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Facts
The assessee, an individual involved in online money transfer business with her husband, is an authorized agent for Ebix Payment Services. She failed to file her return of income on time and was subject to scrutiny. The Assessing Officer (AO) made additions on account of cash deposits during the demonetization period and estimated commission income at 8%.
Held
The Tribunal held that the addition on account of demonetized currency deposits was not sustainable as the assessee had explained the source for the deposited amount and dealing with Specified Bank Notes was not prohibited until 31.12.2016. The estimation of commission income at 8% was also considered erroneous, and the AO was directed to recompute it at 2.5%.
Key Issues
Whether the addition on account of demonetized currency deposits is sustainable and whether the commission income estimation at 8% is justified, considering the nature of business and prevalent trade practices.
Sections Cited
147, 142(1), 69A, 115BBE, 144, 44AD, 147
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K, HON’BLE & SHRI S.R. RAGHUNATHA, HON’BLE
PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 14.10.2024 for the assessment year 2017-18.
The assessee has raised the following grounds of appeal:
:-2-: ITA. No:3146/Chny/2024 1. 1. The impugned order passed by Honorable Commissioner of Income Tax (appeals), National Faceless Appeal Centre CIT(A)] is not justified in law and against facts and circumstances of the case. The CIT(A) had erred in sustaining the order of the assessing officer.
2. The CIT(A) failed to appreciate that assessing officer had erred in reasoning that demonetized currencies cannot be accepted by appellant during the relevant period.
Without prejudice to her right, the appellant submits that the assessing officer had erred in quantifying the demonetized currencies in the appellant's account as Rs.11,13,750 as against the actual amount of Rs.1,61,000.
4. The Assessing Officer failed to appreciate that the bank account was joint account of appellant with her husband, Mr.M.SENTHILKUMAR and cannot constitute as appellant's books.
5. The CIT(A) had erred in upholding the action of Assessing Officer who had erroneously considered appellant's husband transactions in her hands and failed to appreciate that such deposits in the said bank account were transferred to appellant's husband's principal viz, Interactive Financial & Trading Services Private Limited, distributor of Itz Cash Card Limited |shortly by trade name "Itzcash"], (Presently called Ebix Payment Services Private Limited) who had already acknowledged the same by producing the ledger in their books.
6. The Assessing Officer had failed to appreciate that the same income cannot be taxed twice.
7. The CIT(A) had erred in noting that the commission as 1% of cash deposits as against 0.2% (as distributor) which in any case suffers tax deduction at source and reflected in Form 26AS of her husband and 0.6% (as retailer commission retained by appellant husband) of money transferred through Itzcash -Ebix wallet and such commission is not at all relevant to facts of the case as it does not belong to appellant.
The Assessing Officer failed to appreciate that assessment cannot be made on surmises and conjectures. The Assessing Officer had grossly erred in his finding by stating that actual commission is estimated at 8% of the :-3-: ITA. No:3146/Chny/2024 bank receipts belonging to her husband, which is erroneous and without any basis.
9. For that the provisions of section 69A cannot be invoked in the facts and circumstances of the case.
For that the Assessing Officer failed to appreciate that merely because cash is deposited into the bank account of the appellant, it cannot be added as unexplained money u/ s.69A
For that the Assessing Officer erred in adding the cash deposits made in that of appellant's account during the demonetisation period as unexplained money u/ s.69A in the hands of the appellant when it belonged to her husband's transactions.
For that the Assessing Officer did not bring out any material to state that the cash deposits made by the appellant during the demonetisation period should be brought u/s.69A as unexplained money.
For that the Assessing Officer failed to appreciate that the provisions of section 115BBE cannot be invoked in the facts and circumstances of the case.
Without prejudice to her right, the appellant submits that the assessing officer has erred in giving credit to TDS and computing interest on tax determined.
Prayer For these grounds and such other grounds that may be urged before or during the hearing of the appeal it is most humbly prayed that this respected authority may be pleased to (i)Delete the addition of Rs.11,13,750/- made under the head income from other sources. (ii) Delete the addition of Rs.43,65,286/- made under the head income from other sources. (iii) Pass such other orders as this respected authority may deem fit.
