Section 69A Addition Deleted as Cash Withdrawals Explained Demonetisation Deposits: ITAT Mumbai

Wipro Industries Limited Vs ACIT (ITAT Mumbai)

The appeal arose from the order dated 08.08.2025 passed by the Commissioner of Income Tax (Appeals), Mumbai, for Assessment Year 2017-18. The assessee challenged, among other issues, the validity of the assessment, additions made on account of estimated commission income, addition under Section 69A relating to cash deposits during the demonetisation period, application of Section 115BBE, taxation of business income at 40%, and disallowance of brought forward losses.

The assessee, engaged in trading IT products, filed its return declaring nil income. During assessment, the Assessing Officer noted that a search conducted in 2013 in the case of Shri Shirish C. Shah revealed alleged accommodation entry activities. Observing that the assessee was one of the group companies, the Assessing Officer concluded that the turnover from sale of IT products represented circular and non-genuine transactions. The turnover was treated as bogus, and commission income at 1% of the turnover amounting to Rs. 90,87,895 was added. The Assessing Officer also treated cash deposits of Rs. 34,66,250 made during the demonetisation period as unexplained money under Section 69A after rejecting the assessee’s explanation that the deposits were made from earlier cash withdrawals. The claim for set-off of brought forward losses was also disallowed.

Before the Commissioner (Appeals), the assessee contended that commission had been wrongly assessed on sales, that commission should not be charged on transactions with group companies, and that telescoping of gross profit should be allowed. The Commissioner (Appeals) held that the Assessing Officer had demonstrated that the transactions were circular and not genuine, found that the assessee failed to substantiate the genuineness of the transactions, rejected the plea regarding group company transactions and telescoping, and upheld the commission addition. The Commissioner (Appeals) also upheld the Section 69A addition on the ground that the assessee had not established a nexus between cash withdrawals and deposits and rejected the claim regarding brought forward losses as consequential because the appeal for Assessment Year 2015-16 was pending.

Before the Tribunal, the assessee relied upon decisions in other group cases and argued that commission should be restricted to sales with non-group companies. The Tribunal observed that the transactions constituted circular trading among group concerns and that such transactions lacked genuine commercial substance or real movement of goods. It further observed that the genuineness of the transactions had not been satisfactorily established and that the transactions appeared repetitive, pre-arranged, and without independent commercial rationale. The Tribunal held that it could not derive assistance from the decisions cited because the existence of real commercial substance had not been examined in those cases. It therefore found no infirmity in the Commissioner (Appeals)’ order sustaining the commission addition and dismissed Grounds 3 and 4.

Regarding the cash deposits during the demonetisation period, the assessee relied on a cash flow statement showing earlier cash withdrawals from various bank accounts and contended that these withdrawals explained the subsequent deposits. The Tribunal observed that sufficient cash withdrawals preceded the deposits and that neither the Assessing Officer nor the Commissioner (Appeals) had examined or correlated those withdrawals while treating the deposits as unexplained under Section 69A. The Tribunal held that where availability of cash from prior withdrawals was demonstrated from bank records, the deposits could not be taxed merely on surmises without disproving the nexus between withdrawals and redeposits. Accordingly, it held that the addition under Section 69A was unsustainable and deleted it. Grounds 5 and 6 were allowed.

On the issue of taxation under Section 115BBE, the Tribunal noted that the Assessing Officer had applied the enhanced rate under that provision. It observed that, since the addition under Section 69A had already been deleted, the question of applying Section 115BBE did not survive. Ground 7 was therefore allowed.

With respect to the tax rate applicable to the commission income, the Tribunal observed that the authorities had treated the commission as income chargeable under the head “Profits and Gains of Business or Profession.” It directed the Assessing Officer to apply the rate of tax applicable to that head of income. Ground 8 was partly allowed for statistical purposes.

On the disallowance of brought forward losses, the Tribunal observed that the proceedings relating to Assessment Year 2015-16 were pending and directed the Assessing Officer to consider the losses in accordance with the outcome of those appellate proceedings and law. Ground 9 was partly allowed for statistical purposes. The appeal was partly allowed. The order was pronounced on 29.05.2026.

Cases Discussed:

1. DCIT vs. M/s Empower India Limited, ITA No. 3205/Mum/2019.

2. M/s Empower India Limited vs. DCIT, ITA No. 3646/Mum/2019.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

Present appeal arises out of the Order dated 08.08.2025 passed by the Ld.CIT(A), 48, Mumbai for A.Y. 2017-18 on following grounds:-

“Ground No. 1 – That the orders passed by Ld. AO u/s 143(3) of the Act as well as appellate order passed by Ld. CIT(A) are bad in law and are passed in contravention of prevailing law as well as facts of the case, therefore liable to be annulled.

Ground No. 2 – That the notice issued u/s 143(2) of the Act on 09/08/2018 being issued without complying to the CBDT Instruction. F. No. 225/157/2017/ITA-II dated 23.06.0217 and without mentioning type of scrutiny under which the case of the assessee has bee been selected is not valid as per Provisions of Act.

Ground No. 3 – That the Ld. AO grossly erred in law and in facts of the case in making estimated additions for commission of Rs. 46.97,839/- on sales made by assessee company to group companies.

Ground No. 4 – That the Ld. AO grossly erred in law and in facts of the case in making estimated additions for commission of Rs. 43,90,057/-sales made by assessee company to non-group entities without allowing telescoping of gross profit derived from sales.

Ground No. 5 – That the Ld. AO grossly erred in law and in facts of the case in assessing cash deposits of Rs. 34,66,250/- during demonetization period as unexplained money u/s 69A of the Act despite the fact that said cash was deposited out of cash in hand as per books of account.

Ground No. 6 – That the Ld. CIT(A) grossly erred in law and in facts of the case in rejecting the alternate plea of assessee that in case commission of Rs. 90,87,895/- is deemed to be earned in cash, telescoping of the same against the additions of Rs. 34,66,250/- being cash deposited during demonetization period shall be allowed.

Ground No. 7 – That the Ld. AO grossly erred in law and in facts of the case in levying taxes as per enhanced rates of taxes specified u/s 115BBE of the Act by Taxation Laws (Second Amendment) Act, 2016.

Ground No. 8 – That the Ld. AO grossly erred in law and in facts of the case in computing tax liability on business income applying tax rates of 40%.

Ground No. 9 – That the Ld. AO grossly erred in law in disallowing set-off of brought forward losses from A.Y. 2015-16 and the Ld. CIT(A) grossly erred in confirming the same.

Ground No. 10 – That Ld. AO grossly erred in law and in facts of the case in arbitrarily holding the sales made by assessee company to be fictitious and circular transactions and assessing commission of said sales without rejecting books of account of assessee company.

Ground No. 11 – That the appellant craves leave to add, alter or delete the above grounds of appeal at the time of hearing.

2. Brief facts of the case are as under:-

2.1 The assessee is a company stated to been gaged in the business of trading of IT products. It filed its return of income for the year under consideration on 30.10.2017 declaring total income at NIL. The case was selected for scrutiny and the Notice u/s. 133(2) and 141(1) was issued to the assessee during the assessment proceedings.

2.2. The Ld.AO noted that, search u/s. 132 was conducted in the year 2013 in the case of Shri Shirish C Shah (SCS) who was engaged in providing accommodation entries. The Ld.AO noted that the, assessee is one of the group Companies of Shri Shirish C Shah, who was the main persons engaged in providing bogus accommodation entries.

2.3. The Ld.AO observed from the documents filed by the assessee that it had shown turnover of Rs. 90,87,895/- from sale of IT products. After analyzing the sales and purchase of the assessee and their group companies, the Ld.AO came to the conclusion that this were circular transactions for window dressing of the books of accounts and were not genuine business transactions. The Ld.AO thus held that turnover to be bogus and estimated commission of Rs.90,87,895/- being 1% turnover and add it to the total income of the assessee.

2.4. The Ld.AO further noted that the assessee deposited cash of Rs.34,66,250/- during the demonetization period. On seeking explanation in receipt of the cash deposited, the assessee submitted that the cash was deposited out of the cash withdrawn from the bank to safeguard from liabilities. The Ld.AO rejected the explanation furnished by the assessee and considered the entire cash deposited as unexplained money u/s. 69A of the Act. The Ld.AO further noted that, it is alleged set of brought forward loss, business loss of Rs. 14,53,722/- as the said loss had already been disallowed in the A.Y. 2015-16.

Aggrieved by the Order of the Ld.AO, the assessee preferred the appeal before the Ld.CIT(A).

3. Before the Ld.CIT(A), the assessee contended that the commission was been wrongly assessed on the sales made by the assessee. It was submitted that the benefit of telescoping of the gross profit of Rs.63,37,583/- was not granted against the commissioned income.

