ITAT Mumbai: Cash Withdrawals From Disclosed Bank Accounts Not ‘Unexplained Money’, Revenue Appeals Dismissed

January 24, 2026 : The Mumbai Bench of the Income Tax Appellate Tribunal has dismissed a batch of appeals filed by the Revenue and upheld the deletion of additions aggregating to ₹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 suspicion and in the absence of any adverse material.

The Tribunal also affirmed the deletion of an ad hoc disallowance of 5 percent of expenditure, amounting to ₹12.09 crore, observing that such disallowances cannot be sustained without identifying specific defects in the books of account.

The ruling was delivered by a Bench comprising Judicial Member Sandeep Gosain and Accountant Member Om Prakash Kant in appeals filed by the Deputy Commissioner of Income Tax, Central Circle-2(3), against F A Construction, a partnership firm engaged in civil construction contracts, including government and semi-government projects. The appeals related to Assessment Years 2014–15 to 2016–17 and arose from reassessment proceedings initiated on the basis of information received through the INSIGHT portal.

For Assessment Year 2014–15, the assessee had declared a total income of ₹12.87 crore. The original assessment was completed under Section 143(3) and later reopened under Section 147 after the Assessing Officer noted cash withdrawals aggregating to ₹35.87 crore from disclosed bank accounts. The reassessment was ultimately completed ex parte under Section 144, treating the entire cash withdrawal as unexplained money under Section 69A and making a further ad hoc disallowance of 5 percent of total expenditure claimed in the profit and loss account.

On appeal, the Commissioner of Income Tax (Appeals) upheld the validity of the reassessment but deleted both the addition under Section 69A and the disallowance of expenses. During appellate proceedings, the assessee produced extensive documentary evidence, including bank statements, cash books, site-wise petty cash records, utilisation summaries, vouchers, creditor details and running account bills relating to government projects. These materials were examined by the Assessing Officer during remand proceedings, but no specific discrepancy or adverse material was pointed out.

Before the Tribunal, the Revenue argued that mere withdrawal of cash does not explain its utilisation and that the assessee had failed to conclusively establish that the cash was used for business purposes. It also defended the ad hoc disallowance on the ground that complete third-party verification was not available during assessment.

Rejecting these contentions, the Tribunal held 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 satisfactorily explain its nature and source. In the present case, it was undisputed that the cash represented withdrawals from disclosed bank accounts, and therefore the source of the money stood explained.

The Bench observed that once the source of cash is established, an addition under Section 69A cannot be sustained merely on doubts about its utilisation. If the Assessing Officer had concerns regarding the allowability of expenditure, the correct course would have been to examine such expenditure under the relevant provisions of the Act, rather than invoking the deeming fiction of unexplained money.

The Tribunal also noted that the assessee was engaged in labour-intensive civil construction activities executed at multiple and often remote locations where banking facilities were limited. Cash withdrawals were found to be a business necessity for labour payments, material procurement, transportation and other site-related expenses. Despite examining voluminous records during remand proceedings, the Assessing Officer failed to bring any adverse material to rebut the assessee’s explanation.

On the issue of the 5 percent disallowance, the Tribunal held that the Assessing Officer had made an ad hoc disallowance without rejecting the books of account or identifying any specific instance of inflation, non-business expenditure or defective vouchers. Such disallowances, the Tribunal reiterated, are impermissible in law.

Finding no infirmity in the orders of the Commissioner of Income Tax (Appeals), the Tribunal dismissed all the appeals filed by the Revenue for the relevant assessment years.

Case Details
Cause Title: Dy. CIT, Central Circle-2(3) vs F A Construction
Case No.: ITA Nos. 3895 to 3897/MUM/2025
Bench: Income Tax Appellate Tribunal, Mumbai Bench
Decision Date: 23 January 2026