ITO Vs Thiyagarajan Raja (ITAT Chennai)
Chennai ITAT Upholds 2% Commission Estimation: Entire Cash Deposits of E-Seva Operator Cannot Be Taxed Under Section 69A
The Chennai ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s decision to tax only the profit element embedded in the transactions, holding that the entire cash deposits of ₹1.40 crore could not be treated as unexplained money under Section 69A when the assessee had established that he was carrying on a genuine E-Seva facilitation business.
The assessee operated an E-Seva centre, providing services such as Aadhaar corrections, PAN card facilitation, electricity bill payments, government certificate services and IRCTC bookings. Based on information from the Insight Portal, reassessment proceedings were initiated and the Assessing Officer treated ₹1.40 crore of bank credits as unexplained money under Section 69A and ₹51.71 lakh of credit card payments as unexplained expenditure under Section 69C.
Before the CIT(A), the assessee produced extensive evidence including proof of business activities, bank and credit card statements, daily sales register, photographs of business premises, computation of income and details explaining the customer-reimbursement model of operations. Verification from the Tamil Nadu Government’s E-Seva portal also confirmed that the assessee was a recognised service provider carrying out various public utility services.
The Tribunal noted that the bank transactions consisted of numerous small-value receipts and payments connected with utility bills, government services and travel bookings, which corroborated the assessee’s explanation that the deposits largely represented customer collections and reimbursements rather than his own income. It observed that the Assessing Officer had ignored the evidence and mechanically treated the entire turnover as unexplained money.
The ITAT emphasized that Section 69A is a deeming provision and cannot be applied unless the Revenue first establishes that the amount represents income of the assessee. Merely because formal books of account were not maintained by a small-scale service provider, it could not be presumed that all cash deposits constituted undisclosed income. The Tribunal accepted that the assessee operated on minimal commission margins and that only the income component embedded in the receipts could be brought to tax.
Accordingly, the Tribunal upheld the CIT(A)’s approach of estimating income at 2% of the total receipts of ₹1.40 crore, resulting in taxable income of ₹2.81 lakh, and confirmed the deletion of the Section 69C addition of ₹51.71 lakh, observing that the credit card payments were part of the same business activity and stood covered while taxing the commission income. The Revenue’s appeal was therefore dismissed in full.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
1. The order of the Ld. CIT (A) is erroneous in law, facts of the case and circumstances of the case and hence not sustainable.
