LKPS Forex Private Limited Vs ACIT (ITAT Kolkata)
Summary: The Kolkata ITAT partly allowed the assessee’s appeal for AY 2023-24, holding that although the books of account were rightly rejected under Section 145(3) because the sales documentation contained discrepancies, including fabricated KYC documents and travel records, the entire cash deposits of ₹90,84,45,712 could not be treated as unexplained money under Section 69A. The Tribunal noted that the assessee was an RBI-licensed Full-Fledged Money Changer, that purchases of foreign currency through banking channels were not disputed, and that no excess foreign-currency stock was found during the survey. It held that the discrepancies indicated that the foreign exchange was not sold to the persons shown in the records, but did not justify treating the entire deposits as unexplained money; the books were nevertheless rightly rejected and a reasonable business profit had to be estimated. Referring to Kachwala Gems, Joint Commissioner of Income-tax, Jaipur [2007] 158 Taxman 71 (SC), the Tribunal observed that best-judgment assessment involves estimation but must be fair and reasonable. Considering the turnover of ₹93,15,48,134, the disclosed loss of ₹18,181 and the absence of a profit rate determined by the AO or CIT(A), it directed the AO to apply a net profit rate of 1.5% on the total turnover, recompute total income and grant consequential relief. The appeal was accordingly partly allowed and the order was pronounced in open Court on 25th August 2026.
SEO Title: Kolkata ITAT Deletes Section 69A Addition, Estimates Forex Profit at 1.5%
SEO Description: Kolkata ITAT deletes ₹90.84 crore Section 69A addition and directs 1.5% net profit on ₹93.15 crore forex turnover.
Kolkata ITAT Deletes ₹90.84-Crore Section 69A Addition: Entire Forex Turnover Cannot Be Taxed as Unexplained Money; Profit Estimated at 1.5%
The Kolkata ITAT held that although the assessee’s books were rightly rejected under Section 145(3) due to discrepancies in KYC records, fabricated travel documents and unverifiable cash sales, the entire cash deposit of ₹90.84 crore could not be treated as unexplained money under Section 69A. The assessee was an RBI-licensed Full-Fledged Money Changer, its purchases of foreign currency through banking channels were accepted, and no discrepancy in foreign-currency stock was found during the survey. Therefore, the cash deposits prima facie represented business receipts from the sale of foreign currency, though the sales might have been made to persons other than those named in the fabricated records. Regulatory violations could warrant action by the RBI or Enforcement Directorate, but could not by themselves justify taxing the entire turnover under Section 69A. Once the books were rejected, only a reasonable business profit could be estimated. Accordingly, the Tribunal deleted the Section 69A addition and directed the AO to estimate net profit at 1.5% of the total turnover of ₹93.15 crore.
List of Cases Discussed / Relied Upon
- Andaman Timber Industries v. CCE (2015) 62 taxmann.com 3 (SC),(2015) 62 taxmann.com 3 (SC) — cited in the assessee’s written submissions on denial of cross-examination where statements are relied upon.
- CIT v. S. Khader Khan Son (352 ITR 480),352 ITR 480 — cited in the assessee’s written submissions on the evidentiary value of statements recorded during survey under Section 133A.
- Kachwala Gems, Joint Commissioner of Income-tax, Jaipur [2007] 158 Taxman 71 (SC),[2007] 158 Taxman 71 (SC) — relied upon by the Tribunal for the proposition that, after rejection of books, profit may be estimated in a best-judgment assessment.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)-20, Kolkata [hereinafter referred to as Ld. ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2023-24 dated 13.03.2026.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. Jurisdictional Defect – Void Assessment
That the impugned order passed u/s 144 r.w.s. 145(3) is bad in law, void ab initio, and liable to be quashed as the Ld. AO proceeded on preconceived conclusions drawn from survey, without independent application of mind.
2. Violation of Natural Justice
That the addition is liable to be deleted as it is based on third-party statements and replies u/s 133(6) without granting cross-examination, which is fatal in law.
3. Illegal Invocation of Section 145(3)
That rejection of books is arbitrary since:
Books are audited
No defects found
All primary records (FLM registers, cash book, bank) produced
Hence, invocation of section 145(3) is unsustainable.
4. Addition u/s 69A – Legally Impossible
That the entire addition is void since:
Cash is recorded in books
Source explained as business receipts
Therefore, section 69A cannot apply
5. Gross Error – Treating Turnover as Income
That the AO has committed a fundamental legal error by treating entire cash deposits (turnover) as income, which is impermissible.
6. Acceptance of Purchases – Rejection of Sales Contradiction
That once purchases are accepted, sales cannot be rejected entirely, as stock cannot vanish.
7. Survey Statement Misuse
That reliance on statements recorded u/s 133A is illegal as:
No evidentiary value
Alleged admission is retracted/explained
No corroboration exists
8. Arbitrary Reliance on 0.05% Sample
That conclusion drawn from 9 parties out of ~18,607 customers (0.05%) is
statistically absurd and legally untenable
9. Ignoring RBI Regulatory Framework
That the AO failed to appreciate that:
Assessee is RBI-licensed FFMC
Business is fully regulated
Cash sales below ₹50,000 are permitted
10. No Evidence of Unaccounted Money:
That no material exists to show:
Cash is outside books
Cash is from undisclosed sources
11. Estimation vs Addition – Legal Violation
Without prejudice, even after rejection of books:
Only profit can be estimated, not entire turnover
12. Perverse Findings & Non-Application of Mind
That the order is based on assumptions, suspicion, and conjectures, not evidence.
13. Violation of Section 250(6) by CIT(A)
That the Ld. CIT(A) failed to:
Properly consider submissions
Pass a reasoned order
Deal with legal objections
14. Disproportionate and Impossible Addition
That addition of ₹90+ crore against negligible income is absurd and confiscatory.
