Chennai ITAT: Section 69A Cannot Be Invoked for Cash Withdrawals from Own Bank Account

ITO Vs Jaisingh Shankar (ITAT Chennai)

Chennai ITAT: Section 69A Cannot Be Invoked for Cash Withdrawals from Own Bank Account

Summary: The Chennai ITAT dismissed the Revenue’s appeal and upheld the First Appellate Authority’s order deleting the addition of ₹3,44,35,116 made under Section 69A of the Income-tax Act. The reassessment was initiated after credits were noticed in the assessee’s bank account, and the Assessing Officer treated cash withdrawals of ₹3,44,35,116 as unexplained money under Section 69A read with Section 115BBE, as the assessee could not furnish complete particulars of the beneficiaries. The assessee explained that he acted as an authorised sub-agent of Transcorp International Ltd. and Muthoot Forex Ltd., receiving funds for onward disbursement to customers and earning only commission income. The First Appellate Authority, after examining bank statements, day book, ledger accounts and Form 26AS, found that the assessee functioned as an intermediary and was not the beneficial owner of the funds. The Tribunal noted that the Revenue had not produced material to rebut these findings and further held that Section 69A contemplates unexplained money owned by the assessee and, in the context of bank transactions, may apply to unexplained cash deposits or credits and not to cash withdrawals from the assessee’s own bank account. The assessee’s cross-objection challenging reopening was dismissed as not pressed.

The Chennai ITAT dismissed the Revenue’s appeal and upheld the deletion of an addition of ₹3.44 crore made u/s 69A in the hands of an individual who acted as a commission agent/sub-agent for foreign exchange companies. The Assessing Officer had treated cash withdrawals from the assessee’s bank account as unexplained money on the ground that the assessee failed to furnish complete details of the ultimate beneficiaries to whom the amounts were disbursed.

The Tribunal noted that the assessee had produced bank statements, day book, ledger accounts and Form 26AS, which established that he was functioning as an authorised sub-agent of Transcorp International Ltd. and Muthoot Forex Ltd. The evidence showed a consistent pattern of receipt of funds from these entities, followed by cash withdrawals for disbursement to beneficiaries after KYC verification. Further, Form 26AS reflected commission income subjected to TDS u/s 194H, corroborating that the assessee earned only commission and was merely an intermediary, not the beneficial owner of the funds routed through his bank account.

The Tribunal further held that the Revenue had failed to produce any material to dislodge the factual findings recorded by the CIT(A). It also observed that, even otherwise, the very invocation of section 69A was legally untenable, as the provision applies to unexplained money, bullion, jewellery or other valuable articles owned by the assessee. In the context of bank transactions, it may at best apply to unexplained cash deposits or credits, and not to cash withdrawals from the assessee’s own bank account. Accordingly, the deletion of the addition of ₹3.44 crore was upheld and the Revenue’s appeal was dismissed. The assessee’s cross-objection challenging the reopening was dismissed as not pressed.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

This appeal filed by the Revenue and the cross objection filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 26.08.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.

2. We shall first adjudicate the appeal filed by the Department (ITA No.2931/CHNY/2025). The grounds raised by the Revenue reads as follows:-

(1) The order of the Ld. CIT(A) is opposed to law on the facts and in the circumstances of the case.

(2) The Ld. CIT(A) was correct in deleting the addition of Rs.3,44,35,116/-made u/s 69A of the Income-tax Act, 1961 without appreciating the fact that the assessee has failed to produce concrete evidence such as written agreements with foreign exchange entities to establish that he acted as an authorized sub-agent of the said foreign exchange entities.

(3) The Ld. CIT(A) erred in holding that the assessee acted as an authorized sub-agent of the said foreign exchange entities merely because he had received commission income from the said entities, when the assessee failed to establish, with documentary evidence, that the fund transfers in his bank account were meant only for disbursal to clients of the foreign exchange entities.

