Rajeshkumar Shah Vs ITO (ITAT Surat)
Explained Customer Receipts in Money-Transfer Business Cannot Be Added Under Section 68
Background of the Case
The assessee carried on a money-transfer business through his proprietary concern, M/s Raj Novelty Stores. He filed his return for AY 2022–23 on 13 July 2022, declaring total income of ₹2,57,720, after deductions under Chapter VI-A.
The case was selected for scrutiny because cash deposits of ₹6,49,66,860, reported through the Statement of Financial Transactions, appeared substantial compared with the income declared.
During assessment, the assessee explained that customers handed over cash for transfer to beneficiaries. He deposited these amounts into the bank and transferred them onward, earning commission for the service.
The bills and statements reflected total money transfers of ₹7,17,36,631 and commission of ₹7,17,366, calculated at 1%.
Assessment Additions
The Assessing Officer considered that commission should have been computed at 1.2%, as in the preceding year, and made an addition of ₹1,43,474. He also disallowed 30% of certain expenses for want of adequate supporting evidence, resulting in an addition of ₹95,572.
Separately, the Assessing Officer identified cash receipts of ₹23,25,000, involving entries of ₹50,000 or more for which PAN particulars had not initially been furnished.
After accepting PAN or Aadhaar details for part of these receipts, he treated the balance of ₹2,49,000 as unexplained cash credits under section 68, attracting section 115BBE.
The Assessing Officer also examined credits of ₹26,10,000 received from the assessee’s father. After verifying the bank statements and overdraft account, he accepted the explanation and made no addition on that account.
The assessment was completed under section 143(3) read with section 144B, determining total income at ₹7,45,766. The CIT(A) partly allowed the assessee’s appeal, but the disputed section 68 addition remained.
Assessee’s Explanation Before the Tribunal
The assessee submitted that the cash receipts arose in the ordinary course of the money-transfer business. The transactions were recorded in the books and cash book, and the source of the receipts had been explained.
His representative stated that customer particulars, including PAN and Aadhaar details, had been furnished. The assessee therefore challenged the treatment of these customer receipts as unexplained credits.
The Revenue argued that the assessee had failed to establish the genuineness of the transactions and the creditworthiness of the parties. It also contended that the business model had not been adequately explained to the Assessing Officer.
Tribunal’s Findings
The Tribunal noted that the Revenue did not dispute that the assessee was engaged in money-transfer activity.
It accepted that cash received from customers for money transfers was deposited into the bank and subsequently transferred onward. The relevant details were available before the CIT(A), and the assessee had explained the genuineness and creditworthiness of the parties by furnishing their particulars.
On these facts, the Tribunal held that section 68 had not been rightly invoked. It deleted the addition of ₹2,49,000 sustained by the CIT(A).
The assessee’s separate grounds alleging denial of an effective opportunity of hearing were dismissed because the Tribunal found that proper opportunity had been provided. The grounds concerning additional evidence and taxation of only a profit element were not separately adjudicated, since the substantive section 68 dispute was decided in the assessee’s favour.
The appeal was partly allowed.
Author’s Comments
Large bank deposits must be understood in the context of the business through which they arise. In a money-transfer activity, the amount received for onward remittance and the commission earned perform different roles. Comparing gross customer funds with declared income may justify an enquiry, but it does not itself establish unexplained income.
The important feature here was the combination of an undisputed business activity, an explanation of the movement of funds and customer particulars supporting the transactions. The Tribunal granted relief because the receipts were explained on the evidence, rather than merely because they were described as business receipts.
Equally, recording an amount in the books does not, by itself, prevent section 68 from applying. The assessee’s explanation must establish the nature and source of the credit. In this case, the Tribunal expressly found that the relevant details were before the CIT(A) and that the parties’ genuineness and creditworthiness had been explained.
For practitioners handling similar businesses, the most useful evidence is a clear reconciliation connecting cash received, customer identity, bank deposit, onward transfer and commission earned. Such a record allows the transaction to be examined as a complete business operation.
The decision also has a defined scope. It does not settle the appropriate commission rate or the expense disallowance, nor does it hold that only a profit percentage must invariably be taxed where receipts remain unexplained. The relief concerns the specific ₹2.49 lakh addition, which failed because the Tribunal accepted the explanation and supporting particulars.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT SURAT
The appeal filed by the assessee is against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short “CIT(A)”] dated 05.12.2025 for the Assessment Year (in short “AY”) 2022-23.
2. The assessee has raised the following grounds of appeal:
“1. Violation of Principle of Natural Justice :-
1.1. The Ld. CIT (Appeals) has erred in law as well as facts by sustaining the addition of Rs. 2,49,000/- as an unexplained cash credit u/s. 68 of Income Tax Act 1961.
1.2. The CIT (Appeals) passed the order without providing proper and effective opportunity of being heard without issuing show cause notice in respect of addition and without giving opportunity of personal hearing through video conferencing as mandated under section 144B of the Act.
1.3. The order passed by Ld. CIT (Appeals) is in violation of natural justice and therefore liable to be quashed.
2. Addition U/s. 68 of Rs. 2,49,000/- Unexplained Cash Credit :-
2.1. The Ld. CIT (Appeals) erred in confirming the addition of Rs. 2,49,000/- made by the assessing officer u/s.68 of the act merely on the basis that the PAN number of some customers not provided by the appellant.
