Sanjay Audhesh Mishra Vs ITO (ITAT Nagpur)
Mere Movement of Funds for Making Client’s VAT Payment Cannot Be Taxed as Unexplained Money Under Section 69A: ITAT Nagpur
ITAT Nagpur Deletes ₹9.58 Lakh Section 69A Addition on VAT Payment
The Nagpur Bench of the Income Tax Appellate Tribunal has held that an amount received and routed for making VAT payment on behalf of another person cannot be treated as unexplained money under section 69A, where the assessee establishes the complete transaction trail through ledger accounts, bank statements, VAT challan and corresponding entries in the books of the concerned parties.
The decision was rendered in the case of Sanjay Audhesh Mishra v. ITO, Ward-3, Amravati, concerning Assessment Year 2017-18.
Facts of the Case
The assessee was an individual who had not originally filed his return of income for AY 2017-18. The Department received information regarding cash deposits aggregating to ₹77,70,705 in his savings bank account and salary income of ₹36,890 received during the relevant year.
Based on this information, the case was reopened under section 147 after issuing the statutory notices. In response to the notice under section 148, the assessee filed his return declaring total income of ₹4,45,860.
During the reassessment proceedings, the Assessing Officer noticed transactions involving the assessee, Mr. Rajesh Shankarlal Rathi and Mr. R.R. Mundhada. In the assessee’s ledger account, there was an entry of ₹9,58,720, representing payment connected with Mr. R.R. Mundhada.
The assessee was called upon to explain the transaction.
Assessee’s Explanation
The assessee explained that Mr. R.R. Mundhada was a dealer registered under the Maharashtra Value Added Tax law and was required to pay outstanding VAT of ₹9,57,620 on 20.04.2016.
Due to shortage of funds, Mr. Mundhada requested the assessee to arrange the payment of the VAT challan. However, the assessee himself did not have sufficient funds on that date. He therefore requested Mr. Rajesh Shankarlal Rathi to make the online payment.
Mr. Rathi paid the VAT challan of ₹9,57,620 into the Government account and charged ₹1,100 as facilitation charges for making the electronic payment. The aggregate amount thus came to ₹9,58,720.
The assessee thereafter paid the amount to Mr. Rathi. Subsequently, Mr. Mundhada reimbursed the assessee, and the account was cleared during the same financial year.
The assessee, therefore, contended that the amount did not represent his income or unexplained money. He had merely facilitated the payment of a statutory liability belonging to another registered dealer.
The Assessing Officer, however, was not satisfied with the explanation, mainly because the assessee had not produced Mr. Rajesh Shankarlal Rathi along with the relevant account statement. The entire sum of ₹9,58,720 was consequently added under section 69A as unexplained money. The CIT(A) confirmed the addition.
Evidence Produced Before the Tribunal
Before the Tribunal, the assessee filed a paper book containing comprehensive evidence explaining the entire transaction. It included the assessee’s affidavit, ledger accounts of the assessee and Mr. Rathi, extracts from the books of both parties, ledger accounts of Mr. Mundhada, extract of Mr. Rathi’s cash book, the M-VAT challan evidencing payment of ₹9,57,620 and the assessee’s bank statement reflecting receipt of the amount from Mr. Mundhada.
The assessee also produced assessment orders passed in his own case for AYs 2015-16 and 2016-17. In those years, the Assessing Officer had examined and accepted that the assessee regularly facilitated electronic payment of Government taxes on behalf of various persons.
For AY 2015-16 itself, the assessment records showed that approximately ₹1.41 crore had been utilised for making electronic payments of Government taxes. The records also reflected transactions with Mr. Rajesh Shankarlal Rathi, thereby corroborating that the parties had a continuing business relationship.
Findings of the Tribunal
After examining the documents and transaction trail, the Tribunal was satisfied that the disputed amount related to payment of M-VAT of ₹9,57,620 and facilitation charges of ₹1,100.
