Mulloly Mahesh Vs ITO (ITAT Bangalore)
Bangalore ITAT Converts Section 69A Addition into Estimated Business Income; Entire Sales Receipts Cannot Be Taxed
The Bangalore ITAT in Shri Mulloly Mahesh v. ITO held that where bank deposits represented sales proceeds received from customers, the entire credits could not be treated as unexplained money under section 69A. Instead, only the profit element embedded in such receipts could be brought to tax.
The assessee, a partner in tyre businesses, explained that customers directly deposited sale proceeds into his bank account. The amounts were subsequently withdrawn and remitted to the partnership firm. During assessment, the assessee furnished party-wise details of deposits, dates of withdrawals, payments made to the firm, and confirmations, including a confirmation from a customer, Shri Senthil, who had made an advance payment for purchase of tyres. Despite these details, the Assessing Officer treated deposits aggregating ₹4,82,850 as unexplained money under section 69A.
The Tribunal examined the customer details, ledger accounts, confirmations and the flow of funds. It found that the deposits were linked to tyre sales and that the monies received from customers were ultimately transferred to the business. The Tribunal observed that once the credits represented sale consideration, the entire receipt could not be assessed as income because only the profit component arising from the business activity is taxable.
Accordingly, the ITAT set aside the addition made under section 69A and directed the Assessing Officer to estimate the assessee’s income at 8% of the impugned receipts, treating the deposits as business turnover rather than unexplained money. The appeal was therefore partly allowed.
Key Principle: Where cash deposits are established to be business receipts or sale proceeds, the entire amount cannot be taxed under section 69A; only a reasonable profit element can be brought to tax.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 16/10/2025 in respect of the A.Y. 2017-18.
