Bhupendra Meena Vs ITO (ITAT Jaipur)
Cash Does Not Become Unexplained Merely Because It Returns in Smaller Bundles—Earlier Withdrawals & Available Cash Balance Explain Re-deposits
The Jaipur Bench of the ITAT has held that cash deposits cannot be treated as unexplained income merely because the corresponding earlier withdrawals were in round figures while the subsequent deposits were made in different denominations. Where the availability of withdrawn cash was undisputed, there was no evidence that it had been spent or invested elsewhere, and the assessee offered a plausible explanation for rotating the funds through his bank account, the addition of ₹40.99 lakh was unsustainable.
The assessee, Bhupendra Meena, was a small civil contractor. He had declared his business income under the presumptive taxation scheme contained in s.44AD and was not maintaining regular books of account. During the relevant year, total cash deposits of ₹56.99 lakh were noticed in his bank account.
This was the second round of proceedings before the ITAT. In the first round, the matter had been restored to the AO to consider the assessee’s explanation afresh. During the set-aside proceedings, the assessee did not respond to certain notices, and the AO proceeded on the basis of the material already available on record.
While determining the unexplained portion of the deposits, the AO granted credit for ₹13.40 lakh, representing gross receipts from the assessee’s civil-construction activity disclosed under s.44AD. The AO also allowed credit for ₹5.45 lakh withdrawn from the assessee’s State Bank of India account and allegedly re-deposited into his Bank of Baroda account. After granting the credits considered admissible, the AO treated the balance amount of ₹40,99,325 as unexplained income.
Before the CIT(A), the assessee filed written submissions explaining the source of the deposits. The CIT(A), however, accepted the AO’s reasoning and confirmed the addition.
Before the ITAT, the assessee contended that both the AO & CIT(A) had failed to properly appreciate the complete cash summary already furnished during the first round. The summary recorded the dates and amounts of cash withdrawals and subsequent deposits and, according to the assessee, demonstrated that sufficient cash was continuously available for being re-deposited into the bank account.
The AO had not disputed the factum of withdrawals. He rejected the explanation primarily because the pattern of transactions appeared unusual. According to the AO, there was no apparent reason for the assessee to withdraw cash when sufficient cash was already available and then deposit cash again either on the same day or shortly thereafter. The AO also noticed that withdrawals were generally made in round figures running into lakhs, whereas deposits were made in broken amounts such as ₹40,300, ₹21,730 and ₹15,390. Several deposits of ₹49,500 were also viewed with suspicion.
The assessee explained that he was a small contractor and had been advised that the bank would consider granting finance only if his account reflected regular transactions and a substantial volume of activity. He had consequently withdrawn and re-deposited cash to display transaction movement in the account. He also pointed out that he had disclosed salary income of ₹2.50 lakh, but no corresponding credit had been given while examining the deposits.
The Revenue argued that the anomalies noticed in the pattern of withdrawals & deposits justified rejection of the assessee’s explanation.
The ITAT found merit in the assessee’s case. It noted that the existence of sufficient earlier cash withdrawals was not disputed by the Revenue. It was also not disputed that the assessee had adequate cash balance available for the subsequent deposits. Most importantly, the Revenue had not demonstrated that the withdrawn cash had been spent, invested or otherwise utilised before it was deposited again.
In the absence of such contrary evidence, the Tribunal found no justification for refusing to link the deposits with the cash already available with the assessee.
The assessee’s explanation that the funds had been rotated to demonstrate regular and substantial banking activity for obtaining a finance facility was considered plausible. No falsity in that explanation had been established by the Department. Nor had the Department discovered any other undisclosed source of income from which the impugned deposits could have been made.
The Tribunal held that the differences in denomination and timing were not material enough to prove the assessee’s explanation to be outright false or inherently improbable. Once the assessee’s stated purpose of rotating funds through the bank was considered, the pattern of round-figure withdrawals followed by deposits in different amounts ceased to be decisive.
The ITAT, therefore, held that the cash deposits stood sufficiently explained by the earlier withdrawals and directed the AO to delete the entire addition of ₹40,99,325. The assessee’s appeal was allowed.
Author’s Comments
The decision reinforces the practical principle that there is ordinarily no legal presumption that cash withdrawn from a bank must be immediately spent. If the Department seeks to reject the explanation that cash remained available for re-deposit, it must bring some material on record suggesting its intervening utilisation.
