Iqbal Salim Solanki Vs ITO (ITAT Nagpur)
Unsubstantiated Claim of Commission Agency Business Justifies Estimation of Income at 8 Percent of Bank Credits
Summary: ITAT Nagpur dismissed the assessee’s appeals for AYs 2014-15 and 2015-16 and upheld estimation of income at 8% of total credits where the assessee failed to substantiate his claim that cash deposits represented transactions of a commission agency business. For AY 2014-15, the case was reopened after information gathered during scrutiny of M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society showed cash deposits aggregating to Rs.1,99,33,183/- by the assessee. He claimed to be a Kaccha Aditya (commission agent/intermediary) and contended that the deposits represented business receipts. The AO did not treat the entire deposits as unexplained but applied an 8% profit rate, resulting in an addition of Rs.15,94,655/-, which CIT(A) confirmed. Before ITAT, the assessee argued that he operated as a commission agent in the APMC, facilitated agricultural produce transactions between farmers and traders and earned commission generally ranging between 1%-2%. He contended that cash deposits and withdrawals were integral to this cash-driven business and that the AO had mechanically applied section 44AD. The Tribunal, however, found that no APMC licence, registration as commission agent, accounts of principals/farmers, commission bills, vouchers, confirmations, books or other contemporaneous evidence had been produced. It distinguished Santokh Singh vs. ITO because the commission agency business there was supported by evidence. The assessee failed to discharge the initial onus of proving that the deposits represented commission agency transactions. ITAT therefore found no infirmity in the 8% estimation and applied its findings mutatis mutandis to the connected appeal for AY 2015-16.
Core Issue: Whether the Assessing Officer was justified in estimating the assessee’s income at 8 percent of the total credits appearing in the bank account, including substantial cash deposits, when the assessee contended that the transactions represented business circulation in his capacity as a Kaccha Adatiya or commission agent dealing in agricultural produce.
Facts of the Case: The assessee’s assessments for Assessment Years 2014-15 and 2015-16 were reopened under section 147 of the Income Tax Act, 1961. The assessee neither furnished returns in response to the notices issued under section 148 nor complied with the subsequent statutory notices. During the reassessment proceedings, the Assessing Officer, relying upon information obtained in connection with the scrutiny assessment of Shri Renuka Mata Multi State Urban Co-operative Credit Society, observed that the assessee had deposited cash aggregating to Rs. 1,99,33,183 in the said society during the relevant previous year.
During the verification proceedings, the assessee claimed to be engaged in the business of a Kaccha Adatiya, acting as an intermediary between farmers and principal traders in the agricultural produce market. It was submitted that the sale proceeds belonged to the farmers or principal traders and that the assessee merely facilitated the transactions, earning commission generally ranging between 1 percent and 2 percent. The assessee further explained that the cash deposits and withdrawals were integral to the business, as farmers insisted upon immediate cash payments for agricultural produce. In support of his explanation, the assessee furnished his profit and loss account and balance sheet.
Findings of the Assessing Officer and CIT(A)- The Assessing Officer did not accept the assessee’s explanation regarding the nature of the transactions. Having regard to the credits and withdrawals reflected in the account and the absence of a satisfactory explanation, the Assessing Officer estimated the assessee’s income by applying a profit rate of 8 percent to the total credits, instead of treating the entire cash deposits as unexplained income. The resulting addition was sustained by the CIT(A), who observed that the assessee had failed to establish through documentary evidence that he was carrying on commission agency business or that the funds credited represented business circulation on behalf of farmers and principal traders. The CIT(A) accordingly found no infirmity in the estimation made by the Assessing Officer and dismissed the assessee’s grounds of appeal.
Decision of the Tribunal
The Tribunal observed that the assessee had failed to furnish any independent or contemporaneous documentary evidence to substantiate the claim of carrying on commission agency business. In particular, no APMC licence or registration as a commission agent, accounts of principal traders or farmers, commission bills, vouchers, confirmations, books of account or other supporting records were produced before the Assessing Officer, the CIT(A) or the Tribunal. The Tribunal held that the mere furnishing of financial statements and an unsupported explanation was insufficient to establish that the bank credits represented business transactions undertaken on behalf of others rather than the assessee’s own income or turnover.
