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Facts
The assessees (father and son) were alleged to have indulged in a fraud at Bapunagar Mahila Co-op. Bank, involving the opening of 9165 fake accounts without KYC norms and siphoning off funds. The Assessing Officer (AO) made additions under Section 69A for undisclosed income, but the CIT(A) deleted these additions, concluding that the assessees' role was limited to cheque discounting and they had offered commission income to tax.
Held
The Tribunal disagreed with the CIT(A)'s findings, determining that the AO's investigations clearly established that the bank accounts were fake, the purported account holders were untraceable or denied involvement, and the assessees were indeed the beneficiaries of the fraudulently withdrawn amounts. The Tribunal set aside the CIT(A)'s order and confirmed the additions made by the AO under Section 69A, holding that the assessees failed to substantiate their claim that the withdrawn money did not belong to them.
Key Issues
Whether the amounts withdrawn by the assessees from fraudulently opened bank accounts constituted their undisclosed income under Section 69A of the Income Tax Act, 1961, and whether the CIT(A) was justified in deleting the additions made by the AO.
Sections Cited
Section 143(3), Section 147, Section 69A
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Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SMT. ANNAPURNA GUPTA
(Assessment Year: 2007-08) Income Tax Officer, Vs. L/R Shri Rajeshkumar Ward-5(3)(1), Mohanlal Shah, Ahmedabad Late Shri Mohanlal B. Shah, 1677/21, Bhogilal Ni Chawl, Papatiyawad, Rajpur, Gomtipur, Ahmedabad- 380021 [PAN No.AFQPS4144A] (Appellant) .. (Respondent) Appellant by : Shri Suresh Gandhi, AR Respondent by : Ms. Ketaki Desai, Sr. DR Date of Hearing 17.12.2025 Date of Pronouncement 09.03.2026 O R D E R PER: ANNAPURNA GUPTA - AM:
Both appeals have been filed by the Revenue against the orders of the Ld. Commissioner of Income Tax (Appeals)-5, (hereinafter referred to as “CIT(A)”) Ahmedabad dated 02.09.2020 passed under Section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) and relates to Assessment Year (A.Y.) 2007-08.
& 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 2 - 2. It was common ground that the issue involved in both the appeals were identical arising in the backdrop of identical set of facts,both the assessees , father and son,being alleged by the AO to have indulged in a fraud pertaining to siphoning off of funds from a cooperative bank. That the Ld. CIT(A), however, had granted relief to both of them holding that they were not conclusively proved to be the beneficiary of the funds siphoned off/withdrawn from the bank, but at the same time holding that since they had facilitated withdrawal of funds from the bank,commission income was earned on the same ,which he noted both the assessees to have offered to tax in the return of income filed. The Ld. CIT(A) accordingly deleted the addition made in the hands of both the assessees. The Revenue is aggrieved by this order of the Ld. CIT(A) and has accordingly raised identical grounds in both the appeals before us.
Both the appeals were accordingly taken up for hearing together and are being disposed of by a common consolidated order for the sake of convenience.
We shall be dealing with the facts in the case of the assessee Shri Rajeshkumar Mohanlal Shah(the son) in the Department’s appeal in and our decision rendered therein will apply paripassu the other appeal also.
Grounds raised by the Revenue in reads as under:
& 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 3 - “(1) The Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs. 5,49,98,8847- u/s. 69A of the I.T. Act on account of alleged withdrawal by the assessee from certain bank accounts being introduced by the assessee on the ground that the same are operated by the assessee. (2) The Ld. CIT (A) has erred on the facts in not upholding the order of the AO in making addition of Rs. 5,49,98,884/- u/s. 69A of the I.T. Act, 1961 as the information was received from RBI that number of accounts were opened in Bapunagar Mahila Co-op. Bank wherein introducer is Shri Rajesh Mohanlal Shah, assessee and his father Shri Mohanlal Bhupatlal Shah without following KYCs norms credited Rs. 161,16,75,000/-in these accounts. (3) It is therefore prayed that the order of the Ld. CIT(A) may be set aside and that of the order of the Assessing Officer be restored to the above extent.” 4.1 We have heard both the sides.
