Cash Deposits Cannot Be Examined Without Fund Movements: ITAT Agra

Satya Prakash Mishra Vs ITO (ITAT Agra)

Entire Bank Deposits Not Taxed Despite Unproved Business Claim: ITAT Fixes Total Income at ₹3 Lakh

Background of the Case

The assessee challenged the assessment of entire cash deposits of ₹30,35,850 as income, contending that the deposits represented receipts from a small business dealing in cosmetics, general-store goods and confectionery items.

The Assessing Officer reopened the assessment through a notice under Section 148 dated 20 March 2018, based on information that the assessee had deposited the amount in his savings bank account during Financial Year 2010-11 without filing a return.

In response, the assessee filed his return on 27 November 2018, declaring total income of ₹1,95,520.

He stated that the return had been furnished under Section 44AD, that regular books were not maintained and that the business had subsequently closed.

Assessing Officer Rejects the Business Explanation

The assessee explained that the deposits originated from sale proceeds. However, the Assessing Officer considered the explanation inconsistent with the bank transactions.

The bank statement showed cash deposits from several cities, including Bhopal, Raipur, Satna, Rewa, Katni, Damoh, Bina, Chhatarpur, Gondia, Jhansi and New Delhi.

According to the officer, customers of a small local retail shop would ordinarily reside nearby. Deposits from numerous cities therefore did not support the business description given.

He also observed that individual deposits were below ₹50,000 and that withdrawals were generally in smaller amounts through ATMs.

The Assessing Officer further referred to a similar addition concerning bank deposits in AY 2009-10. He concluded that the assessee was attempting to present an unknown income source as presumptive business income.

Accordingly, he rejected the returned business income and assessed the entire ₹30,35,850 as income from other sources.

CIT(A) Finds No Evidence of Business Activity

The CIT(A) upheld the assessment.

It observed that, apart from asserting that he operated a small retail business, the assessee had not furnished supporting evidence establishing the existence, scale or genuineness of that activity.

The appellate authority also considered that the pattern of deposits did not corroborate the claim of a local retail business.

It held that filing a return on a presumptive basis did not, by itself, explain the nature and source of the bank deposits when an explanation was specifically sought.

Assessee Highlights Withdrawals and Rotation of Funds

Before the Tribunal, the assessee elaborated that he supplied goods to local shopkeepers, nearby customers and petty vendors operating elsewhere.

He emphasised that the authorities had considered the deposits without adequately examining withdrawals, cheque payments and rotation of funds.

The bank account opened the year with approximately ₹81,502 and closed with approximately ₹10,536. According to the assessee, withdrawals were used for purchases and settlement of earlier credit purchases, while some withdrawn funds were subsequently redeposited.

He also referred to contra entries and submitted an analysis identifying approximately ₹29.85 lakh as sales receipts.

On that basis, he requested acceptance of the returned income under the presumptive scheme.

Tribunal Does Not Accept Business Claim as Proved

The Tribunal noted that the assessee had not furnished supporting evidence establishing the claimed cosmetics and confectionery business, even at the Tribunal stage.

It therefore did not conclude that the deposits had been proved to be business turnover.

However, it also recognised that the matter was very old, that the assessee had not maintained books and that the bank statement required examination as a whole.

The absence of evidence supporting the business claim did not lead the Tribunal to accept taxation of every deposit without considering the corresponding movement of funds.

Withdrawals and Cheque Payments Had Not Been Investigated

On examining the account, the Tribunal found that cash deposits were followed by cash withdrawals and certain cheque payments.

The destinations of the cheque payments had not been investigated by the Assessing Officer. Nor had the officer disputed the existence of cash withdrawals following the deposits.

These omissions were material to the Tribunal’s assessment of the amount that should ultimately be brought to tax.

Considering the magnitude of the deposits, the assessee’s circumstances and the considerable passage of time, it adopted a lump-sum determination.

Total Income Fixed at ₹3 Lakh

The Tribunal determined total income at ₹3,00,000, expressly including the ₹1,95,520 already declared.

Consequently, it deleted the balance addition of ₹27,35,850.

The direction fixes total income at ₹3 lakh; it does not authorise a further ₹3 lakh addition over the returned income.

