Krunal Bharat Bhavsar Vs ITO (ITAT Ahmedabad)
Customer’s Car, Dealer’s Payment: ₹6.35 Lakh Cannot Become His Unexplained Investment
Customer-Funded Payment Was a Trading Transaction
The Ahmedabad Tribunal has deleted an addition of ₹6.35 lakh under Section 69, holding that a car dealer’s payment to an automobile dealer, made on behalf of a customer from funds received from that customer, could not be treated as the intermediary’s unexplained investment.
The assessee had received ₹6.60 lakh from the buyer and paid ₹6.35 lakh to Kiran Motors Ltd. The Tribunal accepted that the transaction arose in the course of his vehicle-trading activity and that the income attributable to him was the ₹25,000 margin, rather than the entire purchase payment.
The decision turns on the nature of the transaction, the source of the funds and the supporting records that the authorities had failed to examine.
Investigation Information Triggered the Addition
The Assessing Officer received information from the DDIT (Investigation), Delhi, through a letter dated 30 August 2018.
During enquiries concerning Kiran Motors Ltd., a dealer in Maruti Suzuki vehicles and spares, substantial cash deposits had been noticed in its bank account. The dealer explained these deposits as cash sales to customers and furnished a customer list.
According to that list, the assessee had paid ₹6,35,000 in cash on 8 May 2014 for purchase of a vehicle.
The Assessing Officer considered the information specific and the facts self-explanatory. He recorded that no further enquiry was required and formed the belief that income of ₹6.35 lakh had escaped assessment.
The amount was subsequently added as unexplained investment under Section 69.
First Appeal Did Not Address the Business Explanation
The CIT(A) upheld the addition on the ground that the source of the payment remained unexplained.
However, the assessee’s explanation was that he was a small motor-vehicle dealer, and the payment represented a transaction undertaken for a customer.
The distinction was material. The assessee did not claim to have purchased the vehicle as an investment for himself. He maintained that he had acted in the course of his business and used money supplied by the actual buyer.
The Tribunal found that the appellate authority had not dealt with this specific explanation while sustaining the addition.
₹6.60 Lakh Received from the Actual Buyer
Before the Tribunal, the assessee explained that the transaction concerned an old Maruti Ertiga VDI BS-IV, bearing registration number GJ-01-RB-9413.
He paid Kiran Motors Ltd. ₹6.35 lakh on behalf of the actual buyer, Shri Anil Pankaj Parmar, from whom he received ₹6.60 lakh.
His contention was that the transaction constituted a purchase for sale or a customer transaction in his vehicle-dealing business. The difference of ₹25,000 represented his margin or commission.
In support, he furnished his State Bank of India account statement and the vehicle history report obtained from RTO records. He also submitted that his total income remained below the taxable limit even after considering the margin.
No Independent Enquiry or Contrary Material
The Tribunal observed that the addition rested solely on the Investigation Wing information concerning the cash payment.
The Assessing Officer had made no independent enquiry with the assessee or the buyer, and had not examined the nature of the assessee’s business.
The RTO report relied upon by the CIT(A) did not establish that the assessee owned the vehicle. Further, nothing on record showed that the bank statement and vehicle history report had been examined and rejected on the strength of contrary evidence.
These omissions were significant because the documents supported an explanation directly addressing both the source of the payment and the capacity in which it was made.
Section 69 Conditions Were Not Satisfied
On examining the material, the Tribunal accepted that the payment was funded by the customer and made in the course of the assessee’s trading activity.
It was therefore not an investment made by the assessee for his own account.
The Tribunal identified the income arising to the assessee from this transaction as the ₹25,000 difference between the customer’s payment and the amount paid to the seller.
It consequently held that the conditions of Section 69 were not satisfied and directed deletion of the entire ₹6.35 lakh addition. The appeal was allowed.
The order does not separately adjudicate the reopening, penalty-initiation or interest grounds on their merits; its operative relief follows from the factual finding concerning the transaction.
Author’s Comments
Payments made by an intermediary require examination of whose money was used, for whose benefit the purchase was made and what income the intermediary actually earned.
A seller’s customer list may establish that a person made a payment. It does not necessarily establish that the person acquired the asset for himself or invested his own unexplained funds.
For vehicle dealers and similar intermediaries, a clear trail connecting the customer’s funds, seller’s payment and vehicle records can be decisive. The conclusion concerning the ₹25,000 margin relates to this transaction; the taxability of total income remains a separate computation.
The person handing over the money is not necessarily the person making the investment. The transaction must be understood before the addition is made.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order dated 30.09.2025 passed by the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2015-2016.