15. General Ground
That the appellant craves leave to add/alter grounds.”
3. Brief facts of the case are that the assessee had filed the return of income for AY 2023-24 on 25.10.2023 declaring total income at ₹28,655/-. A survey u/s 133A of the Act was conducted at the business premises of the assessee on 19.05.2023. During the assessment proceedings, the Assessing Officer (hereinafter referred to as Ld. ‘AO’) observed that the assessee was involved in purchasing foreign currencies and selling it mostly in cash below ₹50,000/-against fabricated travel documents to include its unaccounted cash into banking channels. Consequently, after examination, the Ld. AO rejected the books of account of the assessee u/s 145(3) of the Act, estimated the income from the regular business at ₹20,000/-, and added cash deposits amounting to ₹90,84,45,712/- as unexplained money u/s 69A of the Act. He determined the total income of the assessee at ₹90,84,65,710/- in the assessment made u/s 144 of the Act. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who observed that the assessee was grossly involved in selling foreign currency in cash without proper KYC and by generating fake air tickets, passports, and bills. The Ld. CIT(A) upheld the rejection of the books of account and sustained the estimated business income of ₹20,000/-. He also held that the assessee failed to explain the genuineness of the funds utilized for the purchase of foreign currency. Accordingly, the Ld. CIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee.
4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the written submissions made have been examined. The Ld. AR submitted that the Ld. AO had accepted the purchases and notices u/s 133(6) of the Act were issued to 9 parties, out of which 7 customers did not reply and the entire sales were treated as bogus. The assessee had maintained the cash book and the sale proceeds were deposited in the bank account. There was a survey of the business premises carried out u/s 133A of the Act and on the basis of the survey, the Ld. AO accepting the survey finding without any independent inquiry, also accepted the stock register and there was no suppression of stock. It was submitted that the total turnover was approximately of ₹93 Crore, out of which ₹3 Crore of foreign currency was issued by cheque and the rest of the amount was issued in cash. In the previous year, the total turnover was shown at ₹ 94 crore. In the course of the appeal before us, the assessee has also filed written submissions as under:
“BEFORE THE HON’BLE INCOME TAX APPELLATE TRIBUNAL
KOLKATA ‘B ‘BENCH
ITA No.: Kol/1269/2026 Assessment Year: 2023-24
Appellant :
M’s LKPS Forex Private Limited Vs Assistant Commissioner of Income Tax, Central Circle-1(3), Kolkata
WRITTEN SUBMISSION ON BEHALF OF THE APPELLANT
Most Respectfully Submitted
The present appeal arises out of an assessment framed under section 144 read with section 145(3) whereby the learned Assessing Officer has made an addition of ₹90,84,45,712/- under section 69A by treating the entire cash deposited in the bank account as unexplained money. The assessment has subsequently been confirmed by the learned CIT(A).
The impugned orders deserve to be set aside for the following reasons.
I. Entire assessment is founded on suspicion and not on evidence
The foundation of the assessment is a survey conducted under section 133A.
The AO has proceeded on the assumption that because certain tickets were suspected to be fabricated and because a few customers denied purchase of foreign currency, the entire business of the appellant became non-genuine. Such conclusion is legally unsustainable.
Suspicion, however strong, can never substitute legal evidence.
Neither the assessment order nor the appellate order establishes any nexus between the alleged defects and the entire turnover of the appellant.
II. Books of account could not have been rejected
The appellant produced
-
- audited accounts
- cash book
- bank book
- FLM Registers
- RBI prescribed records
- stock records
- purchase records
The assessment order itself records that these documents were furnished.
No discrepancy whatsoever has been pointed out in
-
- purchases
- stock
- quantitative records
- cash book
No inflation of purchases has been alleged. No excess stock has been found.
No shortage of stock has been detected.
Therefore, the mandatory conditions of section 145(3) never existed.
III. Acceptance of purchases necessarily establishes existence of sales The Department has accepted
-
- purchase of foreign currency
- availability of stock
- movement of stock.
However, it rejects only the sales.
This is impossible.
Foreign currency cannot disappear.
If purchases are genuine and stock is not available at year end, then the only possible conclusion is that the currency has been sold.
The AO has accepted one limb of trading account while rejecting the other.
Such an approach is contrary to settled principles of accountancy.
IV. Addition u/s 69A is legally impossible
Section 69A applies only where the assessee is found to be owner of money AND such money is not recorded in the books.
Here, every cash deposit is recorded in cash book, bank book and books of accounts. The AO himself obtained these books. Therefore, basic ingredients of section 69A completely fail.
Cash recorded in books cannot again become unexplained money.
V. Turnover cannot be taxed as income
The AO has assessed the entire business turnover as income. This is contrary to every settled principle of taxation. Income is taxable. Turnover is never taxable. Even after rejection of books, only reasonable profit could have been estimated. Entire sales cannot become income.
VI. Reliance upon only 9 customers out of approximately 18,607 customers is arbitrary
The appellant had approximately 18,607 customers. The AO chose only 9 customers, which constitutes merely 0.05% of total transactions, and on that basis treated the entire turnover as bogus. This factual position was specifically raised before the CIT(A).
No judicial authority permits extrapolation of alleged irregularities from 0.05% of customers to 100% of the turnover. Such conclusion is statistically unreliable and legally untenable.
VII. Complete denial of cross examination
The AO relied upon the replies u/s 133(6), statements and third party allegations.
However, copies were either not supplied in time and no opportunity of cross examination was granted. This is a gross violation of principles of natural justice.
The Hon’ble Supreme Court in Andaman Timber Industries v. CCE (2015) 62 taxmann.com 3 (SC) has held that denial of cross-examination where statements are relied upon renders the order unsustainable.