The grounds concerning the substantive addition and opportunity of hearing were partly allowed.

Reopening Challenge Dismissed

The assessee also challenged the validity of reopening.

However, he had not furnished either the recorded reasons or the approval before the Tribunal. In their absence, and considering the facts on which reopening had occurred, the Tribunal dismissed that ground.

The appeal was therefore partly allowed.

Author’s Comments

The relief was a fact-specific lump-sum estimate, rather than acceptance of the Section 44AD claim, a prescribed profit percentage or a formal peak-credit computation.

The ruling highlights that deposits must be examined alongside withdrawals and other account movements. At the same time, presumptive reporting does not dispense with establishing that the receipts arise from the claimed business.

The Tribunal balanced those evidentiary shortcomings against the incomplete enquiry into fund movements and the age of the dispute, ultimately restricting total income to ₹3 lakh.

FULL TEXT OF THE ORIGINAL ORDER OF ITAT AGRA

This appeal is directed against the impugned order dated 27.01.2026 passed in appeal No CIT (A), Gwalior/10634/2018-19 by the Commissioner of Income-tax (Appeals)/ADDL/JCIT(A)-2, Mumbai (hereinafter referred to as the “CIT(A)), u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2011-12, wherein ld. CIT (A) has dismissed assessee’s appeal.

2. In this case, the assessment was reopened vide notice u/s. 148 of the Act dated 20.03.2018 on the basis of the information that the assesee had deposited cash amounting to Rs.30,35,850/- in his saving bank account during the financial year 2010-11 relevant to A.Y. 2011-12 and the assesee had not filed its return of income for the relevant assessment year. In response to the said notice, the assessee filed his return of income on 27.11.2018, declaring total income of Rs.1,95,520/-. The assessee submitted during the course of assessment proceedings that he was carrying on a retail business of cosmetics general store and confectionary items at small level and did not maintain regular books of account. The assessee submitted that he had filed the return as per the provisions of section 44AD of the Act. The assessee further submitted that he had closed his business and due to elapse of long time, he could not produce the bank statement. It was further submitted that the source of the cash deposits in the bank account was from the receipt of the sale proceeds. However, the AO noted that similar cash deposit was made by the assessee in his bank account in A.Y. 2009-10 amounting to Rs.53,44,721/-which was added in A.Y. 2009-10. The AO observed that the assessee has tried to cover up his unknown source of income as business income and wants to misuse the provisions of section 44AD of the Act. The AO also noted that the assessee had submitted the bank statement on 10.12.2018 and on its perusal, the AO observed that in the said bank account, cash was deposited in Bhopal, Raipur, Satna, Rewa, Katni, Damoh, Bina, Chhatarpur, Gondia, Jhansi, New Delhi etc. and noted that if the assessee was doing small retail business of cosmetics general items, there was no need to deposit cash in his account from different cities as mentioned above because the purchasers in retail shops are persons residing at nearby places where shop is located. The AO also noted that the entire cash deposits are less than Rs.50,000/- and withdrawals are also in small amount generally used in ATM. In view of these facts, the AO noted that the cash deposits by the assessee from various cities confirm that he had unknown source of income, which was not disclosed in his return of income and the returned income as business income u/s. 44AD of the Act was non-existent. Accordingly, the AO rejected the returned income of Rs.1,95,520/- as business income and treated the entire cash deposits of Rs.30,35,850/- as income from other sources. The total income of the assesee was assessed at Rs.30,35,850/-.

2.1 Aggrieved with the said order, the assessee filed an appeal before the learned CIT(A). The learned CIT(A) confirmed the above addition and dismissed the appeal of the assessee and observed that beyond the bald assertion of having carried on a small retail business, the assessee had failed to furnish even a single piece of supporting evidence to substantiate the existence, scale or genuineness of such business activity. Learned CIT(A) also observed that the pattern of cash deposits reflected in the bank statement does not corroborate the claim of a small local retail business and merely filing a return of income on presumptive basis without establishing the nature and source of cash deposit, when specifically called upon, cannot by itself explain such deposits.