The Tribunal emphasised that the initial burden of explaining the nature and source of transactions reflected in the bank account rested upon the assessee. Where the assessee specifically claimed that the deposits arose from commission agency activities, it was incumbent upon him to substantiate that claim through credible documentary evidence. In the absence of such evidence, the assessee had failed to discharge the burden cast upon him.
Distinguishing the Judicial Precedent– The assessee relied upon Santokh Singh v. ITO, ITA Nos. 31 to 34/ASR/2023, order dated 30 May 2023, of the ITAT Amritsar Bench, and Jaydev Mahadev Arya v. ITO, ITA Nos. 1271 to 1273/PUN/2025, order dated 16 February 2026, of the ITAT Pune Bench. The Tribunal specifically considered and distinguished the decision in Santokh Singh, observing that the commission agency business in that case was admitted and supported by evidence demonstrating the nature of the assessee’s activities. In the present case, however, the foundational claim that the assessee was acting as a commission agent remained wholly unsubstantiated. Accordingly, the Tribunal held that the ratio of Santokh Singh could not be applied to the facts of the present case.
Conclusion and Outcome: The Tribunal held that the Assessing Officer had adopted a reasonable approach by estimating income at 8 percent of the total credits rather than treating the entire cash deposits as unexplained income. The assessee had failed to demonstrate that the estimation was arbitrary or excessive, or that the deposits represented transactions undertaken exclusively in the capacity of a commission agent. Finding no infirmity in the order of the CIT(A), the Tribunal upheld the estimation and dismissed both appeals for Assessment Years 2014-15 and 2015-16.
Ratio Decidendi: Where an assessee claims that substantial bank deposits represent business circulation arising from commission agency activities, the claim must be substantiated by credible and contemporaneous documentary evidence. In the absence of such evidence, the assessee cannot discharge the initial burden of explaining the nature and source of the transactions merely by furnishing financial statements and offering an unsupported explanation. The Tribunal may, in the circumstances of the case, sustain a reasonable estimation of income on the total bank credits where the assessee fails to establish that the transactions were undertaken solely in a representative or intermediary capacity.
Cases Discussed
- Santokh Singh vs. ITO in ITA Nos. 31 to 34/ASR/2023, order dated 30.05.2023 (ITAT Amritsar Bench) – distinguished on facts as the commission agency business in that case was supported by evidence.
- Jaydev Mahadev Arya vs. ITO in ITA Nos. 1271 to 1273/PUN/2025, order dated 16.02.2026 (ITAT Pune Bench) – relied upon by the assessee.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
These appeals filed by the assessee are directed against the separate orders of National Faceless Appeal Centre, Delhi, (for short, “CIT(A)”), both dated 11/02/2026 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which are emanating from the different assessment orders dated 26.03.2022 & 27.03.2022 passed u/s. 147 r.w.s. 144 r.w.s. 144B of the Act for the Assessment Years (AY) 2014-15 & 2015-16 respectively.
2. Since the facts and issues involved in both the appeals are common, clubbed and heard together and disposed of by this consolidated order. For the sake of convenience, facts are taken up from ITA No. 359/NAG/2026 as a lead case.
3. The sole issue involved in this appeal is whether the Ld. CIT(A) was justified in confirming the action of the Ld.AO in estimating the assessee’s income at 8% of the total credits and thereby sustaining the addition of Rs.15,94,660/-.
4. The case of the assessee was reopened by issuance of notice u/s. 148 of the Act on 30.03.2021, which was duly served upon the assessee. However, assessee did not file any return of income in response to the said notice. Thereafter, statutory notices u/s. 143(2) & 142(1) of the Act were issued and duly served upon the assessee, but no compliance was made. During the course of reassessment proceedings, Ld. AO noticed, on the basis of information gathered in the scrutiny assessment of M/s. Shri Renuka Mata Multi State Urban Co-operative Credit Society, that assessee was one of its members/depositors. It was observed that during the relevant previous year, assessee had deposited cash aggregating to Rs. 1,99,33,183/- in the said credit society. Since no explanation was furnished before the Ld. AO regarding the nature and source of the cash deposits, the matter was referred to the Verification Unit, which issued a notice u/s. 142(1) of the Act. In response, assessee submitted that he was carrying on business as a Kaccha Aditya (commission agent/ intermediary) and contended that the cash deposits represented business receipts. The assessee also furnished his profit and loss account and balance sheet in support of his claim. The explanation and the financial statements furnished by the assessee were considered by the Ld. AO, however, was not satisfied with the explanation on the ground that assessee was engaged in business involving sales and purchases and the deposits and withdrawals represented business transactions. Instead of treating the entire deposits as unexplained, Ld.AO estimated the income by applying a profit rate of 8% on the total credits, resulting in an addition of Rs. 15,94,655/-. Accordingly, reassessment was completed u/s. 147 read with sections 144 and 144B of the Act.
5. Aggrieved by the reassessment order, assessee preferred appeal before the Ld.CIT(A), who upheld the action of the Ld. AO by observing as under:-
“I have carefully considered the submission made by the appellant in appeal as above, the grounds and facts of the case as well as gone through the observation and findings of the AO ‘s order dated 26-03-2022. I find, while framing the assessment order the AO, after making necessary verification has made addition of Rs.15,94,655/- estimating profit @ 8% being applied to entire credited amount including cash deposits of Rs.1,99,33,183/- treating appellant’s cash deposits including credit entries source being unexplained. The appellant in his submission has stated the source of cash deposits and credit entries being out of normal business activities and claimed himself as kaccha adatiya (Commission Agent).
It is observed from the assessment order vide para 6 that the AO has disputed the very conduct of appellant being kaccha adatiya (Commission Agent) since the appellant being unable to produce any documentary evidence in support of said claim. The AO has disputed the authenticity of above claim of the appellant in as much as the AO having information that the appellant being a businessman makes sales/purchase and deposits/ withdrawals money from the bank out of its business receipts It is observed that the appellant being neither able to substantiate its claim of business operation with supporting evidence before the AO in course of scrutiny assessment nor able to establish with supporting documents that the funds credited in the appellant’s bank account merely represent business circulation on behalf of and in the name of principals and not income or turnover of the appellant.
In view of above after considering the entire conspectus of the case I find no infirmity in the order of the AO estimating income of 8% of total credit in bank account in as much as the appellant being unable to explain either the source of cash deposit and credit entries or unable to justifiably explain the reason of maintenance of accounts including non-getting the accounts audited as per section 44AD of the Act despite having receipts/turnover more than one crore. Therefore, I am of opinion that AO’s decision of determining total income after addition of Rs. Rs.15,94,655/- is justified and in accordance with law. Accordingly impugned addition stand confirmed. The ground of appeal, in this regard, is dismissed
6. Learned counsel for the assessee submitted that the assessee is engaged in the business of commission agent (Kaccha Aditya) operating in the Agricultural Produce Market Committee (APMC). He contended that, in such line of business, the commission agent merely acts as an intermediary between the farmers and the traders and facilitates the purchase and sale of agricultural produce. The sale proceeds of the agricultural produce do not belong to the commission agent but belongs to the farmers or the principal traders. Learned counsel explained that assessee procures agricultural produce from small farmers in nearby villages on behalf of his principal traders. The assessee’s role is confined to facilitating such transactions, and the only income earned by him is commission, which generally ranges between 1% – 2% of the value of the transactions. It was further submitted that agricultural marketing system is predominantly cash- driven, as the farmers insist upon immediate cash payments for the produce sold by them. Accordingly, the assessee withdraws cash from his bank account to make spot payments to the farmers, and the corresponding cash deposits and withdrawals are integral to the conduct of his commission business. Therefore, the cash credits reflected in the bank account cannot be regarded as the assessee’s turnover or income. Learned counsel further contended that Ld. AO erred in treating the entire credits in the bank account as the assessee’s turnover and mechanically applying the provisions of section 44AD of the Act by estimating the income at 8% thereof, without appreciating the true nature of the assessee’s business and the role of a commission agent. In support of the his contentions, learned counsel filed a paper book comprising 31 pages and placed reliance on the following judicial precedents:
1. Santokh Singh vs. ITO in ITA Nos. 31 to 34/ASR/2023, order dated 30.05.2023 (ITAT Amritsar Bench); and
2Jaydev Mahadev Arya vs. ITO in ITA Nos. 1271 to 1273/PUN/2025, order dated 16.02.2026 (ITAT Pune Bench).
On the above submissions and judicial precedents, learned counsel prayed that the addition sustained by the Ld.CIT(A) be deleted.
7. Ld. Departmental Representative (DR) relied on the orders of the lower authorities.
8. We have heard rival submissions, perused the material available on record and carefully considered the judicial precedents relied upon by the learned counsel for the assessee. The undisputed facts are that assessee failed to file any return of income in response to the notice issued u/s. 148 of the Act. Further, despite issuance of statutory notices u/s. 143(2) and 142(1) of the Act, no compliance was made before the Ld. AO. It was only during the verification proceedings that the assessee claimed to be carrying on the business of a Kaccha Aditya (commission agent) and contended that the cash deposits represented business receipts belonging to farmers and principal traders. However, except for a self-serving explanation and the filing of the profit and loss account and balance sheet, no independent evidence was furnished to substantiate such claim. Neither before the Ld. AO nor before the Ld. CIT(A), and even before us, assessee produced any licence issued by the Agricultural Produce Market Committee (APMC), any registration as a commission agent, copies of account of principal traders or farmers, commission bills, vouchers, confirmations, books of account, or any other contemporaneous evidence to establish that he was, in fact, carrying on the business of a commission agent. In the absence of such documentary evidence, the bald assertion of the assessee cannot be accepted. The assessee has tried to create a subterfuge to bring his undisclosed income in the garb of bogus unsubstantiated transactions. Reliance placed on the decision of the Coordinate Bench of the Tribunal in Santokh Singh (supra). In our considered view, the said decision is clearly distinguishable on facts. In that case, assessee was admittedly carrying on the business of a commission agent, and the Tribunal proceeded on the basis of the evidence available on record demonstrating the nature of the assessee’s business. In the present case however, the very foundation of the assessee’s claim that he was acting as a commission agent, remains wholly unsubstantiated. Therefore, the ratio of the said decision cannot be applied to the facts of the present case. It is a settled proposition of law that the burden to explain the nature and source of the transactions reflected in the bank account rests upon the assessee. Where the assessee raised a specific plea that the bank deposits represent business receipts of a commission agency business, the initial onus lies upon him to substantiate such plea with credible documentary evidence. In the present case, the assessee has failed to discharge this burden.
8.1 Ld. AO, instead of treating the entire cash deposits as unexplained income, adopted a reasonable approach by estimating the profit at 8% of the total credits, having regard to the nature of the transactions reflected in the bank account. Assessee has failed to demonstrate that such estimation is arbitrary or excessive or that the deposits represented transactions undertaken purely in the capacity of a commission agent. In view of the foregoing discussion, we find no infirmity in the order of the Ld.CIT(A) confirming the action of the Ld. AO in estimating the income at 8% of the total credits. Accordingly, the order of the Ld. CIT(A) is upheld and the grounds of appeal raised by the assessee are dismissed.
9. Facts involved in ITA No. 359/NAG/2026 are similar to the facts involved in ITA No. 360/NAG/2026, except variation in figures. Therefore, our findings given in ITA No.359/NAG/2026 shall apply mutatis mutandis to the ITA No. 360/NAG/2026 also.
10. In the result, both the appeals filed by the assessee are dismissed.
Order pronounced on 09.09.2026 under Rule 34 of Income Tax (Appellate Tribunal) Rules, 1963