A time gap between withdrawal & deposit, absence of one-to-one denomination matching, or re-deposit in smaller amounts may create doubt, but suspicion cannot replace evidence. Currency withdrawn in a round figure does not retain any statutory identity requiring it to be deposited later in precisely the same amount.
At the same time, this ruling should not be read as granting an automatic set-off of every old withdrawal against every later deposit. The strength of such a claim depends upon the cash-flow statement, proximity of withdrawals, financial capacity of the assessee, household and business expenditure, absence of competing utilisation, and consistency of the explanation. An unusually long interval, proven expenditure, acquisition of assets, contradictory cash statements or negative cash balance could justify a different conclusion.
The assessee’s explanation that the transactions were undertaken to enhance apparent banking activity for securing finance was accepted because the Revenue did not establish it to be false. However, deliberately circulating cash merely to project artificial banking volume is commercially questionable and should not be treated as a recommended practice.
The enduring legal proposition is narrower and sounder: where earlier withdrawals and continued cash availability are admitted, the AO cannot brand the subsequent deposits as unexplained merely because their amounts, frequency or denominations appear unusual. Doubt may invite enquiry—but without evidence of alternative utilisation, it cannot sustain an addition.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT JAIPUR
The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre, Delhi (hereinafter referred to as “Ld. CIT(A)”), dated 06.02.2026 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised read as under:-
1. The Ld. CIT(A), NFAC has erred on facts and in law in confirming the addition of Rs.40,99,325/- by treating the cash deposit in the bank account to this extent as unexplained income of assessee.
2. The lower authorities have erred on facts and in law in computing the total income at Rs.47,71,135/- as against Rs.45,24,665/- by incorrectly taking the returned income at Rs.6,71,810/- as against Rs.4,25,340/-, thereby computing the excess income at Rs.2,46,470/-.
3. The appellant craves to alter, amend and modify any ground of appeal.
4. Necessary cost be awarded to the assessee.
3. The solitary issue in the present appeal relates to the cash found deposited in the bank account of the assessee to the tune of Rs.40,99,325/-, the source of which remained allegedly unexplained.
4. This is the second round before me, in the first round the ITAT had restored the matter back to the AO to consider the explanation of the assessee afresh. In the set aside proceedings, the assessee did not respond to various notices issued and the AO, based on the evidences already available on record, passed assessment order afresh. The AO noted the assessee to have made total cash deposits in his bank account amounting to Rs.56,99,685/- . While arriving at the amount of cash deposit remaining unexplained he gave the assessee the benefit of the following:
- Cash deposited in his bank account attributable to his business receipts from civil construction work amounting to Rs.13,40,000/-, being the gross receipts from the said business which were returned to tax by the assessee on presumptive basis u/s 44AD of the Act and
- Cash withdrawn from his other bank account maintained in the State Bank of India amounting to Rs.5,45,000/- as redeposited in his Bank of Baroda account in which cash was found deposited.
- Accordingly cash to the tune of Rs.40,99,325/- was found to be unexplained and addition of the same made to the income of the assessee.
5. Before the Ld. CIT(A) the assessee filed his arguments in writing, after considering which the ld. CIT(A) confirmed the order passed by the AO.
6. I have heard both the parties. The contention of the ld. Counsel for the assessee before me was that the AO and the ld. CIT(A) had completely ignored the submissions of the assessee in the first round itself that the cash deposited was out of cash withdrawn from his bank account .That complete cash summary showing statement of cash deposited and cash withdrawal was furnished to the AO which , he contended, is reproduced at page 8 to 12 of the assessment order ,wherein ,he pointed out, it was clearly reflected that the assessee had sufficient cash in hand always for redeposit in his bank account. He pointed out, that the AO had noted the aforesaid facts but had rejected the assessee’s contention that the cash deposited was out of cash available with him finding it to be doubtful for the reason:
- that when the assessee was having sufficient cash balance on various dates, there was no reason for the assessee to withdraw cash and then deposit the next day or on the subsequent dates.
- finding the amount of withdrawals to be in lakhs and round figure, and on the same date and subsequent days the deposit were in different fraction of amount.
- noting money deposited in figures of Rs.49,500/-.