The brief facts relating to the case are that the Assessing Officer had received information that the assessees were involved in a fraud committed by Bapunagar Mahila Co-op. Bank. The AO had received information that during inspection by the Reserve Bank of India on 31.03.2011 of the Bapunagar Mahila Co-op. Bank, various financial irregularities and frauds were found to have been committed by the Bank. It was noticed that fake accounts totalling 9165 were opened by the introduction given by Late Shri Mohanlal Bhubhatmal Shah and his son Shri Rajen Mohanlal Shah, the assessees before us, without following KYC norms and total amount of 161,16,75,000/- was credited in these accounts. The amounts credited in the 9165 accounts had been noted to be siphoned off by both assessees, therefore, their cases were reopened by issuing notices under Section 148 of the Act. Detailed enquiries were conducted during assessment proceedings by the AO both from the employees of the bank, from persons in whose name accounts were opened and even the assessees were examined and were allowed cross-examination of all the persons & 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 4 - investigated by the AO. By virtue of the enquiry conducted the AO noted that: i. the assessee had facilitated opening of 9165 fake accounts in the cooperative bank by giving their introduction for the same and that too without following KYC norms. ii. enquiries from the bank lead to a CD containing the details of savings bank accounts ,opened by the introduction by the assessee and his late father, being submitted to the AO along with withdrawal vouchers for withdrawing cash from the savings bank account. Perusal of this information revealed that 9165 accounts were opened by the introduction of the assessee and his father and verification of withdrawal vouchers revealed that all these vouchers were self- cheques and though the savings accounts were held by various individuals the signatures on the withdrawal vouchers were of the respective account holders but the amounts were withdrawn and received by the assessee and his late father by signing on the back side of the withdrawal vouchers. iii. enquiries conducted by the AO on sample basis of the account holders, by issuing letters to approximately 100 such persons revealed that majority of the persons were not available at the address provided by the bank and further that the address were either not proper or the persons were not residing at the address given. Out of 100 letters so issued service could be done only to 4 & 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 5 - persons.Statement of the 4 persons were recorded in which they denied knowing both the assessees before us and also denied opening any account in the Bapunagar Mahila Co. Op. Bank. They also denied conducting any transactions in the accounts. iv. enquiries conducted from the Manager of the Bapunagar Mahila Co. Op. Bank, Smt. Sobhnaben Sureshkumar Patel ,revealed her admitting to the fact that both the assessees had facilitated opening of bank accounts in the names of various persons without following KYC norms, which accounts were subsequently freezed during the inspection by RBI. v. the 4 persons in whose name accounts were opened in the bank and statements were recorded by the AO were called for cross- examination by the assessee and during the course of cross- examination all of them in the statements recorded on oath denied having ever seen the assessee before and also denied having any knowledge about the assessee.They denied having any bank account at any point of time in Bapunagar Mahila Co. Op. Bank and on being shown copy of their bank account, they confirmed that they had neither opened nor had any bank account in the said bank nor made any transaction in the said bank. They stated that they were unaware of anybody having opened account in their name and confirmed that someone had tried to make fraud with them have using their names and identity.
& 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 6 - vi. Further, from the bank Manager whose statement was recorded it revealed that the assessee had signed withdrawal slips presented for payments from the bank accounts opened by him and his late father s introduction; that on the request of both the assessees the bank had allowed these two persons to deposit the customers cheque and to have withdrawn money on behalf of the account holders by making signature on the withdrawal slips over and above the signature of respective account holders; that the account holders did not come personally to withdraw money but the assessees came personally along with the vouchers of the account holders and the bank was paying cash to them after taking signature of the assessee on the backside of the withdrawal slips. vii. The cross-examination of the bank manager was provided to the assessee which confirmed that thousands of fake account had been opened with the introduction of the assessee and his late father and they had made transactions and withdrawn money by operating such account on behalf of the account holders; that the persons in whose name the transactions were made had not operated the accounts but they were being operated by the assessee and his late father; that the amounts withdrawn were received by the assessee and they were not recorded in the assessee’s books of accounts.
The assessee’s stand, however, was that being in the business of cheque discounting, they had only provided the facility of cheque & 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 7 - discounting to various persons who were members of workers association and workers of Ambika Mills who were given payment by cheques. Their contention was that the members of the worker association and workers of the Ambika Mills had come to open their account in Bapunagar Mahila Co. Op. Bank with their ID Card issued by the mill. The assesses role was limited to giving cash in lieu of the cheques issued in the names of various persons, which cheques the assesses facilitated in getting deposited in the Bapunagar bank by helping open their bank accounts , and thereafter withdrawing cash from their bank account.The members offered them 1% commission on the money given to the workers. The assessee reiterated that it was duly verified by the office of the official liquidator about the existence and genuineness of the workers and all the cheques issued by the officer of the official liquidator in the name of workers; that the assessee had only given them cash against the security of these cheques and for depositing of the cheques they introduced the accounts.
