Surendra Kumar Sharma Vs ITO (ITAT Jaipur)
Premium Collections Are Not Unexplained Money: ITAT Deletes ₹35.09 Lakh Demonetisation Addition
Business Evidence Prevailed Over Suspicion
The Jaipur Bench of the Income Tax Appellate Tribunal deleted an addition of ₹35,08,550 under section 69A, representing cash deposited by an insurance commission agent during demonetisation.
The assessee explained that the deposits represented insurance premiums collected from customers and supported the explanation with policy records, cash-book entries, bank statements, cash-flow details and affidavits.
The Revenue rejected the explanation primarily because some policies mentioned other agents and because the assessee had not separately established that the premiums were collected in Specified Bank Notes (SBNs).
The Tribunal found both objections insufficient. It held that the business arrangement had been adequately explained and that the supporting evidence had not been disproved.
Premium Collections Deposited During Demonetisation
The assessee carried on business as a general insurance commission agent. He attributed the disputed bank deposits to cash premiums collected from customers in the course of that activity.
The Assessing Officer rejected this explanation, considering it inadequately substantiated. He also objected that the assessee had collected SBNs during demonetisation despite not being authorised to do so.
Consequently, the entire amount of ₹35,08,550 was treated as unexplained money and added to the assessee’s income.
Before the CIT(A), the assessee furnished additional evidence. These documents were forwarded to the Assessing Officer for a remand report, and the report was supplied to the assessee for his response.
Nevertheless, the CIT(A) confirmed the addition.
A Detailed Trail Connected Customers, Policies and Payments
The Tribunal noted that the assessee had furnished substantial material supporting the source of the deposits.
This included a policy register containing dates, customer names, vehicle numbers, policy numbers and amounts collected, together with date-wise details of policies sold and money received.
The collections were correlated with entries in the books, including the cash book. Bank statements demonstrated deposits and payments to insurance companies, thereby showing the subsequent use of the money.
The assessee also produced premium-collection summaries for the relevant year and the preceding two years to demonstrate consistency with earlier collection patterns.
Copies of insurance policies marked as involving cash premium receipts and a cash-flow statement were also furnished.
Significantly, the Tribunal found that the Revenue had not identified any infirmity in this body of evidence.
Other Agents’ Names Had a Business Explanation
The principal objection concerned policies that mentioned agents such as Renu Sharma, Vishnu Agrawal, Raj Kumar Pareek and Mehboob Khan instead of the assessee.
The assessee explained that, because of the restriction on acting as an agent for more than one general insurance company, he used agents of other insurers on a commission-sharing basis to serve customers seeking policies from those companies.
According to him, this arrangement enabled him to retain customers while earning a portion of the commission.
He supported the explanation with affidavits from the other agents and bank statements demonstrating commission receipts through banking channels.
The Tribunal held that these facts had not been dislodged. The CIT(A) had rejected the explanation without properly appreciating the submissions and evidence addressing the appearance of other agents’ names.
The absence of the assessee’s name on a policy did not, in these circumstances, establish that the premium collection was unrelated to his business.
No Requirement to Prove the Currency of Every Collection
The Tribunal also rejected the objection that the assessee had failed to establish separately that customers paid premiums in SBNs.
It found that the source of the cash deposits had already been demonstrated through substantial business evidence. None of that evidence had been shown to be false, and no material defect had been identified.
The Tribunal considered it unreasonable to expect a person to maintain details of the currency in which every payment was collected.
Accordingly, failure to separately substantiate that premiums were received in SBNs could not justify rejection of an otherwise supported source explanation.
The assessee had also raised arguments concerning the permissibility of accepting SBNs. However, the Tribunal’s deletion rested on the demonstrated source of the deposits; the decision should not be presented as a general ruling authorising acceptance of demonetised currency.
Addition Deleted on Merits
The Tribunal concluded that the assessee had sufficiently explained and substantiated the source of the deposits.
It set aside the CIT(A)’s order and directed deletion of the entire ₹35,08,550 addition. The appeal was allowed.
Although section 115BBE was challenged in the grounds, the Tribunal did not separately decide any issue concerning its rate or temporal application.
Author’s Comments
The strength of this case was the connected documentary trail. The assessee demonstrated the customers, policies, collections, deposits, onward payments and commission-sharing arrangement.
An intermediary’s gross collections cannot be treated as unexplained money merely because the documents bear another intermediary’s name, where the arrangement is credibly explained and corroborated.
