Deepa Hemant Hoon Vs ITO (Mumbai ITAT)
Bank Entries Prove Movement, Not the Money’s Memory—ITAT Upholds Cash Addition u/s 69A & Expense Disallowance u/s 37(1)
Summary: The assessee, Ms. Deepa Hemant Hoon, was an individual and director of Channels Information Technology Private Limited. For AY 2011-12, she had not originally filed a return of income.
Information available with the Department showed receipt of commission of ₹9,590, cash deposits in a savings bank account & credit-card payments. The case was identified through the Non-filers Monitoring System, and notice u/s 148 was issued. In response, the assessee filed a return declaring income of ₹3,17,060.
During reassessment, the AO found aggregate receipts of ₹13,94,590, comprising tuition or coaching receipts of ₹12,21,600, commission of ₹9,590 & tour and travel receipts of ₹1,63,400.
Against these receipts, the assessee claimed direct expenditure of ₹1,14,974 and indirect expenditure of ₹9,23,616, eventually disclosing a net profit of ₹3,56,000.
₹12.63 lakh cash deposits remained unexplained
The AO found aggregate cash deposits of ₹24,85,000 in the assessee’s bank accounts. The assessee explained that these deposits originated from tuition receipts of ₹12,21,600, earlier bank withdrawals of ₹11,60,290 & opening cash savings of ₹1,03,110.
The tuition receipts were accepted as a source. The dispute was confined to the availability of the earlier withdrawals and opening cash balance.
On examining the bank accounts, the AO noticed several instances where cash withdrawals took place immediately after deposits, rather than withdrawals preceding the deposits. For example, a cash deposit of ₹1.50 lakh was made on 29 October 2010 when the preceding balance was merely ₹19.19, followed by a withdrawal of ₹1,23,790 on the same date. Similar transactions occurred on 2 November 2010.
The AO concluded that the assessee had not established a satisfactory nexus between the earlier withdrawals and subsequent deposits. The claim of opening cash savings was also found inconsistent with the assessee’s modest income in preceding years. Consequently, ₹12,63,400 was added u/s 69A.
Cash once withdrawn is not presumed available forever
The ITAT explained that the mere withdrawal of cash from a bank account does not establish that the same cash remained available until its subsequent deposit. Equally, a time gap between withdrawal & redeposit cannot, by itself, prove that the explanation is false.
What matters is the overall cash position, including the nature of intervening transactions and possible utilisation of cash.
Despite being specifically requested during the hearing, the assessee did not produce complete bank statements enabling the Tribunal to independently reconcile the cash-flow statement with the actual transactions.
The explanation itself also required reconciliation. On one hand, the assessee claimed that tuition income was received in cash; on the other, bank withdrawals were projected as an additional source of the very same cash deposits.
In the absence of complete bank statements, contemporaneous evidence of accumulated savings & a reliable date-wise cash trail, the ITAT upheld the addition of ₹12,63,400 u/s 69A.
Bank payment does not establish business purpose
Of the indirect expenditure of ₹9,23,616, the AO allowed bank charges of ₹20,598 but disallowed the balance ₹9,03,018 u/s 37(1).
The assessee argued that the AO could not accept the gross business receipts and simultaneously disallow the entire expenditure. It was further submitted that most payments had been made through banking channels or credit cards.
The ITAT rejected this broad proposition. Payment through a bank or credit card establishes only the mode of payment; it does not establish that the expenditure was incurred wholly & exclusively for business.
Out of office expenditure of ₹6,03,768, an amount of ₹3,68,888 represented repayment of a loan, which could not become revenue expenditure merely because it was routed through a credit card.
Likewise, although details of salary payments of ₹2,51,150 were furnished, the assessee failed to establish the identity and role of the employees, services rendered by them & business necessity of the expenditure. Similar deficiencies existed regarding repairs, maintenance & staff welfare expenses.
The ITAT accordingly upheld the disallowance of ₹9,03,018 u/s 37(1).
Small credit gets another verification
A separate addition of ₹1,46,489 u/s 69A consisted of bank interest of ₹29, income-tax refund of ₹3,350, reimbursement of ₹20,700 from Channels Information Technology Private Limited & ₹1,22,410 representing tour and travel collections allegedly refunded to customers upon cancellation.
The Tribunal observed that each component was capable of independent documentary verification. It therefore restored this limited issue to the AO to verify the departmental record, company books, bank accounts, customer ledgers, booking records, cancellations & corresponding refunds.
s.44AD is not a rescue switch
The assessee alternatively argued that, if the AO was dissatisfied with the books and expenses, he should have rejected the books and estimated income u/s 44AD.