(4) The Ld. CIT(A) erred in deleting the addition of Rs. 3,44,35,116/- made u/s 69A of the Income-tax Act, 1961, as the assessee had failed to establish, with documentary evidence, that the fund transfers in his bank account were meant only for disbursal to clients of the foreign exchange entities, especially in the absence of evidence of instructions from such entities and where such disbursal to clients did not occur through banking channels.

(5) For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld. CIT(A) may be reversed and that of the Assessing Officer restored.

3. Brief facts of the case are as follows: The assessee is an individual. For the assessment year 2017-18, he did not file his return of income u/s.139(1) of the Act. Based on information available with the Department that credits aggregating to Rs.3,67,22,792/- were reflected in the assessee’s bank account maintained with Lakshmi Vilas Bank (now DBS Bank), a notice u/s.148 of the Act was issued on 28.03.2024. During the reassessment proceedings, the AO noticed that there were total cash withdrawals of Rs.3,44,35,116/- and cash deposits of Rs.5,00,000/- in the above mentioned bank account of assessee. The AO directed the assessee to explain the transactions in the bank account. In response, the assessee submitted that he was engaged as a commission agent/sub-agent for foreign exchange entities, namely Tanscorp International Ltd. and Muthoot Forex Ltd., and that the funds received in his bank account were meant solely for disbursement to customers after verification of KYC documents. It was explained that the assessee merely acted as an intermediary, maintained books of account including day book and ledger, and that the cash withdrawals represented cash disbursed to customers as per the instructions of the foreign exchange companies. The AO called upon the assessee to explain why the cash withdrawals should not be treated as unexplained money u/s.69A of the Act. The assessee reiterated that the withdrawals were duly recorded in the books and pertained to his commission agency business. However, he expressed his inability to furnish complete details of the end beneficiaries, such as their names, PANs, e-mail IDs and supporting instructions from the foreign exchange entities, stating that the business had been closed and the records were not readily available. The AO was not convinced with the explanation submitted by the assessee. The AO held that the assessee had failed to discharge the onus of substantiating the purpose of the cash withdrawals with cogent documentary evidence and treated the cash withdrawals as unexplained money u/s.69A r.w.s. 115BBE of the Act in the reassessment order completed u/s.147 r.w.s.144B of the Act (order dated 17.01.2025). The relevant findings of the AO are as under:

“4.5.1 ………………………….

…………………………. In view of the same, it is crystal clear that the assessee has nothing to say in respect of huge cash withdrawal during the year under consideration. Hence, the said transaction of cash withdrawal of Rs. 3,44,35,116/- remained unexplained for the year under consideration in the absence of supporting documentary evidences from the assessee. Therefore, the corresponding credits/ receipts against the transaction amounting to Rs. 3,44,35,116/- is being treated as unexplained money of the assessee for the year under consideration and accordingly the said unexplained money of Rs. 3,44,35,116/- is added back to the taxable income for the year under consideration in view of provisions of section 69A r.w.s. 115BBE of the I.T. Act, 1961.”

4. Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). Before FAA, the assessee furnished copies of the relevant bank statements, day book and ledger accounts. After extracting the relevant extracts and upon examining the material on record, the FAA found that the assessee was engaged as an authorised sub-agent of Transcorp International Ltd. and Muthoot Fincorp Ltd., facilitating money transfer transactions on a commission basis. The FAA observed that the foreign exchange entities remitted funds to the assessee’s designated bank account in Lakshmi Vilas Bank (now DBS Bank), and the assessee’s role was confined to verifying the KYC compliance of customers and disbursing the amounts to the beneficiaries as per the instructions of the foreign agents. The FAA further noted that commission income paid to the assessee was subjected to tax deduction at source u/s.194H of the Act, as reflected in Form 26AS, thereby corroborating the assessee’s claim of acting merely as an intermediary. Accordingly, the FAA held that the assessee was not the beneficial owner of the funds deposited in the bank account and directed the AO to delete the addition of Rs.3,44,35,116/- made u/s.69A of the Act. The relevant findings / conclusions of the FAA read as follows:-

