CA Acting as Conduit for Client Tax Payments: Deposits Not Taxable as Unexplained Income — ITAT Chennai

Case Overview

Case Name: Bose Saravanan Vs DCIT (ITAT Chennai)
Assessment Year: 2016-17
Order Date: 11th May, 2026
Tribunal: Income Tax Appellate Tribunal, Chennai

Background and Facts of the Case

A Chartered Accountant practising in a small town near Pudukottai filed his return of income for AY 2016-17, declaring a total income of Rs. 2,95,197/-. On receiving information about significant cash deposits in his bank account that appeared disproportionate to the declared income, the Assessing Officer formed a reasonable belief that income had escaped assessment. Consequently, the AO initiated reassessment proceedings by issuing a notice under Section 148 of the Income Tax Act, 1961.

The assessee's explanation was straightforward — the bank account in question had been exclusively operated for the purpose of collecting funds from his clients and remitting their statutory dues, including income tax, VAT, TDS, and service tax. Since the clients were based in a small town with limited access to digital payment infrastructure, the assessee had taken on the responsibility of making these payments on their behalf.

Despite this explanation, the AO rejected the submissions and proceeded to treat the entire deposit amount as unexplained money under Section 69A of the Income Tax Act, 1961, resulting in an addition of Rs. 23 Crore.

First Appellate Stage: CIT(A) Enhancement

Aggrieved by the AO's order, the assessee carried the matter to the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi. During these proceedings, the assessee placed on record documentary evidence substantiating the payments made on behalf of clients.

However, rather than granting relief, the CIT(A) went further and enhanced the total addition by Rs. 6,87,60,832/-. This enhancement was made by treating credits in a separate HDFC Bank account of the assessee as unexplained income, compounding the assessee's burden significantly.

Notable Point: The CIT(A) passed its order under Section 250 of the Income Tax Act, 1961 dated 18.07.2025, and the enhancement was made without adequately considering the documentary evidence placed on record by the assessee regarding the fiduciary nature of the transactions.

Arguments Before the Tribunal

Assessee's Submissions

The Authorised Representative (AR) presented a detailed and evidence-backed argument before the Bench: