Seenuvasan Karthik Vs ITO (ITAT Chennai)
Chennai ITAT Deletes Addition on Cash Deposits Used for Procuring Demand Drafts, Holds Assessee Acted Merely as a Conduit
The Chennai ITAT deleted the addition of ₹51.43 lakh made under section 69A in respect of cash deposits, holding that the assessee had merely acted as an intermediary for customers by collecting cash and purchasing demand drafts in favour of the Registrar for property registration purposes. The Tribunal noted that the bank statements clearly showed that each cash deposit was immediately followed by the issuance of a corresponding demand draft, and the assessee had also furnished details of 193 customers, including their names, addresses, identity proofs, cash received, demand draft amounts, and beneficiaries. It observed that neither the Assessing Officer nor the CIT(A) had recorded any adverse findings on these documents. Following its earlier decision in Bose Saravanan v. DCIT, the Tribunal held that the assessee had acted only as a conduit, the deposited cash did not belong to him, and the authorities had erred in treating the entire bank credits as unexplained money without appreciating the corresponding debit entries towards demand drafts. Accordingly, the Tribunal directed deletion of the entire addition.
Cases Discussed
- Bose Sarvanan vs. DCIT (ITAT Chennai), ITA No.2217/Chny/2025 dated 11.05.2026
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 07.01.2026 for Assessment Year (AY) 2013-14.
2. The assessee is an individual and doing consultancy at the Registrar Office assisting the customers who come for registration of property etc. The AO received information that there is a cash deposit of Rs. 51,43,430/- in the bank account of the assessee. Since the assessee did not file the return of income, the A.O reopened the assessment by issue of notice u/s. 148 of the Act. The assessee submitted before the AO that the amounts credited are collections from customers which are deposited into the bank account of the assessee to take demand draft in the name of Registrar. The assessee further submitted the assessee earns nominal commission income towards rendering of the said services and to substantiate the above claim the assessee submitted the bank statements. The A.O called on the assessee to furnish the details of the persons from whom the money was collected along with address, PAN number etc. After examining the details furnished, the A.O held that the assessee could not furnish all the details as required to explain the source for the cash credit and accordingly treated the entire credit of Rs. 51,43,430/- as unexplained money u/s. 69A of the Act. Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) dismissed the appeal by holding that:
“5.8 From the proper appreciation and evaluation of the findings of AO in his assessment order and reply/submission of the appellant furnished during the appellate proceedings, it is undisputed that the appellant failed to file a return of income and did not maintain or produce regular books of account. While a general explanation was offered that the deposits pertained to amounts collected from clients for making demand drafts, the appellant did not furnish verifiable evidence such as client confirmations, agreements, complete bank reconciliation, details of commission earned, or documentary linkage establishing that the deposits were merely fiduciary in nature. The onus under the Act lies squarely on the assessee to satisfactorily explain the nature and source of cash deposits appearing in his bank account, which has not been discharged in the present case. Mere existence of debit entries or withdrawals does not, by itself, establish that the corresponding credits are non-income, particularly when the surrounding facts, volume of transactions, and absence of corroborative evidence raise serious doubts about the veracity of the explanation. Courts have consistently held that unexplained bank deposits can be brought to tax where the assessee fails to substantiate the explanation with credible material. In the present case, the Assessing Officer has made the addition only after affording multiple opportunities and after recording reasons for rejecting the explanation. The addition is thus based on a rational appreciation of facts and cannot be said to be arbitrary or excessive.
Therefore, the addition made by AO to the tune of Rs. 51,43,430/- is hereby sustained and thereby dismissing grounds no. 5, 6 and 7.”
The assessee is in appeal before the Tribunal against the order of the CIT(A).
3. We have heard the parties, and perused the material available on record. The Ld. Authorized Representative (AR) of the assessee, at the outset, submitted that the AO has not considered the bank statement which clearly reflects that each of the cash deposit is immediately followed by a demand draft entry which goes to prove the claim of the assessee. In this regard, we notice that the bank statements (page Nos.4 to 19 of paper book) reflect the cash credit and on the same day an entry for demand draft. Further from the perusal of the records, we notice that the assessee has furnished the details pertaining to 193 customers from whom the cash received by the assessee and the said details contained the name, address, ID proof, amount received in cash, DD amount and in whose name the DD is taken etc. However, we notice that the CIT(A) and the A.O has not recorded any finding adverse or otherwise with regard to the details submitted by the assessee. We also notice that similar issue is considered by the Coordinate Bench in the case of Bose Sarvanan vs. DCIT [ITA No.2217/Chny/2025 dated 11.05.2026], where it is held that:
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. 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.
4. In assessee’s case also from the perusal of the materials on record we are convinced of the fact that the assessee has received cash from customers and deposited the same into the bank account for the purpose of taking demand draft for the customer in the name of the Registrar (page 75 to 78 of paper book). Further, the records also substantiates the fact that the assessee has acted only as a conduit for taking demand draft in the name of Registrar and the cash deposited does not belong to the assessee. Therefore, in our considered view the ratio laid down by the Coordinate Bench in the above case is applicable to the assessee’s case also. Accordingly, we hold that the addition made by the AO treating the entire credit as unexplained money without considering the fact that each of the credit is followed by a debit entry towards DD cannot be sustained. We therefore direct the AO to delete the addition made in this regard.
5. In the result, the appeal of the assessee is allowed.
Order pronounced on 21stday of July, 2026 at Chennai.