2.2. The Ld. CIT (Appeals) failed to appreciate that the appellant is engaged in the business of money transfer and the cash received from various customers was in the normal course of business. All the transaction conducted by appellant was duly recorded in the books of accounts and cash book.
2.3. The Ld. CIT (Appeals) failed to appreciate that the appellant had submitted customer’s details, aadhar details and PAN details.
2.4. The Ld. CIT (Appeals) failed to appreciate that section 68 cannot be invoked when transaction are recorded in proper books of accounts and source also explained.
3. Rejection of Additional Evidence (not confirm)
3.1. The Ld. CIT (Appeals) has erred in law and on fact in refusing to consider the PAN details submitted during appellate proceedings.
3.2. The Ld. CIT (Appeals) erred in holding that the addition evidences cannot be considered without invoking Rule 46A properly and without granting opportunity to the Assessing Officer for verification is arbitrary, illegal and contrary to settled principle of law.
4. General :-
4.1. The Ld. CIT(Appeals) failed to appreciate that the receipts are business receipts and not “cash credit” so only a reasonable profit element could be estimated not the entire receipt treated as unexplained cash credit u/s. 68 of Income Tax Act 1961.
5. Prayer :-
5.1. The appellant crave, add, alter, amend any ground at the time of hearing
5.2. The addition of Rs. 2,49,000/- confirmed by the Ld. CIT(Appeals) be deleted.
5.3. Any other relief deemed fit in the interest of natural justice may kindly be granted.”
3. The assessee, an individual running proprietorship M/s Raj Novelty Stores engaged in money-transfer activity, filed his return of income for AY 2022-23 on 13.07.2022 declaring total income of Rs.2,57,720/- after Chapter VI-A deductions. The case was selected for scrutiny due to high-value cash deposits of Rs.6,49,66,860/- reported in SFT-003/004 vis-à-vis low declared income. Multiple notices under sections 143(2) and 142(1) of the Income Tax Act, 1961 (in short “the Act”) were issued; partial submissions were furnished from time to time. Examination of bank statements showed frequent cash deposits and credits. The assessee explained that cash received from customers for money transfers was deposited and transferred to beneficiaries. Bills and statements showed total transfers of Rs. 7,17,36,631/- with commission of Rs. 7,17,366/- charged @1%, but Assessing Officer (in short “the AO”) held that commission should have been @1.2% (as in preceding year), resulting in addition of Rs. 1,43,474/-. The AO also disallowed 30% of claimed expenses (salary, office expenses, accounting fees, conveyance, etc.) due to lack of proper supporting evidence, resulting in addition of Rs. 95,572/-. Deduction under Chapter VI-A (SBI Life premium) was accepted after later submission of proper certificate. The AO found unexplained cash receipts of Rs. 23,25,000/- (entries ≥Rs. 50,000 without PAN), and accepted PAN/Aadhaar for part of them; balance Rs. 2,49,000/-was treated as unexplained u/s 68 r.w.s. 115BBE. The AO also examined credit entries of Rs. 26,10,000/- from father; after verification of bank statements and OD account, explanation was accepted and no addition made. The assessment was completed u/s 143(3) r.w.s. 144B determining total income at Rs.7,45,766/-.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. As regards Ground No.1 (1.1, 1.2, 1.3), the same are dismissed as the assessee was given proper opportunity.
6. As regards Grounds No.3 (3.1, 3.2), 4 & 5, the same are not required to be adjudicated as we are adjudicating the issues on merit. Hence, Gr. Nos. 3 (3.1, 3.2) & 4, 5 are dismissed.
7. As regards Grounds Nos. 2 (2.1, 2.2, 2.3 & 2.4), the Ld. Authorised Representative (in short “Ld. AR”) for the assessee submitted that the assessee has all the details of PAN No. of all the customers. In fact, the assessee is engaged in the business of money transfer and the cash received from various customers was in the normal course of business. All the transactions conducted by the assessee were duly recorded in the books of accounts & cash book. The assessee submitted customer’s details, Aadhar details, and PAN details. The Ld. AR submitted that Sec. 68 cannot be invoked when transactions are recorded in proper books of accounts & source was explained.
8. The Ld. Departmental Representative (in short “Ld. DR”) submitted that the assessee failed to establish genuineness & creditworthiness of the parties and also not explained business module of the assessee to the Assessing Officer. The transaction remained unexplained; hence, the Assessing Officer as well as CIT(A) correctly made addition of Rs. 2,49,000/- u/s 68 of the Act. The Ld. DR relied upon assessment order and order of the CIT(A).
9. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the revenue did not dispute the fact that assessee is engaged in money transfer activity. The assessee explained that cash received from customers for money transfers was deposited and transferred. The details were very much before the CIT(A) and the assessee has explained the genuinity and creditworthiness of the parties by giving their details. Thus Section 68 was not rightly invoked in assessee’s case. The addition confirmed by CIT(A) does not sustain. Gr. Nos. 2 (2.1, 2.2, 2.3 & 2.4) are allowed.
10. In result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 09.10.2026
