Case Law Details
Bose Saravanan Vs DCIT (ITAT Chennai)
The appeal before the Income Tax Appellate Tribunal (ITAT), Chennai, arose from the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre for AY 2016-17. The assessee, a Chartered Accountant, had filed his return declaring an income of Rs. 2,95,197. The Assessing Officer (AO) reopened the assessment after receiving information regarding substantial cash deposits in the assessee’s bank account, considering that the declared income was not commensurate with the deposits. The AO treated the deposits as unexplained money under Section 69A and made an addition of Rs. 23 crore.
The assessee explained that the bank account had been used to receive funds from clients for the specific purpose of remitting taxes such as income tax, VAT, TDS, and service tax on their behalf. During appellate proceedings, documentary evidence supporting these transactions was produced. However, the CIT(A) enhanced the addition by Rs. 6,87,60,832 after treating credits in another HDFC Bank account as unexplained.
Before the Tribunal, the assessee reiterated that he had acted in a fiduciary capacity, particularly because clients in the small town where he practised lacked adequate access to online tax payment facilities. He produced bank statements, tax challans, affidavits, and other records demonstrating that the amounts received had been utilised for payment of clients’ taxes. He also explained that funds transferred from the Axis Bank account to the HDFC Bank account were similarly used for tax remittances.
The Tribunal observed that the lower authorities had ignored the corresponding debits in the bank accounts, which reflected payments to various government authorities. On examining the records, including tax challans and bank statements, the Tribunal found that tax payments amounting to Rs. 29.83 crore had been made and that sample challans matched the bank debits. Holding that the assessee had merely acted as a conduit for making tax payments on behalf of clients, the Tribunal concluded that the deposits did not belong to the assessee. Accordingly, it directed the AO to delete the additions, and the appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short “CIT(A)”) passed u/s. 250 of the Income Tax Act, 1961 (in short “the Act”) dated 18.07.2025 for Assessment Year (AY) 2016-17.
2. The assessee is an individual and is a Chartered Accountant. The assessee filed a return of income for AY 2016-17 on 14.10.2016 declaring total income of Rs.2,95,197/-. The A.O received information that the assessee has deposited substantial amount of cash into his bank account. Since the income declared by the assessee in the return of income is not commensurate with the cash deposit, the A.O had a reason to believe that the income of the assessee has escaped assessment and accordingly reopened the assessment by issue of notice u/s. 148 of the Act. The assessee submitted before the A.O that the impugned bank account was opened for the purpose of paying taxes on behalf of the clients and that the entire amount deposited is with respect to the amount received from the clients towards payment of various taxes such as income tax, VAT, TDS, Service tax, etc. The A.O however did not accept the submissions of the assessee and proceeded to make addition of Rs. 23 Crores u/s. 69A of the Act. Aggrieved, the assessee filed further appeal before the CIT(A). Before the CIT(A) the assessee submitted documents substantiating the payment of taxes on behalf of the clients. The CIT(A) enhanced the addition made by the A.O by Rs.6,87,60,832/- by considering the credits in another bank account of the assessee with HDFC bank account as unexplained. Aggrieved, the assessee filed further appeal before the CIT(A).
3. The Ld. Authorized Representative (AR) of the assessee submitted that the assessee is practising in a small town near Pudukottai and since the clients of the assessee did not have proper access to pay taxes online, the assessee undertook the responsibility of remitting various taxes on behalf of the clients. The Ld. AR took the Bench through the various debits in the bank account of the assessee to submit that all the debits pertain to various taxes paid by the assessee on behalf of his clients. The Ld. AR argued that the lower authorities are not correct in completely ignoring the debits in the impugned bank account and treating the entire credits as unexplained. The Ld. AR also took the bench through the sample bank challans towards taxes paid on behalf of the clients and the corresponding debits in the bank account of the assessee to substantiate that these are the debits in the bank account is supported by the documentary evidence. With regard to the amount enhanced by the CIT(A), the ld. AR submitted that the assessee has transferred the impugned amount from Axis Bank to HDFC Bank which again is used to make payment towards taxes. The Ld. AR in this regard drew out attention to the HDFC bank statement containing the impugned entries (Page 359 of paper book). Accordingly, the Ld. AR submitted that the assessee has received the money in his fiduciary capacity to make payment towards taxes on behalf of clients and the money deposited in the bank account does not belong to the assessee.
4. The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.
5. We have heard the parties, and perused the material available on record. The A.O noticed substantial tax deposit in the bank account of the assessee and accordingly reopened the assessment. The A.O did not accept the submissions of the assessee that the amount deposited belong to clients on whose behalf the assessee has made various tax payments. On further appeal, the CIT(A) enhanced the addition made by the A.O considering the deposit in one more bank account of the assessee. The assessee before us submitted an affidavit in support of the claim that the deposit in the bank account are amounts collected from the clients towards payment of various taxes and does not belong to the assessee. The relevant extract of the affidavit is reproduced below:
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5. From the perusal of the various documents submitted by the assessee (pages 1 to 433 of paper book – I and paper book II containing 119 pages), we notice that the assessee has made tax payments through his bank account to the tune of Rs. 29,83,87,572/-. We further notice that on sample basis the tax challans match with the debits reflected in the bank account of the assessee.
6. We also notice that the lower authorities while making the addition has completely ignored the debits in the impugned bank account of the assessee which in the narration clearly mentions the various government authorities that supports the contention of the assessee that the amounts collected are used towards various tax payments on behalf of the clients of the assessee. Considering the overall facts and circumstances, we see merit in the submission that the assessee has acted as a conduit for payment of taxes on behalf of the clients and that the deposits reflecting in the bank account of the assessee does not belong to the assessee. Further, the debits in the bank accounts reflecting the payment of taxes also substantiate the submissions of the assessee. Accordingly, we are of the considered view that the addition made treating the credits in the bank account of the assessee as unexplained cannot be sustained considering various evidences submitted by the assessee. Therefore, we direct the A.O to delete the addition made in this regard.
7. In the result, the appeal of the assessee is allowed.
Order pronounced on 11th day of May, 2026 at Chennai.
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