Hradesh Kumar Vs ITO (ITAT Agra)
Bank Mitra’s ₹8.42 Crore Deposits: ITAT Replaces 1% Estimate With Peak-Credit Examination
Fresh Assessment With an Express Ceiling
The Agra ITAT restored a Bank Mitra’s assessment to the Assessing Officer for application of peak credit, replacing the approach of estimating income at 1% of aggregate cash deposits.
The account had received cash deposits totalling ₹8,41,61,500, on which the Assessing Officer computed income of ₹8,41,615.
While granting another opportunity, the Tribunal imposed an important safeguard: the assessed total income after applying peak credit must not exceed ₹8,41,615, being the total income assessed in the original scrutiny order.
The relief was therefore a directed reconsideration with a ceiling. The Tribunal did not accept the assessee’s claim that every deposit was fully explained or that no addition could be made.
Settlement Account Handled Banking Transactions
The assessee worked as a Bank Mitra of Punjab National Bank, operating through Santosh Finlease Pvt. Ltd. under the financial inclusion framework. He stated that he had been carrying out this activity since May 2015.
His case was selected for complete scrutiny because of large cash deposits compared with returned income. The Assessing Officer noticed deposits of ₹8.42 crore in his Punjab National Bank current account.
The assessee explained that this was a designated settlement account used to facilitate customers’ deposits and withdrawals. According to him, the transactions represented banking services carried out for customers, while his own earnings consisted of commission.
He maintained that the settlement-account movements should therefore be distinguished from his personal income.
Assessing Officer Questioned the Supporting Records
The Assessing Officer sought documentary evidence explaining the transactions and the manner in which the assessee maintained cash.
The enquiries included whether he was authorised to retain cash at the end of each day, whether customer-wise particulars were maintained, and whether the bank could authenticate the cash disbursements and balances.
The assessee stated that the daily transaction limits were ₹25,000 for deposits and ₹10,000 for withdrawals per customer. However, the officer identified entries in the cash records exceeding ₹10,000 and sought an explanation.
Finding the evidence insufficient, the Assessing Officer estimated income at 1% of total cash deposits, arriving at ₹8,41,615. Penalty proceedings under Section 270A were also initiated.
Own Cash Float Became a Further Concern
Before the CIT(A), the assessee explained that a Bank Mitra must maintain some cash and bank balance to serve customers without repeatedly travelling to the bank branch.
When a customer withdrew money, the assessee paid cash and received the corresponding account transfer. When a customer deposited money, he received cash and transferred the amount to the customer’s account.
He described the cash balance circulating through these transactions as capital deployed for the smooth functioning of his business.
The CIT(A) considered this explanation significant because it acknowledged that part of the operating cash and bank balance belonged to the assessee. However, the assessee had not clearly quantified that capital or explained its source.
The CIT(A) consequently sustained the amount, while directing that it be assessed under “income from other sources” rather than business income.
Commission Income and Alternative Peak-Credit Plea
Before the Tribunal, the assessee reiterated that the settlement account carried third-party banking transactions and that his actual earnings were commission.
He stated that commission income of ₹4,01,006 had already been disclosed, supported by tax deduction under Section 194H. He challenged the 1% estimate as arbitrary and argued that the authorities had not established a connection between aggregate deposits and undisclosed income.
Alternatively, he requested another opportunity to explain the transactions and sought application of peak credit, instead of taxation based on a percentage of gross deposits.
This alternative plea became the basis for the Tribunal’s operative relief.
Tribunal Found Explanation Incomplete but Allowed Peak Examination
The Tribunal found that the assessee had not explained the source of the deposits with complete evidence. It also noted the unresolved withdrawal-limit issue and the absence of details concerning the quantum and source of his own capital.
Accordingly, the contention that no addition whatsoever could be made was held untenable on the available record.
Nevertheless, the Tribunal found merit in the request for applying peak credit. It set aside the CIT(A)’s order and restored the matter to the Assessing Officer for that purpose.
