Gold Loan Account Records and Bank Records validates Gold Loan Business: ITAT deletes Addition of Cash Withdrawals u/s 69C [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal ( ITAT ) deleted addition of cash withdrawal under Section 69C of the Income Tax Act, 1961, observing that the documentary evidence including gold loan records validated gold loan business, thus there is no unexplained nature in the withdrawal.

The assessee-appellant, Mahendra Singh Dasana, 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 the AO, withdrawals amounting to Rs. 3,06,20,143/- were unaccounted, ignoring the explanations offered by the assessee regarding his business model and records. The Department Representative (DR), Annavaram Kosuri Sr. AR, relied upon the orders passed by the revenue authorities, asserting that the assessee could not substantiate the arguments raised by him before the concerned authorities. Thus, upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

The Assessee Representative (AR), Vimal Pnmiya 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/-.

The 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.

The Bench comprising Sandeep Gosain (Judicial Member) and Girish Agrawal (Accountant Member) 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.

The Tribunal noted that the 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.

The bench observed that mere cash withdrawals from disclosed bank accounts cannot constitute income unless the AO establishes 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 the revenue authorities to refute the genuineness of the transactions or the income pattern disclosed by the assessee, noted the tribunal

The second appellate authority said 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.”

While noting that the AO erred in adding the withdrawals as credit entries, it tribunal said that addition of cash withdrawals as income is factually incorrect, legally untenable and are therefore directed to be deleted.

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