VIII. Statement recorded during survey has no conclusive evidentiary value
The assessment substantially rests upon statements recorded during survey under section 133A. The Supreme Court in CIT v. S. Khader Khan Son (352 ITR 480) has held that a statement recorded during survey by itself has no evidentiary value unless corroborated by independent evidence.
In the present case, there is no independent evidence demonstrating that the entire turnover represented unexplained money.
IX. RBI Regulatory Framework ignored
The appellant is an RBI licensed FFMC. Its business is continuously regulated by RBI. Every purchase, sale, stock, register, cash position, monthly returns are monitored.
The RBI permits cash sale of foreign currency below the prescribed limit subject to compliance requirements. The appellant’s business operates within this regulated framework, as also explained before the CIT(A).
The AO completely ignored the regulatory mechanism governing the business.
X. Alleged denial by customers cannot invalidate completed sales After sale of foreign currency, the purchaser is not under the control of the appellant. A purchaser may cancel travel, change destination, change itinerary, or even deny purchase.
Such subsequent conduct cannot invalidate a completed sale.
The assessee is not required under RBI regulations to monitor whether the purchaser ultimately undertakes the journey, a point specifically raised before the CIT(A).
XI. Findings of CIT(A)
The learned CIT(A), despite recording that written submissions were filed, affirmed the assessment.
The order does not adequately address the principal legal contentions relating
to:
-
- section 69A,
- rejection of books under section 145(3),
- denial of cross-examination,
- taxation of turnover as income, and
- the RBI regulatory framework.
The appellant therefore submits that the appellate order does not satisfy the requirement of a reasoned adjudication.
XII. Prayer: The appellant therefore respectfully prays that
The assessment order be quashed; OR the addition of ₹90,84,45,712/-made under section 69A be deleted in full; OR alternatively, if the Hon’ble Tribunal is of the opinion that the books deserve rejection, only reasonable business profit may be estimated in accordance with settled law and not the entire turnover.
The appeal therefore deserves to be allowed.”
6. The Ld. DR drew our attention to page 41 of the paper book being conclusion in the assessment order and submitted that the assessee had generated fake KYCs and other documents and the addition u/s 69A of the Act was justified. The same is extracted as under:
“Conclusion
9.0 To summarise the entire scenario, it is safely concluded that the assessee engaged in the business of purchase and sale of forex deceitfully resorted to creation of fake air ticket on the basis of copy of passports and other credentials of certain individuals unscrupulously collected from various sources to apparently establish the sale of forex as genuine by demonstrating them as foreign bound passengers. They adhered to RBI guideline in terms of sale of forex in cash below Rs.50,000/- while the most important part of the guideline in terms of sale of forex to genuine air passengers has been vividly violated by the assessee. Therefore, the compliances to RBI regulation by selling forex below Rs.50,000/- in cash does not authenticate the total scheme as genuine which itself is an acumen to defraud the revenue.
9.1 It so transpires that the prime objective of the assessee was to induct unaccounted cash into banking channel in guise of sale of forex. The sale of forex was a colourable device designed to establish the source of cash as genuine and in order to do so the fake air tickets were generated by manipulating the credentials of certain individuals clandestinely availed by it. It is also on record that the persons whose documents were used are not even aware of the fact and they are denying to ever travelled abroad or availed the service of the assessee. In each case the sale of forex in cash was cunningly kept below Rs.50,000/- to demonstrate its adherence to RBI Rules and in this method crores of rupees have been generated in the guise of sale of forex which subsequently have been deposited into the bank account of the assessee. The analysis of the various documents impounded during the course of survey and the confession of the key person in statement recorded under Oath undisputedly proves the fact that there was no real buyers of forex of the assessee and the cash memo issued by the assessee against cash sale to the customer was false. In fact, there has been no customer who paid cash for purchase of forex from the assessee by providing KYC as per the guideline of RBI and the cash deposited into the bank accounts of the assessee is its unaccounted income.
10. In the course of assessment proceedings, the assessee was offered numerous opportunities to furnish the details of cash collected which is claimed to have been deposited into the bank to purchase forex. But unfortunately the assessee avoided to avail up such opportunity for furnishing the requisite details, which the assessee suppressed to possess. It would not be out of place to state here that vide notice u/s. 142(1) of the Act, the assessee was asked to furnish some basic details in respect of cash sale, so that necessary enquiry with regard to cash collected against forex sale could be reasonably verified. The noncompliance on the part of the assessee left the source of cash deposited into bank unsubstantiated. It clearly indicates to the fact that cash so deposited into bank is from undisclosed sources.
10.1 In the instant case, the assessee filed return of income disclosing total income of Rs.28,655/-. Since, the assessee failed to establish the correctness of its books of account on this basis of which final accounts has been drawn. It is imperative to reject the books of account as provided in the provision of section 145(3) of the Act. Therefore, the taxable income disclosed by the assessee cannot hold as its true income. In view of the same, the assessee from its regular business activity is estimated at Rs.20,000/-.
10.2 In view of the above, the undersigned has no other option left to estimate the income from its regular business attaining and it is felt judicious to estimate the same at Rs.20,000/-.
11. In the facts and circumstances of the case, it is crystal clear that the observation of the Department made above was on the basis of concrete evidences brought on record and the same is not on the basis of conjecture and surmise as alleged by the assessee in its submission. In light of the same it is inferred that the cash deposited totalling to the tune of Rs. 90,84,45,712/-into the bank accounts of the assessee maintained with SBI bearing account No.40319065517 of the assessee are not the sale proceeds of the forex but the same is unaccounted money of the assessee generated from undisclosed source(s). Therefore, the quantum of cash deposited into the bank accounts of the assessee amounting to Rs. 90,84,45,712/- added to the return income of the assessee u/s.69A of the IT Act 1961 as the source of the same has remained uncorroborated and unexplained. Tax is to levied u/s.115BBE of the Income Tax Act, 1961. Simultaneously Penalty proceedings is initiated u/s.271AAC of the IT Act.”