The ITAT rejected the contention. Section 44AD is a presumptive scheme subject to specified statutory conditions. An assessee does not acquire an automatic right to presumptive taxation merely because the AO disallows expenditure. The assessee had also failed to demonstrate that the statutory conditions for applying s.44AD stood satisfied for the entire income under consideration.
Author’s comments
The ruling neatly draws two evidentiary distinctions. First, cash withdrawal proves availability only on the withdrawal date, not continued possession until redeposit. A successful redeposit explanation requires a date-wise cash-flow supported by complete bank accounts and evidence regarding intervening utilisation.
Second, banking channels establish payment but not allowability u/s 37(1). The assessee must still prove the recipient, service, business nexus & revenue character.
The decision also confirms that acceptance of gross receipts does not compel allowance of every expense claimed against them. The receipts and deductions operate on separate evidentiary foundations.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the Assessee is directed against order dated 11.12.2025, passed by the learned Additional/Joint Commissioner of Income-Tax (Appeals) –2, Chennai [in short, “the learned CIT(A)”], for Assessment Year(AY) 2011-12, raising following grounds:
“1. The Ld. CIT(A) erred in law and on facts in upholding the addition of ₹12,63,400/- as unexplained money u/s 69A of the Act, ignoring the detailed cash flow statement and documentary evidence submitted by the appellant.
2. The Learned CIT(A) has erred in law and on facts by not appreciating that the AO made 100% disallowance of expenses while accepting the gross receipts from the same books of account.
3. The learned CIT has erred in not accepting the disallowance made by the AO of genuine business expenses incurred by the assessee during the year of Rs. 9,03,113 without proving the contrary.
4. The Learned Assessing officer should have rejected the books of accounts and estimated a reasonable profit as per the provision of section 44AD.
5. The learned CIT has erred in disallowing an amount as unexplained money of Rs. 1,46,489/- without understanding the facts of the case
The applicant craves the right to adduce, add, amend, alter, or delete any of the grounds of appeal before or at the time of hearing of this appeal.”
2. The assessee has challenged, ₹12,63,400/- as unexplained money under section 69A of the Income-tax Act, 1961 [in short, ‘the Act’], disallowance of business expenditure of ₹9,03,018/- under section 37(1), the alleged non-consideration of the provisions of section 44AD, and addition of ₹1,46,489/- towards unexplained credits.
3. Briefly stated, the assessee is an individual and a Director of M/s Channels Information Technology Pvt. Ltd. The Assessing Officer, on the basis of information available on the departmental portal, noticed that during the relevant previous year the assessee had received commission of ₹9,590/- on which tax had been deducted at source, made cash deposits aggregating to ₹17,33,000/- in her savings bank account and had made credit-card payments of ₹3,31,000/-. Since no return of income had been furnished by the assessee, the case was identified through the Non-filers Monitoring System. On recording reasons that income chargeable to tax had escaped assessment, notice under section 148 was issued on 27.03.2018. In response thereto, the assessee furnished her return of income on 01.08.2018 declaring total income of ₹3,17,060/-.
3.1 During the reassessment proceedings, the Assessing Officer found that the assessee had receipts aggregating to ₹13,94,590/-, comprising tuition/coaching receipts of ₹12,21,600/-, commission receipts of ₹9,590/- and receipts from tour and travel business of ₹1,63,400/-. Against the tour and travel receipts, direct expenditure of ₹1,14,974/- was claimed. Against the balance gross receipts of ₹12,79,616/-, the assessee claimed indirect expenditure of ₹9,23,616/-, comprising the following:
3.2 Thus, after the aforesaid indirect expenditure, the assessee had disclosed net profit of ₹3,56,000/-. During the assessment proceedings, the Assessing Officer, vide notice under section 142(1) dated 10.09.2018, called upon the assessee to furnish details and supporting evidence in respect of the expenditure claimed in the Profit and Loss Account, including bills and vouchers demonstrating that the expenditure had been incurred wholly and exclusively for the purposes of business and was allowable under section 37(1) or section 57 of the Act. In response, the assessee furnished details of tour and travel expenditure of ₹1,14,974/-, salary expenditure of ₹2,51,150/-, credit-card payments relating to office expenditure of ₹6,03,768/- and details of bank charges of ₹20,598/-. On examination, the Assessing Officer found that, out of the office expenditure of ₹6,03,768/-, an amount of ₹3,68,888/- represented repayment of loan and, therefore, could not constitute allowable business expenditure. In respect of the remaining office expenditure, the Assessing Officer observed that the assessee had not established the nexus between the expenditure and the business activity of coaching or tuition income or tour and travel services. Likewise, in respect of salary expenditure of ₹2,51,150/-, the assessee did not furnish adequate evidence regarding the identity of the employees, PAN, income-tax particulars or the nature of services rendered by them. The Assessing Officer accordingly allowed bank charges of ₹20,598/- but disallowed the balance expenditure of ₹9,03,018/- under section 37(1), holding that the assessee had failed to establish that the same had been incurred wholly and exclusively for the purposes of business.
