Cash Deposits for Clients Not Assessee’s Own Funds: Section 69A Inapplicable

Manish Punjabhai Odedra Vs ITO (ITAT Rajkot)

Cash Deposits on Behalf of Clients Not Assessee’s Own Funds – Section 69A Held Inapplicable- ITAT Rajkot Deletes ₹61 Lakh Addition u/s 69A – Assessee Proved to be a Commission Agent, Not Owner of Funds

AO had reopened the case & treated cash deposits in bank as unexplained money, rejecting Assessee’s explanation that the funds belonged to clients for whom he executed derivative transactions as a sub-share broker. Assessee furnished bank statements, ledgers of Angel Broking & Sunflower Broking, SEBI certificate, affidavits, & confirmations of unsecured loans, but AO & CIT(A) ignored these evidences.

Tribunal’s Findings

• In Assessee’s own earlier case (ITA No. 190/RJT/2019 dt. 02/06/2020), the Tribunal had already held him to be a commission agent, not a trader on own account.
• The transactions were undertaken on behalf of clients, and only commission income was assessable.
• The addition u/s 69A could arise only where the Assessee was owner of unexplained money not recorded in books; but here, funds were duly recorded and belonged to clients.
• The AO completely misapplied s. 69A & ignored the consistent judicial principle that only brokerage/commission earned by sub-broker is taxable, not clients’ funds.
• The Tribunal also relied on Kishore Bhai P. Thummar v. ITO (ITA 631/RJT/2014) where similar sub-broker receipts were treated as client money.

Tribunal’s Verdict