3. Aggrieved with the said order, the assessee is in appeal before us on the following grounds :

Ground No. 1: On the facts and in the circumstances of the case, the Learned AddI/JCIT (Appeal) erred in law in upholding validity of proceedings-initiated u/s 147 of the IT Act, ignoring appellant’s submissions and court decisions. It prayed that the proceedings u/s 147 may be declared as Illegal and the consequential assessment be cancelled.

Ground No. 2: That without prejudice to Ground No. 1 above, the AddI/JCIT (Appeal) having not allowed the opportunity of video conferencing as per request letter dt. 16-01-2024, the appellate order upholding validity of proceedings u/s 147 & addition of Rs.30,35,850 may be cancelled.

Ground No. 3: That without prejudice to Ground No. 1 & 2 above, the AddI/JCIT (Appeal) was not justified in law in confirming addition of Rs. 30,35,850 being cash deposit in bank account. The above addition may kindly be deleted.

Ground No. 4: The appellant craves leave to add, amend, alter, substitute or delete any ground at the time or before hearing of appeal.”

4. At the time of hearing, the learned AR filed a written submission and the relevant extract of the submissions on merits of addition is reproduced as under :

“Submission on Ground No 3:

Without prejudice to submission made on ground No 1 challenging the proceedings u/s 147 & consequential assessment, it is submitted that the AddI/JCIT(A) was not justified in confirming the addition of entire deposit of Rs. 30,35,850 in the bank account, while the deposits in bank account were out of sale proceeds by supplying goods to shopkeepers locally & in the nearby area & through petty vendors at other places.

Copy of bank accounts is enclosed in which the opening balance as on 01-04-2010 & closing balance as on 31-03-2011 is as under:

01-04-2010-(Opening balance) Rs.81,502.23

31-03-2011-(Closing balance): Rs. 10,536.37

There are also debits & withdrawals for purchase of items or payment for credit purchases earlier made. The AddI/ Jt CIT has totally ignored the debits & withdrawals. Money previously withdrawn has been rolled over & rotated & reposited.

It is otherwise a case where sale-price & realisation of credit sale subsequently realised is credited in the bank account.

There are also certain contra entries, there is no cause or justification for ignoring the above facts & making addition of Rs 30,35,850/- as unexplained deposit in bank, Same may kindly be deleted.

Further on actual analysis of the bank account

sales come to Rs 29,85,450/- as culled out from the bank account statement pg 1 to 8 as shown below:

It is prayed that under the presumptive scheme of taxation as then existing for AY 2011-12, the profit may kindly be taken at Rs 195520 as shown by the assessee, as the profit shown is more than 8% of the turnover of Rs 2985450 & justice done to the assessee, who has left Gwalior & now is dependent on his son(s).”

5. On the other hand, learned Sr. DR supported the orders of the authorities below.

6. We have heard both the parties and perused the material on record. In this case, the assessee had made cash deposits of Rs.30,35,850/-, which was claimed to be on account of business receipts of sale of cosmetic and confectionary items. However, the said claim was not accepted by the AO as well as the learned CIT(A) in absence of any supporting evidence in respect of the above claim. Even before us, no supporting evidence was filed by the assessee in respect of the above claim and we find that the matter is very old and the assessee had not maintained any books of account. In such a scenario, we have perused the bank account of the assessee and we notice that the cash deposits were followed by subsequent cash withdrawals and also by way of certain payments in cheques, the destination of which has not been enquired by the AO. Further, the AO has also not disputed that there are cash withdrawals after the cash deposits in the bank account of the assessee. Considering the magnitude of the cash deposit, the status of the assessee and considerable lapse of time, we consider it appropriate that a lump sum total income of the assessee during the year is determined at Rs.3,00,000/- (including the sum of Rs.1,95,520/- declared by the assessee) on account of the above cash deposits and withdrawals and the balance addition of Rs.27,35,850/- is deleted. Ground No. 2 & 3 of appeal are accordingly partly allowed.

7. Ground No. 1 of appeal challenges the reopening of the case. However, neither the reasons recorded nor the approval granted was submitted by the assessee. Therefore, in absence of the same and on the facts, on which the assessment has been reopened, this ground of appeal is not sustainable and the same is dismissed.

8. In the result, the appeal is partly allowed in the terms indicated above.

Order pronounced in the open court on 12/10/2026.