3.3 The Assessing Officer also examined the credits appearing in the various bank accounts of the assessee. The aggregate cash deposits were ₹24,85,000/- and other credits aggregated to ₹6,39,452/-, resulting in total bank credits of ₹31,24,452/-. As against these credits, the assessee had disclosed receipts of only ₹13,94,590/- in the Profit and Loss Account. The Assessing Officer accordingly called upon the assessee to explain the difference of ₹17,29,862/-. In response, the assessee explained that the cash deposits of ₹24,85,000/- were sourced from three components, namely: (i) tuition income – ₹12,21,600/-; (ii) cash withdrawals from bank accounts – ₹11,60,290/-; and (iii) opening cash savings – ₹1,03,110/-. The three components aggregate to ₹24,85,000/-. In respect of the other credits, aggregating to approximately ₹6.39 lakh, the assessee explained them as comprising bank interest, income-tax refund, loans from relatives, amounts received towards expenses incurred on behalf of M/s Channels Information Technology Pvt. Ltd., miscellaneous receipts and collections from the tour and travel business. The assessee further explained that, out of the tour and travel collections, only ₹1,72,990/- represented income, the balance having been refunded to customers on cancellation or non-execution of services.
3.4 The Assessing Officer thereafter examined the bank statements to test the assessee’s claim that the cash deposits were sourced from earlier cash withdrawals. In respect of the Citi Bank account, several withdrawals were found to have been made immediately after or on the same day as cash deposits, with negligible balances immediately preceding the deposits. For example, a withdrawal of ₹1,23,790/- on 29.10.2010 followed a cash deposit of ₹1,50,000/- on the same day, when the preceding balance was only ₹19.19. Similarly, withdrawals of ₹2,00,000/-, ₹40,000/- and ₹9,000/- on 02.11.2010 followed a cash deposit of ₹2,49,000/- on the same day, with a preceding balance of only ₹677.69. The Assessing Officer also examined other withdrawals and found that the assessee had not established a satisfactory linkage between the withdrawals and subsequent deposits. In respect of the J&K Bank account, withdrawals aggregating to ₹39,000/- were examined, but the Assessing Officer found that the assessee had not established a direct nexus between the withdrawals and the subsequent cash deposits.
3.5 The Assessing Officer accordingly rejected the assessee’s explanation in respect of the balance cash deposits of ₹12,63,400/-. He further noted that the assessee’s explanation regarding an opening cash balance of ₹1,03,110/- was not supported by her past income profile. For Assessment Year 2010-11, the assessee had disclosed gross salary income of only ₹1,89,660/-, and no substantial income had been disclosed in the preceding years. The Assessing Officer, therefore, concluded that the availability of substantial earlier cash savings had not been established and treated ₹12,63,400/- as unexplained money under section 69A.
3.6 As regards the other credits, the Assessing Officer accepted ₹1,72,990/- as business income already accounted for and ₹3,20,500/- as loans from relatives supported by confirmations. The balance amount of ₹1,46,489/- was treated as unexplained money under section 69A.
4. In appeal, the learned CIT(A) considered the issues relating to the unexplained bank deposits and the disallowance of business expenditure. As regards the cash deposits, the learned CIT(A) observed that the assessee had not furnished a cash book, day-wise cash-flow statement or reconciled statement establishing availability of cash on the respective dates of deposit. He further concurred with the Assessing Officer that the claim of substantial earlier cash savings was not supported by the assessee’s disclosed income in the preceding years. The learned CIT(A) also noted that the Assessing Officer had already allowed those credits which were supported by evidence, including business receipts and loans from relatives, and that the impugned addition represented only the residual amount which remained unexplained. The addition of ₹12,63,400/- was accordingly sustained.
4.1 As regards the expenditure, the learned CIT(A) recorded that the assessee had disclosed receipts of ₹13,94,590/- and had claimed direct tour and travel expenditure of ₹1,14,974/-, which had been allowed by the Assessing Officer. Of the indirect expenditure of ₹9,23,616/-, the Assessing Officer had allowed bank charges of ₹20,598/- and disallowed ₹9,03,018/-.
4.2 The learned CIT(A) concurred with the Assessing Officer on the ground that the assessee had not produced sufficient evidence establishing that the expenditure had been incurred wholly and exclusively for business purposes. In particular, the learned CIT(A) noted the absence of adequate supporting evidence in respect of salary, office expenditure, repairs and staff welfare expenditure. The disallowance of ₹9,03,018/- was accordingly confirmed.
5. Before us, the learned counsel for the assessee submitted that the cash deposits stood explained by the cash-flow statement and the bank statements. According to him, the assessee had sufficient cash availability comprising tuition receipts of ₹12,21,600/-, cash withdrawals of ₹11,60,290/- and opening cash balance of ₹1,03,110/-, aggregating to ₹24,85,000/-, against the cash deposits of the same amount. It was submitted that the assessee had also furnished the relevant bank statements and cash-flow statement before the lower authorities. The learned counsel further contended that the law does not require a strict rupee-to-rupee correlation between every withdrawal and subsequent deposit where the overall availability of cash is demonstrated. Reliance was placed upon various decisions of the Tribunal in support of this proposition.
5.1 In respect of the disallowance of ₹9,03,018/-, the learned counsel submitted that the expenses had actually been incurred in the course of the assessee’s coaching and tour and travel activities and that the payments were substantially made through banking channels or credit card. It was contended that the Assessing Officer could not accept the receipts and simultaneously disallow the entire expenditure without establishing that the expenditure was either non-genuine or unrelated to business. Specific submissions were also made regarding salary payments of ₹2,51,150/-, office expenditure of ₹6,03,768/-, staff welfare expenditure of ₹19,000/- and repairs and maintenance expenditure of ₹29,100/-. Details of individual salary payments, including payments of ₹1,63,150/- to Ramesh P., ₹64,000/- to Lata Gupta and ₹24,000/- were furnished.
5.2 In respect of the addition of ₹1,46,489/-, the learned counsel submitted that the amount represented, inter alia, bank interest of ₹29/-, income-tax refund of ₹3,350/-, reimbursement of ₹20,700/- by M/s Channels Information Technology Pvt. Ltd. and ₹1,22,410/- representing the balance of tour and travel collections which, according to the assessee, had subsequently been refunded to customers on cancellation of bookings. It was accordingly submitted that the said credits did not constitute unexplained income of the assessee.
6. We have considered rival submission of the parties and perused the relevant material on record.
Addition of ₹12,63,400/- under section 69A
6.1 The assessee’s explanation is that the cash deposits of ₹24,85,000/- were sourced from tuition income of ₹12,21,600/-, cash withdrawals of ₹11,60,290/- and opening cash savings of ₹1,03,110/-. We find that the Assessing Officer has already accepted the tuition income as a source. The controversy, therefore, essentially relates to the availability of ₹11,60,290/- claimed to have been withdrawn from the bank accounts and ₹1,03,110/- claimed as opening cash savings.
The mere fact that cash was withdrawn from a bank account does not, by itself, establish that the same cash continued to remain available until the date of a subsequent deposit. Equally, the mere time gap between withdrawal and redeposit cannot, by itself, lead to the conclusion that the explanation is false. What is required is an examination of the overall cash position and the intervening utilisation of cash, if any.
6.2 In the present case, however, the assessee was specifically called upon to demonstrate the availability of cash on the relevant dates. The Assessing Officer examined the bank statements and found several instances where substantial cash withdrawals immediately followed cash deposits and the balances preceding such transactions were negligible. The assessee has not brought before us the complete bank statements which, despite being specifically sought during the hearing, would enable us to independently examine the movement of cash and test the cash-flow statement against the actual bank transactions. We also find that the assessee’s claim of opening cash savings of ₹1,03,110/- is not supported by any contemporaneous evidence placed before us. The Assessing Officer has noted that the assessee had disclosed salary income of only ₹1,89,660/- for Assessment Year 2010-11 and no substantial income in earlier years. In the absence of evidence establishing accumulation of such cash savings, the claim cannot be accepted merely on assertion.
Further, the assessee’s own explanation requires reconciliation. On one hand, tuition income of ₹12,21,600/- was stated to have been received in cash and, on the other, cash withdrawals of ₹11,60,290/- from the bank accounts were claimed as another source of the same cash deposits. The learned Departmental Representative rightly pointed out that the cash-flow position requires examination in the context of the assessee’s actual utilisation and redeposit of cash. In the absence of the underlying bank statements before us, we are unable to find that the assessee has satisfactorily demonstrated availability of the entire cash claimed as the source of the deposits.
6.3 We, therefore, find no reason to interfere with the concurrent findings of the Assessing Officer and the learned CIT(A) insofar as ₹12,63,400/- under section 69A is concerned. The relevant ground is dismissed.
Disallowance of business expenditure
7. The assessee’s next grievance concerns disallowance of ₹9,03,018/- under section 37(1). It is not in dispute that the assessee had disclosed receipts of ₹13,94,590/- comprising tuition/coaching receipts of ₹12,21,600/-, commission of ₹9,590/- and receipts from tour and travel business of ₹1,63,400/-. The direct tour and travel expenditure of ₹1,14,974/- had been allowed by the Assessing Officer. Of the indirect expenditure of ₹9,23,616/-, bank charges of ₹20,598/- were allowed and the balance was disallowed.
7.1 The assessee has contended that the expenditure was incurred through banking channels and that the Assessing Officer, having accepted the gross receipts, could not disallow the entire expenditure. We are unable to accept the proposition in such broad terms. The fact that a payment has been made through a bank or credit card establishes the mode of payment; it does not, by itself, establish the business purpose or allowability of the expenditure under section 37(1).
7.2 In the present case, the Assessing Officer specifically examined the office expenditure of ₹6,03,768/- and found that ₹3,68,888/- represented repayment of loan. Such repayment cannot be allowed as revenue expenditure merely because it was routed through a credit card. In respect of salary expenditure of ₹2,51,150/-, the assessee did furnish details of payments, but the material available before the Assessing Officer did not establish the nature of services rendered or the business necessity thereof. Similar deficiency existed in respect of repairs and maintenance and staff welfare expenditure. The assessee has now furnished additional particulars regarding the recipients of salary and the dates and amounts of payments. However, the mere fact that payments were made by account-payee cheques does not conclusively establish that the recipients rendered services to the assessee’s business. The primary requirement under section 37(1) is that the expenditure should have been incurred wholly and exclusively for the purposes of business.
7.3 We therefore find that the assessee has not discharged the primary burden of establishing the business nexus of the expenditure. Nor is this a case where the Assessing Officer, while accepting the expenditure as genuine in principle, made an arbitrary estimate of disallowance. The disallowance represents expenditure which remained unsupported on the essential test of business purpose. Accordingly, the disallowance of ₹9,03,018/- is upheld. The relevant grounds are dismissed.
Addition of ₹1,46,489/- under section 69A
8. We now turn to the remaining addition of ₹1,46,489/- under section 69A. The assessee has furnished a specific explanation as to the individual components of this amount, namely, bank interest of ₹29/-, income-tax refund of ₹3,350/-, reimbursement of ₹20,700/- by M/s Channels Information Technology Pvt. Ltd. and ₹1,22,410/- stated to represent the balance of tour and travel collections refunded to customers upon cancellation of bookings.
8.1 Unlike the issue of ₹12,63,400/-, the explanation in respect of ₹1,46,489/- is capable of direct verification from independent documentary material. In particular, the income-tax refund can be verified from the departmental record; the reimbursement of ₹20,700/- can be verified from the books and bank account of M/s Channels Information Technology Pvt. Ltd.; and the claim regarding ₹1,22,410/- can be tested with reference to the relevant customer accounts, booking records, cancellation details and corresponding refunds.
8.2 We, therefore, consider it appropriate that the aforesaid material be examined at the assessment stage. The learned counsel has also undertaken to furnish the supporting evidence. In the interest of substantial justice and for a proper determination of the real nature of the credits, we restore this issue to the file of the Assessing Officer. The Assessing Officer shall verify each component of ₹1,46,489/- independently and decide the issue afresh in accordance with law after affording adequate opportunity to the assessee. We clarify that we have expressed no opinion on the merits of the assessee’s explanation in respect of the aforesaid amount. The Assessing Officer shall decide the issue uninfluenced by any observation contained in this order.
Section 44AD
9. The assessee has also contended that, if the Assessing Officer was not satisfied with the books and expenditure claimed, the books ought to have been rejected and income estimated by applying section 44AD. We find no merit in this contention. Section 44AD is a presumptive scheme subject to its statutory conditions and does not confer upon an assessee an automatic right to have its income computed under that provision merely because the Assessing Officer has disallowed expenditure. In the present case, the assessee has not demonstrated before us that the statutory conditions for application of section 44AD stood satisfied for the entire income under consideration. The ground is accordingly rejected.
10. In the result, the addition of ₹12,63,400/- under section 69A and disallowance of ₹9,03,018/- under section 37(1) are upheld. The addition of ₹1,46,489/- is restored to the file of the Assessing Officer for verification and fresh adjudication in terms of paragraph 8.2 above. The ground relating to section 44AD is dismissed.
11. The appeal of the assessee is accordingly partly allowed for statistical purposes.
Order pronounced in the open Court on 17/08/2026.
