Case Law Details
Mulloly Mahesh Vs ITO (ITAT Bangalore)
Bangalore ITAT Converts Section 69A Addition into Estimated Business Income; Entire Sales Receipts Cannot Be Taxed
The Bangalore ITAT in Shri Mulloly Mahesh v. ITO held that where bank deposits represented sales proceeds received from customers, the entire credits could not be treated as unexplained money under section 69A. Instead, only the profit element embedded in such receipts could be brought to tax.
The assessee, a partner in tyre businesses, explained that customers directly deposited sale proceeds into his bank account. The amounts were subsequently withdrawn and remitted to the partnership firm. During assessment, the assessee furnished party-wise details of deposits, dates of withdrawals, payments made to the firm, and confirmations, including a confirmation from a customer, Shri Senthil, who had made an advance payment for purchase of tyres. Despite these details, the Assessing Officer treated deposits aggregating ₹4,82,850 as unexplained money under section 69A.
The Tribunal examined the customer details, ledger accounts, confirmations and the flow of funds. It found that the deposits were linked to tyre sales and that the monies received from customers were ultimately transferred to the business. The Tribunal observed that once the credits represented sale consideration, the entire receipt could not be assessed as income because only the profit component arising from the business activity is taxable.
Accordingly, the ITAT set aside the addition made under section 69A and directed the Assessing Officer to estimate the assessee’s income at 8% of the impugned receipts, treating the deposits as business turnover rather than unexplained money. The appeal was therefore partly allowed.
Key Principle: Where cash deposits are established to be business receipts or sale proceeds, the entire amount cannot be taxed under section 69A; only a reasonable profit element can be brought to tax.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 16/10/2025 in respect of the A.Y. 2017-18.
2. The brief facts of the case are that the assessee is an individual and partner in M/s. Bombay Tyres Sales & Service and M/s. Bombay Tyres, Mangalore. The assessee filed his return of income on 29/03/2018. The return was processed and refund has been granted. The AO took up the case for complete scrutiny under CASS. Notices u/s. 143(2) and 142(1) were issued. Based on the bank account details obtained by the AO, the total credits in the two bank accounts were treated as not considered while filing the return of income. The assessee submitted the customers will deposit the bill amount into his bank account and the assessee subsequently withdraw the bill amount and paid to the firm. The assessee also submitted the party wise details of the cash deposits and the date of withdrawals and payment to the firm in the format given by the AO. In spite of the said details, the AO had treated the opening balance as unexplained one. The AO also treated the advance paid by Senthil and Lakshmi Tyres as unexplained money and treated the amount of Rs. 4,82,850/- as unexplained money u/s. 69A of the Act.
3. Against the said order, the assessee had filed an appeal before the Ld.CIT(A). The Ld.CIT(A) had dismissed the appeal on the ground that there is no sufficient and verifiable evidence.
4. As against the said order, the present appeal has been filed by the assessee before this Tribunal.
5. At the time of hearing, the Ld.AR submitted that the addition made u/s. 69A is not correct, since all the details were furnished to the AO and also confirmation letter was given by Shri Senthil who had made the advance payment. The Ld.AR further submitted that party wise details were given and the withdrawal date and payment made to the firm were given and therefore the AO should not have added as unexplained money u/s. 69A of the Act. The Ld.AR further submitted that all the deposits are by the customers.
6. The Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
7. We have heard the arguments of both sides and perused the materials available on record.
8. We have perused the assessment order. The AO had made the addition u/s. 69A of the Act on the credits made by the customers against the bill amount. The assessee had also furnished the details of the customers and the bill amount credited into the bank account of the assessee and the withdrawal of the said cash and the remittance made into the firm’s account. We have perused the confirmation letter given by Shri Senthil and his ledger account. From the above details furnished by the assessee, we are able to ascertain that the credits are from the customers which in turn are withdrawn and paid to the firm account. Similarly, the assessee also produced the evidence to show that the advance was received from Shri Senthil for purchasing the Tyres. Considering the entire facts, we are of the view that the credits are nothing but the sale of tyres. If that is so, the entire credit should be taken as the consideration received for the sale of tyres. In that circumstances, the entire sale consideration should not be added as income. Therefore, we are estimating the income at 8% as a reasonable profit obtained in the business.
9. We, therefore, set aside the additions made u/s. 69A of the Act and direct the AO to estimate the income at 8% of the additions.
10. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 22nd June, 2026.
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