3.1. The Ld. CIT(A) after verifying the submissions of the assessee observed as under:-

“The Assessing Officer has made an addition of Rs. 90,87,895/- as commission income, alleging that the turnover of Rs. 90,87,89,588/-shown by the appellant is bogus and represents accommodation entries. The appellant has contended that the Assessing Officer has erred in making the addition without appreciating the facts of the case. The appellant has also argued that the Assessing Officer has wrongly assessed commission income on sales made to a group company, M/s Empower India Limited. Further, the appellant has contended that the benefit of telescoping of the gross profit of Rs. 63,37,583/- should have been allowed against the commission income.

I have considered the submissions of the appellant. The Assessing Officer has brought on record that the appellant is a group company of Shri Shirish C. Shah, who is an accommodation entry provider. The Assessing Officer has also demonstrated that the transactions of sales and purchases are circular in nature and are not genuine business transactions. The appellant has not been able to produce any evidence to substantiate its claim that the transactions are genuine. The argument of the appellant that no commission should be charged on transactions with group companies is not acceptable, as the entire turnover has been held to be bogus. The claim of the appellant for telescoping of gross profit is also not tenable, as the turnover itself is bogus, and any profit or loss arising from such bogus turnover cannot be considered for telescoping. Therefore, I do not find any infirmity in the order of the Assessing Officer in making the addition of commission income of Rs. 90,87,895/-. The grounds of appeal No. 1 to 5 are accordingly dismissed.”

3.2. In respect of the cash deposited, it is allowed by the Ld.AO, the Ld. CIT(A) came to the conclusion that as the assessee do not establish nexus between the gross cash withdrawal and the cash deposited. Hence, the addition made by the Ld.AO was thus justified.

3.3. In respect of the disallowance of the brought forward losses, the assessee has contended that the appeal for A.Y. 2015-16 is pending and therefore the disallowance of brought forward losses is consequential and was rejected.

Aggrieved by the Order of the Ld.CIT(A), the assessee is an appeal before this Tribunal.

4. In respect of the Ground No.3 -4, the assessee submitted that, the issue of commission income on turnover within the group entities has been subject matter of adjudication before this Tribunal. In other group cases, he placed reliance on the following decisions. In case of group cases, wherein the addition was restricted only to the extent of sales, purchases were from bogus parties outside the group concern.

DCIT vs. M/s Empower India Limited in ITA No. 3205/Mum/2019.

M/s Empower India Limited vs. DCIT in ITA No. 3646/Mum/2019.

M/s Empower India Limited

M/s Avance Technologies Limited

3.1 In view of the above facts, the turn over to the extent of Rs. 46,97,838/- was with the group companies and based on the decisions relied in the case of the group companies, the commission could not have been earned by the assessee. The Ld.AR thus submitted that, the commission may be restricted only to Rs.43,90,057/- which was from the sales with non-group companies.

3.2. On the contrary, the Ld. DR vehemently supported the Orders passed by the authorities below.

We have perused the submissions advanced by the both sides in the light of record placed before us.

4. Admittedly, the transactions in question constitute circular trading transactions entered into between the assessee and its group concerns forming part of the Shri Shirish C. Shah Group of Companies. It is also an admitted position that the decision relied upon by the assessee in the preceding paragraph pertains to another concern belonging to the very same group

4.1. Circular trading and accommodation entry transactions are essentially transactions lacking genuine underlying commercial substance or real movement of goods. Such arrangements deserve to be strongly discouraged, as they distort the true state of affairs and defeat the objective of fair tax administration. These transactions artificially inflate turnover and may be structured to derive undue tax benefits through manipulation of financial results. Therefore, where the material on record indicates repetitive routing of transactions through related concerns without any demonstrable economic substance, the same warrants appropriate corrective action in accordance with law.

4.2. Ordinarily, circular trading takes place amongst group concerns or related entities where transactions are merely routed through multiple entities without any corresponding transfer of goods, value addition, or commercial rationale. Such transactions do not represent genuine business activity. Mere movement of consideration between group entities, by itself, cannot establish the genuineness of the transactions, particularly in the absence of any independent commercial justification.

4.3. It is further observed that, in the present case, the genuineness of the transactions has not been satisfactorily established. What is required to be examined in such circumstances is whether the transactions possess real commercial substance, such as actual movement of goods or services, a legitimate business purpose, and economic justification. The transactions routed through the group concerns appear repetitive, pre-arranged, and lacking independent commercial rationale. Consequently, notwithstanding the inter se relationship between the entities, the transactions partake the character of circular trading.

