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Facts
The assessee, a financial consultant, arranged loans for his clients and charged a commission. The Revenue treated significant deposits in client accounts as the assessee's unexplained income. The assessee provided detailed documentation for these transactions.
Held
The Tribunal held that the assessee had discharged the onus under Section 68 by providing cogent documentary evidence establishing the identity, creditworthiness, and genuineness of the client accounts and transactions. The Revenue failed to provide contrary material.
Key Issues
Whether the deposits in client accounts, arranged by the assessee, constituted the assessee's unexplained income under Section 68 of the Income Tax Act.
Sections Cited
250, 68, 131, 143(3), 69A, 144, 147, 148
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Date of Hearing 29.09.2025 Date of Pronouncement 25.11.2025 ORDER Per Bench.:
These four appeals have been filed by the assessee challenging the different impugned orders passed under section 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC) / CIT(A) for the assessment year 2013-14 to 2016-17.
Since all the issues involved in these four appeals are common and identical, therefore, they have been clubbed, heard together and consolidated order is being passed forthe sake of convenience and brevity. We shall take ITA
2 Rakesh Jayantilal Shah, Mumbai. No.3168/Mum/2025, A.Y 2016-17as lead case and facts narrated therein.
The assessee has raised the following grounds of appeal: 1. The Ld. CIT(A) erred in confirming the addition of Rs. 9,87,67,850/- treating the same as unexplained cash credit u/s 68 of the Act.
2. The Ld. CIT(A) erred in confirming the addition of Rs. 28,10,058/- being commission charges @ 3%
All the grounds raised by the assesse are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in confirming the addition made by the AO u/s 68 of the Act on account of treating the sum of Rs. 9,87,67,850/- as unexplained cash credit and Rs. 28,10,058/- being commission charged @ 3%. Therefore we have decided to adjudicate the same through the present consolidated order.
We have heard the counsels for both the parties, perused the material placed on record, judgements cited before us and also the orders passed by the revenue authorities. From the records we noticed that as per the facts of the present case, the assessee is a financial consultant, since last 25 years earning income from interest earned by his clients through him at specified rates as the Assessee is arranging and lending loans of his clients to the various parties eue to risk involved in 3 Rakesh Jayantilal Shah, Mumbai. lending and also are unaware of the parties taking loans they are lending money through the assessee. The assessee is charging 0.25% of the total earnings of each client through him. There are 260 / 288 clients for whom the assessee is working. The bank accounts of all the clients were with Saraswat Co-op Bank Ltd where the assessee is also maintaining his account During the year there is no cash transaction by the assessee in any of the clients account, which was verified from the bank statements by the revenue authorities. During the course of assessment proceedings the Assessee had provided the details of all 288 accounts, which are in the names of Assessee’s s clients. The details including Address, Account Nos PAN No, copy of the Bank Pass books, details of deposits in each account, ect were furnished. There is not a single Cash deposit in any of the 288 accounts. All the 288 accounts holders are Assessed to Income Tax by their own individual PAN No in this regard Copies of all the 288 Holders, Income Tax Returns filed were also submitted. The credit in all the accounts are either Interest or Old loan returned and all the above mentioned details with related documents were inpossession of the Income Tax Dept,which makes it closer that the Assessee had provided, explained and proved beyond doubt the source of funds credited in the said 288 accounts. The Assessee was not an owner of the amount deposited in all the 288 bank accounts to the tune of Rs. 9,87,68,850. In this way the owner of the said amounts
4 Rakesh Jayantilal Shah, Mumbai. were 288 persons, whose financial consultants was the Assessee. The assessee’s books of accounts does not show any of the above deposits. All the account holders have accounted in their books of accounts all their respective deposits. Apart they have also accounted for the interest generated on the same and shown interest earned as their respective income in their individual income tax returns and paid taxes on the same.
In order to examine the veracity of the transactions in these 288 accounts, summons u/s 131 of the Act were issued to Rakesh Jayantilal Shah and his statement was recorded u/s 131 of the Act on 13.03.2020, wherein he had been examined with respect of the nature of the transactions carried out by him. In response to the same, he had submitted that he acted as a mediator for arranging the loans to the entities, through which, he earned commission income. He was also examined to explain the modus operandi followed by him in arranging the loans to various parties.