2. The Assessee has raised the following grounds of Appeal:-
01. That the Ld. CIT(A), NFAC has erred both in law and on facts while rejecting the appeal of the appellant without considering facts and documents on records and therefore the addition made by A.O of Rs. 6,35,000/-being unexplained investment u/s 69 required to be deleted.
02. That the Ld. assessing officer has re-open the case of the appellant after 4 years without any tangible material on record and hence the re-opening itself is bad in law illegal and required to be quashed.
03. That the appellant is a car dealer and the amount paid to Kiran Motors Limited on behalf of his client, as the RTO report on which the CIT(A) relied never said that appellant is an owner of the car and as such the addition made on account of unexplained Investment u/s 69 of the Act is against the facts on record and therefore the addition made of Rs. 6,35,000/- may please be deleted.
04. That the appellant has not suppressed any facts nor concealed any Income, however the penalty initiated u/s 271(1)(c) and 271F requires to be drop.
05. That the appellant has neither committed default of Sec. 210 nor made any default in payment of advance lax and therefore unwanted interest charged u/s 234A, 2348, 2340 and 234D requires to be deleted.
06. Your appellant craves leave to add, amend, deleted or alter any of the grounds till the appeal is finally heard and decided.
3. The Assessing Officer received information from the DDIT (Inv.), Unit-1(2), Delhi, vide letter dated 30.08.2018. It stated that in the course of enquiries in the case of M/s. Kiran Motors Ltd., a dealer in Maruti Suzuki vehicles and spares in Gujarat, large cash deposits were found in its bank account. The dealer explained these as cash sales to various customers during F.Y. 2014-15 to 2016-17 and furnished a list of such customers. As per that list, the assessee, Shri Krunal B. Bhavsar, made a cash payment of Rs.6,35,000/- to M/s. Kiran Motors Ltd. on 08.05.2014 for the purchase of a vehicle. The AO held that the source of the payment was unexplained. He recorded that the information was specific and the facts self-explanatory, that no further enquiry was required, and that he had reason to believe that income of Rs.6,35,000/- had escaped assessment. The amount was added as unexplained investment u/s 69 of the Act.
4. Aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held that the source of the payment of Rs.6,35,000/- to M/s. Kiran Motors Ltd. remained unexplained and upheld the addition.
5. The Ld. Counsel submitted that the assessee is a small dealer in motor vehicles. The AO, without understanding the nature of the assessee’s business, treated the entire cash payment as unexplained investment on the basis of information received by e-mail from the Investigation Wing. In fact, the assessee paid Rs.6,35,000/- to M/s. Kiran Motors Ltd., an automobile dealer, to purchase an old Maruti Ertiga VDI BS-IV (Reg. No. GJ-01-RB-9413) on behalf of the actual buyer, Shri Anil Pankaj Parmar. The assessee received Rs.6,60,000/- from that buyer against this transaction. It was therefore a purchase for sale, and not an investment. The assessee’s income is only the margin or commission on the deal, and even after adding it the total income remains below the taxable limit. In support, the assessee furnished a copy of his State Bank of India statement and the vehicle history report from the RTO record.
6. We have heard both the parties and perused the material on record. In the present case, the addition was made solely on the information received from the Investigation Wing that the assessee paid cash to M/s. Kiran Motors Ltd. on 08.05.2014. The AO made no independent enquiry with the assessee or the buyer, and did not examine the nature of the assessee’s business. The Ld. CIT(A) merely held that the source remained unexplained, without dealing with the assessee’s specific plea that the payment was made on behalf of a customer out of funds received from him. The RTO report relied on by the Ld. CIT(A) also does not state that the assessee was the owner of the vehicle. The assessee’s explanation is that he is a car dealer who paid Rs.6,35,000/- on behalf of his customer, from whom he received Rs.6,60,000/-. He supported this with his bank statement and the vehicle history report. Nothing on record shows that these documents were examined or rejected on the basis of any contrary material. The payment was funded by the customer’s money and was made in the course of the assessee’s trading activity. It was not an investment made by the assessee for his own account. The only income that could arise to him is the margin of Rs.25,000/- (Rs.6,60,000/- less Rs.6,35,000/-), which is well below the taxable limit. In these circumstances, the conditions of section 69 are not satisfied, and the addition of Rs.6,35,000/- is not sustainable on facts. Hence, we direct the AO to delete the addition.
7. In the result, the appeal of the assessee is allowed.
The order pronounced in the open Court on 30.09.2026.
