2025 (5) TMI 684 - AT - Income Tax

Additions u/s 69A - treating cash withdrawals from the assessee s bank account as unexplained money - HELD THAT - Assessee who was personally present during the course of hearing we observe that the assessee is acting as Customer Service Point (CSP) agent for State bank of India through Save Solutions Pvt. Ltd. and the source of credit in the assessee s account by way of credit from the Save Solutions Pvt. Ltd. for which the ld. CIT (A) has given detail finding of fact. We note that the assessee is a very small agent acting on behalf of bank and whatever he withdraws was done on behalf of the bank. AO has simply treated the withdrawals from the account as unexplained u/s 69A which CIT (A) has correctly appreciated that the section 69A was not applicable. Source of money is not disputed and similarly the money withdrawn was also handled by the assessee as per the direction of State Bank of India. Appeal of the Revenue is dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] erred in admitting fresh evidence without calling for a remand report, allegedly in contravention of Rule 46A(3) of the Income Tax Rules, 1963;

(b) Whether the Assessing Officer (AO) was justified in making additions under section 69A of the Income Tax Act, 1961 by treating cash withdrawals from the assessee's bank account as unexplained money;

(c) Whether the contractual receipts credited to the assessee's account from Save Solutions Pvt. Ltd. were rightly added to income by the AO;

(d) The correctness of the Ld. CIT(A)'s factual and legal findings that the cash withdrawals represented amounts handled by the assessee as a Customer Service Point (CSP) agent on behalf of the bank and thus could not be treated as unexplained money under section 69A;

(e) The validity of the AO's assessment in the absence of proper inquiry into the source and nature of the credited and withdrawn amounts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Admission of fresh evidence without remand report under Rule 46A(3)

The Revenue contended that the Ld. CIT(A) improperly admitted fresh evidence during appellate proceedings without calling for a remand report from the AO, which was contrary to the procedural mandate of Rule 46A(3) of the Income Tax Rules, 1963. This rule requires that when fresh evidence is admitted, the AO must be given an opportunity to examine the evidence and submit a report before the appellate authority proceeds further.

The Tribunal noted this contention but observed that the primary issue before the appeal was the correctness of the addition under section 69A and the nature of the transactions in the assessee's bank account. The Tribunal did not find any material prejudice caused to the Revenue by the admission of fresh evidence, as the evidence related to the source and nature of the cash withdrawals and contractual receipts, which were undisputed facts supported by bank statements, commission certificates, and profit and loss accounts.

The Tribunal implicitly held that the procedural lapse, if any, did not vitiate the substantive correctness of the findings. The Tribunal gave precedence to the factual correctness and substantial justice over procedural technicalities.

Issue (b) and (d): Addition under section 69A on cash withdrawals as unexplained money

Section 69A of the Income Tax Act deals with unexplained money found in the possession of the assessee, allowing the AO to make additions to income if the assessee fails to satisfactorily explain the source of such money.

The AO made an addition of Rs.1,93,26,069/- treating the cash withdrawals through bearer cheques as unexplained money. The AO did not conduct any inquiry into the source of the credits into the bank account before making this addition.

The Ld. CIT(A), on appeal, examined the evidence submitted by the assessee, including the certificate from Save Solutions Pvt. Ltd., bank statements, details of commission earned, and profit and loss account. The CIT(A) found that the assessee was acting as a CSP agent appointed by Save Solutions Pvt. Ltd. on behalf of the State Bank of India. The credited amounts were transfers from Save Solutions Pvt. Ltd. representing customer transactions, which the assessee merely withdrew and disbursed to customers.

The CIT(A) held that withdrawals from the bank account could not be treated as unexplained money under section 69A because the source of the money was not disputed and was adequately explained as amounts handled on behalf of the bank. The addition under section 69A was thus not maintainable.

The Tribunal concurred with this reasoning, emphasizing that the AO's failure to verify the source of credits before making the addition was a significant lapse. The Tribunal highlighted that the assessee was a small agent acting on behalf of the bank, and the withdrawals represented amounts handled as per the bank's direction. The Tribunal held that the AO's treatment of withdrawals as unexplained money was incorrect and upheld the CIT(A)'s deletion of the addition.

Issue (c): Addition of contractual receipts of Rs.1,90,269/-

The AO also made an addition of Rs.1,90,269/- representing contract receipts from Save Solutions Pvt. Ltd. The assessee had declared this amount as commission income in the return filed on 19.04.2022 in response to the notice under section 148.

The CIT(A) observed that since the assessee had admitted this income in the return, the addition was not justified. The Tribunal agreed with this conclusion, noting that the contractual receipt was duly accounted for and admitted by the assessee, and hence the addition was rightly deleted.

Issue (e): Validity of AO's assessment in absence of proper inquiry

The Tribunal noted that the AO had not conducted any inquiry or verification regarding the source of the credited amounts before making the additions. The AO's approach was mechanical, treating withdrawals as unexplained money without examining the nature of the transactions or the role of the assessee as a CSP agent.

The Tribunal emphasized that such an approach was improper and contrary to principles of natural justice and fair assessment. The Tribunal endorsed the CIT(A)'s detailed factual findings and held that the AO's additions were unsustainable in law and fact.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following key legal determinations and principles:

"When the appellant withdraws money from the bank account it cannot be treated as unexplained money u/s 69A of the IT Act. Bank withdrawal cannot be unexplained money. The AO ought to have verified the sources of credits into the bank accounts. In this case, the source was transfer entries credited into his bank account as the appellant acted as CSP agent on behalf of Save Solutions Pvt Ltd. This sum only withdrawn and given to the respective customers. Hence, addition of unexplained money of Rs. 1,93,26,029/- is not maintainable as it was not unexplained money."

This principle establishes that mere withdrawal of funds credited by a known source, especially when the assessee acts as an intermediary or agent, does not constitute unexplained money under section 69A.

Further, the Tribunal held that income admitted by the assessee in the return cannot be subjected to addition without valid reason, reinforcing the principle of consistency and fairness in assessment.

The Tribunal's final determination was to dismiss the Revenue's appeal and uphold the deletion of the additions made by the CIT(A), thereby confirming that the AO's additions under section 69A and for contractual receipts were unsustainable.

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