Delhi ITAT Deletes Demonetisation Addition for Money Transfer Agent – Cash Deposited Belonged to Principals, Not Agent

Vivek Mittal Vs ITO (ITAT Delhi)

Delhi ITAT Deletes Demonetisation Addition for Money Transfer Agent – Cash Deposited Belonged to Principals, Not Agent

The Delhi ITAT granted substantial relief to a money transfer agent by deleting addition made on account of cash deposited during the demonetisation period, holding that the assessee merely acted as a collection agent for payment service providers and the money deposited in bank accounts belonged to the principal companies.

The assessee was engaged in the business of money transfer agency for entities such as Ezspend Prepaid Payments Solutions Pvt. Ltd., Oxigen Services India Pvt. Ltd. and Ebix Payment Services Pvt. Ltd. During scrutiny, the AO noticed cash deposits of over ₹9.22 crore, including ₹40.34 lakh in Specified Bank Notes (SBNs) during demonetisation. Treating the source as unexplained, the AO made addition u/s 69A and further estimated income at 2% of total bank deposits.

Before the Tribunal, the assessee explained that he merely collected cash from numerous small labourers and customers on behalf of the payment companies and subsequently transferred the collections to the accounts of those principal companies. Detailed charts, agreements and bank records were furnished showing routing of the funds to the respective principals.

The ITAT accepted the explanation and observed that once the assessee was functioning only as a broker/collection agent, the cash collected on behalf of principals could not be treated as his unexplained money – especially when the same amounts were ultimately transferred to the accounts of the principal companies and the commission income earned from such activity had already been accepted by the department. Accordingly, the addition of ₹15.40 lakh u/s 69A was deleted in entirety.

On the separate issue of estimating commission income, the Tribunal found that the AO and CIT(A) had arbitrarily adopted a 2% commission rate despite the nature of the low-margin agency business. The assessee demonstrated that commissions in such transactions ranged between 0.15% to 0.50%. While the Tribunal did not fully accept the assessee’s claim, it observed that estimation at 2% was excessive and directed the AO to recompute income by applying 1% commission rate on the gross deposits routed through the bank accounts.

Accordingly, the appeal of the assessee was partly allowed with deletion of the demonetisation addition and substantial reduction in estimated commission income.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal is filed by the assessee against the order dated 11.07.2025 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No. CIT(A), Faridabad/10934/2019-20 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the assessment order dated 25.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.

2. Brief facts of the case are that the assessee is an individual and engaged in the business of money transfer agency under the license granted by payments service providers companies like Ezspend Prepaid Payments Solutions Pvt. Ltd., Oxigen Service India Pvt. Ltd., Ebix Payments services Pvt. Ltd. etc. The return of income was filed on 02.02.2018, declaring total income of INR 3,19,351/-. The case was selected for scrutiny through CASS for the year under appeal to verify the source of cash deposited during the demonetization period in Specified bank notes (“SBN”). The AO observed that during the year under appeal, the assessee has deposited cash of INR 9,22,87,000/- in the bank account out of which 40,34,000/- were deposited in SBN during demonetization period, source of which remained unexplained therefore, he made the addition of INR 40,34,000/- u/s 69 of the Act. Besides this, AO has estimated the income of the assessee @ 2 % of the total deposits in the bank account and accordingly, further addition of INR 18,45,740/- was made.

3. Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 11.07.2025, partly allowed the appeal of the assessee.

4. Aggrieved by the order of Ld.CIT(A), assessee is in appeal before the Tribunal by taking following grounds of appeal:-

1. “On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts.

2. On the fact and circumstances of the case, Id. CIT(A) has erred both on facts and in law in passing the order without giving any finding on the merits of the case.

3. (i) On the facts and circumstances of the case, Id. CIT(A) has erred both on facts and in law in confirming an addition of Rs. 15,40,000/- under section 69A of the Act, despite the fact that hundreds of small laborers paid this cash in very small amount to appellant assessee during the course of his business of agency of money transfer companies and supported by agreements and bank documents.

