[Income Tax Act] Placing Funds In One Account Before Transferring It To Another Does Not Attract S. 69A: Allahabad High Court

The Allahabad High Court has upheld the finding of the Income Tax Appellate Tribunal and Commissioner of Income Tax (Appeals) that when an agreement between parties specifies a direct transfer of money, doing so indirectly by keeping the funds in a distinct account before sending them to the final account, does not place the money under the definition of 'unexplained money' as per Section 69A of the Income Tax Act, 1961. “The CIT(A) and the Tribunal were justified in coming to the conclusion that only on account of purported infraction of the Agreement between the FRB and the assessee, without there being any dispute regarding the amount collected by the assessee which, in turn, has been deposited with the FRB, the deposits in the bank account of assessee cannot be termed as unexplained cash deposits by the assessee,” held Chief Justice Arun Bhansali and Justice Vikas Budhwar. Case Background The assessee is in the business of supplying security, housekeeping and manpower. During Financial Year 2016-17, he entered into an agreement with the First Rand Bank (F.R.B.), to provide the manpower in order to collect loan instalments from micro borrowers. The arrangement was that the assessee would gather the money from the various borrowers and would deposit it in his own bank account, which would then be deposited into the account of the F.R.B. During assessment proceedings, the Assessing Officer sought explanations for large cash deposits in the account of the assessee, who provided documents to support the various transactions. However, the A.O. found the total income of the assessee to be more than the declared income by including cash-deposits as income under Section 69A of the Income Tax Act, 1961. The Assessee filed an appeal before the Principal Commissioner of Tax, which on understanding his business model, deleted the additional cash deposits from the total income calculated by the AO The PCIT deleted all the additions except for those stemming from the period of demonetisation. Aggrieved, both the assessee and the department filed appeals against the same. The Tribunal examined the agreement between the assessee and F.R.B., which stated that the assessee was to deposit the amount collected from the borrowers, into an account he made with the F.R.B. It held that given the fact that the assessee had deposited the total amount collected, with the Bank, it was immaterial that he did not hand it to them directly, especially in light of the fact that the parties to the agreement were not in dispute regarding this. The Tribunal held that the department had no reason to assess the income of the assessee on the sole contention that the assessee did not deposit the money directly into an account of the Bank. Further, it held that the exclusion done by the PCIT of the amount deposited by the assessee was not justified. It stated that the revenue did not make the case that the assessee did not receive Specified Bank Notes from the customers of the Bank and thus the same could not be condoned. Thereafter, the PCIT filed the present appeal before the High Court, contending that the Tribunal was not justified in passing the impugned order. It argued that the improper use of the agreement between the assessee and the bank attracted Section 69A of the Act and was a violation of the agreement itself, giving rise to a substantial question of law. High Court Verdict The Court held that the PCIT and the Tribunal had recorded the objection of the AO regarding the agreement and were right in holding that the large cash deposits in the account of the assessee could not be termed as unexplained cash deposits. It was held that the fact finding of both the aforementioned bodies did not give rise to a substantial question of law. Regarding the demonetisation period, the Court held that the PCIT rejected the appeal on the sole assumption that the assessee was not authorised to collect money in Specified Bank Notes, a finding that was overturned by the Tribunal. It was held that such transactions had been made by the assessee in the past and had been accepted by the PCIT prior to this. “The findings recorded by the Tribunal, are in consonance with the material available before it and by no stretch of imagination the deposits received by the respondent assessee from the micro borrowers of the FRB can be termed as unexplained cash deposits in his bank account. The findings recorded by the Tribunal do not give rise to any substantial question of law,” held the Court. Accordingly, the appeal was dismissed. Case Title: The Pr. Commissioner of Income Tax and Anr. v Sushil Kumar Sharma [INCOME TAX APPEAL No. - 86 of 2024]Click Here To Read/Download The Order

[Income Tax Act] Placing Funds In One Account Before Transferring It To Another Does Not Attract S. 69A: Allahabad High Court

Upasna Agrawal

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