The Income Tax investigation team accepted her explanation and decided against seizing the foreign currency.However, the Assessing Officer (AO) at Jhandewalan Central Circle took a different view. Despite the investigation team’s acceptance of the explanation, the AO treated both the Indian cash and foreign currency recovered during the search as unexplained money under Section 69A. The amount was also subjected to tax under Section 115BBE.The man eventually succeeded in his appeal before the ITAT Delhi.
Why did the man win the case?
After examining the evidence, the Income Tax Commissioner of Appeals (CIT(A)) was satisfied that the company, of which the man was a director, had recorded the exact amount of cash found during the search in its books of accounts.Accepting the man’s explanation, the CIT(A) deleted the addition of Rs 1.12 crore in Indian currency from his income.In 2023, the ITAT Delhi concurred with the CIT(A) and sustained the relief granted to the man over the Indian currency, dismissing the AO’s objections. However, the tribunal did not accept his explanation concerning the foreign currency at that time.In its ruling that year, the ITAT Delhi noted that the man had not furnished evidence to establish that the foreign currency was owned by his sister-in-law. It accordingly directed that the amount be added to his income and taxed.Not agreeing with this, the man then filed a fresh appeal before ITAT Delhi.However, this second round of litigation was only for the question of whether the foreign currency belonging to his sister-in-law could be treated as the man’s taxable income.When deciding the matter in 2026 in favour of the man, the tribunal observed that the Income Tax Assessing Officer had on his part failed to adequately counter the man’s arguments, particularly with regards to the explanation concerning his sister-in-law’s employment with the airline.The ITAT Delhi therefore saw no grounds to interfere with the order passed by the ld. CIT(A). It observed:Ultimately, the man secured favourable decisions in both matters: the dispute over Rs 1.12 crore in Indian currency was decided in his favour in 2023, followed by the case concerning his sister-in-law’s foreign currency in 2026.Shourya Garg, Advocate at Garg & Garg Tax Associates, told ET that the man prevailed before the ITAT Delhi because he was able to establish ownership through a credible explanation supported by corroborating evidence.According to Garg, a crucial factor was the sister-in-law’s own written confirmation backing the man’s account. The fact that the investigation officers had accepted her explanation during the search and refrained from confiscating the foreign currency also supported his case.The Assessing Officer, meanwhile, failed to rebut the explanation or produce evidence contradicting it. The CIT(A) therefore granted relief, and the ITAT found no grounds to disturb that conclusion.Garg says: “This case is really a good example of how possession alone doesn’t establish ownership if there is a credible paper trail showing otherwise.”According to Garg, Regulation 3 of the Foreign Exchange Management (Possession and Retention of Foreign Currency) Regulations, 2015, permits an Indian resident to hold foreign currency notes, bank notes and traveller’s cheques worth up to $ 2,000, or its equivalent in total, without any specified time restriction. This is allowed as long as the foreign currency has been legally obtained, such as unspent foreign exchange brought back from an overseas trip or money received as a gift or honorarium from a visitor to India.