The AO, however, found no merit in the contention of the assessee, noting that having been unequivocally established that the assessee was involved in a fraudulent activity , opening fake bank accounts and withdrawing cash from such accounts and having not proved the fact of having handed over cash to any other person, the assessee clearly had siphoned off the money withdrawn .Accordingly he treated the amounts withdrawn by the two assesses from the bank accounts during the year as their income amounting to Rs.5,49,98,884/- in the hands of Shri Rajesh Mohanlal Shah and Rs. 2,58,55,572/- in the hands of his father Shri & 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 8 - Mohanlal B. Shah. The relevant findings of the AO are contained at Para 7 to 7.6 of his order as under:
“7. Thus, it is evident and crystal clear that the persons in whose names accounts were opened and the amounts withdrawn from the bank account have not been received by them but have actually been received by the assessee. It is also seen that these amounts have not been recorded in the assessee's books for the year under consideration. Sec.69A stipulates that- " Where in any financial year, the assessee is found to be the owner of any money, bullion, jewellery or other valuation article and such money, bullion, t 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 valuation article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year." 7.1 In the instant case, the assessee has failed to substantiate his claim that he has not withdrawn the amount from the bank accounts being operated by him as well as withdrawn by signing on the back side of the withdrawal slip, although this fact has been confirmed by the bank manager. Thus, it is established that the assessee has actually received the amounts withdrawn from such accounts and the same has not been recorded in the assessee's books. Thus, all the conditions are satisfied to invoke the provisions of Sec.69A of the I.T. Act. The assessee could not prove the onus cast upon him that the money which he had withdrawn from the fake accounts being introduced and operated by him and his late father did not belong to him. The assessee has merely stated that a Police case has been registered against some of the members of mill workers association alleging that they have siphoned off money belonging to mill workers. However, the assessee has not categorically admitted that the sums withdrawn by him from the fake bank accounts were handed over by him to any other person, including the members of mill workers association. Since the assessee has not came forward & divulged the names of persons to whom he has passed on the sums withdrawn from the bank account, it can be safely concluded that'the assessee remains the owner of the money withdrawn. 7.2 When the assessee is found to be owner of any money, the Income-Tax Officer is entitled to satisfy himself as to the true nature and source of the amounts entered therein, and if after investigation or inquiry, he is satisfied that there is no satisfactory explanation as to the said entries, he would be entitled to regard them as representing the undisclosed/deemed income of the assessee. When any money is found in possession of the assessee, the burden is undoubtedly on him to prove satisfactorily the nature and source of these money and to show that they do not constitute a part of his business income liable to tax.
& 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 9 -
7.3. The expression "nature and source" has to be understood together as a requirement of identification of the source and the nature of the source, so that the genuineness or otherwise could be inferred. Once the assessee has submitted basic documents relating to nature and source of transaction, then AO must do some inquiry to call for more details for verifying the genuineness of the transaction. However, in the instant case, the assessee could not prove that the money do not belong to him. The assessee has merely stated that he do not know anything. However, the fact in the instant case that the assessee himself has withdrawn the money from the accounts being opened by introduction of the assessee and his late father and the accounts holders in whose name the account is opened, has denied to have opened and operated such bank accounts and the bank manager of the Bapunagar Mahila Co. Op. Bank Ltd. has also confirmed that the assessee has withdrawn such amounts by signing on the back of the withdrawal slips of such bank accounts. The assessee has not submitted documentary evidences that the money withdrawn by him do not belong to him. In the absence of the such explanation with supporting documents, it is not possible for the revenue to give advantage to the assessee from ownership of the money which he has withdrawn by his signature from the fake bank accounts. Thus, the onus of proving the nature and source of such money withdrawn was upon the assessee. When the nature and source of such money cannot be satisfactorily explained by the assessee, it is open to the revenue to hold that it is the deemed income of the assessee and no further burden lies on the revenue to show that the income is from any particular source. 7.4 The assessee has failed to prove that he is not owner of such money withdrawn by him from the various fake bank accounts. Merely stating that he does not know anything on the alibi that his father did and managed all these activities and the money withdrawn do not belong to him is not sufficient to establish the non-owning the money by him which he himself had withdrawn. There must be some supporting documents which relates to the particular transactions and proves and justifies the genuineness of the transactions. Mere statements would not enough to justify that the money withdrawn by him do not belong to him. Some evidences that the money was belonged to someone which he had withdrawn on behalf of him/her was required to be placed by assessee. However, the assessee has failed to establish these facts of his case. 7.5 Thus, it is established that the assessee was the owner of the money withdrawn by him by signing on the back side of the withdrawal slips pertaining to the bank accounts being opened by his and his father's introduction. The assessee has not submitted the nature and source of such money withdrawn with supporting evidences thereof. The assessee could not explain that the money withdrawn by him were not belonged to him. Therefore, it is revealed that the assessee Was the owner of such money withdrawn and therefore, treated as deemed income of the assessee1 for the year under consideration. 7.6 In view of the above reasoning, facts and circumstances discussed above, I add Rs.5,49,98,884/- U/s. 69A of the I. T. Act, being the amount withdrawn by the assessee from the fake accounts being opened and operated by him during the year. It is confirmed from the above discussion that the assessee is the owner of such amounts which are not recorded in the assessfee's books of accounts and the assessee has not & 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 10 - explained the nature and source of such income. Hence, the sum of Rs. 5,49,98,884/- is deemed to be the income of the assessee U/s. 69A of the I. T. Act, for the year under consideration.”