:-4-: ITA. No:3146/Chny/2024 3. The brief facts of the case are that the assessee is an individual who along with her husband is in the business of online money transfer. The assessee is an authorised agent of EBIX Payment services private limited (Itz Cash). The assessee had not filed her return of income as per the dates prescribed under the Act for the A.Y. 2017-18. Even after issuing notice u/s.142(1) of the Act, the assessee did not file her return before the valid date i.e. 31.03.2018. However, the assessee filed her return of income on 14.08.2019, by declaring an income of Rs.2,39,410/-, which was an invalid return and taken up the case for scrutiny assessment. Meanwhile the AO had collected the details of transactions carried out by the assessee from the banks and found that the assessee had total credits during the year to the tune of Rs.5,56,79,819/- at SBI, ICICI (2 accounts) and UBI, which includes Rs.11,13,750/- of cash deposits during the demonetisation period. During the assessment proceedings, the assessee had stated that the she has received cash including the SBNs from the customers/clients during the demonetisation period and utilised the same for making deposits to her bank account. The AO was not convinced with the explanation as the assessee was not eligible to received the SBN and hence made the addition of Rs.11,13,750/- as unexplained money u/s.69A r.w.s. 115BBE of the Act. Further, the AO observed that the :-5-: ITA. No:3146/Chny/2024 assessee has not filed any details for explaining the source for the balance deposit of Rs.5,45,66,069/-, and hence estimated an income @ 8% on such deposit under the head income from other sources by passing an order u/s.144 dated 30.12.2019 as detailed below: 8. Unexplained Money u/s 69A: As discussed above, it is seen that the assessee has made deposits during the demonetization period totaling Rs.11,13,750/- whereas she is not eligible to receive the SBN notes during the demonetization period. Hence the entire cash deposits are to be treated as unexplained money/investments. 8.1 As enumerated in the decision of the Hon'ble Supreme Court in the case of Roshan Di Hatti Vs CIT (1977) 107 ITR 938 (SC), Kale Khan Mohammed Hanif Vs CIT (1963) 50 ITR 1 (SC), it has been held in various judicial pronouncement that where the nature and source of any receipt/investment, whether it be a money or other property, cannot be satisfactorily explained by the assessee, it is open for the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source. In the case of the assessee, the assessee could not explain the sources for making deposit of cash during the demonetization period to the extent of Rs.11,13,750/-. 8.2 As the assessee has categorically failed to discharge proving the source for the entire cash deposits made during the demonetization period in the above mentioned bank account(s), I have no other alternative left before me to take the entire cash deposits of Rs.11,13,750/- are treated as unexplained money and assessed under section 69A of the I.T. Act. for the assessment year 2017-18 of the assessee.
During the course of assessment proceedings, the assessee has filed details (non-est. return), which was treated as invalid. Along with the above return of income treated as invalid, the assessee has enclosed Profit and Loss account, Balance sheet, and computation of income statement et., for the period from 1.4.2016 to 31.3.2017. The Information contained in these financial statements are taken for the purpose of computing taxable
:-6-: ITA. No:3146/Chny/2024 income from business of the assessee for the F.Y.2016-17 relevant for A.Y.2017-18. 9.1 Going through the above financial statement, it is ascertained that, during the financial year 2016-17, the assessee is doing online money transfer for commission basis. In the computation statement enclosed as said above, the assessee has admitted commission of Rs.2,39,410/- under the head other sources. However total bank credits accumulated to Rs.5,45,66,069/- (excluding cash deposits of Rs.11,13, 750/- made during demonetization period). Hence actual commission income is to be estimated on total bank credits which worked out to Rs.43,65,286/- at the higher side ratio of 8%. As discussed above, the taxable income from the above is computed at 8% of the same, amounting to Rs.43,65,286/-. Accordingly, the income from other sources is computed at Rs.43,65,286/-. Addition: Rs. 43,65,286/- 3.1 Aggrieved by the assessment order of the AO, the assessee preferred an appeal before the Ld.CIT(A).
