Kolkata ITAT Quashes ₹90.84 Crore Addition Under Section 69A; Directs 1.5% Profit Estimation on Forex Turnover
In a significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT), Kolkata Bench, has delivered a comprehensive ruling regarding the taxation of cash deposits in the bank accounts of an authorized money changer. The case of LKPS Forex Private Limited Vs ACIT (ITAT Kolkata) highlights the critical legal distinction between the rejection of books of account under Section 145(3) of the Income Tax Act 1961 and the subsequent treatment of business turnover as unexplained money under Section 69A.
The Tribunal concluded that while the revenue authorities were justified in rejecting the financial books due to discrepancies in customer documentation, it was legally impermissible to categorize the entire business turnover as unexplained cash credits. Consequently, the ITAT directed the assessing authorities to apply a net profit rate of 1.5% on the total turnover, providing substantial relief to the assessee.
Factual Matrix of the Dispute
The assessee, operating as a Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India (RBI), filed its return of income for the Assessment Year (AY) 2023-24 on 25.10.2023, declaring a total income of ₹28,655/-.
The genesis of the dispute traces back to a survey operation conducted under Section 133A of the Income Tax Act 1961 at the business premises of the assessee on 19.05.2023. During this operation, the survey team scrutinized the operational modalities of the assessee's foreign exchange business. The Assessing Officer (AO) subsequently alleged that the assessee was engaged in purchasing foreign currencies through official banking channels but was offloading them in the open market primarily in cash.
According to the assessment order, to circumvent the regulatory guidelines that prohibit cash sales of foreign currency exceeding ₹50,000/-, the assessee allegedly fabricated travel documents, generated fake air tickets, and utilized compromised Know Your Customer (KYC) documents of unaware individuals. The AO concluded that these actions were orchestrated to legitimize unaccounted cash by inducting it into the formal banking system under the guise of foreign exchange sales.
The Assessment Order
Relying on the documents impounded during the survey and statements recorded under Section 131 of the Income Tax Act 1961, the AO proceeded to frame the assessment under Section 144 of the Act. The AO took the following decisive actions:
- Invoked
Section 145(3)to reject the books of account maintained by the assessee, citing the unreliability of the sales documentation. - Estimated the income from regular business operations at a nominal figure of ₹20,000/-.
- Added the entire quantum of cash deposited into the assessee's bank accounts, amounting to ₹90,84,45,712/-, as unexplained money under
Section 69Aof the Act. - Directed that the aforementioned addition be taxed at a higher rate as per the provisions of
Section 115BBE. - Initiated penalty proceedings under
Section 271AACof the Income Tax Act 1961.
The total income of the assessee was thus determined at an astronomical ₹90,84,65,710/-.