On going through the order of the Ld. CIT(A), we find that though he has not given a clean chit to the fraud committed in the bank with the cooperation of both the assessees of siphoning off funds to the tune of Rs. 11.61 crores.,he has however deleted the addition made in the hands of the assessees accepting their contention of their role being limited only to the extent of providing cheque discounting facilities to the various cheques issued in the name of the workers. The Ld. CIT(A) we find has diluted to a very great extent the grave findings of the AO as noted above which we find are arbitrarily done and not based on any cogent evidences.
The order of the Ld. CIT(A) at Page 56 & 57 of his order reveals that he accepted assessee’s explanation of being involved in the fraud only in his capacity as a cheque discounter by noting that the source of funds was definitely verifiable coming from various employee related funds and the withdrawals slips contained the signatures of the respective account holders on the front as well as back. He noted that it was a fact that the account holders had signed the cheques and that the source of the funds were established. That therefore, he held, that the amount was withdrawn on behalf of the assessee account holders. He believed accordingly the assessee’s explanation of being only the provider of cheque discounting facility in the whole fraudulent operation.
& 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 11 - 10. We are unable to agree with the Ld. CIT(A) in this regard. The Ld. CIT(A) has clearly ignored the fact of the AO’s investigations revealing that the accounts were not opened by any workers at all. As noted above in our order the AO found on sample check basis that the workers in whose name the accounts were opened were not traceable and those who were traceable had denied opening any accounts in the bank. That despite providing opportunity of cross-examination to the assessee, the assessees were unable to disapprove the claim of the workers. The accounts holders had denied knowing the assessee at all. The Ld. CIT(A), we find, has noted the accounts to be opened by the workers without controverting the adverse findings of the AO as aforestated. His premise of the assessee being only a facilitator of cheque discounting in the entire fraud rests on the premise that the workers were all genuine and the accounts belonged to the different workers, but this fact, we find,was itself was disproved by the AO during enquiries conducted which revealed that the accounts were all fake and the persons on whose accounts were opened were either not traceable or they denied having any knowledge of the bank accounts opened in their names. Even the assessee was unable to prove the fact that the persons were all genuine persons in whose name bank accounts were opened when provided opportunity of cross examination of the employess by the AO or even independently. Therefore, the Ld. CIT(A)’s finding of the assessee being only a facilitator , we hold,is based on an incorrect premise/ fact.
& 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 12 - 11. At Page 59 the Ld. CIT(A) has agreed with the contention of the assessee that the fraud committed in the opening of 9165 accounts in the bank had nothing to do with the assessee; that he was not associated with the same and the opening of the bank accounts without following KYC norms was attributable to the bank and not the assessee.
This again we find is an incorrect finding of the Ld. CIT(A). The enquiry conducted by the AO during assessment proceedings revealed 9165 bank accounts to have been opened with the introduction of the assessee. The CD of these bank accounts were handed over by the Branch Manager to the AO which revealed the said fact. Therefore, the denial by the assessee of having anything to do with the fake bank accounts is grossly incorrect on the part of the Ld. CIT(A). The assessee being the introducer for the opening of all these bank accounts, the Ld. CIT(A) was wrong in holding that the assessee was not involved in any irregularities and it was the banks responsibility for having opened these bank accounts without following KYC norms. The finding of the Ld. CIT(A) that the assessee could not be held responsible, we hold, is grossly.
This appears to be the only basis on which the Ld. CIT(A) has accepted assessee’s explanation of being a mere facilitator in the fraud and not the beneficiary of the entire amount withdrawn. But we do not find any merit in the reasoning of the Ld. CIT(A) as discussed above.
& 10/Ahd/2021 ITO vs. Shri Rajeshkumar Mohanlal Shah & Late Shri Mohanlal B Shah L/h. Shri Rajeshkumar M Shah Asst.Year –2007-08 - 13 -
Therefore, finding the AO to have made a strong concrete case against the assessee of being the beneficiary of the amounts fraudulently withdrawn from the 9165 bank accounts and the Ld. CIT(A) being unable to dislodge the findings of the AO. We accordingly, confirm the order of the AO. The order of the Ld. CIT(A) is set aside and the addition made in the hands of both the assessees is confirmed.
The grounds raised by the Revenue are allowed.
In effect both the appeals of the Revenue are allowed.
This Order pronounced in Open Court on 09/03/2026