3.2 Before the Ld.CIT(A), the assessee filed a written submission in support of her grounds of appeal and stated that the she has carried out the business of fund transfer/ domestic money transfer/other online services like flight booking, loan payment, credit card payment. Further the assessee filed a letter from Ebix Cash and also ledger report of Mr.M.Senthil Kumar, Chennai husband of the assessee who had also carrying on the same business and the deposits made into her bank account (joint) belongs to his business. These transactions of her bank accounts have already considered in his books and return of income filed.
:-7-: ITA. No:3146/Chny/2024 Further, the assessee stated that the fees/commission charged for the transactions to the customers is @ 1%.
3.3 On perusal of the submissions, the Ld.CIT(A) was not convinced and confirmed the additions made by the AO by passing an order dated 14.10.2024 by holding as under: “6.2. The appellant has not adduced any evidence either in her support or to refute the observations made by the AO. Sufficient time was allowed, however, the appellant did not file any submission or documentary evidence either against the observation of the AO or in favour of the claim made in the grounds of appeal
. In the absence of the documentary evidence, the appeal cannot be adjudicated. Hon'ble Supreme Court in the case of CIT Vs. B.N. Bhattachariee and others [1970]
10. CTR 354 (SC) observed that preferring an appeal means effectively pursuing it. The Hon'ble M.P. High Court in the case of Estate of Late TukojiraoHolkar Vs CWT [1979] 223 ITR 480 (M.P.) dismissed the reference filed at the instance of the assessee for default and for not taking necessary steps. Similarly considering the case at hand the appellant has not filed any submission even after allowing sufficient opportunities and therefore, the same ratio is applicable here. This view has been affirmed by Hon'ble ITAT Ahmedabad in the case of Amitkumar H. Shah Vs ACIT in vide their order dated 31/12/2013, wherein following the order of ITAT Delhi bench in the case of CIT Vs Multiplan India Pvt Ltd. [1991] 38 ITD 320 (Del), ITAT has dismissed the appeal filed by the assessee for want of prosecution.”
Aggrieved by the impugned order of the Ld.CIT(A), the assessee preferred an appeal before us.
The Ld.AR for the assessee submitted that the assessee was carrying on business of facilitating electronic payments like online
:-8-: ITA. No:3146/Chny/2024 payments of school fees, electricity bill, credit card bills for its customers including money transfer for its customers as authorized business correspondent agent (BCA) for Yes Bank through Nearby Technologies Private Limited, Ticket booking agent for Hermes, retail money transfer for Ebix payment services private limited, and was having a joint current account in SBI with her husband Mr.Senthil Kumar as second name. The said account was put to joint use by Husband and Wife. The assessee has filed the return with service charges and commission offered as income (Page 13-17 of Paper book). The assessee also had current account in ICICI Bank and savings bank accounts also in ICICI and Union Bank of India. The ld.AR stated that the assessee’s husband, Mr.Senthil Kumar was doing money transfer business authorized BCA of IDBI Bank through Itz Cash Card Private limited (Shortly Called ITZ Cash) Now called EbixCash) and used to transfer money to his wallet through ITZ Cash distributor - Interactive Financial and Trading Services Private Limited.
