No Enquiry With Bank, Yet ₹50 Lakh Treated as ‘Cash Loan’? ITAT Deletes Section 69A Addition

Bansi Fashion Private Limited Vs ITO (ITAT Mumbai)

No Enquiry With Bank, Yet ₹50 Lakh Treated as ‘Cash Loan’? ITAT Deletes Section 69A Addition

In a significant ruling, the Mumbai ITAT deleted a ₹50 lakh addition u/s 69A, holding that when loan transactions are fully supported by bank statements, ledger accounts and bank confirmations, the department cannot arbitrarily allege “cash loans” merely based on third-party search information.

The case arose from search proceedings conducted in the Surana Group, where certain materials allegedly indicated that Bhagwati Marketing Co. had received cash loans from various parties including the assessee company. Based on this information, the AO alleged that the assessee had advanced a cash loan of ₹50 lakh to Shri Narendra G. Somani.

However, the assessee consistently maintained that no cash loan was ever advanced and that the entire transaction of ₹1 crore was routed through proper banking channels. The assessee explained that out of the ₹1 crore advanced, ₹50 lakh was repaid during the same year and the balance ₹50 lakh remained outstanding, on which regular interest income was being earned and offered to tax.

To substantiate its case, the assessee produced ledger extracts, bank statements, transaction details, and even confirmations from the borrower. The ITAT noted that the bank statements clearly reflected two loan transfers of ₹50 lakh each through banking channels on 09.04.2014 and 10.04.2014, along with repayment entries.

The AO and CIT(A), however, rejected the evidence mainly on the ground that the bank statement did not expressly mention the borrower’s name against the entries.

The Tribunal strongly disapproved this approach and observed that if the AO genuinely had doubts regarding the bank entries, the minimum expected was to conduct enquiry with the concerned bank. Instead, the AO rejected the evidence without making any proper verification.

Importantly, the ITAT noted that Tamil Nadu Mercantile Bank itself had subsequently confirmed that the debit entries represented payments made to Bhagwati Marketing Co.. This confirmation completely fortified the assessee’s case that the transactions were through RTGS/cheque and not in cash.

Accordingly, the Tribunal held that the assessee had successfully established the source and genuineness of the loan transaction through documentary evidence and therefore the addition u/s 69A was unsustainable. The AO was directed to delete the ₹50 lakh addition.

On a separate issue regarding reversal of provision for interest income of about ₹9.47 lakh, the ITAT restored the matter back to the AO for factual verification regarding whether the interest had already been offered to tax in earlier years and whether it was actually received.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

Captioned appeal by the assessee arises out of order dated 08.10.2025 passed by National Faceless Appeal Centre (‘NFAC’ for short), Delhi for the assessment year (A.Y. for short) 2023-24.

2. In ground no. 1, the assessee has challenged the addition of an amount of Rs.50 lacs u/s. 69A of the Income Tax Act, 1961 (‘the Act’ for short). Briefly the facts are, the assessee is a resident individual. For the assessment year under dispute, the assessee filed its return of income on 09.10.2026, declaring income of Rs.2,19,50,280/-. The return of income filed by the assessee was selected for scrutiny.

3. In course of assessment proceeding, the Assessing Officer (A.O. for short) found that as per information available on record, during a search and seizure operation conducted in case of Surana Group, whereunder the residential premises of one Shri Payag H. Dugar was also covered, material found revealed that Shri Narendra G. Somani, proprietary of Bhagwati Marketing Co. received loans aggregating to Rs.8.03,25,000/-, one of the lenders being the assessee, who allegedly advanced cash loan of Rs.50 lacs. He, therefore, called upon the assessee to prove the source of cash loan advanced to Shri Narendra G. Somani. In response to the query raised, the assessee furnished its reply stating that in total the assessee had advanced loan of Rs.1 crore to Shri Narendra G. Somani through proper banking channel. It was submitted, one of the loan advanced to Shri Narendra G. Somani had repaid an amount of Rs.50 lacs in the same year in which loan was advanced and balance Rs.50 lacs is still outstanding. The assessee further stated that he is receiving interest on the outstanding loan amount which is reflected as income. In support of such contention, the assessee furnished various documentary evidences including ledger copy, bank statements, etc. The A.O., however, remained unconvinced. He observed that the bank statement did not clearly reflect to whom the amount of Rs.1 crore was paid. Ultimately, he concluded that the source of cash loan advanced by the assessee to the tune of Rs.50 lacs remains unexplained. Thus, invoking the provision of section 69A of the Act, he added back the amount at the hands of the assessee. Though, the assessee contested the addition before the first appellate authority, however, he was unsuccessful.

