Cash Withdrawals from Disclosed Bank Accounts Can’t Be Treated as Unexplained Money Without Adverse Evidence: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed a batch of appeals filed by the Revenue and upheld the deletion of a massive addition of over ₹35.87 crore made under Section 69A of the Income-tax Act, 1961, holding that cash withdrawals from disclosed bank accounts cannot be treated as unexplained money merely on the basis of suspicion, in the absence of adverse material. The appeals arose from reassessment proceedings against a construction firm engaged in civil construction contracts, particularly government and semi-government projects, for Assessment Years 2014–15 to 2016–17. The Revenue had challenged the orders of the Commissioner of Income Tax (Appeals) which had deleted additions relating to alleged unexplained cash withdrawals and ad hoc disallowance of expenses. The assessee had originally filed its return declaring income exceeding ₹12.87 crore for AY 2014–15. The assessment was completed under Section 143(3), followed by reopening under Section 147 after the Assessing Officer (AO) received information through the INSIGHT portal regarding high-value cash withdrawals aggregating to ₹35.87 crore from disclosed bank accounts during the relevant year. Due to alleged non-compliance during reassessment, the AO completed the assessment ex parte under Section 144, treating the entire cash withdrawals as unexplained money under Section 69A. In addition, the AO disallowed 5% of the total expenditure, amounting to over ₹12.09 crore, on the ground that the expenses were unverifiable. On appeal, the CIT(A) upheld the validity of the reassessment but deleted both the addition under Section 69A and the ad hoc disallowance of expenses. The appellate authority noted that during remand proceedings, the assessee furnished extensive documentary evidence, including bank statements, main cash books, site-wise petty cash books, utilisation summaries, vouchers, creditors’ ledgers and running account (RA) bills relating to government projects. The CIT(A) recorded that although the AO expressed constraints in conducting exhaustive verification, no adverse material or discrepancy was brought on record to disprove the assessee’s explanation regarding utilisation of cash for genuine business purposes. The department contended that mere withdrawal of cash from disclosed bank accounts does not automatically explain its utilisation. It was argued that the assessee had failed to discharge the onus of proving that the cash was actually used for business purposes and that the CIT(A) erred in relying heavily on the absence of adverse remarks in the remand report. The department also defended the 5% disallowance of expenses, arguing that the assessee had failed to produce complete and verifiable third-party evidence during assessment proceedings. The ITAT rejected the Revenue’s contentions and upheld the findings of the CIT(A). The Tribunal observed that the assessee had demonstrated, through detailed records, that the cash withdrawals were duly accounted for and utilised towards labour payments, material purchases and site-related expenses, which are intrinsic to civil construction activities, particularly at remote locations with limited banking facilities. The Bench emphasised that Section 69A can be invoked only where the assessee is found to be the owner of money not recorded in the books of account and fails to offer a satisfactory explanation regarding its source. In the present case, the withdrawals were from disclosed bank accounts and were duly reflected in the books. Relying on multiple judicial precedents, including recent ITAT rulings, the Tribunal held that once cash withdrawals are explained with documentary evidence, the burden shifts to the Department to disprove their utilisation. In the absence of any adverse finding in the remand report, the addition under Section 69A was found to be unsustainable. With respect to the disallowance of 5% of expenses, the Tribunal noted that the assessee had produced voluminous records during appellate proceedings and that the AO failed to identify any specific instance of inflation or non-business expenditure. The Tribunal held that ad hoc disallowances without pinpointing defects cannot be sustained in law. Case Details Case Title: Dy. CIT Central Circle-2(3) Versus F A Construction Case No.: ITA Nos. 3895 to 3897/MUM/2025 Date: 23/01/2026 Counsel For Appellant: Vijay Mehta Counsel For Respondent: Vivek A. Perampurna, CIT-DR & Ms. Kavitha Kaushik, Sr. DR Click Here To Read Order Read More: Is It Advisable to Invest in Copper Utensils in India Until a Copper ETF Is Launched?

Cash Withdrawals from Disclosed Bank Accounts Can’t Be Treated as Unexplained Money Without Adverse Evidence: ITAT

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