ITO Khanna v Dharminder Kumar: ITAT Chandigarh on Section 69C Cash Withdrawal & Section 148A Verification

In ITA No. 1084/CHANDI/2024, the Income Tax Appellate Tribunal at Chandigarh affirmed the deletion of a Rs. 2,11,80,491 addition that the Assessing Officer had made by treating a cash bank withdrawal as "unexplained expenditure" under Section 69C of the Income Tax Act, 1961. The case turns on two interlocked failures found by both the first appellate authority and the Tribunal: the AO invoked Section 69C without any factual basis for treating the withdrawal as unexplained, and the reassessment proceedings under Section 148A were initiated mechanically on unverified data from the Insight Portal, without carrying out the independent verification that Section 148A mandates. For in-house tax teams and practitioners who advise clients on money-exchange or commission-based businesses, this order illustrates how both the substantive addition and the procedural gateway to reassessment were simultaneously impugned and successfully challenged.

This page is a research summary of one specific Indian tax judgment, NOT legal advice. Always verify against the full judgment and consult a professional for case-specific guidance.

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The case at a glance

• Parties: Income Tax Officer, Ward-1, Khanna vs Dharminder Kumar, Ludhiana
• Bench: Income Tax Appellate Tribunal - Chandigarh
• Date: 17 March 2025
• Court level: Tribunal (ITAT)
• Sections engaged: 148A, 69C
• Outcome: Taxpayer succeeded — the Tribunal's dispositive line reads: "The appeal stands allowed."

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Facts of the case

Dharminder Kumar, resident of Khanna (Ludhiana district), filed his return of income for Assessment Year 2018-19. Acting on information that had been pushed into the Insight Portal, the Assessing Officer (ITO, Ward-1, Khanna) reopened the assessment and framed an order under Section 144 read with Section 147 of the Act on 18 February 2024. In that assessment order, the AO noted that the assessee had made a cash withdrawal of Rs. 2,11,40,000 from Union Bank of India. Treating this withdrawal as unexplained expenditure under Section 69C and in the absence of any demonstrated unexplained expenditure, the AO added the entire withdrawal amount and taxed it under Section 115BBE. Commission income earned by the assessee was assessed under the head "Income from Other Sources."

The assessee appealed to the Commissioner of Income Tax (Appeals), NFAC. During the course of that appeal, the matter was remanded to the AO for a fact-finding report. In the remand report, the AO himself confirmed that the assessee was engaged in the money exchange business on a commission basis and had earned commission income from that activity. The CIT(A), vide order dated 3 September 2024, allowed the appeal and directed deletion of the entire addition of Rs. 2,11,80,491.

The Revenue then approached the Tribunal in ITA No. 1084/CHANDI/2024, challenging the CIT(A)'s order. The appeal was heard on 12 March 2025 before the "A" Bench, Chandigarh, comprising Vice President Shri Rajpal Yadav and Accountant Member Shri Manoj Kumar Aggarwal.

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Issues raised

• Whether cash withdrawn from a bank account — where the assessee's engagement in money exchange business on commission basis was on record — could be treated as "unexplained expenditure" within the meaning of Section 69C.
• Whether the AO had carried out the verification required under Section 148A before reopening the assessment, or had merely acted on information pushed into the Insight Portal without independent inquiry.
• Whether the addition was made by invoking the correct provisions of the Income Tax Act on correct facts, or was based on incorrect facts recorded mechanically.

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What the court held

The Tribunal dismissed the Revenue's appeal and confirmed the CIT(A)'s deletion of the addition. The operative disposition, appearing at the close of the order, reads: "The appeal stands allowed" — affirming the outcome in the assessee's favour and against the Revenue's challenge.

On the Section 69C ground, the Tribunal endorsed the CIT(A)'s conclusion that the cash withdrawal from Union Bank of India could not be treated as unexplained expenditure. The remand report filed by the AO himself had established that the assessee was engaged in the money exchange business on a commission basis. Given this confirmed factual position, there was no unexplained expenditure that could attract Section 69C; the withdrawal was explicable in the context of the assessee's business activity.

On the Section 148A ground, the Tribunal upheld the CIT(A)'s finding that the AO had "reopened the assessment blindly on the basis of some information pushed into the Insight Portal without carrying out any verification u/s 148A and mechanically recorded the reasons for reopening the assessment." The Tribunal further noted that the addition had been made by "invoking wrong provisions of the Income Tax Act by recording incorrect facts and without carrying out any further verification of additions made u/s 148A of the Act." Both the substantive infirmity (wrong section applied on wrong facts) and the procedural infirmity (mechanical reopening without verification) independently supported the deletion.

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Strategy observations

1. The remand report proved decisive on facts. During the CIT(A) proceedings, a remand to the AO elicited a report in which the AO confirmed the assessee's money exchange and commission income activity. That confirmation, coming from the Revenue's own officer, formed the factual foundation on which both the CIT(A) and the Tribunal held that Section 69C was inapplicable.

2. The Section 148A gateway was independently challenged. An additional ground was raised — and sustained — that the reassessment proceedings themselves were defective because the AO had not carried out the verification that Section 148A requires before initiating reopening. The Tribunal disposed of the appeal by affirming both the substantive deletion and the procedural invalidity of the reopening.

3. The addition of Rs. 2,11,80,491 was the Revenue's own figure; the CIT(A) found actual withdrawal was Rs. 1,05,70,000. The source order records that the CIT(A) noted the cash withdrawal was only Rs. 1,05,70,000, while the AO had added Rs. 2,11,40,000 (approximately) as assessed — pointing to an additional factual error in the assessment order itself.

4. Section 115BBE application was tied to the Section 69C addition. Because the addition under Section 69C itself was deleted, the consequential taxation under Section 115BBE also fell away, as the penal rate under that provision applies to income of the nature referred to in Section 69C.

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Why this case matters

This order is significant for two reasons that frequently arise together in reassessment litigation. First, it reinforces the principle that Section 69C operates only where the expenditure is genuinely "unexplained" — a section dealing with unexplained expenditure cannot be mechanically applied to bank withdrawals when the assessee's business activity that explains those withdrawals is itself confirmed by the Revenue's own officer in a remand report. Second, and perhaps more prominently for practitioners monitoring the post-amendment Section 148A jurisprudence, the Tribunal's affirmance of the CIT(A)'s finding that the AO acted "blindly" on Insight Portal data without independent verification underscores that the pre-notice inquiry mandated by Section 148A is not a formality. Mechanical reliance on portal-generated information, without carrying out verification of the underlying facts, was held to vitiate the reopening at its root.

For researchers tracking patterns in ITAT Chandigarh's treatment of reassessment challenges, this order — decided in March 2025 for AY 2018-19 — sits within a broader line of rulings examining whether AOs are conducting the inquiry that Section 148A requires rather than treating portal alerts as self-sufficient triggers for reopening.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/175535393/