Case Law Details
Mahendra Singh Dasana Vs ITO (ITAT Mumbai)
No addition of cash withdrawals u/s 69C for gold loan intermediary business as there was documentary evidence for Gold Loan Business: ITAT Mumbai
Conclusion: Addition of cash withdrawal under Section 69C in relation to the legitimate gold loan intermediary business was not justified observing that the documentary evidence including gold loan recorded validated gold loan business, thus there was no unexplained nature in the withdrawal.
Held: Assessee was an individual engaging in the business of short-term mortgage loans against gold ornaments as security, had availed gold loans from the Federal Bank by pledging ornaments received from customers and advanced the funds to borrowers or original gold owners at a higher interest rate. According to AO, withdrawals amounting to Rs. 3,06,20,143/- were unaccounted, ignoring the explanations offered by assessee regarding his business model and records. Revenue relied upon the orders passed by authorities, asserting that assessee could not substantiate the arguments raised by him before the concerned authorities. Thus, upheld by CIT(A). Assessee authenticated such cash withdrawals in relation to the legitimate gold loan intermediary business. The exhibited loan ledgers, cash books, gold loan statements, and receipts from borrowers recorded the 103 loans totaling Rs. 2,15,03,000/- with repayments of Rs. 1,65,63,000/-. Assessee had two bank accounts, one his sole account where the actual cash withdrawals amounted only Rs. 89,12,916/- and not Rs. 3,06,20,143/-, the remaining transactions pertaining to the other account, jointly held with father Mohansingh Dasana, whose transactions were recorded in his father’s books. The earned interest margin amount to Rs. 4,91,010/- was the income of the business model, duly reflected. It was held that Tribunal examined the nature of the gold loan business, bank statements, gold loan accounts, borrower ledgers, customer confirmation letters, alongside other supporting documents furnished by the assessee. Tribunal noted that assessee operated in the gold loan business as an intermediary. The source of cash withdrawals and their utilization was clearly verifiable referring to the documents. Mere cash withdrawals from disclosed bank accounts could not constitute income unless AO established they represent unexplained or unaccounted income. The withdrawals had an established business purpose and were supported by bank entries and matching customer loan records. There was no evidence brought forth by Revenue authorities to refute the genuineness of the transactions or the income pattern disclosed by assessee. AO erred in adding the withdrawals as credit entries, Tribunal said that addition of cash withdrawals as income was factually incorrect, legally untenable and were therefore directed to be deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been filed by the assessee challenging the impugned order dt. 28.11.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2017-18.
2. The only ground raised by the assessee relates to challenging the order of Ld. CIT(A) in upholding the additions made by AO u/s 69C of the Act. In this regard Ld.AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before the revenue authorities. It was submitted that the order of assessment passed by AO thereby making additions u/s 69C of the Act is bad in law as the additions are based on ‘unexplained cash withdrawals’ from the appellant account which was treated as ‘unexplained income’. It was further submitted that the cash withdrawals were related to his business of providing mortgage loans against gold ornaments and in order to further explain the said model of business. It was pleaded that the assessee used to take gold loans from Federal Bank against gold ornaments provided by the customer, and advanced these funds to customers at a ‘higher rate’ and in this way the interest differential constituted his income, which was duly reflected by the assessee in his return. It was further submitted that the assessee provided bank statements and loan details to substantiate his claims thereby showing 103 loans taken during the year totaling Rs. 2,15,03,000/-, with repayment of Rs. 1,65,63,000/-. Ld. AR clarified that one of the bank account bearing No. 16220200003420 was a joint account with his father, Shri Mohansingh Dasana having PAN No. AACPD1463C and the transactions in that account were recorded in his father’s books of account. As per the factual position the actual cash withdrawals from his sole account bearing No. 162210002597 were only Rs. 89,12,916/- and not Rs. 3,06,20,143/- as mentioned by the AO in the order of assessment.
3. It was further submitted that Ld. CIT(A) has not considered or taken into consideration the documents filed by the assessee in order to substantiate its ground and made the additions only on the basis of orders passed by the Ld.AO. In support of his arguments Ld. AR relied upon the following judgments:
1. Sanjeet kanwar Vs. ITO [2022] 143 taxmann.com266 (Amritsar – Trib)
2. CIT vs. Rohini Builders 256 ITR 36
3. ITI Vs. Amit K. Shah [2016] 71 com256 (Ahd – Trib)
4. Swati Malove Divetia Vs. ITO
5. CIT Vs. Kulwant Rai (2007) 291 ITR 36 (Del)
6. DCIT Vs. Smt. Veen Awasthi ITA No. 215/LKW/2016
7. Neeta Breja Vs. ITO, ITA No. 524/Del/201 7
8. Jaspal Singh Sehgal Vs. ITO, ITA No. 5590/Mum/2012
9. ASR Engg. & Projects Ltd. Vs. DCIT
10. Sukhnandan Premi, Vs. Department of Income Tax
11. Manoj Chourasia Vs. Department of Income Tax
12. Shri Prabhat Sojatia Vs. ACIT
4. On the contrary Ld. DR relied upon the orders passed by the revenue authorities and submitted that the additions in the case of the assessee were rightly made and upheld by the Ld. CIT(A) as the assessee could not substantiate the arguments raised by him before the revenue authorities.
