SELVARAJ SRIDHAR,CHENNAI vs. DCIT, NON CORP. CIRCLE-8(1), CHENNAI

The brief facts of the case emanating from the records are that the assessee is an individual, engaged in the business of wholesale dealer and del-credere commission agent dealing in onion, potato and vegetables as a proprietor in the name of M/s.S.R.Traders at Koyambedu. The assessee filed his return of income on 11.02.2021 declaring total income of Rs.71,93,010/- for the AY 2020-21. The case was selected for verification under e-verification scheme 2021, wherein the High Risk Cases related to AY 2020-21 were verified. The AO found that the assessee had made cash deposits in two bank current accounts of Rs.3,08,00,000/- in IndusInd Bank Limited and Rs.7,94,46,500/- in Axis Bank account aggregating to Rs.11,02,46,500/-. On the basis of the above information, the AO issued a notice u/s.148 of the Act stating that the income chargeable to tax had escaped the assessment for the AY 2020- 21. In response, the assessee filed the return of income on 15.05.2024 declaring the same total income of Rs.71,93,010/-. Later, the AO issued statutory notices calling for various details and documents including the cash book. The assessee filed a detailed response by submitting cash book, ledger, bank account statements, Form 26AS, profit and loss account, balance sheet, samples bills of purchases and sales, copy of purchase agreement and computation of income during the assessment proceedings. The assessee also explained the nature of business activity carried on by him, which resulted in cash deposits made in the bank accounts.

In response to the show cause notice issued by the AO by proposing to make an addition on account of variation in the turnover to the tune of Rs.4,61,10,298/-, the assessee submitted that the sales declared in the profit and loss account is Rs.6,87,31,933/-. However, the credits/deposits made in the bank account were Rs.11,48,42,231/-. These deposits are related to the transactions made on account of agency commission business, wherein the amounts collected belonging to the

However, the AO was not convinced with the submissions of the assessee and made an addition of Rs.4,61,10,298/- as unexplained money u/s.69A of the Act being the difference between bank credits of Rs.11,48,42,231/- and the turnover declared in the profit and loss account of Rs.6,87,31,933 and concluded the assessment by passing an order u/s.147 r.w.s. 144B of the Act dated 30.03.2025.

Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A). Before the ld.CIT(A) the assessee explained the nature of activity carried out by him along with the reconciliation of bank credits and the turnover declared. The assessee stated that he is into business of both a trader and commission agent in potato and onion in Koyembedu wholesale market complex. In the del-credere commission agency, the potato and onion are sent by the principal supplier are traded in the market and net sales proceed after deducting the expenses are deposited to the bank account and transferred to the principal supplier. The deduction includes the commission eligible for the consignment transaction made by the assessee. The books of account are prepared by recording the transactions of both the traded goods of the assessee along with consignment transactions carried out on behalf of the principal suppliers. Therefore, the turnover declared in the profit and loss account is always lesser than the total transactions / credits made in the bank account of the assessee. Further the assessee also submitted the purchase and sales invoices along with the lorry receipts and statement sheets of the principal supplier on sample basis explaining complete

Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us by raising the following grounds of appeal:

The ld.AR for the assessee submitted that both the lower authorities have erred in understanding the modus operandi of the business as well as the transactions carried out by the assessee during the AY 2020-21. Further the ld.AR submitted that the authorities have erred in sustaining the addition of Rs.4,61,10,298/- being the alleged differential sum between the total credits / cash deposits in the bank account maintained by the assessee to the tune of Rs.11,48,42,231/- and the total sales reported of Rs.6,87,31,933/- in the profit and loss account as unexplained money u/s.69A of the Act in the computation of taxable income without assigning proper reasons and justification. In support of the arguments, the ld.AR submitted a paper book of 901 pages in two volumes containing return of income filed by the assessee for the AY, statement of

The ld.AR submitted that the assessee has maintained proper books of account which have been audited and the return of income has been filed regularly on year-to-year basis. During the impugned AY 2020- 21, the AO has erred in understanding the transactions which has been clearly explained by filing the reconciliation statement of the turnover along with the bank credits. The ld.AR also submitted that the assessee has filed the details of turnover, gross profit, net profit and commission earned on del-credere commission agency for last three years by explaining the modus operandi of the business and the reason for having bank credits more than the turnover declared in the profit and loss account.

