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
