ITAT Chennai Clarifies: Cash Handled by Power of Attorney Holder Is Not Automatically His Unexplained Income

1. Background and Context

The Chennai Bench of the Income Tax Appellate Tribunal in Duraisamy Victor Vs ITO (ITAT Chennai) has examined a recurring controversy under Section 69A of the Income Tax Act 1961:

  • Can cash received and transmitted by a person in his capacity as a power of attorney holder be treated as that person’s own unexplained money?
  • What level of evidence is required from the assessee to discharge the onus regarding cash deposits?

For Assessment Year 2017-18, the assessee, Duraisamy Victor, an individual carrying on a commission business under the name M/s. Victory Traders, faced reassessment proceedings under Section 147 based on:

  • Cash receipt of Rs. 1,25,00,000 from three individuals linked to a property transaction, and
  • Cash deposits of Rs. 66,00,000 in his bank account with State Bank of India.

The Assessing Officer (AO) invoked Section 69A and treated the entire Rs. 1,91,00,000 as unexplained money in the assessee’s hands. The CIT(A) upheld this view. On further appeal, the ITAT Chennai set aside both additions.

This order provides important guidance on documentation, evidentiary standards, and consistency of departmental stand in cases involving power of attorney transactions and cash deposits.

2. Facts Relating to Return, Reopening and Proceedings

2.1 Return of Income and Nature of Business

  • The assessee is an individual engaged in business as a general commission agent under the proprietorship concern M/s. Victory Traders, Kodambakkam, Chennai.
  • For AY 2017-18, he filed his return of income in Form ITR-3 on 31.01.2018, declaring total income of Rs. 22,31,810, consisting of:
    • Income from house property: Rs. 2,14,200
    • Business income: Rs. 20,14,485
    • Income from other sources: Rs. 13,129

2.2 Basis for Reopening Under Section 147

Reassessment was initiated on the basis of information that:

  • The assessee had received cash aggregating to Rs. 1,25,00,000 from Shri K. Muthukannan, Shri U. Ayyakannu and Shri L. Govindaraj between 19.07.2016 and 30.08.2016 in connection with an immovable property transaction, and
  • He had deposited cash of Rs. 66,00,000 in his savings bank account No. 11901430371 with State Bank of India, Valluvarkottam Branch, Chennai.

A notice under Section 148 was issued on 29.03.2021. In response, the assessee filed a return on 29.11.2021 declaring total income of Rs. 22,31,790. Notices under Section 143(2) and Section 142(1) were issued thereafter.

3. Property Transaction and Disputed Cash of Rs. 1.25 Crore

3.1 General Power of Attorney and Authority of the Assessee

The core of the assessee’s explanation was that he acted only as a power of attorney holder for the true owners of certain land in Kodambakkam.

A registered General Power of Attorney dated 17.04.1996, bearing Document No. 481 of 1996 in the office of the Sub-Registrar, Kodambakkam, was executed by seven co-owners, including:

  • Shri D. Paulsingh
  • Shri M. Veeraswamy (M.Veeraswamy)
  • Shri R. Kannan

in favour of the assessee, in respect of land measuring 12 grounds and 2,239 sq. ft. (31,039 sq. ft.) at Puliyur Village, Periyar Pathai, Kodambakkam (referred to as the Kodambakkam Property).

Key clauses of this power of attorney were:

  • Clause 4: Authorised the assessee

    “To receive, admit and acknowledge receipt of advances, entire sale consideration etc. in respect of the schedule mentioned property, or any flat building put up thereon, in our names and on our behalf and to issue proper receipts and discharges.”

  • Clause 11: Obligated the assessee

    “The Power of Attorney Agent shall maintain a true and proper account for all the transactions done by him and render all such accounts to the Principals as and when demanded.”

  • Clause 12: Clarified that

    “No consideration has been passed on for execution of this Power of Attorney.”

Thus, the assessee’s authority was clearly as an agent for the landowners; he had not acquired any beneficial interest by paying consideration.

3.2 Sale Agreement and Flow of Consideration

A sale agreement dated 17.05.2015 recorded an agreement for sale of the relevant share in the Kodambakkam Property to:

  • Shri K. Muthukannan
  • Shri U. Ayyakannu
  • Shri L. Govindaraj

for a total consideration of Rs. 4,12,00,200.

The assessee submitted that:

  • The three purchasers paid a total of Rs. 1,25,00,000 in cash as advance in connection with this transaction,
  • The amount was received by him solely in his representative capacity as the power of attorney holder of the three principals (co-owners), and
  • Based on a written authorisation dated 19.07.2016 and an affidavit of the three landowners, he was instructed to hand over the sale advance to Smt. Nalini Selvaraj as an advance for proposed purchase of her property at No. 16, Arcot Road, Porur, Chennai (the Porur Property).

Accordingly, the assessee claimed he merely routed the money from purchasers to the ultimate intended recipient, strictly in line with the authority conferred by the power of attorney and the written instructions of the principals.

3.3 Receipt and Declaration by Smt. Nalini Selvaraj

The material on record included: