2025 (6) TMI 976 - AT - Income Tax

Taxpayer Wins Appeal Against Income Tax Assessment by Proving Legitimate Business Transactions and Bank Deposits

ITO, Balurghat Versus Debasish Das

The SC reviewed a tax dispute involving a Customer Service Point (CSP) and unexplained bank deposits. The AO had added Rs. 1,47,91,020 as unexplained ... Unexplained income - cash deposits in the bank account - HELD THAT:- Assessee deals in CSP [Customer Service Point] and having very marginal income i.e. below the taxable amount so the assessee did not file return of income. During the course of appellate proceedings, the assessee filed submission in the form of bank statement, trading and profit and loss account, balance sheet computation etc. CIT(A) called for remand report from the AO. CIT(A) directed the AO to verify the bank account submitted detailed report about correctness of additional report towards unexplained income. AO in its remand report has submitted that in absence of any explanation / submission received from the assessee during assessment proceedings. The nature and source of the credit entries in the bank account of the assessee remained unexplained. CIT(A) has discussed the remand report in its order and observed that no discrepancy were pointed out by the AO and no comments have been made on the assessee’s activities in the remand report. CIT(A) correctly held CSP act as a bridge between the bank and the customers. CSPs are used by the banks to meet the requirements of the customers without establishing the branches at non-feasible areas. RBI statistics shows that there are several lakhs of such CSPs are working now in India. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDERED- Whether the Assessing Officer (AO) was justified in making an addition of Rs. 1,47,91,020/- towards unexplained income based on cash deposits in the bank account of the assessee who did not file return of income for AY 2018-19Rs.- Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in deleting the addition on the basis of fresh evidence submitted during appellate proceedings, without remanding the matter back to the AO for verification, in contravention of Rule 46A(3) of the Income Tax RulesRs.- Whether the nature of the bank transactions and the business activity of the assessee as a Customer Service Point (CSP) justifies the deletion of the addition made by the AORs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification of addition of unexplained income by AO based on cash deposits and non-filing of returnRelevant Legal Framework and Precedents: Under the Income Tax Act, the AO has the authority to initiate reassessment proceedings under section 148 if income has escaped assessment. Section 144 empowers the AO to make best judgment assessments where the assessee fails to file return or cooperate. The AO's addition of Rs. 1,47,91,020/- was based on unexplained cash deposits and the assessee's failure to file return within prescribed time under section 139.Court's Interpretation and Reasoning: The AO relied on bank information obtained under section 133(6) and noted the large cash deposits without explanation or filing of return. The AO treated these deposits as unexplained income and made the addition accordingly.Key Evidence and Findings: The AO had documentary evidence from the bank and no submissions or explanations from the assessee during assessment proceedings. The assessee did not appear or file return despite notice under section 148.Application of Law to Facts: The AO's action in making addition under section 144 read with section 147 was prima facie justified given non-filing and unexplained cash credits.Treatment of Competing Arguments: The revenue relied on the above facts to sustain the addition. The assessee, though absent, later submitted documents during appellate proceedings.Conclusions: The AO's addition was legally sustainable at the assessment stage based on unexplained cash credits and non-cooperation by the assessee.Issue 2: Legality of CIT(A)'s admission of fresh evidence and deletion of addition without remand to AORelevant Legal Framework and Precedents: Rule 46A(3) of the Income Tax Rules mandates that when fresh evidence is admitted by the appellate authority, the matter should be remanded to the AO for verification and report before deciding the appeal.Court's Interpretation and Reasoning: The CIT(A) admitted fresh evidence in the form of bank statements, trading accounts, profit and loss accounts, balance sheet, and computations submitted during appellate proceedings. The CIT(A) called for a remand report from the AO to verify the correctness of the additional income determined.Key Evidence and Findings: The AO submitted a remand report stating that no explanation was received during assessment and the nature and source of credits remained unexplained. However, the CIT(A) noted that the AO did not point out any discrepancies or adverse comments on the assessee's activities in the remand report.Application of Law to Facts: Although