5. We have heard the counsels for both the parties and perused the material placed on record, judgments cited before us and also the orders passed by the revenue authorities. The only ground for adjudicating before us is challenging the additions made by AO u/s 69C of the Act, in this regard after evaluating the entire facts of the present case we noticed that the assessee is an individual and engaged in the business of financing short term mortgage loans against the security of gold ornaments. The nature of his business involves facilitating credit to customers who pledge their ornaments for a fixed period, against which the assessee provides funds out of loans taken by mortgaging those same ornaments with a scheduled bank.
6. After appreciating the facts of the present case, we noticed that assessee neither trades in gold, nor operates as a dealer in financial instruments, instead, his business model revolves around sourcing funds through gold backed bank loans and deploying those funds to customers at a ‘higher interest rate’ to earn a spread.
7. Further during the financial year relevant to the assessment year, the assessee advanced multiple gold backed loans to customers on an interest basis. And the working business model of the assessee starts by taking Gold ornaments from various customers who sought financial assistance. Then these ornaments were then pledged with Federal Bank, which sanctioned individual gold loans to the appellant. Upon disbursement of the loan amount by the bank, the appellant would withdraw cash from his bank account and use the same to advance loans to the original gold owners or other borrowers. In this way the appellant earned income in the form of interest margin the difference between the rate charged to customers and the interest paid to the bank.
8. The above business model of the assessee has been reflected by him in the financial records including interest income, bank statements, gold loan accounts and receipts from borrowers. In order to substantiate his arguments, the assessee has taken our attention to the documentation maintained by him in the form of borrower ledgers, bank statements and gold loan account statements and after evaluating the same we noticed that the income generated from this activity consisted “solely of the net interest margin” i.e the difference between the interest earned from customers and the interest paid to the bank on the gold loans.
9. Although, the assessee was maintaining two bank accounts and out of these two accounts one of the bank account of Federal bearing No. 16220100025697 was solely operated by the assessee and another bank account bearing No. 16220200003420 jointly held with his father Mr. Mohansingh Dasana which was operated and recorded in the books of the father. From the records we also noticed that the cash withdrawals from the account operated by the assessee account approximately Rs. 89,12,916/- which according to assessee were withdrawals of sanctioned gold loans from the bank, intended to be passed on to customers against gold mortgage. We also noticed that assessee had filed his return of income declaring income of Rs. 4,91,010/- which comprised of net interest income from the above financing activity which computed as under:
a. Total interest received from customers: 9,79,773
b. Less: Interest paid to Federal Bank: ₹4,81,384
c. Add: Valuation charges paid to bank: ₹7,334
d. Net income: ₹4,91,055
10. Although the gold loan statements, copies of repayment receipts, customer ledger accounts, and confirmations from borrowers were maintained and furnished by the assessee but were not adequately considered during the assessment proceedings.
11. CIT(A), while adjudicating the appeal, failed to appreciate the core nature of the assessee’s business, which is that of a gold loan intermediary operating under a well-defined and documented process. The lower authorities also disregarded the consistent accounting trail, including bank entries, gold loan ledgers, and customer confirmation letters. Even no contrary material was brought on record by the AO to disprove the genuineness of the gold loan transactions or the income pattern disclosed by the assessee
12. In our view, even the business conducted by the appellant does not violate Section 269SS or Section 269T of the Act, as the funds borrowed were from a bank via formal gold loan products, and repayments were also being made through banking channels and there were no cash loans taken or repaid to the individuals in violation of the said sections.
13. Therefore we are of the view that the addition u/s 69C of the Act is unsustainable both on facts and in law, as the source of the cash withdrawals (i.e., sanctioned gold loans from Federal Bank) and the utilization of the same (advancing loans against gold to customers) is clearly identifiable, supported by documents, and properly reflected in the appellant’s books of account and tax return. Therefore, the addition on account of unexplained expenditure is liable to be deleted. In our view the AO had made a grossly erroneous assessment thereby treating all bank withdrawals as ‘unexplained expenses’ u/s 69C of the Act, without correlating them to the actual business cycle of mortgage-based lending and despite availability of supporting documents.
