2023 (6) TMI 1338 - AT - Income Tax

Railway ticket agent's unexplained cash deposits under Section 68 deemed legitimate business proceeds from client transactions

Jitendra Nemichand Gupta Versus I.T.O., Ward-2 (3) (2), Surat

ITAT Surat ruled in favor of assessee regarding unexplained cash deposits under Section 68. Assessee operated as railway ticket booking agent, depositing ... Unexplained cash deposits in bank account u/s 68 - all deposits were in denomination notes (old notes) - assessee was doing his business for booking of railway tickets - HELD THAT:- All the amount received by assessee were ultimately deposited/remitted to the account of IRCTC by way of debit card payment. The assessee throughout the proceedings before the Assessing Officer as well as before the ld. CIT(A) contended that he was working as an agent/sub-agent of Akbar Online Booking Pvt. Ltd.. Such contention of assessee was not controverted by the Assessing Officer by making investigation of fact or bringing any adverse material. The assessee has also furnished the details of his client for which he made booking through IRCTC. The assessee has also relied on press release of Economic Times wherein booking of railway tickets are also allowed by way of old currency notes. On careful perusal of such press release, we find that in the press release, there is no such restriction that railway tickets is to be booked on railway counters only. Like private hospitals were also allowed to receive old currency notes. AO has not controverted the contentions and the material brought on record by assessee. As decided in the case of Anantpur kalpana [2021 (12) TMI 599 - ITAT BANGALORE] that “where Assessing Officer made addition under Section 68 on account of cash deposited by assessee in its two bank account post demonetization, since said cash deposit was towards assessee’s sale proceeds which was already offered to tax by assessee and admitted by revenue as revenue receipt, impugned addition made under section 68, resulting in double taxation, were liable to be deleted.” Thus assessee has discharged his onus by showing prima facia material that the entire cash deposits was part sale transaction, thus, no addition of cash deposits was warranted. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cash deposits of Rs. 13,57,110 made during the demonetisation period, comprising old currency notes, can be treated as unexplained income and added to the assessable income where the assessee claims they are receipts from the business of railway ticket booking. 2. Whether the assessee discharged the statutory onus of explanation for cash deposits by producing business records (cash book, bank statement, client-wise details with addresses, ticket numbers and travel dates) and other contemporaneous material. 3. Whether the Assessing Officer was obliged to make independent enquiries (for example, with the principal/IRCTC, customers or on sample basis) before making an adverse addition, and whether failure to do so affects the validity of the addition. 4. Whether deposits representing business proceeds are liable to be taxed under special provisions for unexplained income (invocation of Section 115BBE or Section 68 type treatment), when they are supported by records showing onward remittance to the principal and only commission is taxable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of demonetised cash deposits as unexplained income Legal framework: The assessment of unexplained cash deposits is governed by the onus provisions relating to disclosure of source (Section 68 principles and comparable provisions; reference to special taxing provision invoked by AO, Section 115BBE, which targets income declared to be unexplained or illicit under statutory scheme). Precedent treatment: The Tribunal considered coordinate decisions holding that where cash deposits represent business receipts already offered to tax and supported by records, additions under unexplained-income provisions leading to double taxation are impermissible (reference to a coordinate bench decision in a factually similar post-demonetisation context). Interpretation and reasoning: The Tribunal examined the totality of material produced - bank statements showing flows, cash book, client-wise particulars with ticket numbers and travel dates, and evidence that amounts received were ultimately remitted to the principal (IRCTC) by card. The Tribunal found it was an admitted fact that the assessee carried on railway ticket booking business and that deposits related to that trade. The AO's conclusion that the deposits were unaccounted income rested on inferential reasoning that: (a) the assessee lacked authorisation to accept old notes; and (b) there was no evidence of cash-in-hand prior to deposit dates. The Tribunal rejected these inferences on the basis that the assessee produced prima facie material linking receipts to business transactions and showed use of the cash for onward payments to the principal. Ratio vs. Obiter: Ratio - where an assessee produces contemporaneous business records and bank flows demonstrating that cash deposits are proceeds of business transactions, an addition treating them as unexplained income is not justified absent adverse material or further enquiry by the revenue. Obiter - observations on the scope of the government's demonetisation concessions (press reports) are ancillary. Conclusion: The cash deposits during demonetisation were accepted as business receipts supported by