Revenue Authority Failed in Duty by Ignoring Evidence of Legitimate Business Cash Deposits
The Issue
The primary dispute was whether cash deposits totaling ₹1,95,61,240 in the bank account of an individual who did not file a return (non-filer) should be treated as “Unexplained Money” under Section 69A of the Income Tax Act.
The Facts
The Business: The assessee was an authorized distributor of mobile recharge coupons for Bharti Airtel Ltd. * The Process: As a distributor, he collected cash from various retail vendors for recharge coupons and deposited this cash into his bank account. This money was then immediately transferred to Airtel via account payee cheques to purchase new stock.
The Assessment: The Assessing Officer (AO) passed an ex-parte order under Section 144, treating the entire deposit amount as unexplained income, simply because the assessee had not filed a return and the deposits were “huge.”
First Appeal: The CIT (Appeals) deleted the addition after verifying:
The distribution agreement with Airtel.
Bank statements showing immediate transfers (debits) to Airtel matching the cash deposits.
Consistency with AY 2015-16, where similar explanations were accepted by the department.
The Decision
The ITAT Chandigarh Bench (represented by Vice President Raj Pal Yadav) dismissed the Revenue’s appeal, highlighting a significant failure on the part of the Assessing Officer:
Failure of Judicious Enquiry: The Tribunal observed that the AO acted merely as a “prosecutor” rather than an “adjudicator.” A simple perusal of the bank statement would have shown the funds flowing to a reputed corporate entity like Bharti Airtel.
Fiduciary Capacity: The Tribunal held that the cash deposits did not belong to the assessee. He held these funds in a fiduciary capacity (as an agent/distributor) for onward transmission to the principal company (Airtel). He only earned a small commission, which was his actual income.
Section 144 Misuse: The Court criticized the “mechanical” addition made in the ex-parte assessment. It emphasized that an AO has a duty to conduct independent verification—such as writing to the third party (Airtel)—before labeling a business’s turnover as unexplained wealth.
Outcome: The deletion of the ₹1.95 Crore addition was upheld. In favour of assessee.
Key Takeaways for Distributors and Agents
Turnover is not Income: For high-volume, low-margin businesses like mobile recharge or FMCG distribution, tax authorities often mistake gross turnover for personal income.
Bank Reconciliation is Vital: Always ensure your bank statements clearly reflect the “Inward” (collection from retailers) and “Outward” (payment to principal) entries.
Fiduciary Defense: If you collect money for others, you are a fiduciary. Maintaining the underlying agreement (like the Airtel Agreement in this case) is your strongest defense against Section 69A.
Respond to Notices: Even if you are a non-filer, responding to preliminary notices can prevent the “ex-parte” nightmare where an AO might guess your income based solely on bank deposits.
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘B’ CHANDIGARH
The ITO, Nahan.
Vs
Shri Raj Kumar, Near Delhi Gate,Opp. Gurudwara, Nahan, Distt. Sirmour (HP).
Date of Pronouncement : 27.01.2026
ITA No. 447/CHD/2025
Source :- Judgement