14. We are of the view that Ld. CIT(A), while confirming the addition, has failed to acknowledge The business model in place. That sufficient documentation was provided during the appellate stage, including gold loan statements and customer receipts. That Section 69C cannot be applied to cash withdrawals that have an established business purpose and are supported by bank entries and matching customer loan records.
15. The above table of documentary evidences clearly demonstrates that the appellant’s business activities were legitimate, well-documented, and properly accounted for. Each document submitted during the course of proceeding supports a specific aspect of the appellant’s lending business-ranging from sanctioned gold loans, bank transactions, and loan disbursements to interest income and customer confirmations. The segregation of bank accounts, cash flow records, and transaction-level details in the paper book establishes the nexus between funds withdrawn from the bank and their onward lending against gold security. Therefore comprehensive documentation effectively rebuts the presumption of unexplained expenditure u/s 69C and affirms that the appellant’s operated a structured mortgage loan business, with proper compliance and record-keeping.
16. While reaching to this conclusion, we draw strength from the decision of the Coordinate Bench of ITAT in the case of Abhishek Bipinbhai Naik Vs. ITO in ITA No. 12/Sur/2023, wherein the operative portion of the said order is reproduced herein below:
(Where cash amount deposited by assessee in its bank account was immediately transferred to accounts of two companies to which assessee was distributor and acting as a commission agent for promotion, marketing and distribution of various products through RTGS/NEFT and these cash deposits were related to business activities of assessee associated with said two companies, impugned addition made under section 69A in respect of said cash was not justified
deposit Section 69A of the Income-tax Act, 1961 Unexplained moneys (Cash deposit during demonetization) – Assessment year 2017-18 Assessee made cash deposit in his two bank accounts during demonetization period Assessing Officer in absence of any explanation by assessee about source of cash deposits with supporting evidence treated entire amount as unexplained and brought same to tax under section 69A Commissioner (Appeals) also upheld said additions It was noted that perusal of bank account of assessee clearly showed that cash amount deposited by assessee was immediately transferred to accounts of two companies to which assessee was distributor and acting as a commission agent for promotion, marketing and distribution of various products through RTGS/NEFT Assessee had also filed copy of agreement, bank account, AS-26 details which were not examined Thus, based on these transactions cash deposits in bank accounts of assessee were related to its business activities associated with said two companies and they were not abnormal as compared to earlier periods However, Commissioner (Appeals) had not examined business activities of assessee – He sustained additions without seeking remand report from Assessing Officer or investigating facts independently Whether, on facts, impugned addition under section 69A made by Assessing Officer was to be deleted Held, yes [Para 10] [In favour of assessee].
17. We are further of the view that mere cash withdrawals from the bank account cannot be treated as income in the hands of the assessee unless the AO establishes that such withdrawals represent unexplained or unaccounted income. As per the facts of the present case, the appellant has withdrawn cash from his own disclosed bank account with Federal Bank (A/c No. 16220100025697), and these withdrawals are fully recorded in the appellant’s regular books of account. We are also of the view that there is no provisio under the Income-tax Act, 1961, that authorizes the addition of cash withdrawals as income unless it is proved that such withdrawals represent ‘unexplained expenditure’ under section 69C or unrecorded receipts u/s 68 or 69 of the Act.
18. Further, it is a settled principle of law that cash withdrawal by itself does not constitute income, as it is merely a movement of funds from a disclosed asset (bank balance) to another (cash in hand). The amount withdrawn was sourced from sanctioned gold loans from the bank, and such source of funds is not in dispute. The AO has not proved that the cash withdrawn was used for any expenditure not recorded in the books or that it represents suppressed turnover or unaccounted receipts. Therefore, in our view invoking of Section 69C of the Act in the absence of any evidence of ‘unexplained expenditure’ is incorrect and contrary to settled judicial precedents.
19. Moreover the AO also erred in adding the withdrawals as credit entries should also be considered for adding debit entries. Debit entries cannot be looked into in isolation ignoring credit entries.
20. We noticed that in the appellant’s case, the withdrawals were used for advancing loans to customers against the security of gold ornaments, as part of a regular business activity. All supporting documents including loan ledgers, cash books, gold loan statements, and receipts from borrowers have been submitted. Therefore, considering the totality of the facts and circumstances of the present case, we are of the view that addition of cash withdrawals as income is factually incorrect, legally untenable and are therefore directed to be deleted.
21. In the result the appeal filed by the asses see stands allowed.
Order pronounced in the open court on 04.08.2025
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