The Income Tax Appellate Tribunal, Kolkata, has clarified that additions under Section 69A of the Income Tax Act cannot be sustained merely by computing the difference between bank credits and declared turnover. The Tribunal emphasized that a mechanistic approach, without examining the nature and source of individual transactions, violates the principles of natural justice and statutory interpretation.
Background & Facts
The Dispute
The assessee, Radhakrishna Forex Private Limited, is engaged in the business of buying and selling foreign currencies. During the financial year 2017-18, the company deposited a total of ₹61,76,92,850 in cash into its Bank of Baroda account, with total credits amounting to ₹62,42,88,850. The assessee filed its return of income under Section 139 for AY 2018-19 declaring a total turnover of ₹61,61,74,540 and a net income of ₹1,85,170.
Key Facts
- The bank account was opened on 22.08.2016
- The assessee submitted FLM-5 (Register of Sale of Foreign Currencies to the Public) and FLM-8 (Monthly Return of Sale and Purchase)
- For November 2016, declared sales were ₹60,64,000 while bank credits were ₹72,45,000 - a discrepancy noted by the Assessing Officer
- The assessee was summoned under Section 131 and asked to provide party-wise ledgers and travel documents (passports)
- The assessee did not comply with the request for party-wise ledgers or passport copies
- The Assessing Officer did not individually examine the source of each cash deposit or reconcile them with FLM-5/FLM-8 entries
- The difference between total bank credits (₹62,42,88,850) and declared turnover (₹61,61,74,540) was ₹81,14,310, which the AO treated as unexplained income under Section 69A
Procedural History
- 22.08.2016: Bank account opened by the assessee
- FY 2017-18: Cash deposits of ₹61,76,92,850 made into the account
- 2018: ITR-6 filed for AY 2018-19 showing turnover of ₹61,61,74,540 and income of ₹1,85,170
- 2019: Notice under Section 148 issued for reopening of assessment
- 2020: Assessment completed under Section 147 read with Section 144B, adding ₹81,14,310 as unexplained income
- 2025: Appeal filed before Commissioner of Income Tax (Appeals)-NFAC, Delhi
- 30.10.2025: CIT(A) dismissed the appeal, upholding the addition
- 2025: Appeal filed before ITAT Kolkata
- 12.03.2026: Hearing concluded
- 02.04.2026: Tribunal delivered order
Relief Sought
The assessee sought deletion of the addition of ₹81,14,310 under Section 69A, arguing that the source of all deposits was the sale of foreign currencies, substantiated by FLM-5 and FLM-8 records, and that the CIT(A) failed to conduct an independent analysis.
The Legal Issue
The central question was whether Section 69A of the Income Tax Act permits an addition based solely on the arithmetic difference between total bank credits and declared turnover, without examining the nature, source, and documentation of individual cash deposits.
Arguments Presented
For the Appellant
The assessee contended that the entire cash deposit was from legitimate forex transactions, supported by FLM-5 and FLM-8 records maintained as per Reserve Bank of India guidelines. It argued that the Assessing Officer and CIT(A) failed to conduct a granular analysis of the deposits, instead relying on a mechanical computation of the difference. The assessee emphasized that the burden under Section 69A shifts only after the department establishes a prima facie case of unexplained credit, which was not done here. It further submitted that the failure to produce passports or party-wise ledgers did not automatically render the income unexplained, especially where primary documents (FLM-5/FLM-8) were submitted.
For the Respondent
The Department relied on the CIT(A)'s order, arguing that the assessee failed to satisfactorily explain the difference between bank credits and declared turnover. It contended that the absence of party-wise ledgers and travel documents rendered the explanation incomplete and that the Tribunal should uphold the addition as the assessee did not discharge its burden under Section 69A.
The Court's Analysis
The Tribunal observed that the Assessing Officer and the CIT(A) had adopted a superficial approach by treating the entire difference of ₹81,14,310 as unexplained income without examining whether individual deposits could be traced to the assessee’s forex business. The Tribunal noted that the assessee had submitted FLM-5 and FLM-8, which are statutory records under RBI regulations for forex dealers, and that these documents, if properly analyzed, could have established the source of deposits.
"The Ld. AO has not examined the entries in the bank statement in conjunction with the FLM-5 and FLM-8 records to determine whether the excess credit corresponds to legitimate transactions. The mere fact that the assessee did not produce passports or party-wise ledgers does not ipso facto make the entire difference unexplained."
The Tribunal held that the CIT(A) merely reiterated the AO’s findings without conducting an independent review. The order of the CIT(A) was found to be non-speaking and devoid of reasoning on the merits of the documents submitted. The Tribunal emphasized that Section 69A requires a contextual and transaction-specific analysis, not a blanket addition based on arithmetic disparity.
The Tribunal further noted that the assessee had not been given a meaningful opportunity to explain the discrepancy in the context of its business model. The failure to comply with a request for passports or ledgers, without considering the nature of the business and the availability of alternative documentation, cannot be the sole basis for an addition under Section 69A.
The Verdict
The appeal was partly allowed for statistical purposes. The Tribunal set aside the order of the CIT(A) dated 30.10.2025 and restored the appeal to the CIT(A) for fresh adjudication. The CIT(A) was directed to examine the FLM-5 and FLM-8 records in detail, reconcile them with bank statements, and pass a speaking order after giving the assessee a reasonable opportunity to submit further evidence. The CIT(A) was also directed to afford an opportunity to the Assessing Officer if required, and to comply with Rule 46A of the Income Tax Rules, 1962.
What This Means For Similar Cases
Unexplained Income Cannot Be Presumed by Arithmetic Difference
- Practitioners must argue that Section 69A additions require transaction-level scrutiny, not mere subtraction of declared turnover from total credits
- A blanket addition based on difference is legally unsustainable unless the department proves the absence of any plausible source
- Submission of statutory business records (e.g., FLM-5/FLM-8 for forex dealers) must be evaluated on their own merit, even if ancillary documents are missing
Documentary Evidence Must Be Analyzed, Not Ignored
- Courts and tribunals must examine whether the documents submitted are credible and sufficient to explain the source
- Failure to produce one type of document (e.g., passports) does not invalidate all other documentary evidence
- For regulated businesses (forex, money changers, etc.), compliance with sector-specific record-keeping norms must be recognized as prima facie proof of source
Procedural Fairness in Reopening Assessments
- Assessing Officers must conduct a meaningful analysis before invoking Section 147
- Appeals officers must not merely endorse AO’s orders - they must independently apply their mind
- Non-speaking orders by CIT(A) are liable to be set aside, as they violate principles of natural justice