7. The Ld. DR further relied upon the order of the Ld. CIT(A) and requested that the same may be upheld. The relevant extract from the order of the Ld. CIT(A) is as under:
“5.0 Observation & Decision:
5.1 I have duly considered the facts of the case and submission of the appellant. The appellant has filed appeal in this case against the assessment order passed by the AO u/s 144 of the Act on 29.03.2025. The AO has made following 2 additions in the said assessment order.
1. Addition of Rs.90,84,45,712/- u/s 69A of the Act on account of introduction of cash from undisclosed sources in the guise of sale proceeds of FOREX.
2. Addition of Rs.20,000/- by rejecting the books of accounts showing loss of Rs. 18,181/-.
5.2 The appellant in its appeal has raised as many as 19 grounds of appeal against the addition made by the AO. Grounds of appeal No. 1 to 15 (except ground no. 3) are specific against the addition of Rs. 90,84,45,712/- u/s 69A of the Act. Whereas Grounds of appeal No. 3 is against the addition of Rs.20,000/- on account of rejecting the books of accounts showing loss of Rs. 18,181/-. Grounds of appeal No.18 is against the initiation of penalty proceeding u/s 271AAC of the Act and Grounds of appeal No. 19 is general in nature. Now the ground of appeal wise discussion and decision in this case are made here as under:
5.3 Grounds of appeal No. 1 to 15 (except ground no. 3) against the addition of Rs. 90,84,45,712/-:
5.3.1 As per the facts available on record, a Survey operation u/s 133A of the Income Tax Act was conducted on 19/20 May 2023 on the premises of various assessee doing the business of FFMC (Full Fledged Money Changer). The assessee company was one of the such FFMC companies on the premises of which Survey was conducted on the said date. In the course of survey, it was found by the Survey team that the assessee-company is involved in purchasing of Foreign Currency through banking channel from the banks and other authorized Forex dealer and used to sell them mostly in cash in the market. As per the RBI guidelines/Regulation Foreign Currency cannot be sold to the buyers in cash exceeding Rs.50,000/-. So in order to circumvent this regulation of the RBI, the assessee company used to sale Foreign Currency mostly in cash below Rs.50,000/- limit. However, it is found that a large amount of cash was being regularly deposited in the bank account maintained by the assessee. The survey team also found that the assessee company was involved in preparing and generating fake air tickets for the purpose of procuring Forex in lieu of unaccounted cash. Statement of Ms. Laxmi Singh, Director/key person of the company candidly admitted that the company was engaged in editing fake air tickets using data of various fake persons available with them and on the basis of the same, the tickets were artificially generated in respect of various pseudo passengers and cash memos were also issued against such fake passenger. During the course of survey proceedings, a folder named “Ticket” was found in the office premises of the assessee prevailing Flight Tickets in the Word Format. The tickets on examination were found to be fake. Accordingly, the statement of one of the Directors, Ms. Laxmi Singh of the assessee company was recorded u/s 131 on the day of Survey (19/05/2023) wherein she did not deny at all the issue of fake tickets. Apart from it, the statement of Kalyan Sinha Roy, CA was recorded in which he also points to the illicit functioning of the business by the assessee. The salient part of the sworn statement of Mr. K. S. Roy, CA is reproduced as under:-
“Q.12. During the course of survey proceedings at the premise of some of the above companies as mentioned above, it Is gathered that they are selling the Forex by generating fake tickets and accepting the expired/invalid Passport. Please comments on the above.
Ans. Sir, all of the above mentioned forex agencies are involved in this practice of providing forex against fictitious tickets. This is done to hide the identity of the actual purchaser. These forex companies receive their business through brokers who are contacted by the actual clients wanting forex currencies. They approach various forex companies who purchase Forex through Authorized Dealers of FFMCs by using fake documents i.e. fake tickets and sometimes passport also.
Q13. Please explain how the forex exchange happens and Why is the identity kept hidden of the actual entitles.
Ans: Sir, the brokers approach the forex with cash. There is a limit of Rs 50,000/- in accepting cash. Therefore, forex is purchased in bunches of Rs 49,000/-(approx.), so that the limit of Rs 50,000 is not breached. For this the broker arranges the persons of whose fake travel documents are created and forex is purchased. So, this way the cash gets converted to Forex currencies using these fake documents. Now with respect to the cash generation I want to state that the cash which is converted into forex is generated through various illegal means by the persons associated with M/s 8 R Addhya Finance Put. Ltd. and Addhya Forex Private Limited.
(ii) With regard to the modus of generating fake tickets, Shri Kalyan Singh Roy in his statement recorded u/s 131 of the Act on 24.05.2023 has admitted as under:
Q.20 During the course of survey proceedings on some of the Kolkata based FFMCs companies on 19/05/2023, it has been observed that the FTMCs are selling Forex to the individuals after fabricating the required documents such as. Air Tickets, passport etc. Further, it has also been found that forex are sold within limit of Rs. 50,000/- in cash. Please state do your accept it?
Ans, Sir, I am not in a petition to verify the genuineness of the documents for selling the Forex. However, I know that some of the FFMCs are selling Forex after fabricating the required documents such as Air Tickets, passport etc. I know that the limit of sale of Forex in cash is Ks.(Rs.) 50,000/-
Q.21 Please explain your answer given in Q. No. 20 in details.