The ld.AR drew our attention to the paper book page No.649 to 714 wherein the assessee has enclosed sample copies of invoices and lorry receipts for having received the vegetables on consignment basis from other States at Koyembedu market complex, which was traded by the assessee on behalf of Principal suppliers, by collecting the sale proceeds which has been reduced by the expenses like lorry freight, unloading, cooli and also commission earned by the assessee and the balance amount deposited to bank, which has been later transferred to the principal supplier through banking channel. In view of the above explanation, the ld.AR prayed for deleting the additions made by the AO which has been confirmed by the ld.CIT(A).

Per contra, the ld.DR supported the orders of the lower authorities and prayed for confirming the order of the ld.CIT(A).

We have heard the rival contentions, perused the material available on record and gone through the orders of authorities below along

From the facts available on record, it is evident that the assessee is engaged in the business of wholesale trading in onion, potato and vegetables and also acts as a del-credere commission agent in Koyambedu wholesale market. The assessee has consistently stated before the AO as well as before the ld.CIT(A) that apart from his own trading activity, he was also carrying on commission agency business on behalf of principal suppliers situated in various States, wherein the goods were sent on consignment basis, sold in the local market and the net realization after deducting commission and incidental expenses was remitted back to the principals through banking channels.

We find that during the assessment proceedings, the assessee had furnished cash book, ledger accounts, bank statements, audited financial statements, Form 26AS, purchase and sales invoices, lorry receipts and sample “patti” / commission statements explaining the manner in which the transactions were carried out. The assessee has also furnished reconciliation between the bank credits and the turnover disclosed in the books of account. The paper book pages referred to by the ld.AR particularly containing invoices, lorry receipts and consignment details prima facie substantiate the claim that substantial portion of the bank deposits represented circulation of sale proceeds belonging to principal suppliers and not independent income of the assessee.

We further observe that the AO has proceeded to make the addition merely by comparing the gross bank credits with the turnover disclosed in the profit and loss account and treated the differential amount

It is a settled proposition of law that in commission agency business, the gross sale proceeds collected on behalf of principals cannot be treated as turnover or income of the commission agent. Only the commission element earned by the assessee can partake the character of income. In the present case, the assessee has specifically demonstrated that the gross receipts included amounts collected on behalf of principal suppliers against consignment sales and the net proceeds after deduction of freight, loading charges, cooli, packing expenses and commission were remitted to such principals through banking channels. The authorities below have failed to examine these evidence in proper perspective.

We also find force in the contention of the ld.AR that the nature of business carried on in Koyambedu wholesale vegetable market involves substantial cash circulation, especially in consignment transactions relating to perishable commodities like onion and potato. In such line of business, the bank deposits may not necessarily correspond with the turnover disclosed in the books because the sale proceeds belonging to third-party principals would also flow through the bank account of the commission agent. Therefore, without disproving the business model and transaction trail explained by the assessee, the addition made u/s.69A merely on the basis of differential bank credits is unsustainable.

We further note that the ld.CIT(A), while confirming the addition, has merely concurred with the findings of the AO without independently examining the evidences furnished by the assessee. The appellate authority being a fact-finding authority is duty bound to adjudicate the issue by considering the evidences and explanations placed on record. However, from the impugned appellate order, we find that the detailed reconciliation and supporting evidences furnished by the assessee have not been properly appreciated.

In the facts and circumstances of the case, the nature of business carried on by the assessee, the documentary evidences placed on record and the failure of the Revenue authorities to disprove the explanation offered by the assessee, we are of the considered opinion that the addition of Rs.4,61,10,298/- made u/s.69A of the Act and sustained by the ld.CIT(A) is unsustainable both on facts and in law. Accordingly, we direct the AO to delete the addition of Rs.4,61,10,298/- made u/s.69A of the Act.

Since we have already adjudicated the appeal of the assessee on merits, nothing survives in the stay application. Accordingly, the stay application stands dismissed as infructuous.