Ahmedabad ITAT: Bank Withdrawals Cannot Be Taxed as Unexplained Expenditure; Quashes Addition of Agricultural Income After Reopening Fails

Manojkumar Jethabhai Patel Vs ITO (ITAT Ahmedabad)

Ahmedabad ITAT: Bank Withdrawals Cannot Be Taxed as Unexplained Expenditure; Quashes Addition of Agricultural Income After Reopening Fails

Summary: The Ahmedabad ITAT condoned a delay of 59 days in filing the appeal and allowed the assessee’s appeal against the assessment made under Sections 147 read with 144B of the Income-tax Act for AY 2019-20. The Assessing Officer had reopened the assessment based on cash withdrawals of ₹29,76,150 from the assessee’s bank account and interest income, treated the cash withdrawals as unexplained expenditure under Section 69C, and added agricultural income of ₹5,32,540 as income from other sources under Section 69A. The Tribunal held that cash withdrawals from a bank account could not be treated as unexplained expenditure and found that the addition under Section 69C had been made without application of mind. Since the basis for reopening did not survive after deletion of the Section 69C addition, the Tribunal held that no addition could be made on any other issue and also deleted the addition relating to agricultural income, relying on the Gujarat High Court decision cited before it. Accordingly, both additions were deleted and the appeal was allowed.

The Ahmedabad ITAT allowed the appeal of an individual assessee by deleting additions of ₹29.76 lakh made u/s 69C and ₹5.32 lakh representing agricultural income. The assessment had been reopened on the ground that the assessee had made substantial cash withdrawals from his bank account and had earned interest income. The AO treated the cash withdrawals themselves as unexplained expenditure and also assessed the agricultural income as income from other sources.

The Tribunal held that the addition u/s 69C was wholly unsustainable. It observed that mere withdrawal of cash from one’s own bank account cannot constitute unexplained expenditure. Even if the withdrawn cash was subsequently spent, the source of such expenditure stood fully explained by the bank withdrawals. The Tribunal remarked that the AO had made the addition in a routine manner and without application of mind, and accordingly deleted the addition of ₹29.76 lakh.

With regard to the addition of ₹5.32 lakh towards agricultural income, the Tribunal noted that the reassessment had been initiated solely to examine the cash withdrawals. Since the very basis of reopening failed after deletion of the addition relating to cash withdrawals, the AO could not make any addition on another issue. Relying on the Gujarat High Court’s decision in CIT v. Mohd. Junaid Dadani (335 ITR 172), the Tribunal held that where no addition survives on the issue for which the assessment was reopened, no addition on any other issue can be sustained. Accordingly, the addition of agricultural income was also deleted and the appeal was allowed.

Cases Discussed:

• CIT Vs. Mohd. Junaid Dadani (335 ITR 172) (Guj.)

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal is filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 04.11.2025 for the Assessment Year (A.Y.) 2019-20 in the proceeding u/s 147 r.w.s 144B of the Income Tax Act [hereinafter referred as “the Act”].

2. There was delay of 59 days in filing of this appeal. The assessee has filed a condonation application explaining the reason for delay. It has been submitted that the assessee is a farmer having agricultural income only and did not file his return of income as his income was below the taxable limit. It is explained that the assessee is not conversant in the Income Tax proceedings and the e-mail-id of his friend was uploaded on the Tax Portal, who had subsequently migrated out of India. As a result, the notices sent by the Ld. CIT(A) remained unattended and the copy of the CIT(A) order was also not received by him in time. In the process there was delay of 59 days in filing of this appeal. Considering the explanation of the assessee, the delay in filing of this appeal is condoned.

3. The brief facts of the case are that the assessee did not file his return of income for A.Y. 2019-20. The AO had reopened the case on the basis of information received that the assessee had made cash withdrawals of Rs. 29,76,150/- from his bank account maintained with Bank of Baroda and it had also received interest of Rs. 1,61,118/- during the year under consideration. Accordingly, a notice u/s. 148 of the Act was issued on 31.03.2023 after passing an order u/s. 148A(d) of the Act. In response to notice u/s. 148, the assessee had filed his return of income declaring total income of Rs.1,61,120/- and showing agricultural income of Rs. 5,32,540/­-. The AO had treated the cash withdrawals of Rs. 29,76,150/- as unexplained expenditure u/s. 69C of the Act. Further, the agricultural income of Rs. 5,32,540/- was also added to income u/s 69A of the Act. The assessment was completed u/s. 147 r.w.s. 144B of the Act, on 08.03.2024 at total income of Rs. 36,69,810/-.

4. Aggrieved with the order passed of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.

5. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:

1. The Ld. CIT(A) has dismissed the appeal without deciding the grounds of appeaL The appeal order is arbitrary and irrational.

2. The Ld. CIT(A) has erred in law and on facts in confirming addition of Rs. 29,76,150/- made u/s. 69C as unexplained expenditure being cash withdrawan from bank.

3. The Ld. CIT(A) has erred in law and on facts in confirming the addition of net agricultural income of Rs. 5,32,540/- as income from other sources.

4. Your appellant prays to add/alter/delete the grounds of appeal

6. Shri B T Thakkar, the Ld. AR of the assessee submitted that the AO was not correct in treating the cash withdrawal of Rs. 29,76,150/- from the bank account as unexplained expenditure u/s. 69C of the Act. He further, submitted that he AO was also not correct in treating the net agricultural income of Rs. 5,32,540/- as income from other source.

7. Per Contra Smt. Mamta Singh, the Ld. SR-DR submitted that the assessee did not make any compliance either before the AO or before the Ld. CIT(A). He submitted that no evidence for agricultural land holding or sale of agricultural produce was brought on record in spite of specific requisition by the AO. She, therefore, strongly supported the order of the lower authorities.

8. The first grievance of the assessee is against addition of Rs. 29,76,150/- on account of unexplained expenditure. The undisputed facts are that the assessee had made cash withdrawals of Rs. 29,76,150/- from his bank account which was treated as unexplained expenditure u/s. 69C of the Act. We fail to understand as to how the cash withdrawals from the bank account can be held as unaccounted expenditure. If the assessee had incurred any expenditure out of the withdrawals made from the bank account, the expenditure incurred was duly accounted for and could never have been treated as unexplained expenditure. The AO had made the addition in a routine manner and without application of mind. Therefore, the addition of Rs. 29,76,150/- in respect of unexplained expenditure is deleted and the ground taken by the assessee is allowed.

9. The next ground pertains to treating the agricultural income of Rs. 5,32,540/- disclosed by the assessee, as income from other source. The case of the assessee was reopened to examine the cash withdrawals from bank account which was treated as unexplained expenditure. We have already held earlier that the withdrawals from bank account can’t be treated as unexplained expenditure. Thus, the basis on which the case was reopened doesn’t survive. It has been held by Hon’ble Gujarat High Court in the case of CIT Vs. Mohd. Junaid Dadani (335 ITR 172)(Guj.) that if no addition is made on the reopened issue, no other addition can be made. Since, the ground on which the case was reopened in the present case doesn’t survive, the AO couldn’t have made addition on any other issue. Therefore, the addition of Rs. 5,32,540/- by treating the agricultural income as income from other source, is also deleted. The ground taken by the assessee is allowed.

10. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 09/07/2026 at Ahmedabad.