Equally, the judgment does not dispense with the obligation to explain demonetisation deposits. It shows how that obligation can be discharged through consistent business records.
The practical lesson is clear: prove the source and movement of funds comprehensively. Once that evidence remains uncontroverted, isolated objections about policy names or currency details cannot replace a proper examination of the transaction.
Cases Discussed
- Sreelekha Banerjee v. CIT, (1963) 49 ITR 112 (SC) — Cited by the CIT(A) for the proposition that where cash credits are found and no proper explanation is offered, the burden lies on the assessee to explain the source.
- Roshan Di Hatti v. CIT, (1977) 107 ITR 938 (SC) — Cited by the CIT(A) on the assessee’s burden to substantiate the source by cogent evidence.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT JAIPUR
The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “Ld. CIT(A)”), dated 30.07.2025 under Section 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The grounds raised by the assessee read as under:-
1. On the facts and circumstances of the case and in law also Ld. Lower authorities grossly erred in making and confirming additions of Rs 35,08,550/- under section 69A of the Income Tax Act, 1961.
2. On the facts and circumstances of the case and in law also, lower authorities grossly erred in ignoring the cash flow statement, copies of insurance policies, affidavits of the buyers, business model of assessee, past cash deposits history of assesseee, justification submitted for non-appearing name of assessee as agent on some policies and other submissions made by the assessee.
3. On the facts and circumstances of the case and in law also, Ld CIT(A) grossly erred in confirming the additions made by Ld A.O. by holding that insurance premium were not received in SBN’s, which were found deposited in the bank during the demonetisation period.
4. On the facts and circumstances of the case and in law also, Ld CIT(A) grossly erred in holding that since the name of assessee was not appearing on some of the polices issued, hence the appellant could not bring on record any tangible evidence.
5. On the facts and circumstances of the cases and in law also addition made in this case are tantamount to double taxation as assessee has already declared the said receipts in his revenue account and has paid taxes on the net commission income.
6. On the facts and circumstances of the cases and in law also LD. Lower authorities grossly erred in invoking provision of section 115BBE of the Income Tax Act 1961.
7. On the facts and circumstances of the case and in law also, Ld CIT(A) grossly erred in citing case laws which were not related to the facts of the case.
8. That the appellant craves his indulgence to add, amend, alter or delete any or all of the ground of appeal at any time before decision of appeal.
3. The solitary issue in the present appeal pertains to the addition made to the income of the assessee of Rs.35,08,550/- on account of cash found deposited in his bank account, the source of which remained unexplained.
4. The perusal of the order of the Authorities Below reveals that the assessee had attributed the cash deposited to be in relation to premium collected from various parties in the course of carrying out his activity of a general insurance commission agent. The AO rejected assessee’s explanation :
- finding the assessee to have not justified its explanation and,
- of having violated the rules of demonetization by collecting Specified Bank Notes (SBNs) during the demonetization which it was not authorized to.
4.1 Accordingly the cash deposited in the bank accounts of the assessee during the demonetization period amounting to Rs.35,08,550/- was held to be from unexplained sources and added to the income of the assessee.
5. Before the Ld. CIT(A), the assessee filed additional evidences justifying his explanation of the source of cash deposited emanating from premiums collected from various parties in the course of his business of insurance commission agent. The evidences were forwarded to the AO for his comments thereon, whose filed remand report which in turn was confronted to the assessee for his counter to the same, after considering all of which the Ld. CIT(A) confirmed the addition made by the AO noting that the assessee’s name was not appearing in the copies of policies submitted by the assessee as proof of having collected premium in cash from his customers which was deposited in the bank account and also for the reason that the insurance premiums were not evidenced to have been received in SBNs which were found deposited in the bank during demonetization period. The findings of the Ld. CIT(A) in this regard are contained at page 23 & 24 of his order as under:-
I have gone through the assessment order, submissions made by the appellant remand report etc. It is emanating from the remand report and the submissions made by the appellant that, the assessee made cash deposits of Rs. 3508550/- in his bank account during the period of demonetization (SBN notes. From the remand report, it is emanating that on some of the copies of policies submitted, assessee’s name as agent / intermediary is not appearing and name of other agents like Renu Sharma/Vishnu Agrawal / Raj kumar Pareek/Mehboob Khan are appearing. Also, in cases of most of other insurances, appellant has not been mentioned as agent in insurance documents. Rather names of other persons like Raj Kumar Pareek, Naru were found. Thus, appellant has not been able to bring on record the tangible evidences in support of the cash deposits made during the demonetization period. Onus is on appellant to prove the source of cash deposits to the satisfaction of tax authorities. T he onus is on the assessee to prove the correctness and genuineness of their claims, especially when facts are within their exclusive knowledge. In Sreelekha Banerjee v. CIT (1963) 49 ITR 112 (SC), Hon. Supreme Court held that if cash credits are found and no proper explanation is offered, the amount can be treated as income, and the burden is on the assessee to explain the source. In Roshan Di Hatti v. CIT (1977) 107 ITR 938 (SC), it was held that the assessee has to discharge the onus by producing cogent evidence.