(ii) That the above said addition has been confirmed without considering the fact that the assessee has already shown the commission received on this deposit in his ITR for the relevant assessment year.

4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the commission income of Rs.7,07,790/- at estimated 2% of Rs. 3.53 crore, thereby making an addition of Rs.3,88,439/- (Rs. 7,07,790/-less 3,19,351/- income declared by assessee in ITR), ignoring the nature of low-margin agency business and form 26AS.

(ii) That the commission has been charged @ 2%, without there being any basis for the same.

5. The appellant craves leave to add, amend OR alter any of the grounds of appeal.”

5. Ground of appeal No.1 is general in nature hence, not adjudicated.

6. Ground of appeal No.2 & 3 are with respect to the addition of INR 15,40,000/- made u/s 69A of the Act and confirmed by Ld. CIT(A).

7. Heard the contentions of both the parties at length and perused the material available on record. The claim of the assessee was that the cash was deposited by various persons with the assessee as he is working as money transfer agent for various payment service providers and was the receipts of principal companies and accordingly, entire sum so deposited was subsequently transferred to the respective principals. During the course of hearing, the assessee has filed details of such cash deposited according to which total cash of INR 15,40,000/- was deposited in SBN in Two bank accounts maintained with PNB and said sum was subsequently transferred to the account of the principal of Ezspend Prepaid Payments Solutions Pvt. Ltd. and Ebix Payment Services Pvt. Ltd. etc. The necessary chart of the cash in SBN so deposited during the demonetization period and transferred to the money transfer agency have been filed before us.

8. On careful perusal of the same, it is observed that the amounts were received by the assessee in SBN as Collection Agent for the principals which was subsequently transferred to the accounts of respective principal i.e. money transfer companies and the assessee got the commission from such activity which has been accepted by the AO. When the assessee was acted as a broker for the principals i.e. money transfer agency, no addition is could be made in the hands of the assessee for the money belonged to those principals and more particularly when these funds were ultimately transferred to their accounts. In view of these facts, AO has wrongly treated the cash deposited during the demonetization period in SBN as unexplained money of the assessee and therefore the addition of INR 15,40,000/-made u/s 69A of the Act is hereby deleted. Accordingly, Ground of appeal Nos.2 & 3 raised by the assessee are allowed.

9. Ground of appeal No.4 raised by the assessee is with respect to the confirmation of addition of INR 3,88,439/- by estimating the income of the assessee by applying the profit of 2 % on the gross deposits of INR 3.53 crores in his bank account.

10. Heard the contentions of both the parties at length and perused the material available on record. It is observed that Ld.CIT(A) has reduced the amount of cash deposits from INR 9,22,87,000/- alleged by the AO made in Four bank accounts to INR 3,68,29,500/-pertaining to the deposits made in two bank accounts of the assessee. Thereafter, Ld.CIT(A) reduced the addition of INR 15,40,000/-separately made on account of cash deposits in SBN out of the gross receipts and applied 2% commission rate on the balance deposits and allowed credit of the income declared by the assessee in the return of income filed. It was the claim of the assessee that in terms of arrangements provided by the principals, the assessee was entitled for commission ranging between 0.15% to 0.50 % on the total funds routed through him. As observed above, the AO has never doubted the nature of the business of the assessee, therefore, the source of deposits was not doubted. The only issue remains is what would be reasonable rate of commission on such transactions. The assessee has declared commission income @ 1% however, it is observed that assessee has taken gross receipts at INR 3,19,35,100/- only as against the total deposits of INR 3,69,29,500/- from commission agency business appearing in his bank accounts. Therefore, we direct the AO to apply commission rate of 1% on gross deposits of INR 3,69,29,500/- and recompute the income of the assessee. With these directions, Ground of appeal No.4 raised by the assessee is partly allowed.

11. In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open Court on 22.05.2026.