4.1 Further, the ld.AR stated that the assessee’s business was principally facilitating electronic payments during the year with very less volume in Ticket booking and as BCA with no business done in her name as Ebix retail agent in money transfer, the commission
:-9-: ITA. No:3146/Chny/2024 out of which was Rs.427 and Rs.67 respectively as reflected in 26AS [Page 18-19 of Paper book] was offered to income. As Mr.Senthil Kumar was BCA, the collections from his customers and retailers were deposited in assessee’s account apart from his own bank accounts. The said amounts were transferred to his ITZ Cash wallet through Interactive Financial Services Private Limited. The nature of credits in assessee SBI account was money received from customers (Mostly by cash) throughout the year including that of demonetized currency. The said credits including cash deposits were substantially related to her husband business besides collections from her customers for facilitating electronic payments of utility bills and other similar kind of Online payments. The AO had made an addition on account of deposit of demonetized currency to the extent of Rs. 11,13,750/- and estimated commission income on total of credits less demonetized currencies @ 8% as Rs.43,65,286/-. The Ld.AR submitted that determination of income by AO is erroneous and against the facts and circumstances of the case for the following reasons: a) Assumption that assessee is not permitted to accept demonetized currencies b) Incorrect determination of demonetized currencies deposited
:-10-: ITA. No:3146/Chny/2024 c) Considering the transactions relating to Mr.Senthil Kumar in the hands of assessee d) Unrealistic estimation of commission at 8% on credits as against general trade practice of 1 -2% 4.2 Further, the ld.AR submitted that even though the business as agent for Hermes and Nearby Technologies Private Limited was less, the main business was acting as agent to customer for facilitating electronic payments as explained above from whom cash/cheques were collected and paid to the respective beneficiaries of customers through her Net Banking facility from her bank account, with no business done in her name as Ebix retail agent in money transfer.
4.3 The assessee’s husband Mr.SenthilKumar who was also a BCA for IDBI Bank through ITZ Cash Card Private Limited, was joint account holder with appellant in State Bank of India- Current account. Mr.Senthil Kumar collects cash or receives online fund transfer/Cheque from retail agents relating to his business, deposits the same in appellant's bank account apart from his own bank accounts and transfers the same to Interactive Financials Services Private Limited, (distributor of ITZ Cash Card Limited) online.
:-11-: ITA. No:3146/Chny/2024 4.4 The crux of the issue in assessment made, is acceptance of demonetized currency, consideration of husband transactions in assessee’s hand and estimation of unrealistic commission out of it.
4.5 Ground 1 & 2 - Assumption that assessee is not permitted to accept demonetized currencies: During the demonetization period the appellant had collected cash from her customers and deposited the same in her bank account for transferring to the respective beneficiaries. The AO had made additions of the same on the ground that assessee cannot accept demonetized currency and therefore it is unexplained money u/s 69A [Para 8 of the assessment Order]. It is pertinent to note that said cash deposits doesn't belong to assessee as she was operating as an agent to assist her customers facilitating electronic payments by collecting cash and depositing the same in Bank. It is not the case of AO that source for said monies was unexplained rather it was acceptance of Specified Business Notes (SBN) that had triggered addition. It is not the case that AO had doubts on source of deposits as he himself appreciated assessee’s business, relied on the quantum of deposits to estimate income subsequently (another disputed issue) by appreciating the modus operandi of assessee and her husband's business.
:-12-: ITA. No:3146/Chny/2024 4.6 The Ld.AR stated that the AO missed to appreciate that the agent (Custodian) status of the assessee for her customers and any deposit into her bank account was nothing but banking of such SBN for and behalf of customers and utilization of the same for allowed purpose like payment of Utility bills, Credit Card payments, etc. for her customers.
4.7 The Ld.AR drew our attention to the cash deposits made during the year in SBI amounted to Rs.4,40,86,680/- (Cash deposits extract enclosed) [Page 20, 21-37 of paper book] whereas the SBN deposits during demonetization Period Was Rs.1,61,000/- (as against alleged amount of Rs.11,13,750/- by AO). Thus, SBN amount as constituted in total cash deposits during the year was only 0.37% which cannot be unexplained money of the assessee in any business sense.
4.8 The Ld.AR relied on the following decisions of Honorable ITAT for acceptance of SBN: (i) Chennai ITAT in the case of Mrs.Umamaheswari, [Page 38-43] [ITA No.527/Chny/ 2022)] where in it was held that “As regards, the first objection of the AO on legal tender of Specified Bank Notes on or after 08.11.2016, I find that as per the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, which came into effect from :-13-: ITA. No:3146/Chny/2024 31.12.2016 appointed date for this purpose means 31.12.2016. Further, as per Sec.5 of said Ordinance, from the appointed date, no person shall, knowingly or voluntarily, hold or transfer or receive any Specified Bank Notes. From the above what is clear is that up to the appointed date i.e.31.12.2016, there is no prohibition for dealing with Specified Bank Notes. Therefore, in my considered view, the objection of the AO on this regard in light of said Act is devoid of merits. Further, a similar issue had been considered by the Tribunal, Visakhapatnam Bench, in the case of Sri Tatiparti Satyanarayana in where the Tribunal after considering relevant provision of Specified Bank Notes (Cessation of Liabilities) Act, 2017, held that there is no prohibition under the Act to deal with Specified Bank Notes up to 31.12.2016. Therefore, in my considered view, the observation of the AO on this regard totally incorrect and liable to be rejected."
(ii) Vishakapatnam Bench in the case of Tatiparti Satyanarayan [Page 44-52] [TS-238-ITAT- 2022(VIZ)] wherein it was held that “The Specified Bank Notes (Cessation of Liabilities) Act, 2017, defines "appointed day' vide Section 2(1)(a). As per Section 2(1)(a), "appointed day” means the 31st Day of December 2016. Section 5 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 also deals with prohibition on holding, transferring or receiving specified bank notes. Section 5 states that "On and from the appointed day, no person shall knowingly or voluntarily, hold, transfer or receive any specified bank note". We therefore, find that the specified bank notes can be measured in monetary terms since the guarantee of the Central Government and the liability of Reserve Bank of India do es not cease to exist till 31.12.2016. In view of the above, the contention of the Ld.DR, treating the receipt of SBNs from cash sales as illegal and thereby invoking the provisions of section 69A is not valid in law. Therefore, we dismiss this ground of the Revenue.”
(iii) Bangalore ITAT in the case of Bhageeratha Pattina Sahakara Sangha Niyamitha[ Page 53-621[TS-217-ITAT-2022 (Bang)] where in it was held that :-14-: ITA. No:3146/Chny/2024 “deposits after prescribed date of demonetisation would not attract provisions of Section 68 where they were from receipts in normal course of business and recorded in books of account; Observes that contravention of notifications issued by RBI would not attract Section 68 when Assessee discharged the onus cast upon him by the provisions and holds invocation of Section 68 to be without rationale; (iv) Hyderabad Bench in the case of Lateef Abdul Mohd. Page 63- 74] [TS-479-ITAT-2022(HYD)] where in ITAT "sets aside the NFAC order of sustaining additions of Rs.30 Lacs on cash deposits during demonetisation period and Rs.2.40 Lacs on account of low withdrawal; Relies on the Delhi HC ruling in Agson Global to hold that NFAC was not justified in sustaining the addition where, on basis of facts it was demonstrated that Assessee had substantial cash sales throughout the year, and the cash sales leading to cash deposit was not just close to the demonetisation period; 4.9 Ground 3 - Incorrect determination of demonetized currencies deposited. Without prejudice to assessee’s right, the Ld.AR submitted that the AO had treated the entire cash deposits during demonetization period as demonetized currencies as against actual amount of Rs.1,61,000. In this connection, attention is drawn to the page [Page 75-85 of paper book] wherein denominations are mentioned in challan. The actual deposit of SBN is as stated below: In State Bank of Amount in Rs Amount in India Rs Date Total Cash SBN Challan deposited deposited 15-11-2016 24,500 6,500
:-15-: ITA. No:3146/Chny/2024 16-11-2016 1,35,500 1,29,500 27-11-2016 1,38,000 01-12-2016 42,000 04-12-2016 39,000 04-12-2016 44,000 08-12-2016 1,30,000 11-12-2016 1,18,000 14-12-2016 1,73,000 26-12-2016 1,20,250 25,000 25,000 In ICICI Bank 24-11-2016 2,500 - Claimed to have been Non-OHD 26-12-2016 48,000 - Mentioned in Bank statement as Non OHD notes Total 11,13,750 1,61,000 4.10 Ground 4 & Ground 5- Error in considering the transactions relating to Mr.Senthil Kumar in the hands of assessee:
The Ld.AR submitted that the AO failed to appreciate that the bank account was joint account of assessee [Please refer 1 page of SBI Bank statement submitted separately] with her husband, Mr.SenthilKumar and erred in alleging that all transactions in the said bank account constitute only that of assessee’s. As stated in facts of the case and Ground 5 in Form 36, assessee’s husband Mr.Senthil Kumar was BCA for IDBI and used to transfer to his wallet through ITZ Cash distributor – Interactive Financial and Trading Services Private Limited and was holding and operating account under reference with SBI jointly with appellant. The :-16-: ITA. No:3146/Chny/2024 establishment of the said fact was accepted by AO vide para 2, page 4 of the assessment order. Attention of Lordship is drawn to 3rd Para in page 4 of the assessment order wherein AO had refered to the statement made by the appellant that said bank transactions (Transactions relating to money transfers) shown only in her husband's return of income for the assessment year2017-18 but misunderstood the same as said Bank account reflected in husband's return and stretched himself hard to prove that it was only assessee’s bank account which was never disputed by the assessee.