The express direction was that assessed total income must remain within ₹8,41,615. This ceiling applies to total assessed income, not merely to a fresh addition over returned income.
The appeal was allowed for statistical purposes.
Author’s Comments
The decision recognises the need to examine the recurring movement of money in a settlement account while requiring the assessee to substantiate his explanation.
A Bank Mitra’s status alone does not establish that every credit represents customer funds. A useful reconciliation should connect customer transactions, account transfers, cash withdrawals, cash balances and commission receipts, while separately identifying the assessee’s own operating capital.
Equally, aggregate deposits may involve repeated circulation of funds. The Tribunal’s peak-credit direction requires that aspect to be examined rather than retaining the percentage estimate.
The most consequential safeguard is the ceiling on total assessed income. The remand gives the assessee an opportunity to establish a lower sustainable assessment while preventing the fresh exercise from exceeding the amount expressly fixed by the Tribunal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is directed against the impugned order dated 11.02.2026 passed in appeal No NFAC/2021-22/10335022 by the NFAC (hereinafter referred to as the Commissioner of Income Tax), u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2022-23, wherein ld. CIT (A) has dismissed assessee’s appeal.
2. Brief facts of the case: The assessee filed its Return of income for AY.2022-23 on 29.06.2022, declaring total income of Rs.4,15,676. Further, the case was selected for complete scrutiny under CASS for the below mentioned reason:
“Large cash deposits compared to returned income (Non- business cases)”
2.1 The AO noted that in the current account number 02610022100027805 with Punjab National Bank cash amounting to Rs. 8,41,61,500/- was deposited. On query the assessee submitted that he was working as a bank mitra of Punjab National Bank under branch office (026100) Kasganj and employe code is A0101910. The assessee further submitted that he was working from May 2015 for PNB under Pradhanmantri Jandhan Yojna and the said that his account was the settlement account used for transaction of PNB customers. It was further submitted that the said account was not his personal account but transactions having in settlement account was purely by the customers according to rules and regulation provided by Punjab National Bank and RBI. Therefore, the AO noted that certain details were called from the assessee which was not submitted. In absence of proper explanation along with documentary evidences by the assessee a show cause notice was issued vide letter dated 20.02.2024 thereby proposing addition of Rs. 8,41,615/- i.e. (1% of the total cash deposit of Rs. 8,41,61,500/- as business income of the assessee). In reply, the assessee again reiterated the submission made earlier before the AO. However, the AO noted that to know the correctness and modus operandi of the transactions again issued a notice dated 29.02.2024 to the assessee to clarify the same. The AO noted the on the perusal of the said bank account certain cash deposits were made in the bank account of the assessee as per details noted on page no. 6 to 13 of the assessment order. The AO asked the assessee as to whether the assessee was authorised by the bank/company to keep cash in hand in his possession at the close of each day and the details of record maintained in this regard i.e. whether any details are being maintained regarding the particular of the parties to whom or from whom this cash was received or alternatively evidence from the concerned bank that such and such cash in hand was disbursed by the bank to the assessee on the particular dates of such disbursements. Thereafter, the AO taking note of the reply filed by the assessee noted that the assessee in his reply dated 03.03.2024 had stated that in the settlement account the maximum cash deposit of citizens per customers in a day was Rs. 25,000/- and that in the case of cash withdrawal was Rs. 10,000/- per customers per day. The AO thereafter, reproducing the copy of the cash book furnished by the assessee noted that there were several entries of cash withdrawal on each and every day of more than Rs. 10,000/- and certain examples were reproduced as under page no. 16 and 17. Thereafter, the AO did not accept the explanation filed by the assessee and stated that in the absence of any such authenticity from the banker regarding the above facts, discrepancies may be there in the account and under the given circumstances, the transactions in the account were deemed to be pertaining to the assessee and to be assessed as such @1% thereof above discrepancies. In this regard, the relevant extracts of the order of the AO are reproduced as under:
“Thus, keeping in view the facts and circumstances of the case, it is seen that the genuineness and authenticity of the transactions carried through account No. 0261002100027805 during the financial years 2021-22 could not be established as to what are the accounts maintained in the case i.e. cash book / cash account as the BPO if any, is obliged to compute the closing cash in hand every day, deposit it with the branch/bank or keep in its possession (as the case may be) a portion thereof and submit a daily or weekly or monthly report to the concerned Bank and the banker disburses commission on that basis. In the essence of any such authenticity from the banker, the discrepancies may be there in the account and under the given circumstances, the transactions in the account are deemed to be pertaining to the assessee and to be assessed as such @1% thereof.