The payment had initially been made by Mr. Rathi on behalf of the assessee, who had undertaken to facilitate the VAT payment of Mr. Mundhada. The VAT challan established that the amount was actually deposited into the Government account. The ledger accounts and bank statements further established the flow and subsequent reimbursement of funds.
The Tribunal also noticed that the assessee had made another VAT payment of ₹3,79,115 on behalf of Mr. Mundhada and had received an aggregate reimbursement of ₹13,37,835 in relation to the two VAT payments and the facilitation charges.
Thus, the amount was not found to be unexplained money belonging to the assessee. It represented an identifiable and fully documented payment made on behalf of another person.
The Tribunal accordingly held that the CIT(A) had grossly erred in confirming the addition. The addition of ₹9,58,720 under section 69A was deleted, and the assessee’s appeal was allowed.
Author’s Comments
Section 69A can be invoked where an assessee is found to be the owner of money, bullion, jewellery or another valuable article that is not recorded in the books and for which no satisfactory explanation regarding its nature and source is offered.
Therefore, mere receipt or movement of money through an assessee’s account does not automatically establish ownership of such money. The Department must consider the nature, source, destination and commercial purpose of the transaction.
In the present case, the VAT challan proved that the amount ultimately reached the Government account. The ledger accounts established the relationship among the parties, and the bank statement confirmed reimbursement by the person whose VAT liability had been discharged. The assessments of earlier years further demonstrated that facilitating electronic payment of Government dues was a regular activity of the assessee.
The decision highlights the importance of maintaining a complete documentary trail where a person makes statutory payments on behalf of clients or other parties. Ledger confirmations, bank statements, challans, correspondence and evidence of reimbursement should be preserved carefully.
Although the principle of res judicata does not strictly apply to income-tax proceedings, an established factual pattern accepted in earlier scrutiny assessments cannot be ignored without showing a material change in facts. On the evidence produced, the transaction was clearly explained, and its taxation as unexplained money was rightly deleted.
Cases Discussed
- Babita Verma v. ITO, ITA No. 74/Agr/2026, Agra ITAT, order dated 22.05.2026
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT NAGPUR
This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi (for short, “CIT(A)”) dated 03.03.2026 passed u/sec. 250 of the Income Tax Act, 1961 (for short, “Act”) which is arising out of assessment order dated 30.01.2025 passed u/sec. 147 r.w.s. 144B of the Act for the Assessment Year (A.Y.) 2017-18.
2. Assessee has raised various grounds of appeal solely against the addition of Rs. 9,58,720/- made u/sec. 69A of the Act for unexplained money.
3. I have heard the rival submissions and perused the material placed before me. I observe that assessee is an individual and did not file return of income for A.Y. 2017-18. Based on the information about cash deposit of Rs. 77,70,705/- in the savings bank account and salary income received during the year under consideration to the tune of Rs. 36,890/-. Case of the assessee reopened for carrying out re-assessment proceedings u/sec. 147 of the Act after validly serving statutory notices u/sec. 148, 143(2) & 142(1) of the Act. The assessee disclosed income at Rs. 4,45,860/- in response to the notice issued u/sec. 148 of the Act. During the course of assessment proceedings, Ld. Assessing Officer (AO) observed that there are some transactions between assessee and Mr.Rajesh Shankarlal Rathi and in the ledger account of assessee, there is a transaction of payment received from Mr.R.R. Mundhada at Rs.9,58,720/- on 20.04.2016. The assessee was asked to explain the said transaction. It was submitted that Mr.R.R. Mundhada is registered under Value Added Tax (VAT) and was required to make payment of Rs. 9,57,620/- on 20.04.2016 towards outstanding VAT. Due to paucity of funds, Mr. R.R. Mundhada asked the assessee to pay challan of Rs. 9,58,720/- (VAT Rs.9,57,620 + charges Rs.1,1000) which was subsequently repaid to him and on that date, assessee was also not having required funds to make the said payment. Therefore, he requested Mr.Rajesh Shankarlal Rathi to pay challan as the assessee was not having sufficient cash in hand. In lieu of providing this facility Mr.Rajesh Shankarlal Rathi charged Rs. 1,100/- for e-payment of challan. Finally, Mr. Rajesh Shankarlal Rathi paid the challan to the government account of Rs.9,57,620/- and after adding the facilitation charges of Rs.1,100/-, assessee paid the same to Mr.Rajesh Shankarlal Rathi. Subsequently, Mr. R.R. Mundhada also repaid the assessee along with VAT payment and cleared the account during the year itself. However, in absence of submission of Mr. Rajesh Shankarlal Rathi along with account statement, Ld.AO treated the sum of Rs. 9,58,720/- as unexplained money and made the addition thereof. The assessee subsequently filed appeal before the Ld.CIT(A), but failed to succeed.