records; additions as unexplained income were not upheld. Issue 2 - Sufficiency of the assessee's evidentiary onus Legal framework: Under the statutory scheme, once cash deposits are shown in bank records, the assessee must explain the source; the quality and nature of evidence required depend on the facts and may include books of account, vouchers, bank statements and corroborative material. The standard is to produce prima facie material that displaces the presumption of unexplained income. Precedent treatment: The Tribunal relied on authorities establishing that contemporaneous business records, client details and bank flows can satisfy the assessee's onus if they reasonably explain the deposits and show the deposits are business-related receipts. Interpretation and reasoning: The assessee furnished detailed client-wise accounts, cash book, bank passbook and evidence of payments to the principal (IRCTC) by debit card. The Tribunal found these materials constituted prima facie explanation of source and purpose of deposits. The AO did not dispute the documentary records on record nor carry out verification with the principal or customers to negative the claimed explanation. Ratio vs. Obiter: Ratio - production of adequate contemporaneous business records which link receipts to identifiable business transactions discharges the assessee's onus unless the revenue brings contrary material. Obiter - extent to which a specific press release endorsed accepting old notes need not be decisive. Conclusion: The assessee discharged the onus by producing business records and client particulars; therefore the deposits could not be treated as unexplained on the record before the AO. Issue 3 - Obligation and effect of revenue's failure to make independent enquiries Legal framework: When an assessee furnishes documentary explanation for receipts, the revenue must test that explanation by independent verification or by producing contrary material before making an adverse addition. Failure to undertake reasonable verification may render an addition unsustainable. Precedent treatment: The Tribunal referred to decisions where additions were deleted where the AO did not conduct elementary verification (e.g., calling representatives, querying the principal) and simply made adverse inferences. Interpretation and reasoning: The AO did not inquire with the principal (Akbar Online Booking/IRCTC), did not cross-check customers or call sample customers, and did not challenge the bank flow showing onward remittance. Given the documents on record, the AO's conclusion that the assessee was not authorised to accept old notes and therefore deposits were unexplained was deemed speculative. The Tribunal observed that absence of affirmative adverse material or verification undermined the AO's finding. Ratio vs. Obiter: Ratio - an AO cannot sustain additions as unexplained income solely on suspicion where the assessee furnishes prima facie documentary proof unless the AO brings contrary evidence or conducts reasonable verification; failure to do so requires deletion. Obiter - the exact scope of enquiries that should have been made in every case is fact-sensitive. Conclusion: The AO's failure to undertake or record independent meaningful enquiries rendered the addition unsustainable. Issue 4 - Application of special tax provisions (Section 115BBE / comparable provisions) to business receipts Legal framework: Special anti-evasion provisions target unexplained incomes; however, where amounts are explained as business receipts and documentation demonstrates legitimate dealings and taxation of the actual profits/commission, application of such provisions leading to double taxation is impermissible. Precedent treatment: The Tribunal considered authorities holding that taxation under special unexplained-income provisions cannot result in taxing amounts that are business receipts already offered to tax, especially where the amounts are shown to be merely pass-through funds remitted to the principal and only commission accrues to the agent. Interpretation and reasoning: The assessee's bank records evidenced that the cash received was remitted to IRCTC; only commission would constitute taxable income. Therefore, treating the entire deposits as unexplained income and invoking special provisions would amount to double taxation of receipts that were part of the business turnover and not the assessee's undisclosed income. Ratio vs. Obiter: Ratio - special provisions for unexplained income cannot be applied to treat business receipts as the assessee's unexplained income where records show the receipts are pass-through funds remitted to a principal and only commission is taxable. Obiter - the decision does not prescribe mechanistic tests for all agent-principal arrangements. Conclusion: The invocation of special taxing provisions to tax the entire deposits was incorrect on the factual matrix; only commission would be chargeable and the addition was therefore deleted. Overall Conclusion The Court found that (a) the assessee carried on a business of railway ticket booking; (b) adequate prima facie documentary evidence linked the demonetised cash deposits to business receipts and onward remittances to the principal; (c) the Assessing Officer made no independent enquiries or produced contrary material; and (d) consequently, treating the deposits as unexplained income and making an addition (including under special unexplained-income provisions) was unsustainable. The addition was deleted.