ITAT Visakhapatnam Quashes Section 68 Addition on Bank Deposits for Commission Agent

Background of the Dispute

In the case of Sarojini Devi Budda Vs ITO (ITAT Visakhapatnam), the Visakhapatnam Bench of the Income Tax Appellate Tribunal (ITAT) examined whether cash deposits appearing only in a bank account, in the absence of regularly maintained books of account, can be treated as unexplained cash credits under Section 68 of the Income Tax Act 1961.

The assessee, an individual, had filed her return of income for Assessment Year 2013-14 declaring ₹2,00,000 as total income. Subsequently, the Investigation Wing communicated information to the Assessing Officer (AO) that cash deposits aggregating to ₹28,00,000 had been made in her Andhra Bank account during the relevant year.

On this basis:

  • The AO reopened the assessment under Section 147 after securing the necessary approval.
  • Notices under Section 148 and later under Section 142(1) were issued, calling for explanations and documentary evidence regarding the source of the cash deposits.
  • The assessee initially attributed the deposits to money-lending activities but did not file corroborative material such as details of borrowers, loan agreements, or repayment records.

Finding the explanation unsubstantiated, the AO treated the entire sum of ₹28,00,000 as unexplained cash credits under Section 68 and completed the assessment under Section 147 read with Section 144B.

On appeal, the CIT(A), National Faceless Appeal Centre, Delhi upheld the addition. The assessee then carried the matter to the ITAT, Visakhapatnam.

Grounds Raised Before the Tribunal

The assessee challenged the order of the CIT(A) broadly on the following lines:

  • The order was alleged to be arbitrary and contrary to the material on record.
  • It was contended that:
    • She was functioning as a commission agent in jaggery trade, not as a principal trader.
    • The cash deposits represented sale proceeds of farmers, routed through her bank account.
    • She earned only a 2% commission on such turnover.
  • A specific legal ground was taken that Section 68 cannot be invoked where the assessee does not maintain books of account, especially when the addition is made only on the basis of entries in the bank statement.

In support of this position, reliance was placed on decisions including:

  • Kanchan Lalwani Vs The Income Tax Officer, Ward-1, Vizianagaram I.T.A.No.484/Viz/2025
  • Vangapandu Prem Kumar vs ITO (ITAT Vizag)
  • A. Srinivasa Rao vs ITO (ITAT Vizag)
  • Smt. Bhabhal Bhaita vs ITO (ITAT Delhi)

The assessee also argued that in other similar cases of jaggery and vegetable commission agents, such as Shri S. Jagga Maheshwara Rao, the Department had treated bank deposits as gross turnover and estimated 2% commission income, rather than invoking Section 68. Therefore, applying Section 68 only in her case was inconsistent and legally untenable.

Findings of the Assessing Officer and CIT(A)

Action by the AO

  1. Based on information from the Investigation Wing, the AO identified cash deposits of ₹28,00,000 in the assessee’s Andhra Bank savings account.
  2. After reopening under Section 147, the AO:
    • Issued multiple notices seeking details of sources of deposits.
    • Called for documentary evidence to substantiate the claim of money-lending operations.