Ramesh Kandakatla Vs ITO (ITAT Hyderabad)
Hyderabad ITAT Deletes ₹24.96 Lakh Section 69A Addition: Cash Handled by SBI Business Correspondent Belongs to Bank Customers, Not the Agent
The Income Tax Appellate Tribunal, Hyderabad Bench, allowed the appeal filed by Ramesh Kandakatla for Assessment Year 2017-18 and directed the Assessing Officer (AO) to vacate the addition of Rs. 24,96,000 made under Section 69A of the Income-tax Act, 1961, holding that the cash deposits represented transactions undertaken by the assessee in his capacity as a Business Correspondent (BC)/Customer Service Point (CSP) of State Bank of India rather than his own unexplained money. The order was pronounced on 07 August 2026, following conclusion of hearing on 15 June 2026.
The assessee had filed his return of income for AY 2017-18 on 31 March 2018, declaring income of Rs. 1,10,090. The AO subsequently received information regarding substantial financial transactions in the assessee’s bank account, including cash deposits of Rs. 13,96,000 during the demonetisation period from 09.11.2016 to 30.12.2016, and total cash deposits of Rs. 24,96,000 during the relevant year in Current Account No. 31593392331 maintained with State Bank of India, Narsampet Branch. The AO issued notice under Section 143(2) dated 26.09.2018 and subsequently issued notices under Section 142(1) dated 28.01.2019, 24.05.2019 and 29.10.2019, requiring the assessee to explain the bank-account entries.
The AO held that the assessee had failed to furnish a satisfactory explanation regarding the source of the cash deposits. Accordingly, the entire Rs. 24,96,000 was treated as unexplained money under Section 69A, and the assessment order under Section 143(3) dated 16.12.2019 determined the assessee’s income at Rs. 26,06,090. The assessee challenged the assessment before the CIT(A), but the appeal was unsuccessful, leading to the appeal before the Tribunal.
Before the Tribunal, the assessee challenged the assessment on several grounds. These included the validity of the assessment, alleged non-receipt of notice under Section 142(1) and show-cause notice, the additions made by the AO, and particularly the treatment of the Rs. 24,96,000 bank deposits as unexplained money under Section 69A. The assessee also challenged the application of Section 115BBE, interest of Rs. 7,89,860, and initiation of penalty proceedings under Section 272A(d).
At the threshold of the hearing, the assessee sought admission of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, namely a certificate dated 22.04.2026 issued by the Branch Manager, State Bank of India, ACB, Narsampet Branch. The certificate stated that during the relevant year the assessee was working as an SBI Customer Service Point operator bearing Code No. 5E840000 at Relakunta Village. It further stated that the assessee maintained Settlement/Current Account No. 31593392331 through which transactions were carried out in his capacity as a Business Correspondent/Bank Agent and that he earned approximately Rs. 15,000 per month from the banking services.
The Tribunal admitted the certificate under Rule 29. It observed that the certificate was not available before the lower authorities and had a material bearing on the adjudication. The Tribunal also noted that the assessee’s claim that he was functioning as an SBI Business Correspondent had already been supported before the lower authorities by documentary evidence, including the bank appointment letter, SBI identity card, bank statements and Daily Transaction Register recording amounts received from account holders and corresponding transfers to their accounts.
On the substantive issue, the assessee’s authorised representative submitted that the cash deposits did not belong to the assessee personally. According to the submission, the assessee was acting as a Business Correspondent/Agent of SBI and collected cash from bank customers for onward transfer or deposit into their respective accounts. The bank appointment letter and identity card established his status as a Business Correspondent, while the bank statements and Daily Transaction Register were relied upon to demonstrate the nature of the transactions. The assessee also submitted that the transactions were undertaken through Current Account No. 31593392331 in his capacity as BC/CSP bearing Code No. 5E840000.
The assessee further relied upon the Daily Transaction Register extracts covering 09.11.2016 to 16.11.2016, corresponding to part of the demonetisation period, and compared the entries in that register with the transactions reflected in the current account. It was submitted that the documents demonstrated that the deposits were connected with his functions as SBI Business Correspondent/Customer Service Point and not with his individual capacity.
The Departmental Representative supported the orders of the lower authorities. It was submitted that the assessee had not furnished the complete Daily Transaction Register covering the entire demonetisation period from 09.11.2016 to 30.12.2016, since the extracts supplied related only to 09.11.2016 to 16.11.2016. The Department also pointed out that Rs. 13,96,000 out of the total cash deposits of Rs. 24,96,000 had been deposited during the demonetisation period and submitted that the volume of such deposits raised doubts concerning the assessee’s explanation.
In response, the assessee’s authorised representative referred to the Reserve Bank of India letter dated 08.11.2016 addressed to the Chairman/Managing Directors of banks concerning withdrawal of the legal tender status of existing Rs. 500 and Rs. 1,000 banknotes. The assessee submitted that the communication authorised Business Correspondents to exchange Specified Bank Notes (SBNs) up to Rs. 4,000 per person, subject to the prescribed conditions, and permitted banks, at their discretion, to enhance the cash holding limits of Business Correspondents at least until 30.12.2016. On that basis, the assessee submitted that the cash deposits during the demonetisation period were amounts collected from customers in the course of his authorised banking functions.
The Tribunal explained the role of a BC/CSP, describing it as an outlet established by a bank through an authorised Business Correspondent to provide basic banking services, particularly in rural and semi-urban areas. The Tribunal stated that such services could include acceptance of cash deposits and withdrawals, fund transfers, Aadhaar Enabled Payment System transactions, Direct Benefit Transfer payments, collection of loan instalments and utility bill payments, among other banking services authorised by the bank. It observed that a Business Correspondent acts as an agent of the bank and performs banking transactions under its supervision and control.
The Tribunal further observed that cash deposits routed through a Business Correspondent’s bank account ordinarily represent money received from customers for deposit or transfer into their respective accounts on behalf of the bank. Although substantial amounts may pass through such an account, the Tribunal stated that these amounts do not constitute the Business Correspondent’s own money but represent funds handled in a fiduciary capacity as an agent of the bank.
Applying these observations to the case, the Tribunal relied upon the 22.04.2026 SBI certificate, which categorically certified that the assessee operated an SBI CSP at Relakunta Village bearing Code No. 5E840000 and that transactions through Current Account No. 31593392331 during Financial Year 2016-17 were undertaken in his capacity as a Bank Agent/Business Correspondent. The certificate also recorded his commission income of Rs. 15,000 per month. The Tribunal examined the certificate together with the Daily Transaction Register and the current-account transactions.
On that conjoint examination, the Tribunal agreed with the assessee’s contention that the impugned transactions represented cash collected from bank customers in his capacity as an authorised Business Correspondent, followed by corresponding transfers to their respective accounts. It found that the assessee was acting as an intermediary on behalf of the bank and was not dealing with his own funds. The Tribunal held that the documentary evidence, read with the SBI certificate, established that the cash deposits represented money collected from bank customers while the assessee discharged his duties as a Business Correspondent and therefore could not be treated as his unexplained money for the relevant year.
The Tribunal also considered the Department’s objection concerning the Rs. 13,96,000 deposited during demonetisation. It referred to the RBI communication dated 08.11.2016 and noted the authorisation of Business Correspondents to exchange SBNs up to Rs. 4,000 per person and the facility for banks to enhance BC cash-holding limits during the demonetisation period. The Tribunal accepted the explanation that, given the circumstances during demonetisation, increased cash collections by a Business Correspondent operating in a rural area were consistent with the additional banking functions being performed. It therefore held that the increased cash deposits during this period could not, by themselves, be treated as adverse to the assessee.
The Tribunal concluded that, considering the totality of the facts and the documentary evidence, no adverse inference could be drawn merely because substantial cash deposits passed through the assessee’s current account while he was acting as an SBI Business Correspondent. It also observed that the Revenue had not brought material on record to dislodge the assessee’s explanation, which was corroborated by the records maintained by him and the certificate issued by SBI.
Accordingly, the Tribunal held that the lower authorities had erred in treating the Rs. 24,96,000 deposited in Current Account No. 31593392331 as the assessee’s unexplained money under Section 69A. It set aside the CIT(A)’s order and directed the AO to vacate the addition of Rs. 24,96,000 under Section 69A. The assessee’s appeal was consequently allowed. The order was pronounced in the open Court on 07 August 2026.
