Chennai ITAT Upholds 2% Commission Estimation: Entire Cash Deposits of E-Seva Operator Cannot Be Taxed Under Section 69A

ITO Vs Thiyagarajan Raja (ITAT Chennai)

Chennai ITAT Upholds 2% Commission Estimation: Entire Cash Deposits of E-Seva Operator Cannot Be Taxed Under Section 69A

The Chennai ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s decision to tax only the profit element embedded in the transactions, holding that the entire cash deposits of ₹1.40 crore could not be treated as unexplained money under Section 69A when the assessee had established that he was carrying on a genuine E-Seva facilitation business.

The assessee operated an E-Seva centre, providing services such as Aadhaar corrections, PAN card facilitation, electricity bill payments, government certificate services and IRCTC bookings. Based on information from the Insight Portal, reassessment proceedings were initiated and the Assessing Officer treated ₹1.40 crore of bank credits as unexplained money under Section 69A and ₹51.71 lakh of credit card payments as unexplained expenditure under Section 69C.

Before the CIT(A), the assessee produced extensive evidence including proof of business activities, bank and credit card statements, daily sales register, photographs of business premises, computation of income and details explaining the customer-reimbursement model of operations. Verification from the Tamil Nadu Government’s E-Seva portal also confirmed that the assessee was a recognised service provider carrying out various public utility services.

The Tribunal noted that the bank transactions consisted of numerous small-value receipts and payments connected with utility bills, government services and travel bookings, which corroborated the assessee’s explanation that the deposits largely represented customer collections and reimbursements rather than his own income. It observed that the Assessing Officer had ignored the evidence and mechanically treated the entire turnover as unexplained money.

The ITAT emphasized that Section 69A is a deeming provision and cannot be applied unless the Revenue first establishes that the amount represents income of the assessee. Merely because formal books of account were not maintained by a small-scale service provider, it could not be presumed that all cash deposits constituted undisclosed income. The Tribunal accepted that the assessee operated on minimal commission margins and that only the income component embedded in the receipts could be brought to tax.

Accordingly, the Tribunal upheld the CIT(A)’s approach of estimating income at 2% of the total receipts of ₹1.40 crore, resulting in taxable income of ₹2.81 lakh, and confirmed the deletion of the Section 69C addition of ₹51.71 lakh, observing that the credit card payments were part of the same business activity and stood covered while taxing the commission income. The Revenue’s appeal was therefore dismissed in full.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. The order of the Ld. CIT (A) is erroneous in law, facts of the case and circumstances of the case and hence not sustainable.

2. The Ld. CIT (A) erred in restricting the addition of Rs. 1,40,82,126/- made u/s. 69A to only commission @ 2% without appreciating that the assessee had not filed any return prior to reopening and falling to prove the nature and source of cash deposits. Further, no business activity was established and the entire cash deposits represented unexplained money within the meaning of section 69A of the Act.

3. The Ld. CIT (A) erred in presuming existence of a commission-based business and estimating profit at 2% without any cogent material, evidence, or third-party confirmation and in contradiction to settled judicial principles that estimation cannot substitute statutory provisions for unexplained cash.

4. The Ld. CIT (A) failed to appreciate that the burden of proof under section 69A lies entirely on the assessee, which was not discharged at any stage.

5. The Ld. CIT (A) erred in deleting the addition of Rs. 51,71,011/- made u/s. 69C towards unexplained expenditure on credit card payments, despite the fact that the assessee did not produce satisfactory supporting evidence and source of expenditure was unexplained.

6. The Ld. CIT (A) erred in ignoring that unexplained expenditure is independently taxable u/s. 69C Irrespective of income determination and accepted submissions without proper verification or reconciliation.

7. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT (A) may be set aside and that of the Assessing Officer restored.

2. The brief facts of the case as per assessee are that he is the sole proprietor of the business operating under the name “E-Seva”. His business primarily involves providing various facilitation services to the public including aadhaar card corrections, Pan Card services, electricity payment bills, facilitation of government certification services and ticket bookings on IRTCTC etc. The case of the assessee was selected based on specific information received from insight portal under risk management strategy. The assessee has not filed any return u/s. 139 of the Act.

