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Facts
The assessee, running a clearing and freight forwarding agency, filed its return for AY 2017-18. During assessment, the AO noticed cash deposits of Rs. 51,43,576, of which Rs. 40,44,000 were in Specified Bank Notes (SBNs). The assessee explained these as payments collected from clients for import duties.
Held
The Tribunal noted that the First Appellate Authority (FAA) did not consider the remand report which indicated sales on proximate dates and withdrawals towards statutory duties. The Tribunal found that the FAA omitted to consider bank statements, invoices, and sales register extracts.
Key Issues
Whether the addition of Rs.40,44,000 made under Section 68 of the Income Tax Act, 1961, is sustainable when the same was deposited in SBNs and allegedly represented collection of custom duties from clients, supported by business records.
Sections Cited
68, 115BBE, 234A, 234B, 234D, 133(6), 143(3), 145(3), 250, 44AB
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND MS PADMAVATHY S
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 06.08.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
:- 2 -: 2. The prayer raised read as follows:- 1. Delete the addition of ₹40,44,000/- sustained u/s 68, 2. Delete the consequential tax u/s 115BBE and interest levied u/ss 234A, 234B, 234D, 3. Hold that the Ld. CIT(A) erred in mechanically affirming the AO’s order without proper appreciation of facts and evidence, 4. Grant such further relief as this Hon’ble Tribunal may deem fit in the interest of justice.
Brief facts of the case are as follows: The assessee is an individual, who is running a clearing and freight forwarding agency by the name ‘Hi-Tech Shipping Agency’. For the assessment year 2017-18, the return of income was filed on 26.10.2017 declaring total income of Rs.7,12,540/-. The assessment was selected for scrutiny through CASS module with a reason for ‘cash deposits during the demonetization period’. During the course of assessment proceedings, the AO noticed that assessee had made total cash deposits of Rs.51,43,576/- in his bank accounts maintained with IDBI and Kotak Mahindra Bank. Out of the total cash deposit of Rs.51,43,576/-, a sum of Rs.40,44,000/- was made in Specified Bank Notes (‘SBNs’). The assessee was directed by the AO to explain the source of cash deposits. In response, the assessee submitted that he was engaged in the business of clearing agency and was rendering services to clearing goods from the custom house on behalf of his clients. It was submitted that :- 3 -: the source of cash deposits was payment of import shipment duties which were collected by him from his clients. The AO however sent notice u/s.133(6) of the Act to the clients mentioned by the assessee. Many of the notices remained unserved with a remark ‘no such person’. Therefore, the assessment was completed u/s.143(3) of the Act vide order dated 17.12.2019 by adding a sum of Rs.40,44,000/- (being in SBNs as income u/s.68 of the Act).
Aggrieved by the assessment order dated 17.12.2019, assessee filed appeal before the First Appellate Authority (FAA). During the course of proceedings before the FAA, assessee reiterated the submissions that cash collected are from his clients which were towards custom duty charges. The assessee also submitted additional evidences in the form of bank statements, the extracts of sale register of Hi-Tech Shipping Agency along with invoices and receipts for the impugned assessment year. The FAA on receipt of additional evidences, called for a remand report from the AO. The AO furnished the remand report on 21.07.2025. The FAA however dismissed the appeal of the assessee by observing that assessee has not given the details of the clients/parties who had stated to have given cash during the year under consideration which is claimed to the source of cash deposits.
