ITAT Surat Removes ₹2,49,000 Unexplained Cash Credit Addition in Money Transfer Business Case — Customer Identity Details Held Sufficient
Case Overview: Rajeshkumar Shah Vs ITO (ITAT Surat)
The Income Tax Appellate Tribunal, Surat Bench, recently ruled in favour of an assessee operating a money-transfer proprietorship, holding that cash receipts collected from customers in the ordinary course of such a business cannot be subjected to addition under Section 68 of the Income Tax Act, 1961, provided adequate customer particulars and transaction records are placed before the authorities. The Tribunal ordered deletion of an addition of ₹2,49,000 that had been confirmed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi.
Background and Business Profile of the Assessee
The assessee, an individual, operated a proprietorship concern under the name M/s Raj Novelty Stores, which was engaged in money-transfer activity. For Assessment Year 2022–23, the assessee filed his return of income on 13 July 2022, declaring a total income of ₹2,57,720 after availing deductions under Chapter VI-A of the Income Tax Act, 1961.
The case was flagged for scrutiny under the faceless assessment framework following the detection of high-value cash deposits amounting to ₹6,49,66,860 reported via the Statement of Financial Transactions (SFT-003/004). This figure appeared disproportionately large relative to the income declared by the assessee.
How the Money-Transfer Business Operated
Multiple notices were issued under Section 143(2) and Section 142(1) of the Income Tax Act, 1961, and partial replies were submitted progressively. An examination of the assessee's bank statements revealed a pattern of repeated cash deposits and corresponding credits.
The assessee's explanation was straightforward: customers handed over cash with instructions to remit the funds to specific beneficiaries. The assessee deposited the collected cash into his bank account and transferred the amounts onward to the designated recipients. For this service, a commission was charged.
Supporting records — including bills and statements — demonstrated that:
- Total money transfers executed amounted to ₹7,17,36,631
- Commission earned was ₹7,17,366, computed at 1% of the transferred amount
This model is commercially well-established in informal remittance services and is entirely consistent with the commission earnings declared.
Additions Made by the Assessing Officer
The Assessing Officer (AO) made multiple additions during the assessment completed under Section 143(3) read with Section 144B of the Income Tax Act, 1961:
1. Commission Rate Dispute
The AO held that commission ought to have been calculated at 1.2% — the rate applied in the preceding assessment year — rather than the 1% rate adopted by the assessee. On this basis, the AO made an addition of ₹1,43,474.
2. Expense Disallowance
The AO disallowed 30% of certain claimed expenses — including salary, office expenses, accounting fees, and conveyance charges — on the ground that adequate supporting documentation had not been furnished. This led to a further addition of ₹95,572.
3. Chapter VI-A Deduction
A deduction claimed in respect of an SBI Life insurance premium was initially disputed but was subsequently accepted after the assessee produced the requisite certificate.
4. Cash Receipts Without PAN — Section 68 Addition
The AO identified cash receipts totalling ₹23,25,000 involving individual entries of ₹50,000 or more for which PAN particulars had not been provided at the outset. Of this amount, the AO accepted PAN or Aadhaar details for a portion of the transactions. However, for the remaining ₹2,49,000, no such identification was accepted, and the AO treated these amounts as unexplained cash credits under Section 68, making them liable to tax at the special rate prescribed under Section 115BBE of the Income Tax Act, 1961.