4. Reiterating the stand taken before the departmental authorities, ld. Counsel appearing for the assessee submitted that the assessee had not advanced any loan in cash. He submitted, total loan of Rs.1 crores was advanced to Shri Narendra G. Somani, out of which an amount of Rs.50 lacs was repaid back in the year in which loan was advanced and balance Rs.50 lacs remains outstanding. He submitted, the assessee is receiving interest on the outstanding loan and offering it to tax. In this context, he drew our attention to the ledger of Bhagwati Marketing Co. in assessee’s books and assessee’s ledger in books of Bhagwati Marketing Co. Drawing our attention to copy of the bank statement kept in the paper book, he submitted, the loan was advanced through cheque/RTGS and the part loan repayment was also through cheque and reflected in the bank account. He submitted, on the outstanding loan of Rs.50 lacs, the assessee has been receiving interest at Rs.62,500/-per month and offering it to tax. He submitted, even the borrower has confirmed the loan transaction. He submitted, the reasoning of the departmental authorities that the bank statement does not clearly indicate advancement of loan to Bhagwati Marketing Co. is totally wrong, as in response to a letter of the assessee, the bank has confirmed that the debit entries of Rs. 1 crore are loan advanced to Bhagwati Marketing Co. Thus, he submitted, the assessee having proved the source of the loan transaction, no addition can be made.

5. Departmental Representative (ld. DR for short) strongly relied upon the observations of A.O. and ld. First appellate authority.

6. We have considered rival submissions and perused the materials on record. The point of dispute between the parties is the alleged cash loan of Rs.50 lacs to Shri Narendra G. Somani stated to be the proprietor of Bhagwati Marketing Co. While the department, based on some search related information, has alleged that the assessee has advanced cash loan of Rs.50 lacs, it is the say of the assessee that no cash loan was advanced and the entire loan transaction was through proper banking channel. As could be seen from the facts on record, in course of assessment proceedings, the assessee did furnish ledger extract of the loan transaction with Bhagwati Marketing Co., copies of the bank statements to prove that the loan transactions was through banking channel. On perusal of the bank statement of the assessee, it appears that the assessee had advanced loan of Rs.1 crores in two installments of Rs.50 lacs each on 09.04.2014 and 10.04. 2014. The bank statement further reflects that out of the loan advanced, the assessee received back an amount of Rs.50 lacs in the year in which the loan was advanced. Whereas, loan of Rs.50 lacs remained outstanding. Though, supporting evidences in respect of loan transactions were available before the A.O. and the first appellate authority, apparently, they have disbelieved such evidences on the ground that the entries in the bank statement do not clearly indicate whether the loan was advanced to Bhagwati Marketing Co.

7. It is relevant to observe, in course of assessment proceeding, in response to the query raised by the A.O., the assessee furnished his submissions stating the details of the loan transaction indicating the cheque number, date, the name of bank through which the loan was advanced. The bank statements were also furnished before the A.O. Merely because no response from Bhagwati Marketing Co. was received against the notice issued u/s. 133(6) of the Act, the evidences furnished by the assessee could not have been overlooked. If the A.O. wanted further clarification regarding the entries in the bank statement, the minimum he could have done was to seek necessary information from the concerned bank, which would have clarified all his doubts. Without conducing any enquiry with the bank, the AO has arbitrarily rejected the evidence furnished by the assessee. It is noteworthy, in response to a letter issued by the assessee, the Tamil Nadu Mercantile Bank, through which the loan transaction was done, has confirmed that the debit entries of Rs.50 lacs each in assessee’s bank statements were payments made to Bhagwati Marketing Co. The clarification issued by the Tamil Nadu Mercantile Bank fortifies assessee’s claim that the loan transactions were through banking channel and not in cash, as alleged by the department. Since, the assessee through proper documentary evidences has established the source of loan of Rs 50 lacs advanced to Shri Narendra G. Somani, proprietor of Bhagwati Marketing Co., in our considered opinion, the addition made of Rs.50 lacs u/s.69A of the Act is unsustainable. Accordingly, we direct the AO to delete the addition.

8. In Ground No. 2, the assessee has challenged the addition of Rs.9,47,539/-, being the reversal of provision of interest income.

9. Briefly the facts are, in course of assessment proceeding, the AO, while verifying the return of income and financial statements of the assessee, noticed that the assessee has not offered the interest income of Rs.9,47,539/-. In reply to a query of the A.O., the assessee submitted that he has duly offered interest received of Rs.22,69,816/-. However, he submitted that the provision for interest income made in financial years 2019-20 and 202121, aggregating to Rs.9,49,582/- was never received by the assessee. Hence, the amount was reversed in the current year. The AO, however, did not accept assessee’s claim and added back the amount of Rs.9,47,531/-. The addition so made was confirmed by the ld. first appellate authority.

10. We have considered rival submissions and perused the materials on record. As could be seen from the facts on record, it is the claim of the assessee that the provision for interest income amounting to Rs.9,47,539/- was made in the financial years 2019-20 and 2020-21. However, since the interest amount was not actually received, it was reversed in the current assessment year. In our view, the issue is purely factual. It needs to be examined whether the interest income of Rs.9,47,539/- was offered to tax in any earlier assessment year. In case, the amount was offered to tax as claimed by the assessee and it was actually not received either in those years or even in current assessment year, then assessee’s claim can be accepted. Therefore, the AO is directed to factually verify assessee’s claim and decide the issue accordingly. This ground is allowed for statistical purpose.

11. In the result, the appeal is party allowed.

Order pronounced in the open court on 25.05.2026