Various case laws cited by the appellant don’t come to the rescue of the appellant as facts in such case laws are distinct from the facts of the impugned case. Moreover, the AO has correctly stated that the appellant had business receipts but the insurance premiums were not received in SBNs which were found deposited in the bank during the demonetization period. The addition has been made by the AO on account of cash deposits which were not explained by the appellant.
Thus it can be fairly stated that the appellant has been failed during appellat proceedings also to bring on record the documentary evidences in support of the cash deposits of Rs. 35,08,550/-.
In the background of this factual matrix, the addition made by the AO is confirmed in the absence of tangible evidences in support of the cash deposits of Rs. 3508,550/-.
…….
6. From the above reason for rejecting assessees explanation of the source of cash deposited in his bank account during demonetization period of Rs.35,08,550/-, being in relation to premium collected in his business of Insurance agent and treating it as unexplained narrows down onlyto two findings of the CIT(A):-
- That the insurance policies submitted by the assessee to justify his explanationdid not reflect his name as the agent.
- The cash deposited was found to be in SBNs which the assessee had failed to corroborate with evidences.
7. Ld. Counsel for the assessee before us, has heavily relied on his submissions made to the Ld. CIT(A) reproduced in the order of the Ld. CIT(A) in support of his contention that the addition was unjustified while the Ld. DR has relied on the findings of the Ld. CIT(A) in this regard.
8. We have gone through the orders of the Authorities below and have heard both the parties. Undeniably the assessee’s explanation for the source of cash deposited in the bank account of the assessee during demonetization period amounting to Rs.35,08,550/- is that it was on account of cash received for premium collected in the course of carrying out his business of being insurance agent.
9. The order of the Ld. CIT(A) reproducing the contention of the assessee reveals the assessee to have justified and corroborated his explanation by furnishing the following:-
- The entire data of the policy sold by him during the year under reference, including the policy issued register ,detail maintained by the assessee containing the date of policy, the name of the client, vehicle number, policy number and the amount collected from the customer. The report containing the date wise data of each and every policy sold by the assessee and the money received from the policy holder.
- Corroborating the data of cash collected as above with the entries in his books of accounts including the cash book demonstrating the fact of payments having been made to insurance companies, date of the money deposited in the bank account. This clearly reflecting the end user of the money so deposited in the bank account of the assessee to be in accordance with the explanation furnished by the assessee. The said fact was demonstrated from the copy of bank account submitted by the assessee.
- Submitting money wise premium collected summary for the impugned year and the preceding two years, thus demonstrating the fact that the flow of money received during the demonetization period was clearly in comparison of the previous month trends as well as the previous year trends.
- Copies of insurance policies issued by the insurance companies in favour of the assessee clients/customers was also furnished pointing out that they were marked as cash received on account of premium. Cash flow statement was also furnished.
9.1. No infirmity in the above data data, documents and evidences furnished by the assessee has been pointed out by the Revenue. The only adverse finding noting was that the name of the assessee did not find mention as an agent or intermediary in the policy letters furnished by the assessee. The AO in his remand report noted that:
- The names of some other persons as Renu Sharma or Vishnu Agrawal, Raj Kumar Pareek and Mehboob Khan found mention in some policy documents.
- The assessee failed to evidence the fact that it received SBNs from different persons for insurance purpose more particularly when the dealing in illegal tender was banned during the period.
10. The assessee we have noted responded to both the adverse findings of the AO contending that due to limitation in the Insurance Act as per which a person could act as an agent only for one insurance company, the assessee obtained the services of other agents of another companies on commission sharing business to serve his customers/clients and not to lose his permanent customers. That the assessee got commission from these agents in turn and all payments were made to the assessee through banking channels. The assessee even furnished affidavits of all these agents who had confirmed on oath the facts stated by the assessee. This submission of the assessee is reproduced at page 17 of the Ld. CIT(A)s order as under:-
…….