3. During the year under consideration the assessee has carried out the following financial transactions as under:

Based on above information order u/s. 148A (d) of the Act was passed on 26.03.2024 and a notice u/s. 148 of the Act was issued. In response to the notice issued u/s. 148 of the Act assessee filed his ITR on 12.06.2024. Ultimately, the case of the assessee was assessed u/s. 147 of the Act by making additions of Rs. 1, 40, 82,126/- u/s. 69A of the Act and Rs. 51, 71,011/- u/s. 69C of the Act.

4. The assessee being aggrieved with the order of the AO preferred an appeal before the Ld. CIT (A) who in turn partly allowed the appeal of the assessee and deleted both the additions mentioned (supra) by sustaining an addition of Rs. 2, 81, 642/- being commission @ 2% on Rs. 1,40,82,126/-. Now, the revenue being aggrieved preferred the present appeal before us. We have gone through the order of the AO, order of the Ld. CIT (A) and arguments of the Ld. DR.

5. It is observed that the Ld. CIT (A) has categorically verified and observed the proof of business activity carried out by the assessee from the State Government Portal e.www.tnesevai.tn.gov.in. This portal shows the name of the assessee as service provider for various services like generating various certificates (Death, Birth and other Govt. certificates). The copy of the mails received shows that the appellant used his own Aadhaar card to carry out these certifications online through Tamil Nadu e-governance agency. The nature of payments in the bank accounts in smaller amounts transactions also shows that various payments and receipts on account of electricity bill, telephone bill and IRCTC travels.

6. During assessment proceedings, as well as during appellate proceedings before the Ld. CIT (A), the appellant has submitted the following evidence:-

1. Proof of business activities conducted (E-Seva).

2. Supporting documents (credit card and bank statements with narration and detailed explanation of debit and credit transactions).

3. Explanation of operating model (service based, customer reimbursement).

4. Photographic proof of business premises, exemption limit.

5. Computation of income.

6. Daily sales register.

It is observed that despite of the information mentioned above, furnished by the assessee, the AO ignored the same and summarily added total credit in bank accounts amounting to Rs. 1, 40, 82, 126/-. Here it is pertinent to mention that section 69A of the Act is a deeming provision and cannot be extended beyond its letter and spirit. Until unless it is established by the AO beyond doubt that the amount under consideration falls in the category of income, section 69A of the Act cannot be applied.

7. The AO miserably failed to appreciate the facts of the case and ignored the reliable information submitted by the assessee. The AO has failed to recognize the nature and scale of the appellant micro business (E-Seva Centre) where formal books, current accounts and P & L may not be practically maintained. The AO arbitrarily presumed that absence of accounting records means unaccounted income. In the present case, the appellant operates on a small scale and works on customer based utility services with minimal margins. This model does not require elaborate accounts. Cash deposits are customer reimbursements not unaccounted income.

8. In the light of above facts and documents/evidences furnished by the assessee before the Ld. CIT (A), the observation of the Ld. CIT (A) is found to be correct where he observed that only the profit element embedded in the transaction should be brought to tax @ 2% on total receipt of Rs. 1, 40, 82, 126/- amounting to Rs. 2, 81, 642/-. On the addition of Rs. 51, 71, 011/- on account of unexplained expenditure based on credit cards payments of Axis bank and SBI bank, Ld. CIT(A) rightly pointed out that no addition is called for as these are in nature of expenditure and is considered while taxing the commission of 2% on the total receipts.

9. In view of the above, we do not see any reason to interfere in the findings of the Ld. CIT (A), hence the order of the Ld. CIT (A) is confirmed and the grounds taken by the Revenue are dismissed.

10. In the result, the appeal of the Revenue is dismissed in above terms.

Order pronounced on the 10^th day of June, 2026, in Chennai.