Case Law Details
Marappan Jayalakshmi Vs ITO (ITAT Chennai)
Chennai ITAT Deletes ₹1.28 Crore Addition, Holds Commission Agent Cannot Be Taxed on Entire Sale Proceeds
Summary: The Chennai ITAT condoned a delay of 151 days in filing the appeal and considered the assessee’s challenge against additions of ₹1,27,93,500 under Section 69A and ₹4,75,810 under Section 28 for AY 2017-18. The assessment had been reopened based on information regarding cash deposits, TDS on insurance commission, professional fees, commission or brokerage, and cash withdrawals. The assessee explained that she acted as a commission agent for a Hero Honda dealer, displaying and selling vehicles on its behalf, depositing sale proceeds into her bank account and subsequently transferring the amounts to the dealer through RTGS/NEFT while earning only commission. The Tribunal examined the dealer’s ledger, certificate, the assessee’s bank statements and Form 26AS reflecting TDS on commission, and found these sufficient to substantiate the claim that the assessee acted as an intermediary. It observed that the lower authorities failed to understand the assessee’s business model. Accordingly, the Tribunal sustained the addition of ₹4,75,810 under Section 28 towards commission income but deleted the addition of ₹1,27,93,500 made under Section 69A in respect of cash deposits. The appeal was partly allowed.
The Chennai ITAT partly allowed the appeal of an assessee engaged in facilitating the sale of Hero Honda two-wheelers on behalf of an authorised dealer. The Assessing Officer had treated cash deposits of ₹1.28 crore in the assessee’s bank account as unexplained money u/s 69A and also made an addition of ₹4.76 lakh towards commission income. The assessee contended that she merely displayed and sold vehicles on behalf of the principal dealer, collected sale proceeds from customers, remitted the amounts to the dealer through banking channels, and earned only commission for the services rendered.
The Tribunal examined the ledger accounts, bank statements, certificate issued by the principal dealer and Form 26AS, all of which demonstrated that the cash deposited from vehicle sales was immediately transferred through RTGS/NEFT to the principal dealer. It also noted that tax had been deducted at source on the commission paid to the assessee by the dealer, corroborating the assessee’s claim that she was merely an intermediary and not the owner of the sale proceeds. The Tribunal observed that the lower authorities had failed to appreciate the assessee’s business model despite the relevant evidence already being available on record.
Accordingly, the Tribunal held that the entire cash deposits of ₹1.28 crore could not be treated as unexplained money u/s 69A, as they represented sale proceeds belonging to the principal dealer and not the assessee’s income. However, it sustained the addition of ₹4.76 lakh towards commission income assessable u/s 28, holding that the commission constituted the assessee’s real taxable income. The appeal was therefore partly allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (A) / NFAC (hereinafter referred as the ‘Ld.CIT(A)’), dated 27.05.2025 for the assessment year (hereinafter referred as the ‘AY’) 2017-18.
GROUNDS OF APPEAL
1. On the facts and circumstances of the case the order of first appellate authority dated 27.05.2025 in dismissing the appeal of the appellant is bad in law and is not legally justified.
2. On the facts and circumstances of the case, the First Appellate Authority is not justified in sustaining the order of the AO, Where the AO has made a legal error in issuance of notice u/s. 143(2) of the Act dated 30.06.2021. The notice u/s 143(2) of the Act has been issued in an invalid format in violation to the CBDT instruction no. F. No. 225/157/2017/ITA-11 dated 23.06.2017 and accordingly, the assessment order passed consequently is void-ab-initio and bad in law.
3. On the facts and circumstances of the case, the first appellate authority is not justified in sustaining the order of the AO, Where the AO has assessed the vehicle’s received for display as Sales and made addition of Rs.1,27,93,500/- being cash deposits made in the bank account of the assessee as undisclosed sales. The assessee being a commission agent, only income embedded in the above transactions are commission amount and not the entire proceeds and only the commission has to be assessed in the hands of the appellant. The action of the AO on assessing the entire proceeds is bad in law where in as much as, the assessee is a mere intermediary for transactions between buyer and seller.
4. On the facts and circumstances of the case, the first appellate authority is not justified in sustaining the order of the AO, Where the lower authorities made an addition of Rs. 4, 75,810/- as undisclosed income. The action of the AO is against the principles of natural justice where the above entire commission amount has been offered to taxation and disclosed in the return of income filed which is very much available in the hands of the AO in course of assessment proceedings. The above action leads to double taxation in the hands of the assessee.
5. On the facts and circumstances of the case, the first appellate authority is not justified in sustaining the order of the AO, Where the assessee is consistently following the above accounting method and filing returns of income, the action of the AO in making above adjustments in the A.Y. in issue where no discrepancy has raised in the previous years is not justified and against the principles of natural justice.
6. There is a delay in filing the appeal for which delay condonation petition will be filed at the time of appeal hearing.
7. In view of the above grounds and other submissions to be made at the time of Appeal hearing, the order U/S 250 passed by Commissioner of Income Tax (Appeals), NFAC may be cancelled and justice rendered.
The appeal of the assessee is time barred by 151 days. To explain the same, the assessee has filed an affidavit citing the reasons for delay in filing of the same vide Page Nos. 5 & 6 of the paper book. We have gone through the same and found the same is in order, hence, the delay is duly condoned.
2. The brief facts of the case are that the assessee individual was amongst the non-filer of return u/s. 139 of the Act. The Revenue was in possession of certain information as mentioned in para-1 of the assessment order reproduced herein below as under:-
“..The assesse has cash deposits in current account (SFT-003) of Rs. 1,27,93,000/-, TDS Return — Insurance Commission (Section 194D) of Rs. 80/-, TDS Return- Professional or Technical Fees (Section 194J) of Rs. 780/-, TDS Return — Commission or Brokerage (Section 194H) of Rs. 4, 74, 950/- and cash withdrawals from current account (SFT-003) of Rs. 12,25,000/-. During the F.Y.• 2016-17 relevant to A.Y.• 2017-18 and the assessee has not filed return of income for the A.Y.• 201718, hence I have reason to believe that, income chargeable to tax has escaped assessment within the meaning and scope of selection 147 of the I.T. Act 1961…”
3. Based on the information mentioned (Supra) the case of the assessee was reopened and a notice u/s. 148 of the Act vide dated 27.03.2021 was issued and in response to the same the assessee filed a return vide dated 22.04.2021 declaring total income at Rs. 36, 420/-. After a detailed deliberation between the AO and the assessee, the case of the assessee was ultimately assessed by making addition of Rs. 4, 75, 810/- u/s. 28 of the Act and Rs. 1, 27, 93, 500/- u/s. 69A of the Act. The assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A), who in turn dismissed the appeal of the assessee. Being further aggrieved the assessee preferred the present appeal before us.
4. We have gone through the order of the AO, the order of the Ld. CIT (A) and the submissions of the assessee along with grounds taken before us. It is observed that the assessee was engaged in the business of selling of automobile parts. During the year the assessee deposited cash of Rs. 1, 27, 93, 500/- and the source of this cash was sales consideration received from the buyers of Hero Honda vehicles sold on behalf of its main dealer Shri Krishna Auto Agency, Dharmapuri. As per the assessee, she was used to place the vehicle on display on behalf of the main dealer i.e. Shri Krishna Auto Agency and sale the same to the interested buyers and in turn deposit the cash received in her bank account, thereafter, transfer the amount belonging to Shri Krishna Auto Agency through RTGS / NEFT. For this sales service, she was entitled to charge commission.
5. To substantiate this version, the assessee had furnished the copy of ledger in the books of Shri Krishna Auto Agency. We have examined the same along with certificate from Shri Krishna Auto Agency, Ledger of Shri Krishna Auto Agency in the books of the assessee and bank statement of the assessee for the F.Y. 2016-17. It is observed that whatever the cash the assessee deposited from the sale of Two Wheelers, back to back transferred to Shri Krishna Auto Agency. We have gone through the copies of Form No. 26AS as furnished before us vide paper book page Nos. 64 to 67 issued by Shri Krishna Auto Agency against the deduction made from the commissions dues of the assessee. In our opinion, the spectrum of the bank account of the assessee and copies of Form No. 26AS issued by Shri Krishna Auto Agency against the deduction made from the commissions dues of the assessee are enough to substantiate the claim of the assessee. It is further observed that all the relevant documents were already on record before the AO and the Ld. CIT (A), but they failed to understand the business model of the assessee and the orders of the authorities below are found to be erroneous.
6. It is further observed that the assessee had submitted her Profit & Loss Account along with balance sheet of her business operations. It is observed that during the year under consideration the assessee had deployed a sum of Rs. 41.45 lakhs, against this net profit of Rs. 36, 419/- only declared as earnings. Here, the results of the assessee are not in commensuration with the capital deployed and that too when the assessee had bank balance of Rs. 2, 62, 503/- and cash in hand at Rs. 25, 39, 590/-. The assessee had claimed interest on car loan amounting to Rs. 2, 29, 675/- (other than interest on secured loan amounting to Rs. 3, 77, 172/-).
7. In our opinion, considering the facts discussed and observations made (supra), we sustain the addition of Rs. 4, 75, 810/- on account of commission as services rendered u/s. 28 of the Act and as far as addition of Rs. 1, 27, 93, 500/- on account of cash deposit u/s. 69A of the Act, same is directed to be deleted. In the result, the ground no.3 raised by the assessee is allowed.
8. In the result, the appeal of the assessee is partly allowed.
Order pronounced on the 9th day of July, 2026, in Chennai.
Author Bio