:- 4 -: 5. Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The ld. AR for the assessee submitted that the FAA has erred in sustaining the addition of Rs.40,44,000/- made under section 68 of the Act, despite the fact that the impugned deposits were duly recorded in the audited books of account and formed part of regular business transactions. It was submitted that the source of the deposits was fully explained as advances received from clients towards payment of customs duty, duly supported by bank statements, sales register and invoices, and that the AO had not rejected the books of account under section 145(3) of the Act. The Ld. AR contended that once the books are accepted, no separate addition under section 68 can be made in respect of entries appearing therein and that the impugned addition results in double taxation since the same receipts were already included in turnover and assessed as business income. It was further submitted that the Ld.FAA passed the impugned order mechanically by merely reproducing the submissions and remand comments without independent appreciation of facts and law, thereby failing to exercise appellate jurisdiction under section 250 of the Act. The Ld. AR further submitted that section 68 is not applicable to deposits duly recorded in audited books and supported by documentary :- 5 -: evidence, placing reliance on the decisions in CIT v. Orissa Corporation Pvt. Ltd. (159 ITR 78, SC), CIT v. Bhaichand Gandhi (141 ITR 67, Bom), ITO v. Surana Traders (56 taxmann.com 304, ITAT Kolkata) and Abhishek Prakashchand Chhajed v. ITO (ITAT Ahmedabad). The Ld. AR also pointed out that the FAA has ignored binding Government Notifications and CBDT Circular No. 03/2017 dated 20.01.2017 clarifying that deposit of Specified Bank Notes within the permitted period cannot be treated as unexplained, and further erred in relying upon alleged inconsistencies of a subsequent assessment year, which is contrary to the settled principle that each assessment year is a separate unit of assessment. It was also contended that the observation regarding non-production of party details is factually incorrect, as audited books, sales register and invoices were duly furnished and no defects were pointed out. The Ld.AR placed reliance on the decisions in Shree Sanand Textiles Industries Ltd. (ITAT Ahmedabad) and Vishal Exports Overseas Ltd. (Gujarat High Court) to submit that sustaining the addition under section 68 amounts to impermissible double taxation. The Ld.AR further submitted that since the FAA has not considered the submissions of the assessee/additional evidences and the remand report of the :- 6 -: AO in the correct perspective, the matter may be restored the files of the AO for fresh adjudication.
The Ld.DR strongly supported the order of the AO and the FAA.
We have heard rival submissions and perused the material on record. The AO in the remand report as regards the addition of Rs.40,44,000/- u/s.68 of the Act observed as under:- In the assesseos written submissions the assessee's authorised representative has stated that the assessee supports importers and exporters in clearing their goods from Custom Authorities and eams service charges for the above service provided In the course of business, the assessee remits import duty, freight, delivery charges and omer expenses for shipment of goods which is paid by importer or exporter in advance to facilitate the C & F. Agent in clearing the goods. After completing ine cleaning of goods, the C & F agent submits the detailed statement showing the advance received, amount spent on his behalf and his service charges.
The role of clearing agent is to collect the amounts from the clients, pay the duty and clear the goods. The assessee stated that the cash deposit represents payment of import duty to the Customs for release of goods which is reimbursed or advance received from the partes of importers concerned In this regard, the assessee has submitted copy of tax audit report u/s 44AB of the Income Tax Act. 1961, in support of running his business and also stated that all the cash deposits in the bank account are gross receipts which are reflecting in the Sales Register and Profit and Loss account.
:- 7 -: The cash deposits made by the assessee during the demonetisation period in two different bank accounts, viz., IDBI Bank a/c no.0907102000050582 of Rs. 14,50,500/- and Kodak Mahindra Bank a/c no.855011001551 of Rs.25,93,500/- totalling to Rs.40,44,000/- The assessee submitted the Bank Statements of Kotak Mahindra Bank from 10/11/2016 to 01/12/2016 along with invoices and receipts, extract of Sales register of Hi Tech Shipping Agency for the period from 01/04/2016 to 31/03/2017.
From the above, it is seen that there are Sales on the proximate dates and also withdrawals towards statutory duties. The above may be considered whiles deciding the appeal.”
On perusal of the impugned order of the FAA, we find that he has not taken into consideration the remand report of the AO which have clearly stated there are sales on the proximate dates and also withdrawals towards the statutory duties. The AO has also referred in the remand report, bank statements and also the invoices and receipts, extracts of the sales register of Hi-Tech Shipping Agency for the relevant period. These facts have been omitted to be considered by the FAA. Therefore, in the interest of justice and equity, we are of the view that the matter needs fresh adjudication by the AO. The assessee shall furnish all the relevant details in support of the source of cash deposits made during the relevant period and shall furnish the client-wise details from whom cash has been received, which he had utilized for making the aforesaid cash deposits. Accordingly, we remit the issue back to :- 8 -: the file of the AO for fresh adjudication. The AO is directed to afford reasonable opportunity of hearing to the assessee before a decision is taken in the matter. It is ordered accordingly.
In the result, the appeal filed by the assessee allowed for statistical purposes.