ITAT Kolkata remands Section 69A unexplained money addition for de novo adjudication

Background of the dispute

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Radhakrishna Forex Private Limited Vs ITO dealt with an addition made under Section 69A of the Income Tax Act, 1961 on account of alleged unexplained money, arising from a mismatch between bank credits and turnover declared in the return of income for AY 2018-19.

The assessee, a company engaged in the business of purchase and sale of foreign currency, had filed its return in Form ITR-6 declaring a total income of ₹1,85,170. During scrutiny, the Department noticed very large cash deposits and total credits in the Bank of Baroda account vis-à-vis the turnover disclosed in the return. This resulted in reopening of the assessment and subsequent addition of ₹81,14,310 as unexplained money under Section 69A.

The CIT(A)–NFAC confirmed the addition, but the ITAT ultimately remitted the matter back to the CIT(A) for a fresh, reasoned order after affording proper opportunity to the assessee.

Key facts and figures

Nature of business and return filed

  • The assessee is engaged in foreign exchange business, specifically buying and selling foreign currencies.
  • For AY 2018-19, the assessee filed its return of income under Section 139, declaring:
    • Total income: ₹1,85,170
    • Turnover as per ITR: ₹61,61,74,540

Bank deposits and credits noticed by the Department

During the course of information gathering, the Department came across significant banking activity in a Bank of Baroda account:

  • The bank account was opened on 22.08.2016.
  • For FY 2017-18, the Assessing Officer (AO) noticed:
    • Cash deposits: ₹61,76,92,850
    • Total credits (including RTGS and other credits): ₹62,42,88,850
  • Comparative position:
    • Total credits in bank account: ₹62,42,88,850
    • Turnover as per ITR: ₹61,61,74,540
    • Difference: ₹81,14,310

This difference of ₹81,14,310 between bank credits and the turnover declared was treated by the AO as unexplained, leading to the Section 69A addition.

Assessment proceedings and basis of addition under Section 69A

Scrutiny of November 2016 transactions

During investigation, the AO issued summons under Section 131 to the assessee. In response, the assessee explained that:

  • Its core business activity was the sale and purchase of foreign currency.
  • Sale proceeds were regularly deposited into the bank account.
  • These deposited funds were then used to buy currency from various foreign exchange companies.

To substantiate, the assessee produced:

  • Copies of FLM 8 – monthly returns of foreign currency purchases and sales.
  • Copies of FLM 5 – register of sale of foreign currency to the public.

The AO specifically examined the bank statement and FLM records for November 2016 and concluded:

  • Sales as per FLM records for November 2016: ₹60,64,000
  • Credits in bank statement for November 2016: ₹72,45,000

Noticing this discrepancy, the AO called for: