Kavita Vs ITO (ITAT Delhi)
Earlier Cash Withdrawals Can Explain Later Bank Deposits, but Household Spending Must Be Accounted For: Delhi ITAT
Cash withdrawn from a bank in an earlier year can form part of the source for deposits made in a later year, if the assessee demonstrates that the cash remained available. At the same time, a cash-flow statement cannot ignore ordinary household spending. Applying both propositions, the Delhi ITAT in Kavita v. ITO, ITA No. 4477/Del/2026, reduced an addition for unexplained bank deposits from ₹5,47,165 to ₹2 lakh. The order was pronounced on 29 September 2026 for AY 2009–10.
How the Dispute Arose
The assessee reported income from an in-house boutique and savings bank interest. During FY 2008–09, she deposited ₹25,38,900 in cash into her bank account. She explained that the deposits came from cash withdrawn from the bank during that year and the preceding year, along with ₹3 lakh received from the sale of eucalyptus trees.
In the original scrutiny assessment, the AO allowed credit of ₹16,91,735 for withdrawals made during FY 2008–09. He did not accept the balance of the explanation and added ₹8,47,165. The first appellate authority confirmed the addition, but the matter reached the ITAT, which sent it back to the AO for fresh examination.
In the second round, the AO accepted the ₹3 lakh from sale of trees, reducing the disputed addition to ₹5,47,165. The appellate authority again upheld the remaining addition. The assessee returned to the Tribunal, where the question was whether that balance could still be explained by cash available from earlier withdrawals.
Cash Available at the Beginning of the Year
The assessee placed a cash summary for FYs 2007–08 and 2008–09 before the Tribunal. It showed cash withdrawals and a closing cash balance of ₹6,40,000 as at 31 March 2008. She relied on that balance, together with withdrawals made during FY 2008–09, to explain the deposits in the relevant year.
This was the point missed by an approach that considered only current-year withdrawals. Cash drawn from a bank does not cease to exist at the end of a financial year merely because it has not been redeposited. An opening cash balance can be relevant to the following year’s deposits, provided the record supports the balance and its continued availability.
The Tribunal took account of the two-year cash summary. It also noted that the assessee owned 41 bighas of agricultural land and ran a boutique. The order, however, does not identify a separate quantified amount of agricultural receipts as the source of the disputed ₹5,47,165. Its analysis turned on the cash summary and the amount reasonably available after personal spending.
The Missing Household Drawings
The ITAT found one weakness in the cash summary: it did not provide for monthly drawings towards household expenses. Ordinary living expenses would reduce the cash retained in hand and, consequently, the amount available for later bank deposits.
Rather than reject the entire claim of opening cash, the Tribunal made an ad hoc estimate of ₹2 lakh for household expenses for the year under consideration. On that basis, it sustained ₹2 lakh out of the ₹5,47,165 addition and deleted the remaining ₹3,47,165. The assessee’s appeal was therefore partly allowed.
The ₹2 lakh sustained by the Tribunal should be understood in the context of the unexplained deposit addition. Household spending was used to test how much cash remained available to explain the deposits; the order was not imposing income tax on household drawings as a separate item.
What the Decision Establishes
The order recognises that a bank deposit must be examined alongside the full movement of cash, including an opening balance carried forward from the preceding year. Restricting credit to withdrawals within the same financial year can give an incomplete picture where the assessee produces a cash summary covering both years. TaxGuru has also reported decisions recognising the relevance of withdrawals and opening cash balance when the cash trail supports the explanation.
It also shows why a cash summary needs to reflect uses of cash, as well as its sources. A schedule that records withdrawals and redeposits but assumes that no cash was spent on running the household may overstate the balance available. Here, that omission led the Tribunal to estimate drawings and grant only partial relief.
The result is fact specific. The ITAT did not lay down that ₹2 lakh is a standard allowance for household expenses, or that every earlier withdrawal must automatically be accepted as the source of a later deposit. It evaluated the summary furnished in this case and arrived at what it considered a reasonable adjustment.
Author’s Comment
For disputes involving cash withdrawals followed by later deposits, the useful evidence is a continuous cash trail: the opening balance, dates and amounts of withdrawals, other identified receipts, deposits, and cash spent in the meantime. An earlier bank withdrawal is a possible source, but the amount must still be available when the deposit is made.
Kavita is a balanced example. The Tribunal gave effect to the ₹6.40 lakh opening cash balance rather than confining the explanation to current-year withdrawals. It also recognised that a person running a household cannot ordinarily retain every rupee withdrawn. The addition was accordingly reduced, not deleted in full—from ₹5,47,165 to ₹2 lakh.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The appeal in ITA No.4477/Del/2026 for AY 2009-10, arises out of the order of the ld. Jt. Commissioner of Income Tax (Appeals)-3, Mumbai [hereinafter referred to as ‘ld. JCIT(A)’, in short] dated 27.02.2026 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.08.2018 by the Assessing Officer, ITO, Ward-1(3), Muzaffarnagar (hereinafter referred to as ‘ld. AO’).
2. The only effective issue to be decided in this appeal is as to whether the ld NFAC was justified in confirming the addition made in the sum of Rs. 5,47,165 on account of cash deposits in the bank account in the facts and circumstances of the instant case.
3. I have heard the rival submissions and perused the materials on the record. The assessee had filed her return of income u/s 139(1) of the Act declaring total income of Rs. 1,44,000 being business income from in-house boutique and Rs. 6,120 on account of interest on Savings Bank Account. During the year under consideration, the assessee made total cash deposits in her bank account to the tune of Rs. 25,38,900. The assessee explained that the deposits were made out of cash withdrawals made from the bank account in earlier year as well as during the year in addition to receipt of Rs. 3 lakhs from sale of eucalyptus trees. The ld AO in the original scrutiny assessment proceedings gave credit for the assessee only in respect of cash withdrawals made from the bank account during the year to the tune of Rs. 16,91,735 and made an addition for the remaining cash deposit of Rs. 8,47,165 and completed the assessment u/s 143(3) of the Act dated 20.03.2015. This addition was confirmed by the ld CIT(A). The matter travelled in the first round to this Tribunal and this Tribunal remanded the matter back to the file ld AO for de novo adjudication. In the remand proceedings (i.e. second round) the ld AO further gave credit of Rs. 3 lakhs on account of cash generated from sale of trees and confirmed the remaining addition of Rs. 5,47,165/-. This addition was confirmed by the ld CIT(A) in the second round.
4. At the outset, the assessee had furnished the entire cash summary comprising of withdrawals and deposits for both the FYs 2007-08 and 2008-09. This is enclosed in pages 19 to 20 of the Paper Book. From the perusal of the said cash summary, it is noted that the assessee had made cash withdrawals and had closing cash balance of Rs. 6,40,000/- as on 31.03.2008. The said balance together with cash withdrawals made during the FY 2008-09 was considered as a source to meet the cash deposits made in the bank account. It is a fact that the assessee is owing 41 bigas of agricultural land and running a boutique but the cash statement enclosed in pages 19 to 20 of the Paper Book does not take care of the monthly drawings to meet house hold expenses which would in turn reduce the available cash balance in hand. Hence, an adhoc and reasonable estimate of Rs. 2 lakhs per annum is being made on that account in this order for the year under consideration, which in my considered opinion, would meet the ends of justice. Hence, as against the addition made in the sum of Rs. 5,47,165/-, a sum of Rs. 2 lakhs is being sustained and remaining Rs. 3,47,165/- is hereby deleted. Accordingly, grounds raised by the assessee are party allowed.
5. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 29-Sep-2026.