Accordingly, the profit in the case is computed @1% of the total transactions i.e. Cash deposits of Rs.8,41,61,500/- during the relevant previous year, which works out to Rs.8,41,615/- and the said amount is assessed as such as business income in the case. Alongwith penalty u/s.270A is initiated for under-reporting of income.
Subject to the above, the total income of the assessee for the year under consideration is assessed as under:
Business Income of the assessee Rs.8,41,615
3. Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT (A). The assessee filed a written submission before the Ld. CIT (A) which is reproduced on page 22-23 of the order of the ld. CIT (A) in which the assessee reiterated the explanation filed before the AO. However, the Ld. CIT (A) taking note of the fact that the assessee did not submit the details as called for by the AO during the assessment proceedings and also noted that in its submission filed at the appellate stage, the assessee admitted that he used to maintain some cash as bank balance ( capital investment ) of his own for smooth functioning of the business and the cash/bank balance is neither related to customers of the PNB because account of customers along with bank got immediately settled after a transaction took place. The Ld. CIT (A) noted that the assessee however did not indicate the quantum of capital deployed and neither explained the source of same. Taking note of this fact, the Ld. CIT (A) noted that in the said perspective where proper accounting was not presented before the AO, the AO made estimation for a profit element at the rate of 1% of the total deposits. The Ld. CIT (A) further noted that in his considered view if the profit from business as a Banking Correspondence Agent (BCA) was restricted to commission income from M/s Santosh Finlease Pvt. Ltd. then also there is a gap for the amount of deployment by way of capital which was admitted by the appellant in his submission at the appellate stage, although such admission was not accompanied by a clear-cut quantification of capital investment or the source thereof. In view these circumstances the Ld. CIT (A) confirmed the addition made by the AO in the assessment order. In this regard, the relevant findings of the Ld. CIT (A) are reproduced as under:
“6. Decision have gone through the facts of the case. It is seen that the AO has summaried his findings in the assessment order as follows:
“Thus, keeping in view the facts and circumstances of the case, it is seen that the genuineness and authenticity of the transactions carried through account No. 0261002100027805 during the financial years 2021-22 could not be established as to what are the accounts maintained in the case ie. cash book / cash account as the BPO if any, is obliged to compute the closing cash in hand every day, deposit it with the branch/bank or keep in its possession (as the case may be) a portion thereof and submit a daily or weekly or monthly report to the concerned Bank and the banker disburses commission on that basis. In the essence of any such authenticity from the banker, the discrepancies may be there in the account and under the given circumstances, the transactions in the account are deemed to be pertaining to the assessee and to be assessed as such @1% thereof.”
In respect of the above view of the AO, the submission of the appellant is as follows:
“In fact, in normal practice of this business as the Bank Mitra Location is distant from bank branch, BCA (Banking Correspondence Agent) has to maintain some cash and bank balance (capital investment) to facilitate the customer. It is not possible for a Bank Mitra to go and fetch cash from the branch for a customer and handed over to the customer who came to withdraw cash from his respective account. Rather I used to maintain cash balance which was being used to provide cash to customers and transfer respective amount form their accounts to the account under consideration. Similarly, cash was received form customers who visited to deposit and the respective amount was being transferred to their accounts from the account under consideration on the same day at the same time. Thus, the cash balance (net of receipts and payments) which was being deposited rotationally was nothing but capital invested by the appellant for smooth functioning of his business. This cash balance is neither related/belonged to customers of the bank not to the PNB itself because accounts of customers along with bank got immediately settled after the transaction took place.