“4.5 The facts and circumstances of the case clearly establish that the appellant was functioning as an intermediary/authorized sub-agent of M/s. Transcorp International Ltd. and M/s. Muthoot Forex Ltd. In this capacity, the appellant received a total sum of Rs. 3,56,57,700.68/- from the aforesaid entities in his bank account No. 452352000000190. These funds were not in the nature of the appellant’s income but were received solely for the purpose of onward disbursement to various clients, after due verification of their KYC documents, and the appellant derived only commission income for rendering such services. In light of the above facts, and considering the evidences placed on record which substantiate the appellant’s role as an intermediary rather than the beneficial owner of the deposits, the addition of Rs. 3,44,35,116/-made by the Assessing Officer by invoking the provisions of section 69A of the Act cannot be sustained. The Assessing Officer is accordingly directed to delete the said addition from the hands of the appellant. Accordingly, the Ground No. 3, 4 & 6 raised in the appeal is allowed.”

5. Aggrieved by the order of the FAA, the Department has filed the present appeal before the Tribunal. The Ld.DR relied on the grounds raised and the findings of the AO.

6. The Ld.AR reiterated the submissions made before the Income-tax Authorities and relied on the findings of the FAA.

7. We have heard rival submissions and perused the material on record. The reassessment proceedings were initiated on the basis of information that credits aggregating to Rs.3,67,22,792/- were reflected in the assessee’s bank account. During the reassessment proceedings, it was noticed that the actual cash deposits were only Rs.5,00,000/-, whereas the cash withdrawals amounted to Rs.3,44,35,116/-. The AO called upon the assessee to explain the purpose of such withdrawals. The assessee explained that he was functioning as an authorized sub-agent of Transcorp International Ltd. and Muthoot Forex Ltd. and that the cash withdrawn was utilized for making payments to the ultimate beneficiaries in accordance with the instructions of the said entities. However, since the assessee could not furnish complete particulars of the beneficiaries, such as their names, PANs and e-mail IDs, the AO invoked the provisions of section 69A of the Act and treated the cash withdrawals as unexplained money.

8. We find that the First Appellate Authority, after examining the bank statements, day book, ledger accounts and Form 26AS, has recorded a categorical finding that the assessee was engaged as an authorized sub-agent of Transcorp International Ltd. and Muthoot Forex Ltd. on a commission basis. The documentary evidence demonstrates a consistent pattern of receipt of funds from the said entities and corresponding disbursement to beneficiaries. The Form 26AS also reflects commission income received by the assessee from the aforesaid entities, on which tax was deducted at source u/s.194H of the Act, thereby corroborating the assessee’s claim that he was merely an intermediary and that his income was confined to commission earned from such agency operations. The Revenue has not brought any material on record to controvert the factual findings recorded by the FAA or to establish that the assessee was the beneficial owner of the funds withdrawn from the bank account. In the absence of any such evidence, and having regard to the nature of the transactions supported by the books of account, bank statements and Form 26AS, we find no infirmity in the conclusion of the FAA that the assessee merely facilitated the transfer of funds on behalf of the foreign exchange companies and that the amounts routed through his bank account did not represent his unexplained money. Even otherwise, in our considered view, the approach adopted by the AO is legally unsustainable. Section 69A of the Act contemplates addition of unexplained money, bullion, jewellery or other valuable articles found to be owned by the assessee. In the context of bank transactions, we are of the view that the provision may apply to unexplained cash deposits or credits and not to cash withdrawals from the assessee’s own bank account. Therefore, the basis for invoking section 69A of the Act in respect of cash withdrawals in our view is misplaced given the facts and circumstances of the case. Accordingly, we uphold the order of the FAA deleting the addition of Rs.3,44,35,116/- made u/s.69A of the Act. The grounds raised by the Revenue are dismissed.

CO No.4/CHNY/2026

9. In the cross objection, the assessee has raised a legal ground challenging the validity of the reopening of assessment u/s.148 of the Act. Since the Ld.AR did not press the said ground at the time of hearing, the same is dismissed as not pressed.

10. In the result, the appeal filed by the Revenue and the cross objection preferred by the assessee are dismissed.

Order pronounced in the open court on 10^th July, 2026 at Chennai.