Ans. Sir, as per my knowledge, it is true that some of the FFMCs are generating forex in the black market without any real purchaser. In order to substantiate the sale of forex, these FFMC manipulate the documentary evidences like passport and air tickets. Although the sale of these forex is done in the name of a dummy customer but in reality it is sold to some other person who is the real beneficiary. As I stated earlier, that limit of sale of Forex in cash is Rs. 50,000/-. If anyone intends to buy forex for the amount more than Rs. 50,000/-, then he has to make the payment through banking channel. I think to avoid the banking payment, the purchases are made in cash below Rs. 50,000/- against the different no. of passports.
(iii) With regard to the source of fake documents, Shri Kalyan Singha Roy in his statement recorded u/s 131 of the Act on 24.05.2023 has stated as under:
Q.27 Please state, what is the source of fake documents which some of the FFMC company utilizing generating Forex in the market and from where all these documents are collected and stored.
Ans. Sir, so far my knowledge is concerned, the copy of passport are generally collected from Xerox shop. Sometimes, some brokers make available the copy of passport of different persons. Thereafter, on the basis of the copy of passport, some of the FFMCs generate fake air ticket by fabricating some documents.
iv) With regard to the details of real beneficiaries of Forex, Shri Kalyan Singh Roy failed to provide the details of real beneficiaries of Forex. Relevant part of his statement recorded u/s 131 of the Act on 24.05.2023 is extracted below.
Q.22 Please furnish the details i.e., name, address, phone no. etc, of the real beneficiaries of Forex.
Ans. Sir, as I stated earlier that as per my information, some of above FFMC companies are generating Forex in the black market without any real purchaser. But, I do not have any details of the real beneficiaries of Forex as I am not involved in their business activities. Therefore, the respective FFMC company would better provide the details of real beneficiaries of Forex.
Q.26 Please explain the complete modus regarding the same.
Ans. Sir, I am trying to explain the modus through an example. Suppose, someone wants to go to Bangkok for business purpose with 5000 USD. If he purchases the USD for more than Rs. 50,000/-, then he has to make payment though banking channel. To avoid this and utilize his unaccounted cash income, he purchases USDs below Rs. 50,000/- multiple times using the fake documents. Thus, he manages to convert his unaccounted cash in to USDs. Later, he manages to take the USDS generated through fake documents to some foreign countries such as Bangladesh, Dubai, Bangkok etc. where he buys the goods/gold etc. for his business purpose which are subsequently illegally brought to India without paying any custom duty.
Apart from the above modus, some other modus are also there which I came to know from local market. The Forex generated in India utilizing the fabricated air ticket, passport etc. are utilized in purchasing gold in foreign countries such as Bangladesh and Dubai. From there, the gold is brought in to India through illegal means. Thereafter, in India, such persons basically some Gold Merchants show them as old gold purchased from local public. Thus, they manage to induce their unaccounted cash into their books of accounts and later make huge profit from selling those gold.”
5.3.2 In the assessment proceeding, the AO provided ample opportunity to the assessee to explain the sources of cash received as sale proceed of Forex and deposited in bank account with corroborative evidences. This exercise was very much needed because the assessee was found indulged in the activity of showing sale of Forex in cash in the name of fictitious persons by generating fake air tickets and bills and other KYC documents. But the assessee did not produce any evidences so as to satisfy the AO about the genuineness of the source of cash sale. Therefore, the AO reached to the conclusion that the assessee company is engaged in the business of purchase and sale of Forex malafidely resorted to creation of fake air tickets, copy of passport of pseudo passengers unscrupulously collected from various sources to establish the sale of Forex as genuine. In order to try to adhere the RBI guidelines in terms of sale of Forex in cash below Rs.50,000/-. While the most important part of the guidelines in terms of sale of Forex to genuine air passengers was grossly violated by the assessee.
5.3.3 The AO in the assessment order has stated that from the facts gathered in the Survey operation as well as in the assessment proceeding, it transpires that the prime objective of the assessee was to induct unaccounted cash into the banking channel in the guise of sale of Forex. As per AO, the sale of Forex was a colourable device designed to establish the source of cash as genuine and in order to do so, fake air tickets were generated by manipulating the credential of certain individuals clandestinely availed by it. The AO states that the facts are on record that the persons whose documents were used are not even aware of the facts that they are denying to ever travelled abroad or availed the service of the assessee. The AO clearly states that in each case, the sale of Forex in cash was cunningly kept below the figure of Rs.50,000/-to demonstrate its adherence to RBI Rules and in this method crores of Rupees having generated in the guise of sale of Forex, which was subsequently deposited into the bank account of the assessee. The AO concludes that from the analysis of the various documents impounded in the course of Survey and the confession of the key person in a statement recorded on oath, clearly proves the fact that there was no real buyers of Forex of the assessee and the cash memo issued by it against the cash sale to the customer were the false/fake documents. The AO further emphasizes the facts that in reality, there has been no customer who paid cash for purchase of Forex from the assessee by providing KYC as per the guidelines of RBI and hence cash deposited in the bank account of the assessee is its unaccounted income. The AO gave ample opportunities to the assessee in the assessment to establish the genuineness of sale transaction by furnishing the corroborative evidence and also show caused that in case of failure of establishing the genuineness of sale transaction, why the unreliable books of account cannot be rejected under the provision of section 145(3) of the Act. But the assessee did not furnish the explanation to the satisfaction of the AO and hence the AO rejected the result of books of account maintained by the assessee and relying upon the fact and evidences gathered in the Survey conducted u/s 133A of the Act, statement of key persons recorded u/s 131 of the Act and the facts gathered in assessment proceeding inferred that the cash amounting to Rs. 90,84,45,712/- deposited in the bank account of the assessee, in bank account No. 40319065517 with State Bank of India during the F.Y 2022- 23 relevant to the A.Y.2023-24 are not the sale proceeds of the Forex but has been inducted into from undisclosed source. Therefore, the cash deposits of Rs. 90,84,45,712/- remains uncorroborated and unexplained and added to the total income of the assessee u/s 69A of the Act.