the CIT(A) admitted fresh evidence and called for a remand report, it appears that the CIT(A) did not send back the evidence itself to the AO for verification but relied on the remand report as received. The revenue argued this was contrary to Rule 46A(3).Treatment of Competing Arguments: The revenue contended that the CIT(A) erred by not remanding the fresh evidence to the AO for verification and deciding appeal solely on appellate record. The CIT(A) and the Tribunal found that the AO's remand report did not contradict the fresh evidence or point out discrepancies.Conclusions: The Tribunal found no infirmity in CIT(A)'s approach as the AO's remand report did not dispute the fresh evidence. The procedural lapse, if any, did not prejudice the revenue's case.Issue 3: Nature of bank transactions and business activity as CSP justifying deletion of additionRelevant Legal Framework and Precedents: The nature of business and explanation of bank transactions are relevant to determine whether cash credits constitute unexplained income. CSPs act as intermediaries or agents providing banking services such as cash deposits, withdrawals, fund transfers, sale of mutual funds and insurance products, often handling numerous small transactions.Court's Interpretation and Reasoning: The CIT(A) analyzed the bank statement showing numerous debit and credit transactions of varying amounts from Rs. 20 to Rs. 2,38,000 spread over 49 pages with about 70 transactions per page. The CIT(A) explained the role of CSPs as agents bridging banks and customers, handling multiple small transactions as part of their business.Key Evidence and Findings: The assessee's submissions included bank statements, trading and profit and loss accounts, balance sheets and computations. The AO's remand report did not dispute these documents. The CIT(A) found that the transactions were consistent with CSP activity and that the assessee's income was marginal and below taxable limits.Application of Law to Facts: The explanation of the business activity and the detailed bank transactions supported the conclusion that the cash credits were legitimate business receipts rather than unexplained income.Treatment of Competing Arguments: The revenue argued that the large cash deposits were unexplained and the assessee failed to file return or explain during assessment. The CIT(A) and Tribunal gave weight to the nature of CSP business and the detailed evidence submitted during appeal, which was not contradicted by AO's remand report.Conclusions: The Tribunal upheld the CIT(A)'s finding that the bank transactions were consistent with CSP activity and did not constitute unexplained income, justifying deletion of addition.3. SIGNIFICANT HOLDINGS'The main issue in the appeal is pertaining to the credit and debit entries of small amounts in the bank account statement bearing no. 34237976729 in State Bank of India. As verified from the bank account statement, it is noticed that there are 49 pages of transactions and each page contain approximately 70 transactions of both debit and credit with the varying amounts per transactions from Rs. 20/- (minimum amount) to Rs. 2,38,000/- (maximum amount). The appellant stated that he is functioning as CSP. It is important to know the activity of a CSP to understand the nature of entries in the impugned bank account. As per the banking terminology, CSP stands for Customer Service Point. A person appointed as CSP by the bank offers his/her basic services of the bank to customers like account opening, cash deposit, cash withdrawal and fund transfers; also provides services of sale of units of mutual funds, insurance products. CSPs also provides banking services at the door step of the customers. In principle, a CSP acts as an intermediary or agent for banking services. In brief, CSP act as a bridge between the bank and the customers. CSPs are used by the banks to meet the requirements of the customers without establishing the branches at non-feasible areas. RBI statistics shows that there are several lakhs of such CSPs are working now in India.'Core principles established include:- Mere unexplained cash deposits do not ipso facto constitute income if the nature of business and transactions are satisfactorily explained and supported by evidence.- Admission of fresh evidence during appellate proceedings requires proper procedure, but if the AO's remand report does not dispute such evidence, the appellate authority may decide the appeal without remanding again.- The role and functioning of CSPs as agents facilitating multiple small banking transactions must be taken into account in assessing unexplained cash credits.Final determinations:- The addition of Rs. 1,47,91,020/- made by the AO towards unexplained income was deleted by the CIT(A) on the basis of fresh evidence and nature of business.- The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal and confirming that the assessee's bank transactions were consistent with CSP activity and did not represent unexplained income.