ITAT Delhi Clears Taxpayer After Rs 8 Lakh Bank Deposit Controversy

A Delhi man, who received a tax notice after depositing Rs 8 lakh in his bank account, has won a long-running dispute with the Income Tax Department, according to a recent report by the Economic Times. The Income Tax Appellate Tribunal (ITAT), Delhi Bench, ruled that the authorities had no right to treat his deposit as presumptive business income under Section 44AD because the case was selected only for limited scrutiny.

How The Issue Began

Mr. Kumar, the taxpayer, deposited Rs 8,68,799 in his bank account during the relevant financial year. The tax department decided to review his return for the 2017–18 assessment year under a limited scrutiny notice issued under Section 143(2). A limited review is meant to focus only on the issues listed in the notice, which, in Mr. Kumar’s case, was the deposit in his bank account.

Rather than limiting the review to the deposit, the Assessing Officer considered it business income and included it in Mr. Kumar’s taxable earnings.

The Commissioner of Income Tax (Appeals) initially backed the officer’s decision. Feeling the move was unfair, Mr. Kumar challenged it. He argued that the officer had no authority to investigate beyond the cash deposit. He also noted that the officer never got approval from the Principal Commissioner of Income Tax, and no explanation was recorded for turning the case into a full assessment, both steps being mandatory under the tax rules.

ITAT Steps In

On September 22, 2025, the ITAT ruled in favour of Mr. Kumar. The tribunal said the officer had overstepped his jurisdiction and could not treat the deposit as business income. The tribunal mentioned earlier court decisions, including a ruling by the Calcutta High Court, as well as instructions from the Central Board of Direct Taxes (CBDT), which make it clear that a limited scrutiny case cannot be widened without proper permission and a recorded justification.

Since the officer had not followed the correct process, the tribunal canceled the addition entirely. The ruling clearly shows that tax rules and procedures must be followed, as they protect taxpayers from unfair treatment or arbitrary actions.

Officers cannot suddenly add new issues unless all formal approvals are in place. Taxpayers should maintain clear records and pay attention to the procedures being followed.

For Mr. Kumar, what began as a simple bank deposit turned into a fight over process and fairness. The ITAT ruling restored his position and clarified that even in complex tax matters, following the rules is paramount.