5.3.4 The appellant filed written submission in support of its grounds of appeal. In which it has contested the decision of the AO in rejection of Books of account. The appellant has stated that the AO has illegally rejected the books of account u/s 145(3) of the Act because rejection of books of account is permissible only if a specific defect are found and AO record satisfaction that is true income cannot be reduced. The appellant has further stated that the books of account were duly audited and it was regularly maintained and accepted by the department in the earlier years. The AO has not pointed out any defect in purchase (FLM-4), stock (FLM-1) or bank entries. Therefore, as per appellant, rejection of books of account solely on the reason of low profit cannot be accepted.
5.3.5 This submission of the appellant was duly perused and it was found without merit because in the Survey proceeding, facts were gathered and evidences were collected in the form of fake KYC documents, fake Air Tickets and bills etc in the name of the persons who have not bought such tickets. Further, statement of key persons were recorded on oath, in which they have not only accepted the malpractice adopted by the assessee in showing sale of Forex in cash in the name of some fictitious persons. Furthermore, even in assessment, despite of ample opportunities given by the AO, the appellant assessee failed to establish the genuineness of cash sale of foreign currency. Therefore, the AO has enough reason to disbelieve the correctness of the books of account maintained by the assessee. Not only that, before rejection of the books of account u/s 145(3) of the Act, the AO has given show cause notice to the assessee to establish the genuineness of books of account by resorting to furnish the sources of cash received as sale consideration of Foreign currency. Therefore, I do not find any error/lapse on the part of the AO in making the decision of rejection of books of account u/s 145(3) of the Act. Hence, the grounds taken by the appellant is rejected.
5.3.6 The appellant has also taken the ground that the AO has erroneously treated the cash sale of foreign currency as unexplained income. The appellant states that there are foundational error in the decision of the AO in concluding that the cash sale are unexplained income of the Assessee, when the AO has accepted the purchases of the Forex as genuine, stock register was accepted, there was no error in the RBI mandated records, but selectively rejected the sale proceeds. This action of the AO is self-contradictory and perverse.
5.3.7 This argument of the appellant is also found without merit because the submissions and the case laws cited by the appellant in its submission are not relevant for the facts involved in this case. Sale of Foreign currency is a highly regulated commercial activity. The Reserve Bank of India is a regulatory authority for the exchange of foreign currency and its regulation are very much strict in the sense that the foreign currency cannot be given in the hands of unidentified persons as there are always chances of misuse. Therefore, as per the regulation of the RBI it is mandatory for the agents to sale the foreign currency to only those persons who are in genuine need of foreign currency and provide proper KYC documents. But here in this case of the appellant, what the Survey team and Assessing Officer found that the assessee was grossly involved in selling the foreign currency in cash deliberately below threshold limit of Rs.50,000/- and that too without doing any proper KYC and by generating fake air tickets, fake passport copies and fake bills etc. So, the AO has rightly concluded that the source of cash sale of Forex by the appellant remains unexplained. Hence, this ground of the appellant is also found without merit and therefore it is rejected.
5.3.8 The appellant has further taken the plea that the action of the AO is in gross violation of natural justice. Because he has made his addition on the basis of statement taken in Survey which is a third-party material and no opportunity for cross examination was given. This argument of the appellant is also found not sustainable because the Survey was conducted at the very own premises of the assessee and the person namely Shri Kalyan Singha Roy whose statement was recorded u/s 131 of the Act was no one but the CA/Counsel of assessee-company only. Further, he demonstrated the modus operandi of generating fake air tickets and fake bills by using assessee’s own computer system. Therefore, Shri Kalyan Singha Roy the employee of the company cannot be taken as a third party and the assessee cannot expect the department to make him available to the assessee for his cross examination as he has already been working for the assessee company.
5.3.9 Therefore, in view of the above facts and circumstances of the case, I find the decision of the AO in treating the cash receipt of Rs. 90,84,45,712/-as cash receipt from the alleged sale of Forex as unexplained money of the appellant as the appellant assessee has failed not only in the assessment but in the appellate proceeding as well to explain the genuineness of fund utilized for the purchase of foreign currency. As a result, the appeal of the appellant in this issue is found without merit and hence it is rejected. The addition of Rs. 90,84,45,712/- by the AO u/s 69A r.w.s 115BBE is confirmed.
5.4 Ground No. 02 relates to addition of Rs.20,000/- on account of business income by rejecting the books of accounts of the assessee.
5.4.1 The AO in the assessment order has stated that the assessee filed return of income disclosing total income of Rs. 28,655/-. Since the assessee failed to establish the correctness of its books of account on this basis of which final accounts has been drawn. It is imperative to reject the books of account as provided in the provision of section 145(3) of the Act. Therefore, the taxable income disclosed by the assessee cannot hold as its true income. Hence, the assessee’s income from its regular business activity is estimated at Rs. 20,000/-.
5.4.2 In the appeal proceedings, the assessee submitted that the AO has wrongly taken the figure of Rs.20,000/- as business income, whereas, the assessee showed loss of Rs. 18,181/- while filing the return. However, the appellant did not furnish any corroborative evidence regarding the genuineness of its books of accounts. Therefore the submission made by the appellant is found without merit and hence it is rejected. Accordingly, an amount of Rs.20,000/- is confirmed.