After having heard the counsels for both the parties at length, we found that the statutory onus u/s 68 of the Act requires the recipient of credited sums to explain the identity of the creditor, the creditor’s capacity to advance the funds, and the genuineness of the transactions. In the present case, the assessee has fully and plainly met this burden by producing
5 Rakesh Jayantilal Shah, Mumbai. contemporaneous, third-party documentary evidence that directly links each credited amount to identifiable and taxable persons, and by explaining the commercial purpose and mechanics of the transactions.
As for as the Identity is concern, the same stands established on the face of the record, as for the years under appeal, the assessee had produced a complete, client-wise register showing the names, PANs, bank account numbers and account opening particulars for 288 clients (260 clients for AYs 2013–14 and 2014–15). Copies of each client’s PAN card, their income-tax returns and their bank passbooks / statements are on file and demonstrates that the credits recorded in the joint accounts were the receipts of identifiable third parties. These documents proves that the sums credited were not anonymous entries but were traceable to real persons whose tax identities are known to the Department.
The Creditworthiness had been established by the same contemporaneous material as the clients’ ITRs, balance-sheet extracts or capital-account statements (where available), and bank passbook histories show recurring receipts, interest credits and other transactions consistent with the capacity to hold and deploy the sums in question. Many clients maintained prior positive bank balances and regular inflows; the sample verifications carried out during the 143(3) scrutiny further confirmed that these persons
6 Rakesh Jayantilal Shah, Mumbai. had the means to invest or lend the sums. The documentary trail therefore demonstrates that the creditors could and did lawfully hold the amounts credited to their accounts.
The Genuineness of the transactions is shown by the objective banking record, third-party tax filings and independent confirmations. The bank passbooks reflect the flow of funds deposits, renewals and withdrawals and show that interest was credited and, where applicable, redeployed or repaid. The clients’ ITRs corroborate that they declared interest arising on these deposits in their own returns. During the 143(3) scrutiny a sample of clients were summoned and their statements recorded; those statements corroborated the arrangements and the fact that funds belonged to the clients and were not accommodation entries in favour of the assessee. Taken together, the bank records, tax filings and recorded confirmations form a consistent, contemporaneous narrative establishing the reality of the transactions.
Therefore in such a circumstances, when once the assessee discharged this tri-partite burden by producing clear documentary evidence on identity, capacity and genuineness, the evidentiary onus shifted to the Department to bring forward positive material impeaching those documents or proving that the creditors lacked capacity or that the transactions were sham. In the present case the Revenue had not produced any cogent
7 Rakesh Jayantilal Shah, Mumbai. material that invalidates the client documents. The Department’s reliance on general investigatory notes or on untested statements without providing the assessee an opportunity to address or cross-examine underlying witnesses does not constitute a satisfactory rebuttal of the documentary proof already on record.
The position is identical across the years because the factual matrix is the same. For A.Y. 2013–14 and 2014–15 the accounts involved 260 parties; for A.Y. 2015–16 and 2016–17 the set comprises 288 parties. For each year the same pattern of client identity, bank routing, interest credits and client tax filings repeats. The detailed 143(3) scrutiny for A.Y. 2016–17, where the AO examined sample client files, issued summonses and recorded client statements, accepted the assessee’s modus operandi and assessed only commission income; that contemporaneous fact-finding is highly probative for the other years that share the common documentary landscape.
The Department’s contrary approach treating the credited sums as the assessee’s unexplained income ignores both the documentary reality and the commercial structure of the transactions. Treating deposits in third- party accounts as the assessee’s receipts requires positive material showing that those sums actually belonged to the assessee; vague allegations, suspicion, or reliance on a mechanical ledger-tabulation without testing the documentary proof cannot justify an addition. The Revenue
8 Rakesh Jayantilal Shah, Mumbai. must point to specific defects (for example, forged PANs, non-existent bank records, contradictory client statements or evidence that the so-called creditors lack any capacity) before treating the credits as the assessee’s income. No such incriminating material exists in the present record; on the contrary, the independent client returns and bank records consistently support the assessee’s explanation.
Even otherwise the Additions made in the hands of the Second holder / Joint holder in bank account are not sustainable in law, in this regard the reliance is being placed upon the following judicial precedents:
Sr. Citation Pronouncements no. 1. [2005] 142 Section 69A of the Income-tax Act, 1961 - TAXMAN 76 (NAG.) Unexplained money - Assessment year 1994-95 - (MAG.) Assessee had paid back certain loan which was ITAT NAGPUR considered to be beyond his means - While BENCH explaining source of funds for repayment of loan, INCOME-TAX assessee filed an abstract of bank account of his OFFICER sister ‘Y’ - Assessing Officer found that said V. account stood in joint names of ‘Y’ and assessee PRAVIN and there were deposits and withdrawals of Rs. RAMKRISHNA 8,50,000 in that account - Assessee submitted UPGANLAWAR that those moneys never belonged to him but IT APPEAL NO. belonged to ‘Y’ - Assessing Officer noticed that it 340 (NAG.) OF was assessee who had benefit of all those 2001 deposits in joint account and, therefore, treated that amount as belonging to assessee and made addition to income of assessee as unexplained moneys/investment - Commissioner (Appeals) found that funds in joint account did not belong to assessee and that it belonged only to ‘Y’ and accordingly deleted addition - Whether there is no presumption that moneys lying in a joint account
9 Rakesh Jayantilal Shah, Mumbai. with a bank, vis-a-vis third parties other than bank, belong to only one of them or to both equally and it will be a question of fact in each case as to who is real owner of amounts lying in a joint account - Held, yes - Whether, in light of assertion by ‘Y’ that she was owner of moneys lying in joint account, which was not denied but affirmed by assessee, and in view of fact that she was a lady of enough means, there was no basis for making addition in case of assessee - Held, yes 2. [2024] 160 Where cash deposit were made by assessee in taxmann.com savings bank account which was jointly held 1020 (Raipur - by him and his father, since said bank Trib.) image account and interest income accrued on same was duly disclosed by assessee's father IN THE ITAT in his return of income, no addition could be RAIPUR BENCH made in hands of assessee in respect of cash Alok Keswani deposit in said bank account by treating v. same as unexplained cash credit under Income-tax section 68. Officer Section 68, read with sections 144 and 147, of the IT Appeal No. 202 Income-Tax Act, 1961 - Cash credit (Bank (RPR) OF 2022 deposits) - Assessment year 2011-12 - Assessee had made cash deposit of substantial amount in his savings bank account but had not filed any return of income - Assessing Officer thus, initiated proceedings under section 147 - However, assessee failed to comply with notice issued under section 148 - Accordingly, Assessing Officer made addition of entire amount of cash deposits in bank account of assessee as unexplained cash credits under section 68 - It was noted that said savings bank account was a joint account held in name of assessee and his father - Also assessee had provided documents like copy of return of income, balance sheet, capital account of his father which revealed that said bank account and interest income accruing on same had been accounted for/offered for tax in hands of assessee's father, i.e. primary account holder - Whether in absence of any material proving to contrary there was no justification for Assessing
10 Rakesh Jayantilal Shah, Mumbai. Officer to have made addition of cash deposits made during year in said bank account as unexplained cash credits under section 68 in hands of assessee - Held yes - Whether furthermore, since assessee had adopted a lackadaisical approach and failed to participate in course of assessment proceedings, matter was to be restored to file of Assessing Officer for limited purpose of verifying correctness of claim of assessee - Held, yes [Para 10]
Therefore considering the totality of the facts and 14. circumstances as discussed by us above and also taking into consideration the decisions discussed and referred above, we are of the view that the assessee had produced cogent and complete documentary evidence establishing the identity, creditworthiness and genuineness of the client accounts and the transactions therein. Since the Assessee’s income is limited to a small commission (0.25% of interest), consistently declared. Thus the AO’s method of taxing deposit corpus and applying arbitrary percentage multipliers is neither factually correct nor legally sustainable; as it leads to double taxation and ignores debit/repayment cycles and accepted accounting logic. Therefore the additions are directed to be deleted in all the years under appeal.
(A.Y: 2015-16) (A.Y: 2014-15)
11 Rakesh Jayantilal Shah, Mumbai. (except variance in figures) and the decision rendered in above paragraph would apply mutatis mutandis for these appeals also. Accordingly, the grounds of appeal of the present appeals also stands allowed.
In the result, all the appeals filed by the assessee are stands allowed.
Order pronounced in the open court on 25/11/2025