4.11 The Ld.AR stated that the assessee had contended before AO and CIT(A) that said transactions pertain to her husband as it is Joint account and accordingly income from the same was offered in his return. Just because the said bank account was shown in the assessee’s ITR for the purpose of refund since being first account holder, it did not mean that those transactions were that of assessee. The ld.AR drew our attention to the following documents filed in the paper book. a) The bank statement of SBI wherein it is clearly mentioned in description that those were transfers to Interactive Financial &
:-17-: ITA. No:3146/Chny/2024 Trading Services Private Limited. [Separately Filed consisting of 107 pages] b) that such transfers in bank statement are clearly identified (marked underline/tick), page wise total made and summary of page wise total. c) the ledger of lnteractive Financial & Trading Services Private Limited acknowledging those transactions(contra) in the account of Mr.Senthil Kumar.[Separately Filed consisting of 381 pages] d) proof that Mr.SenthilKumar an agent of Interactive Financial and Trading Services Private Limited. [Page 86 of paper book] 4.12 The Ld.AR prayed to exclude those credits that were transferred to Interactive Financial and Trading Services Private Limited, since relating to Mr.Senthil Kumar, from the credits of said bank account (SBI) while deriving assessee’s transactions.
4.13 Ground 6: As assessee’s husband had dealt with Interactive Financial & Trading Services Private Limited and commission from said transactions were reflected in his 26AS and offered in his return, the same cannot be taxed again in the hands of the appellant.
:-18-: ITA. No:3146/Chny/2024 4.14 Ground 7 : The Ld.AR stated that the assessee’s husband business was money transfer and he collects upfront fee of 1% from customer and gets a share of it from Ebix as commission as reflected in his 26AS [Page 87- 88 of paper book]. However, the ld.CIT(A) had sought the details of cash deposits and commission workings thereon without appreciating the fact that said transactions and explanation about commission were that of assessee’s husband Mr.Senthil Kumar who had produced ledger before him. While the letter from Ebix (page No.89 of paper book) had confirmed the transactions through them and commission relate to that of her husband (Total receipts from Senthil Kumar from all his bank accounts including that of appellant and Commission thereon paid to him)[ Page 89], the Ld.CIT(A) had erred in dismissing the grounds of the assessee for want of such workings and details which in no way connected to the assessee’s case.
4.15. Ground 8-Unrealistic estimation of commission at 8% as against trade practice of 1-2% The Ld.AR further submitted that the AO had grossly erred and contradicted in stating that "actual commission income is to be estimated on total bank credits which worked out to Rs.43,65,286/- at the higher side ratio of 8%” Para 9.1, Page 7 of assessment
:-19-: ITA. No:3146/Chny/2024 order. The assessee’s working of commission on deposits (after exclusion of husband's transaction) is as below. Extract from Bank statements of Rs. P. Rs. P. appellant Particulars Sum of Receipts Commission
Total credits in SBI 5,48,14,593 2.21% Less: Opening Balance (4,24,955) Net Credits during the year 5,43,89,638 (Considered less by AO in his Order as Rs.5,14,42,547/-) Less: Credits relating to Husband business, 4,78,24,022 transferred to his Principal ITZ cash, backed by description in appellant’s bank statement, ledger copy of ITZ Cash validating the Contra entries Net Credits relating to appellant in SBI- 65,65,616 1,45,204.75 (A/c No.34432828033) Total ICICI Credits as considered by 31,41,797 69,483.79 AO-(A/c No.021201531100) Total ICICI Credits as considered by AO 2,76,500 6,115.06 – (A/c No.005405500313) Union Bank of as considered by AO-(A/c 8,18,975 18,112.40 No.528502010009603) Commission income from Ticketing and 494.00 Money Transfer as in 26AS Total of Credits/Commission 1,08,02,888 2,39,410.00 Total Income as per ITR 2,39,410.00 4.16 The ld.AR submitted that the AO had not reasoned as why he is estimating the Commission @ 8% and claims the same to be actual. Presumably, the AO was inclined to adopt provisions of Section 44AD though not explicitly mentioned in the Order except that higher side ratio of 8%.