10. In regards to, observations of Ld A O in para 6 of remand report, it is submitted that assessee, as per provisions of section 42(2) of the Insurance Act, 1938, can act as an agent for one General Insurance Company only (Copy of relevant provisions is attached). In the competitive age, assessee, to serve better to his customers/clients and not to loose permanent customers, obtain the service of other agents of another companies on commission sharing basis Therefore there is no reason for Ld A O to observe this fact adversely. In fact assessee has got commission from these agents of other companies to give them business of his clients. It is important to mention that all the payments to these persons were given through banking channel. Policies to customers were issued against those payments only. Assessee received the amount in cash from his customer/ clients during the demonetization period and deposited the same into his bank account. We are submitting herewith affidavits of all these agents of another companies, who have affirmed on oath all the facts as narrated above. (Annexure-1). Therefore in the light of above submissions, observation of Ld AO is not tenable as assessee’s explanation is supported by the affidavits, policies and bank statements.
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11. The assessee further submitted that merely because the assessee had accepted SBNs and had not followed the RBI Notification, it still remained that there was no violation of principles of income tax. That he acted only as intermediary and did not accept the SBNs for his own benefit. The assessee also contended that debar for accepting BNs was after theappointed date i.e. 31-12-2016 and therefore accepting SBNs upto 31-12-2016 was not in any case any illegal act on the part of the assessee.
12. The above explanation of the assessee both on the finding of fact by the Revenue authorities of the insurance policies not mentioning the assessee as an agent and the assessee not having adduced any evidence of having collected SBNs as insurance premium , we find, has not been dealt with by the Ld. CIT(A) while holding the cash deposited in his bank account during demonetization period to be unexplained.
13. Considering the above, we do not find any merit in the order passed by the Ld. CIT(A) holding the assessee’s explanation of the source of cash deposited in his bank account to have remained unexplained. The only basis with the Ld. CIT(A) for rejecting assessee’s explanation is that the evidence filed by the assessee of insurance policies ,did not find mention of his name as agent. This finding of the Ld. CIT(A) is clearly not based on appreciation of the explanation furnished of the same by the assessee, noted above by us duly substantiated with evidence. The assessee had substantiated the circumstances in which he roped in other agents to work on his behalf to serve his customers and had taken a portion of commission earned in return. The assessee had substantiated this explanation with the affidavits of such agent and he had also demonstrated the fact of receiving commission from these agents by furnishing copy of his bank statement reflecting receipt of commission by way of cheque. None of these facts have been dislodged by the Ld. CIT(A).
14. Therefore, it is sufficiently clear that the Ld. CIT(A) has held the assessee to have not substantiated his explanation for the insurance policies reflecting the names of other agents, without even appreciating the contention of the assessee before him which was duly supported with evidences also. The Ld. CIT(A) has simply chosen to ignore the submissions of the assessee while holding so and we ,after considering the explanation of the assessee, which we have noted was duly substantiated, find the assessee to have adequately explained the reason for the assessee’s name not appearing as agent in the insurance policies submitted by him to substantiate his claim that the cash deposited in the bank account represented premium collected during the course of his carrying out his activity of acting as an agent of insurance companies. Ld. CIT(A), we hold, has wrongly rejected assessee’s explanation recording incorrect finding of facts.
15. As per the Ld. CIT(A)s finding that the assessee has being unable to prove that he had collected the SBNs during this period for deposit in the bank account for holding that the cash deposited in the bank account as unexplained, we do not find any merit in the same also.
16. The assessee has sufficiently demonstrated with voluminous evidences furnished, as noted above, the fact of the cash deposits emanating from his business of acting as an agent of insurance companies. None of the evidences furnished by the assessee have been found to be false. No infirmity while its worth was pointed out by the Department in the evidences and explanation furnished by the assessee.
17. Therefore, merely for the reason that the assessee did not evidence the fact of having collected SBNs is not sufficient to reject assessee’s explanation of the source of cash deposited in his bank account. In any case it is weird to expect any person to keep details of currency in which payment is collected.Not substantiating the fact that premiums were collected in SBNs cannot be the basis for rejecting explanation of the assessee.
18. In view of the above, we hold that the assessee had sufficiently explained the source of cash deposited in his bank account duly substantiated with evidences and the Ld. CIT(A) was not justified in rejecting assessee’s explanation. The order of the Ld. CIT(A) accordingly is set aside, the addition made to the income of the assessee of Rs.35,08,550/- is directed to be deleted.
19. In effect, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 01.10.2026
