The Officer Says Your Deposit Is Unexplained. What Actually Decides the Appeal

An assessing officer has added a credit in your books, or a deposit in your bank account, to your income, and the order says your explanation was not satisfactory. What decides the appeal is narrower and more predictable than most people expect.

The starting point: the officer may look behind the paperwork

Two Supreme Court decisions govern this ground, and tribunal orders routinely cite them together.

Sumati Dayal v. CIT, (1995) 214 ITR 801 (SC), holds that an apparent transaction must be tested against human probabilities and the surrounding circumstances, and that a transaction which is unnatural may be treated as bogus even where documents support it.

CIT v. Durga Prasad More, (1971) 82 ITR 540 (SC), is the earlier half of the pair: the apparent is to be treated as the real until there is reason to believe that it is not, and the authorities may rely on circumstantial evidence and the preponderance of probabilities.

Read together, they mean that paperwork is necessary and not sufficient. They also mean the officer cannot stop at disbelief.

What has actually worked

In a Delhi appeal decided on 20 March 2026, the assessee produced audited books of account and bank statements showing the cash deposits recorded as business receipts and carried into the balance sheet. The Tribunal held the addition lacked cogent material and deleted it.

In two Nagpur appeals decided on 10 April 2026, additions on share transactions were deleted because the assessees produced share allotment letters, demat statements, contract notes and bank statements, and the Revenue had no material showing the assessee's own involvement in price manipulation or in accommodation entries. The companion appeal went the same way on the same record.

The pattern is consistent. Contemporaneous records that tie the receipt to a source already disclosed tend to succeed; so does the absence of any evidence connecting the assessee personally to the arrangement the department suspects.

What has actually failed

The mirror image is a documented transaction that makes no commercial sense. Where a scrip with negligible net worth and no business activity rises many times over, tribunal orders in this line reason that the documents prove the movement of shares and money but not the genuineness of the intention behind it. That is precisely the gap Sumati Dayal was decided to close.

Partial relief is common, and worth planning for

Appeals in this area are frequently not all-or-nothing.

1. In a Nagpur appeal on demonetisation-period deposits decided on 26 March 2026, the Tribunal found real discrepancies in the explanation but also that the addition was largely based on suspicion, and deleted half of it.
2. In a Delhi appeal decided on 20 March 2026, the explanation on sales was not entirely rebutted but the source of the improved deposit was not fully proved, and the Tribunal substituted a lump sum addition of Rs. 8 lakh. In the same order it recorded that section 115BBE applies to transactions on or after 1 April 2017.
3. Where an addition follows unadmitted turnover rather than an unexplained credit, the measure is different again: in a Visakhapatnam appeal decided on 17 April 2026 the Tribunal held that only the profit element should be taxed, not the whole receipt, and upheld an estimate of 12 per cent.

What to assemble before you reply

• The ledger entry and the contemporaneous record behind it, not a confirmation prepared after the notice.
• Bank statements that show the money moving, on both sides where you can get them.
• The link between the receipt and something already disclosed: a return, an audited balance sheet, a turnover figure.
• Where shares are involved, the allotment or contract notes, demat statements and the price history.
• A written explanation of why the transaction made commercial sense at the time. This is the part most replies leave out, and it is the part Sumati Dayal puts in issue.

A section 69A addition carries one requirement that is easy to miss and decisive when it is: the material has to fix the year of receipt, not merely make the receipt look likely. On 28 September 2026 ITAT Mumbai deleted ₹3.94 crore because the evidence was dated after the year it taxed.

The grounds most often argued alongside this are section 68 and section 69A; the assessment itself will usually be under section 143(3), or section 147 if it is a reassessment.

This note is general information drawn from reported decisions, not advice on your matter. Every addition turns on its own record, and the orders above were decided on theirs.