:-20-: ITA. No:3146/Chny/2024 4.17 It is pertinent to note that Section 44AD itself is not applicable to commission business and thus the AO had grossly erred in estimating the same @ 8% as against the trade practice of 1-2%. It is also emphasized that no man of prudence will pay 8% commission to anyone for facilitating online payment like Utility bill, school fees, credit card payments etc. It may be noted that said commission offered itself was reasonable @2.2%.
4.18 The Ld.AR also submitted that the prevalent trade practice was accepted in the past even in case of appellant for AY 2015-16 [Page 90-92]. The copy of the assessment order is enclosed where commission of Rs.339,840/- against the cash deposits of Rs.1,35,20,620/- worked out to only 2.5%. Therefore, the ld.AR prayed to accept the commission income offered on the total credits excluding that of assessee’s husband.
4.19 Ground 9 to 13 : Section 69A provides as follows: "Unexplained money, etc. 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the :-21-: ITA. No:3146/Chny/2024 bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year."
The Ld.AR stated that the cash deposits were accepted to have been from customers of assessee by the AO and also found credited in her bank account. Given that fact, AO had erred in invoking Section 69A r.w.s 115BBE of the Act.
4.20 Ground 14 : Without prejudice to her right, the Ld.AR submitted that the AO has erred by not giving credit to TDS and computing interest on tax determined.
Per contra, the Ld.DR supported the orders of the lower authorities.
We have heard both the parties, perused materials available on record, all the paper books and gone through orders of the authorities below along with the judicial decisions relied on. It is undisputed fact that the assessee is an authorised agent of EBIX Payment services private limited (Itz Cash), carrying on business of facilitating electronic payments like online payments of school fees, electricity bill, credit card bills for its customers including money transfer for its customers as authorized business correspondent
:-22-: ITA. No:3146/Chny/2024 agent (BCA) for Yes Bank through Nearby Technologies Private Limited, Ticket booking agent for Hermes, retail money transfer for Ebix payment services private limited. On perusal of records it is also undisputed that the assessee was having a joint current account in SBI with her husband Mr.Senthil Kumar as second name and operated by both. The assessee’s husband Mr.Senthil Kumar was BCA, the collections from his customers and retailers were deposited in assessee’s account apart from his own bank accounts. The said amounts were transferred to his ITZ Cash wallet through Interactive Financial Services Private Limited. The nature of credits in assessee SBI account was money received from customers (Mostly by cash) throughout the year including that of demonetized currency. We note that the assessee had furnished the ledger account of Mr.Senthil Kumar (381 pages of separate Paper book) of ITZ to demonstrate the credit transactions related to him in the bank account held jointly to the tune of Rs.4,78,24,022/-. We also find that the assessee had furnished the banks statement of joint account and established that these credits have been transferred to the assessee’s husband business i.e. Interactive Financial and Trading (Separate paper book consisting of 107 pages). Further we note that the assessee had furnished Form 26AS (Page No.87-88 of paper book) of her husband Mr.Senthil Kumar for the A.Y. 2017-18
:-23-: ITA. No:3146/Chny/2024 for having recorded the commission earned from EBIX and Nearby Technologies Pvt. Ltd based on the above transactions. The assessee also produced the letter issued by the EBIXCASH for the transactions carried out by her husband during the A.Y. 2017-18 (Page No.89 of paper book). Therefore, we find that the AO and that of Ld.CIT(A) have erred in making the addition @ 8% on these transactions, which are related to her husband and offered to tax in his return of income filed. The estimation of commission on these credits in the hands of assessee amounts to double taxation, therefore we are of the considered view that the same needs to be deleted and ordered accordingly.