He drew my attention to the findings of the AO in this regard at page 15 of the order as under:-
The above cash flow statements submitted by the assessee are reproduced as sample for clarification.
1. When the assessee has sufficient cash in hand as well as in the bank in a same day there were cash withdrawal and cash deposits with a figure as Rs. 40,300, 21730, 15390 etc which was not a round figure like withdrawal of Rs, 1,35,000, 100,000, 145,000.
2. The amount of withdrawal are in lakhs and rounded figure and on the same day and subsequent days deposits are different fraction of amount raises doubt about the nature of transactions.
3. Many deposits of Rs., 49500 in to his account raises clarification.
7. Ld. Counsel for the assessee contended thatthe reason for the frequent withdrawals and deposit was explained to the Authorities below as that the assessee was a small time contractor and had been advised by his Bank to have regular transactions in his Bank account to avail finance facility from the Bank. My attention as drawn to the submissions made by the assessee in this regard reproduced at page 7 of the assessment order as under:-
…….
The assessee was asked to furnish the reason/purpose for the cash withdrawal/deposits. The assessee’s reply is reproduced
Sub:- Reply to notice dt. 10.07.2025 issued u/s 142(1) of IT Act, 1961 With reference to the queries raised by above notice, it is to submit as under:- 1. The educational qualification of assessee is MA and BEd. He started carrying out small civil construction work from AY 2015-16 but since he could not manage it, he stopped this activity from AY 2017-18 and started real estate activity on commission/ brokerage basis which is declared under the head income from other sources. 2. The assessee is not maintaining any books of accounts. He has declared the business income of Rs.2,02,130/- under presumptive scheme of section 44AD of the Act. As per section44AA of the Act which provides for maintenance of books of accounts, a person disclosing the profit opting section 44AD of the Act is not required to maintain books of accounts. Hence the details of purchases and payment there against is not available nor the same can be sought from the assessee. 3. The cash was withdrawn from the bank and again deposited back in the bank account as assessee was told that the bank can give finance only when there is regular transaction in the bank account and therefore cash was withdrawn from the bank and redeposited in the bank to show the volume of transaction in the bank account. 4. Copy of salary certificate of Aravali Microfinance where the assessee was employed is enclosed. Assessee has been employed in this concern since AY 2012-13. 5. In AY 2017-18 no business income is offered for tax but the income from commission in property dealing is shown as income from other sources. 6. Certain cash deposits have been made on the next day of the withdrawal for which the reason is explained in Point No.3 above.
…….
8. Ld. Counsel for the assessee further contended that the assessee had also earned income amounting to Rs.2,50,000/- from salary which had been returned to tax but no credit for cash deposit out of the same was given to the assessee.
9. Ld. DR on the other hand stated that the assessee’s explanation of cash deposited out of cash withdrawals had been rightly rejected by the AO/Ld. CIT(A) noting several anomalies in the same as noted above.
10. Considering the averments made by both the parties, I find merit in the contention of the ld. Counsel for the assessee that the cash deposits in his bank account stood sufficiently explained by cash withdrawals made earlier. The fact that there was sufficient cash withdrawals made from the bank account is not disputed. The fact that the assessee had sufficient cash balance available for re-deposit is not disputed. It is not the case of the Revenue that the cash available with the assessee was found invested in any manner. I see no reason therefore to not accept the assessee’s explanation of the cash withdrawn being subsequently deposited in his bank account. The assessee I have noted has offered a plausible explanation for the rotation of funds for the purpose of availing finance from his Bank by showing frequent and large volume of activity in his Bank, no falsity in which has been pointed out by the Revenue. There is no other source of income of the assessee which had been discovered by the Department. The anomalies noted by the AO in the explanation of the assessee of cash withdrawn and allegedly redeposited in different figures and of cash being withdrawn despite sufficient cash in hand being allegedly available with the assessee, are , I note, not material enough deficiencies so as to prove the assesses explanation as outrightly false or improbable. Moreover considering the reason given by the assessee for rotation of funds in his bank account , the deficiencies merit no consideration
11. In the light of the above, I hold the cash deposited in the Bank account of the assessee to be sufficiently explained and direct the AO to delete the addition made to the income of the assessee of cash deposited in Bank from unexplained sources of Rs.40,99,325/-.
12. In effect, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 10.09.2026