What is given to understand from the above submission is that as a BCA, the appellant maintains some cash and bank balances of his own in order to facilitate services to the customers. The appellant collected money from the customers which were first deposited to the a/c no. 0261002100027805 with PNB, Kasganj and eventually transferred to the mandated accounts of the customers. The other way round, cash was withdrawn from this settlement account for making payments to the customers as desired by them. The AO has raised pertinent questions regarding the cash in hand available with the appellant, net of receipts of payment, at the end of each day In the manner the accounts were maintained by the appellant, it was difficult to verify whether the deposits in the settlement account came entirely from the customers or not The AO also questioned whether the appellant was authorised by the bank or the intermediary M/s Santosh Finlease Pvt. Ltd. to keep the cash in hand in his possession at the end of each day and whether any details were maintained regarding the particulars of the party to whom/from whom the cash has been paid/received or whether any authentication can be furnished by the appellant from the bank as to what was the disbursement by the bank to the appellant on any particular day. The appellant remained silent in this issue at the assessment stage. However, through the submission at the appellate stage, the appellant has admitted that he used to maintain some cash and bank balance (capital investment) of his own for smooth functioning of the business and that this cash/bank balance is nether related to customers or the PNB because accounts of customers along with bank got immediately settled after a transaction took place. Interestingly, the quantum of capital deployment has not been indicated, neither the source of the same has been furnished. In the said perspective, where proper accounting was not presented before the AO, the AO has made an estimation for profit element @ 1% of the total cash deposits
In my considered view, if the profit from business as a BCA is restricted to commission income from M/s Santosh Finlease Pvt. Ltd only, there is a gap for the amount of deployment by way of capital which has been admitted by the appellant in his submission at the appellate stage, although such admission is not accompanied by a clear-cut quantification of capital investment or the source thereof. In the circumstances, I am inclined to confirm the addition made by the AO, but instead of the head ‘business, the addition should be made under the head ‘other sources’. The appellant did not furnish the source of the capital deployed for smooth functioning of his business but has admitted that a portion of the cash and bank balance/deposit were his own money and not money either from the customers or from the PNB.
Subject to the above discussion, the ground raised are decided as follows
Ground no. 1, 5 and 6 are general in nature and need no adjudication
Ground no. 3 is regarding the addition of Rs 8,41,615/-which is decided against the appellant
Gound no. 4 is against initiation of penalty proceedings u/s 270A, which is consequential in nature and is dismissed.
In the result, appeal is dismissed.”
4. Aggrieved with the said order, the assessee filed an appeal before this Tribunal on the following grounds of appeals:
“Grounds of Appeal
1. That the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the addition of ₹8,41,615/- made by the Assessing Officer.
2. That the learned authorities below have failed to appreciate that the appellant is a Business Correspondent Agent (Bank Mitra) and the cash deposits represent third-party funds handled in fiduciary capacity and do not constitute income of the appellant.
3. That the addition made by estimating income at 1% of total cash deposits is arbitrary, adhoc and without any legal or factual basis.
4. That the learned CIT(A) erred in confirming the addition despite the fact that the appellant has already offered the entire commission income to tax, which is duly supported by TDS under section 194H.
5. That the authorities below have failed to establish any nexus between the cash deposits and undisclosed income of the appellant.
6. That the Assessing Officer has made the addition without rejecting the books of account and therefore such estimation is bad in law.
7. That the Assessing Officer failed to conduct any independent enquiry from the bank or the principal entity (PNB/Santosh Finlease Pvt. Ltd.), which is essential to understand the nature of the transactions.