6.1 Further, the AO had made an addition on account of deposit of demonetized currency to the extent of Rs. 11,13,750/- against the actual SBNs deposit of Rs.1,61,000/-. Admittedly, during the demonetization period the assessee had collected cash from her customers and deposited the same in her bank account for transferring to the respective beneficiaries. The AO had made additions of the same on the ground that assessee cannot accept demonetized currency and hence considered it as unexplained money u/s.69A of the Act. It is not the case of AO that source for said monies was unexplained rather it was acceptance of Specified
:-24-: ITA. No:3146/Chny/2024 Business Notes (SBN) that had triggered addition. We note that the assessee had deposited only Rs.1,61,000/- out of the collection from customers and hence the source for the same has been explained by the assessee. Therefore, the addition of Rs.11,13,750/- u/s.69A of the Act, is not sustainable. We are in agreement with the Ld.AR’s reliance in the case of Mrs.Umamaheshwari in of this Tribunal, wherein the receipt of SBN upto 30.12.2016 was not prohibited once the source has been explained. The relevant extract of the decision is given below: “As regards, the first objection of the AO on legal tender of Specified Bank Notes on or after 08.11.2016, I find that as per the Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016, which came into effect from 31.12.2016 appointed date for this purpose means 31.12.2016. Further, as per Sec.5 of said Ordinance, from the appointed date, no person shall, knowingly or voluntarily, hold or transfer or receive any Specified Bank Notes. From the above what is clear is that up to the appointed date i.e.31.12.2016, there is no prohibition for dealing with Specified Bank Notes. Therefore, in my considered view, the objection of the AO on this regard in light of said Act is devoid of merits. Further, a similar issue had been considered by the Tribunal, Visakhapatnam Bench, in the case of Sri Tatiparti Satyanarayana in where the Tribunal after considering relevant provision of Specified Bank Notes (Cessation of Liabilities) Act, 2017, held that there is no prohibition under the Act to deal with Specified Bank Notes up to 31.12.2016. Therefore, in my considered view, the observation of the AO on this regard totally incorrect and liable to be rejected."
6.2 In view of the facts and circumstances of the case and respectfully following the decision of this tribunal (supra) we are of :-25-: ITA. No:3146/Chny/2024 the considered view that the AO and that of the Ld.CIT(A) have erred in making the addition of Rs.11,13,750/- u/s.69A of the Act and hence we are inclined to delete the same and ordered accordingly.
6.3 In respect of the estimation of income @ 8% of the total credits, we note that the assessee’s nature of business is facilitating electronic payments like online payments of electricity bills, credit card payment and other money transfers as an authorised Business Correspondent Agent (BCA). The percentage of commission earned in this kind of business is around 1 to 2% only. This is also supported by the form 26AS of assessee’s husband, who carries on the identical business. Further we note that the AO has accepted assessee’s return of income declaring @ 2.5% of cash deposit of Rs.1,35,20,620/- for the A.Y. 2015-16 after scrutiny assessment u/s.147 of the Act.
6.4 In view of the above discussion, we are of the considered view that the estimation of income @ 8% by the AO which was confirmed by the Ld.CIT(A) is devoid of merits and hence we direct the AO to delete the additions and recompute the commission income @ 2.5% on the total credits in all the bank accounts relating to assessee
:-26-: ITA. No:3146/Chny/2024 (after reducing the assessee’s husband related transactions of Rs.4,78,24,022/-) i.e. on Rs.1,08,02,888/-. Further, we also direct AO to give credit for eligible TDS as per Form 26AS for the impugned assessment year.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 17th April, 2025 at Chennai.