6. Grounds of Appeal No. 18: Consequential in nature.
7. Grounds of appeal no. 19: General in nature
As a result, the appeal is Dismissed.” {emphasis supplied}
8. We have considered the written submissions filed by the assessee, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). In order to understand and adjudicate the appeal, it is essential to understand the business of the assessee and the regulatory framework involved. Authorised Money Changers (AMCs) are entities, authorised by Reserve Bank of India (“the Reserve Bank”) under Section 10 of the Foreign Exchange Management Act, 1999 and an AMC is a Full Fledged Money Changer (FFMC). In addition to Authorised Dealer Category-I Banks (AD Category–I Banks) and Authorised Dealers Category-II (ADs Category II), Full Fledged Money Changers (FFMCs) are authorised by the Reserve Bank to deal in foreign exchange for specified purposes, to widen the access of foreign exchange facilities to residents and tourists while ensuring efficient customer service through competition. FFMCs are authorised to purchase foreign exchange from residents and nonresidents visiting India and to sell foreign exchange for certain approved purposes. Any person found undertaking money changing business without a valid licence is liable to be penalised under the Act ibid. Master Direction for Money Changing Activities (“Master Directions”) are issued by Reserve Bank of India, last being vide RBI/FED/2015-16/17 FED Master Direction No.3/2015-16 January 1, 2016, which are updated from time to time. Only entities authorized by Reserve Bank of India (RBI) under the Foreign Exchange Management Act (FEMA), 1999, can conduct money-changing business. There are various norms for Full Fledged Money Changers (FFMCs), required documentation and the “fit and proper” criteria for approval. There are the day-to-day operational rules for money changers being regulations for buying and selling foreign exchange for private and business visits etc. It also mandates the maintenance of specific statutory registers (FLM 1 to FLM 8), regular reporting to RBI, and systems for concurrent audits. All Authorised Persons and their franchisees must strictly adhere to the RBI’s Master Direction on KYC, AML standards, and Combating of Financing of Terrorism (CFT) guidelines under the Prevention of Money-laundering Act (PMLA). The RBI has the authority to revoke a license at any time in the public interest or due to regulatory breaches. There are guidelines for the physical movement of cash and foreign exchange during elections which need to be meticulously documented.
9. As regards the purchase and sale of foreign currencies, there are operational instructions to be followed. Authorised Money Changers (AMCs)/franchisees may freely purchase foreign currency notes, coins and travellers cheques from residents as well as non-residents. Where the foreign currency was brought in by declaring on Currency Declaration Form (CDF), the tenderer should be asked to produce the same. AMCs may sell Indian Rupees to foreign tourists/visitors against International Credit Cards/International Debit Cards and take prompt steps to obtain reimbursement through normal banking channels. While making payments in Indian Rupees to resident customers towards purchase of foreign currency notes and/ or Travellers’ Cheques payment can be made in cash/by way of ‘Account Payee’ cheque/demand draft/ loading in INR debit cards, as per prescribed limits. AMCs may purchase from other AMCs and ADs any foreign currency notes, coins and encashed travellers’ cheques tendered in the normal course of business but payment ought to be made by way of crossed account payee cheque/Demand Draft/Bankers’ cheque/Pay order. AMCs may sell foreign exchange up to the prescribed ceiling specified in Schedule III to the Foreign Exchange Management (Current Account Transaction) Rules, 2000 during a financial year to persons resident in India for undertaking one or more private visits to any country abroad (except Nepal and Bhutan). Foreign nationals permanently resident in India are also eligible to avail of this quota for private visits subject to certain exceptions. AMCs may sell foreign exchange to persons resident in India for undertaking business travel or for attending a conference or specialized training or for maintenance expenses of a patient going abroad for medical treatment or check-up abroad or for accompanying as attendant to a patient going abroad for medical treatment/check-up up to the limits specified in Schedule III to FEMA (Current Account Transactions) Rules, 2000. Authorised Dealers Category-II may issue forex pre-paid cards to residents travelling on private/business visit abroad, subject to KYC/AML/CFT requirements which are a form of foreign currency, similar to foreign currency notes or travellers cheques and they are required to comply with the same rigorous standards of due diligence and KYC as they would in case they were selling foreign currency notes/ travellers cheques to their customers. The Reserve Bank will not generally, prescribe the documents which should be verified by the AMCs while releasing foreign exchange but sub-section (5) of Section 10 of FEMA, 1999 needs to be complied with which states that “An authorised person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made thereunder, and where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorised person shall refuse in writing to undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank.” AMCs may accept payment in cash below Rs.50,000/- (Rupees fifty thousand only) against sale of foreign exchange for travel abroad (for private visit or for any other purpose) but wherever the sale of foreign exchange is for the amount equivalent to Rs.50,000/- and above whether it involves a single drawal or multiple drawals for a single journey, the payment must be received only by a crossed cheque drawn on the applicant’s bank account or crossed cheque drawn on the bank account of the firm/company sponsoring the visit of the applicant or Banker’s cheque/Pay Order/Demand Draft. In addition to the payment by Rupees/through crossed cheque/Banker’s cheque/Pay order/Demand draft, AMCs may also accept the payments made by the traveller through debit cards/credit cards/prepaid cards for travel abroad (for private visit or for any other purpose) provided-
i. KYC/AML/CFT guidelines are complied with,
ii. sale of foreign currency/issue of foreign currency travellers’ cheques is within the limits (credit/prepaid cards) prescribed by the bank,
iii. the purchaser of foreign currency/foreign currency travellers’ cheque and the credit/debit/prepaid card holder is one and the same person. v. The sale of foreign currency notes and coins within the overall entitlement of foreign exchange should be restricted to the limits prescribed by the Reserve Bank from time to time for the country of visit of the traveller.