4.4. In these circumstances, we are unable to derive any assistance from the decisions relied upon by the Ld. AR in the cases of other group concerns, since in those decisions the aspect relating to the existence of real commercial substance in the impugned transactions was not examined. We, therefore, do not find any infirmity in the view taken by the Ld. CIT(A) in sustaining the addition made by the Ld. AO on this account.

Accordingly, Ground No. 3 -4 raised by the assessee stands dismissed.

5. Ground No.5 -6, are respect of the cash deposit during the demonetization period.

5.1. The Ld. AR submitted that the assessee had made cash withdrawals from its bank accounts during the year under consideration and the cash so withdrawn was subsequently redeposited during the demonetization period. It was, therefore, contended that the source of the cash deposits stood duly explained.

5.2. In support of the aforesaid contention, the Ld. AR placed reliance upon the cash flow statement for the financial year relevant to the assessment year under consideration, which is reproduced hereinbelow:

5.3. On the strength of the aforesaid withdrawals, the Ld. AR contended that the cash deposits made during the demonetization period stood sufficiently explained and, therefore, no addition under section 69A of the Income-tax Act, 1961 could be sustained.

On the contrary, the Ld.DR relied on the Orders passed by the Authorities below.

We have perused the submissions advance on both the sides in the light of the record placed before us.

6. It is observed from the cash flow statement reproduced hereinabove that the assessee had made cash deposits during the demonetization period and that there existed sufficient cash withdrawals preceding the impugned deposits. However, neither the Ld.AO nor the Ld.CIT(A) examined or correlated such earlier withdrawals while treating the deposits made during the demonetization period as unexplained money under section 69A of the Act.

6.1. In our considered opinion, once the availability of cash from prior withdrawals stands demonstrated from the bank records, the cash deposits made during the demonetization period cannot be brought to tax merely on surmises without disproving the nexus between the withdrawals and redeposits. Accordingly, the addition made under section 69A of the Act is unsustainable and deserves to be deleted.

Accordingly, the Ground No.5 – 6 raised by the assessee stands allowed.

Ground No. 07 is in respect of applying enhance rate of tax as per Section 115BBE of the Act.

7.1. The Ld. AR submitted that the enhanced rate of tax prescribed under section 115BBE of the Act became applicable only from A.Y. 2018–19 onwards. It was contended that, since the year under consideration is A.Y. 2017–18, the amended provisions providing for taxation at the higher rate would have no application to the assessee’s case.

7.2. On the contrary, the Ld. DR supported the Orders passed by the Authorities below.

We have perused the submissions advanced by both the sides in the light of the record placed before us.

8. It is observed that the Assessing Officer had subjected the impugned addition to tax at the enhanced rate prescribed under section 115BBE of the Act, which became applicable from A.Y. 2018–19 onwards. Be that as it may, the provisions of section 115BBE can be invoked only in respect of additions made under sections 68 to 69D of the Act.

8.1. In the present case, since the addition made under section 69A of the Act has already been deleted by us in the preceding paragraphs, the question of applicability of section 115BBE does not survive. Accordingly, there remains no justification for applying the provisions of section 115BBE to the assessee’s case.

Accordingly this Ground No. 07 raised by the assessee stands allowed.

9. It is noted that the commission income assessed in the hands of the assessee has been treated by the authorities below as income chargeable under the head “Profits and Gains of Business or Profession”. The Ld.AO, instead of making addition of the entire gross trade receipts arising out of the circular trading transactions, restricted the addition only to the extent of 1% of the turnover, treating the same as commission income earned by the assessee.

9.1. In such circumstances, once the income is assessed as business income, the same has necessarily to be subjected to tax at the rates applicable to the assessee in respect of income chargeable under the head “Profits and Gains of Business or Profession”, and not at any special or higher rate otherwise not applicable in law. We thus direct the Ld.AO to apply the rate of tax applicable to the relevant head under which the commission income has been assessed.

Accordingly, Ground No. 8 raised by the assessee is, therefore, partly allowed for statistical purposes.

10.Ground No.9 raised by the assessee is on disallowance of brought forward losses.

The Ld. AR submitted that the loss were disallowed on the pretext that they were incurred y the assessee during the F.Y. 2015-16.It is submitted that the proceedings are pending.

We have perused the submissions advanced by the assessee on this regard. We are of the opinion that the Ld.AO may consider such losses as per outcome of the appellate proceedings for the A.Y. 2015-16 in accordance with the Law.

Accordingly, this Ground raised by the assessee is partly allowed for statistical purposes.

In the result, the appeal filed by the assessee stands to be partly allowed.

Order pronounced in the open court on 29/05/2026