The Ahmedabad Income Tax Appellate Tribunal set aside hefty additions under section 69A for a business correspondent, holding that cash deposited in his BC account does not constitute his income. The decision refines the scope of section 69A and provides a clear test of ownership for taxability of bank transactions.
Background & Facts
The Dispute
The appellant, Govindbhai Rameshbhai Asari, is an individual who worked as a Business Correspondent (BC) for Baroda Gujarat Gramin Bank (FBC-KO Code 15550052). He operated a dedicated BC settlement account through which customers in under-banked rural areas deposited and withdrew cash. The Assessing Officer (AO) treated the total cash flow through this account as assessable income under section 69A of the Income Tax Act, 1961, for Assessment Years (AY) 2019-20 and 2020-21.
Key Facts
- Business role: BC for Baroda Gujarat Gramin Bank, handling customer transactions in a fiduciary capacity.
- Bank account: BC settlement account, not a personal or proprietary account.
- Cash flow:
- AY 2019-20: Cash deposits of Rs 36,06,061 and unexplained cash withdrawals of Rs 3,12,40,900, total addition of Rs 3,48,46,961 under section 69A.
- AY 2020-21: Additions comprised Rs 59,548 (cash deposit), Rs 4,46,981 (commission estimated at 1%), Rs 86,812 (contract receipt), and Rs 3,745 (other sources), totalling Rs 5,97,086.
- Commission earned: Actual commission of Rs 90,790 (0.29% of withdrawals) as per bank records, far lower than the 1% flat rate used by the AO.
- Bank evidence: Letter from Gujarat Gramin Bank dated 19-05-2026 confirming the BC nature of transactions and that income was below taxable limit.
- Statutory provisions invoked: Sections 148, 147 r.w.s. 144, and 69A of the Income Tax Act, 1961.
Procedural History
- 31-12-2025 & 24-12-2025: CIT(A) orders reopening assessments under section 148 and adding amounts under section 69A.
- 18-08-2026: Hearing before ITAT Ahmedabad "C" Bench.
- 02-09-2026: Judgment pronounced, partially allowing appeals and deleting additions.
- Prior proceedings: Assessments originally passed under section 147 r.w.s. 144 and 144B; appeals dismissed by CIT(A) for non-compliance.
Relief Sought
The appellant sought:
- Cancellation of the additions made under section 69A for both assessment years.
- Restoration of the original tax demand (which was nil) and remission of interest and penalties.
- Costs of the appeal.
The Legal Issue
Whether the cash deposited and withdrawn through a Business Correspondent’s settlement account can be treated as assessable income of the BC under section 69A of the Income Tax Act, 1961, when the money belongs to the bank’s customers and the BC acts only as an intermediary.
Arguments Presented
For the Appellant
- The BC account is a fiduciary conduit; money passing through does not become the assessee’s income.
- The AO failed to produce any evidence that the cash belonged to the assessee.
- Commission earned was Rs 90,790, not the 1% of turnover assumed by the AO.
- Reliance on Baidyanath Dutta v. ITO (ITA No. 304/Kol/2026) which held that section 69A cannot be invoked without proof of ownership.
- The bank’s letter dated 19-05-2026 confirms income below taxable limit.
For the Respondent
- The AO argued that unexplained cash deposits and withdrawals indicated undisclosed income.
- The AO applied a presumptive 1% commission rate in the absence of audited accounts.
- CIT(A) held that reopening of assessment was valid due to non-compliance and the existence of large cash transactions.
The Court's Analysis
The Tribunal began by examining the statutory scope of section 69A, which empowers the Assessing Officer to add income arising from cash deposits exceeding Rs 50,000 in a bank account when the source of the money is not explained. The Court emphasized that the provision is a tool of last resort and its invocation requires a factual nexus between the assessee and the cash in question.
"The money belonging to bank's customers is handled by the assessee as an agent or intermediary. It does not become his income merely because it passes through an account operated in his name."
The Tribunal noted that a Business Correspondent operates under a contractual arrangement with the bank, maintaining a BC settlement account that is expressly designated for facilitating customer transactions. The account is not a personal account; therefore, the cash flow through it is fiduciary in nature. The Court referred to the decision in Baidyanath Dutta v. ITO (ITA No. 304/Kol/2026) which held that section 69A cannot be applied where the assessee does not have ownership or control over the deposited money.
The Court scrutinised the AO’s reliance on a flat 1% commission estimate. It observed that the assessee had produced bank-issued certificates showing actual commission of Rs 90,790 (0.29% of withdrawals) for AY 2019-20 and similar low rates for AY 2020-21. The Tribunal held that the AO’s presumptive addition was arbitrary and unsupported by evidence.
Regarding the cash withdrawals labelled “unexplained” amounting to Rs 3,12,40,900 for AY 2019-20, the Tribunal found that these withdrawals were made on behalf of various customers and were duly reflected in the bank statements. No documentary proof was offered to demonstrate that the withdrawn amounts were the assessee’s income. Consequently, the addition under section 69A was deleted.
The Court also addressed the procedural aspect of reopening assessments under section 148. It affirmed that the reopening was valid because the Assessing Officer had received information about substantial cash transactions and the assessee failed to cooperate during the assessment proceedings. However, the validity of reopening did not justify the subsequent additions under section 69A where ownership was not established.
In sum, the Tribunal applied a two-fold test: (i) whether the cash in the account belongs to the assessee, and (ii) whether the Assessing Officer has produced concrete evidence of such ownership. Failure on either count renders the addition under section 69A untenable.
The Verdict
Both appeals were partly allowed. The Tribunal deleted the addition of Rs 3,48,46,961 for AY 2019-20 and the addition of Rs 5,97,086 for AY 2020-21. Consequently, the total tax effect of Rs 5,60,02,066 claimed by the Revenue was erased. No interest, penalty, or costs were awarded against the appellant. The order is effective immediately.
What This Means For Similar Cases
Ownership Must Be Proven
- Tax practitioners must ensure that any addition under section 69A is backed by clear documentary proof that the cash belongs to the assessee.
- Bank statements alone are insufficient; a certification from the bank confirming the fiduciary nature of the account is essential.
Presumptive Taxation Is Not Automatic
- Relying on a flat percentage commission without audited financials is vulnerable to reversal.
- Clients should maintain detailed records of actual commissions earned and be prepared to produce them.
Reopening Assessments Requires Compliance
- While reopening under section 148 is permissible on receipt of information, non-compliance by the assessee can lead to adverse orders, but it does not justify arbitrary additions.
- Counsel should advise clients to cooperate fully during assessment proceedings to avoid adverse consequences.