10. There are several severe consequences for entities and individuals who fail to comply with the mandated norms. Any person found undertaking a money-changing business without a valid license is liable to be penalized under the Foreign Exchange Management Act (FEMA), 1999. If a company or its directors have major cases initiated or pending by the Directorate of Enforcement (DoE), Directorate of Revenue Intelligence (DRI), or other law enforcement authorities, they are not considered “fit and proper”. Section 12(1) of FEMA empowers authorized RBI officers to inspect an AMC’s books and failure to produce required books of account, furnish requested statements/information, or answer questions relating to transactions is legally deemed a contravention of FEMA provisions. The RBI reserves the right to completely revoke an AMC’s license if the entity fails to comply with any condition of its authorization. Licenses can also be revoked if the entity contravenes any provision of FEMA, 1999, or any rule, regulation, notification, direction, or order made thereunder. Beyond cancelling the entire company’s license, RBI can also revoke the authorization of specific branch offices for any infringement of statutory or regulatory provisions. In fact, even as on date, the license of the assessee has not been cancelled by RBI as was verified from the website of RBI.
11. Thus, the assessee was granted a licence as an AMC/FFMC to carry on the business of purchase and sale of Foreign Exchange and could purchase and sell from the entities mentioned in the Circular summarised above. Since no excess stock was found, therefore, it cannot be ruled out that the assessee, being a license holder of RBI, had traded in foreign exchange. The discrepancies noted in the KYCs and fake tickets etc. did not justify the addition u/s 69A of the Act as the purchases were made from RBI and/or other authorised foreign exchange dealers/private persons and payment was made through bank using electronic mode of payment and purchases have not been disputed by the Ld. AO nor any adverse findings in respect of purchases have been found or mentioned in the assessment order but they lead to the inference that the sales were not persons/entities to whom they were purported to have been made. However, the books of account were rightly rejected as several discrepancies were found for cash sales documentation and the Ld. AO has reduced the disclosed income from ₹28,655/- shown by the assessee to ₹20,000/- which has been upheld by the Ld. CIT(A), besides the addition u/s 69A of the Act. The only inference which can be drawn and as is submitted by the assessee is that the assessee had not sold the foreign exchange to the claimed buyers as the documents were found to be fabricated but had sold it to other persons in cash involving a premium in the grey market, the books of accounts are liable to be rejected and a reasonable profit was required to be estimated. There is no justification in the argument of the assessee through the grounds of appeal raised that the addition was based on 3rd party statements without granting cross examination. It was incumbent upon the assessee to verify that the sales were made to the purported parties by furnishing positive evidence. The director did not deny the issue of fake tickets and the statement of the key person mentioned by the Ld. CIT(A) also does not justify that the books of account relating to sales were correct, therefore they were liable to be rejected and have been rightly rejected. Since the sales were made in cash and are unverifiable, the net profit shown by the assessee is not liable to be accepted as the sales in cash being sales in the grey market command a higher premium than the normal margin of profit in the normal course of business. The Bench was of the view that on the facts of the case, the estimated net profit rate of 1.5% may be applied as the sales in the grey market command a higher net profit than in the normal course of business, to which neither the Ld. AR nor the Ld. DR had any serious objections. The discrepancies in the KYC documentation and fabrication of evidence/documents did not justify the addition u/s 69A of the Act on account of unexplained money as the purchases were made from RBI and other authorised parties/persons, the payments for which were made through bank and the purchases were not disputed and as no discrepancy in the closing stock was found in the course of the survey, nor any such discrepancy could be pointed out by the Ld. DR. Therefore, the only inference which can be drawn is that the foreign exchange was sold in cash to persons other than those in respect of which fake and fabricated documents were found during the survey and as a result of the inquiries conducted. Further, in case there was any discrepancy in the KYC details filed by the assessee, the matter ought to have been referred by the Revenue to the RBI/Enforcement Directorate/other agencies for appropriate action with penal and other consequences to the assessee for not following the norms and guidelines of the RBI, which apparently has not been done, but the same cannot lead to the inference that the cash in the bank account, which the assessee claims to be on account of cash received from sale of foreign exchange, is liable to be added u/s 69A of the Act as the same prima facie form part of the business receipts of the assessee, specifically in view of the fact of the payment for purchases being made through bank and no excess stock of foreign exchange being found at the time of the survey nor any such excess stock was pointed out to us in the course of the hearing. The assessee’s business premises were surveyed along with those of other dealers and discrepancies relating to the addition of fake KYC documents were noticed.
12. Once the books of accounts were rejected as they were rightly rejected for the reason that the sales were not made to the persons whose details were recorded; the only option left is to estimate the profit as has been held in the case of Kachwala Gems Joint Commissioner of Income-tax, Jaipur [2007] 158 Taxman 71 (SC) wherein it has been held that “It is well-settled that in a best judgment assessment, there is always a certain degree of guess work. No doubt, the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. There was no arbitrariness in the instant case on the part of the authorities. Thus, there was no force in the instant appeal and the same was to be dismissed accordingly.”
13. The profit on trading in Forex is decided by various factors including the demand and supply and the margin of profit varies across currencies and fluctuates even from bank to bank dealing in forex. Considering the facts and circumstances of the case, the Bench was of the view that as the Ld. AO and even the Ld. CIT(A) have not estimated any profit rate which could be applied and on the other hand the assessee was showing loss of ₹ 18,181/- as mentioned in the appellate order of the Ld. CIT(A), considering the facts and the totality of circumstances of the case, it was proposed to apply a reasonable net profit rate of 1.5% on the overall turnover shown at ₹93,15,48,134/-, for which both the Ld. AR and the Ld. DR did not raise any serious objections. Therefore, the addition made u/s 69A of the Act is hereby deleted and the findings of the Ld. CIT(A) in this regard are reversed and instead of the same, the Ld. AO is directed to apply the net profit rate of 1.5% on the total turnover of ₹93,15,48,134/- shown in the statement of Profit and Loss account to arrive at the net profit from business of Forex trading and recompute the total income and grant consequential relief to the assessee. Hence, the Grounds of appeal are partly allowed.
14. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open Court on 25th August, 2026.