4. Before us, learned counsel for the assessee filed a paper book running into 40 pages which includes an affidavit of the assessee furnishing complete details of the transaction; ledger accounts of Mr. Sanjay Audesh Mishra along with the relevant extracts from the books of account of both parties; ledger accounts of Mr.R.R. Mundhada and Mr.Sanjay Audesh Mishra along with the relevant extracts from their books of account; an extract of the cash book of Mr.Rajesh Shankarlal Rathi; M-VAT challan evidencing payment of Rs. 9,57,620/-; assessee’s bank account reflecting the payment received from Mr. R.R. Mundhada; and assessment orders in the assessee’s own case for A.Ys. 2015-16 and 2016-17 wherein Ld.AO after duly examining the records has observed that assessee is used to make e-payments of government taxes for various persons from time to time. Even for A.Y.2015-16, Ld. AO observed that Rs. 1,41,19,903/- was utilized for making e-payments to government taxes and an amount of Rs. 62,12,500/- was paid to Mr.Rajesh Shankarlal Rathi through the bank account of the assessee, and Rs. 1,90,000/- was paid by bank to Chandan Gaurishankar Khetan. These observations from the assessment orders for A.Ys.2016-17 & 2015-16 clearly establish that assessee is consistently used to make e-payments of government taxes including M-VAT on behalf of other persons and has also taken the help of Mr. Rajesh Shankarlal Rathi on few occasions to make e-payment when the assessee short of funds.
5. I have gone through the records and satisfied that the alleged transaction of Rs. 9,58,720/-, for which the addition has been made in the hands of the assessee, actually pertains to payment of M-VAT at Rs. 9,57,620/- and Rs. 1,100/- for felicitation charges for making VAT payment on behalf of R.R. Mundhada, who holds registration certification under Maharashtra Value Added Tax under the name Raghunathdas Ramnath Mundhada vide certificate dated 01.04.2006. Further, transaction trail of Rs. 9,57,620/- clearly establish that firstly e-payment through challan of Rs. 9,57,620/- is made on 20.04.2016 by Mr. Rajesh Shankarlal Rathi on behalf of Mr. Sanjay Audesh Mishra. Further, Mr. Sanjay Audesh Mishra took the responsibility for making payment on behalf of Mr. R.R. Mundhada. The assessee and Rajesh Shankarlal Rathi are having regular business transactions as discernible from ledger account placed at page No.4 of the paper book. Thereafter, assessee made one more payment on behalf of Mr. R.R. Mundhada at Rs. 3,79,115/- and received total payment of Rs. 13,37,835/- towards e-payment of M-VAT 9,57,620/- and facilitation charges of Rs. 1,100/- and Rs. 3,79,115/- for another VAT payment. Considering all these flow of alleged transactions of Rs. 9,58,720/- is duly explained and Ld.CIT(A) grossly erred in confirming the action of Ld. AO making addition for unexplained money. Thus impugned addition of Rs. 9,58,720/- u/sec. 69A of the Act is hereby deleted. Finding of Ld.CIT(A) is reversed and the grounds of appeal raised by the assessee are allowed.
6. In the result, appeal of the assessee is allowed.
Order pronounced on 11th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963
