Bank Mitra's ₹8.41 Crore Settlement Account: ITAT Agra Directs Peak Credit Assessment With Income Cap
Background and Overview
The Agra Bench of the Income Tax Appellate Tribunal (ITAT) recently adjudicated an appeal arising from a scrutiny assessment involving a Business Correspondent Agent — commonly known as a Bank Mitra — operating under Punjab National Bank's financial inclusion framework. The case revolved around cash deposits of ₹8,41,61,500 in a designated settlement account and the Assessing Officer's decision to estimate income at 1% of aggregate deposits.
The ITAT, while declining to grant a clean deletion of the addition, found merit in the assessee's alternative prayer for application of peak credit. The matter was accordingly remanded to the Assessing Officer for a fresh examination under the peak credit methodology. Critically, the Tribunal imposed a protective ceiling, directing that the assessed total income, following the fresh exercise, must not surpass ₹8,41,615 — the figure determined in the original assessment order passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961.
Facts of the Case: Hradesh Kumar Vs ITO (ITAT Agra)
The Assessee's Profile and Business Activity
The assessee was an individual functioning as a Bank Mitra of Punjab National Bank, carrying out his operations through M/s Santosh Finlease Pvt. Ltd. under the financial inclusion programme. He stated that he had been engaged in this capacity since May 2015, facilitating banking services under the Pradhan Mantri Jan Dhan Yojana.
The assessee maintained a current account bearing number 02610022100027805 with Punjab National Bank, Kasganj, which served as the designated BC Settlement Account through which customer transactions — both deposits and withdrawals — were routed. His position was that this account was not a personal account but an operational settlement account governed by Punjab National Bank and RBI guidelines.
Return of Income and Scrutiny Selection
The assessee filed his return of income for Assessment Year 2022-23 on 29.06.2022, declaring a total income of ₹4,15,676. The case was flagged for complete scrutiny under CASS on the ground of "Large cash deposits compared to returned income (Non-business cases)."
Assessment Proceedings: The Assessing Officer's Findings
Notices and Queries Raised
Upon examining the bank account, the Assessing Officer observed cash deposits totalling ₹8,41,61,500 during the relevant previous year. Notices and queries were issued seeking:
- Clarification on whether the assessee was authorised by the bank or M/s Santosh Finlease Pvt. Ltd. to retain cash in hand at the close of each day
- Customer-wise particulars of parties from whom cash was received or to whom it was disbursed
- Bank-authenticated records evidencing cash disbursements and end-of-day balances
- Details of the cash book and the mode of reconciliation of the settlement account
The assessee responded that the daily per-customer transaction limits applicable to the settlement account were ₹25,000 for cash deposits and ₹10,000 for cash withdrawals. However, the Assessing Officer's examination of the cash book furnished by the assessee revealed multiple entries reflecting cash withdrawals exceeding ₹10,000 on individual days, inconsistencies which were reproduced at pages 16 and 17 of the assessment order.
Addition Made on 1% Estimation Basis
Finding the explanation inadequate and the documentary support insufficient, the Assessing Officer held that the genuineness and authenticity of the transactions in the settlement account could not be established. In the absence of banker-authenticated records confirming cash disbursements, the officer concluded that the transactions were to be treated as pertaining to the assessee. Accordingly, income was computed at 1% of total cash deposits of ₹8,41,61,500, arriving at an addition of ₹8,41,615 assessed as business income. Penalty proceedings under Section 270A were simultaneously initiated for under-reporting of income.
The total income assessed in the order under Section 143(3) r.w.s. Section 144B dated 15.03.2024 stood at ₹8,41,615.