8. That the addition results in double taxation, as the income embedded in such transactions has already been taxed in the form of commission.
9. That the impugned order is passed in violation of the principles of natural justice, as the evidences furnished by the appellant have not been properly appreciated..
10. That the appellant craves leave to add, amend or withdraw any of the above grounds at the time of hearing.”
5. At the time of hearing the ld. AR reiterated upon the written submission filed by the assessee along with the appeal memo. The Ld. AR also filed a Statement of Facts which is reproduced as under:
“STATEMENT OF FACTS
The appellant is an individual engaged in the activity of a Business Correspondent Agent (Bank Mitra) of Punjab National Bank through Santosh Finlease Pvt. Ltd., operating under the financial inclusion framework.
The appellant maintains a designated BC Settlement Account, through which cash deposits and withdrawals are carried out on behalf of customers of the bank. These transactions represent facilitation of banking services, and the appellant acts purely as an intermediary.
During the relevant previous year, cash deposits aggregating to ₹8,41,61,500/- were made in the said account. These deposits represent cash received from various customers for deposit into their respective bank accounts and are not the income of the appellant.
The appellant earns only a small commission on such transactions, which is credited separately and subjected to TDS under section 194H. The appellant has duly disclosed commission income of ₹4,01,006/- in the return of income, which forms part of total income of ₹4,08,330/- as per the filed return.
The commission income is fully supported by TDS certificates issued by Santosh Finlease Pvt. Ltd., evidencing deduction of tax under section 194H on such income.
The Assessing Officer, without appreciating the nature of the business and without conducting proper enquiry, treated the cash deposits as unexplained and made an addition of ₹8,41,615/- by applying an arbitrary rate of 1% on total deposits.
The learned CIT(A) confirmed the addition without addressing the core issue, namely that the appellant is merely an intermediary and does not own the funds deposited.
The addition is thus factually incorrect, legally unsustainable and liable to be deleted.”
5.1 Further, the assessee also furnished a written submission wherein the assessee apart from making various legal grounds submitted that without prejudice only peak theory should be applied and only peak credit or net income may be taxed and not by way of arbitrary percentage (1%).
6. We have heard both the parties and perused the material available on record. In this case we note that assessee did not explain exactly with full evidence about the source of cash deposits in his bank account and also did not explain the reasons for withdrawal of cash in excess of Rs. 10,000/- against the daily limit of cash withdrawal of Rs. 10,000/- as noted by the AO. Further, the Ld. CIT (A) noted that the assessee admitted that he used to maintain some cash as bank balance ( capital investment ) of his own for smooth functioning of the business and the said cash/bank balance was neither related to customers of the PNB because account of customers along with bank got immediately settled after a transaction took place. The Ld. CIT (A) further noted that the assessee did not indicate either the quantum of such capital deployed or explained the source of same. Therefore, in view of these facts, the submission of the assessee that no addition in his case in respect of the cash deposits in his bank account should be made is not tenable.
6.1 On the other hand, the assessee submits that an opportunity may be given to the assessee to explain the facts once again before the AO and the addition may be restricted in respect of the cash deposits by applying the peak credit.
6.2 Having considered the facts and circumstances of this case we find merit in the submission of the assessee seeking for applying the peak credit in respect of the cash deposits in the bank account of the assessee. Therefore, in order to give one more opportunity to the assessee the order of the ld. CIT (A) is set aside and the matter is restored to the file of the AO for applying the peak credit in respect of the cash deposits in the bank account of the assessee. However, we make it clear that by applying peak credit the assessed total income should not exceed Rs. 8,41,615/- which was the assessed total income vide order u/s 143(3) r.w.s. 144 B of the Act dated 15.03.2024. In the result all the grounds of appeal filed by the assessee are allowed for statistical purposes.
7. In the result the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on- 28.09.2026
