Cash Held By Chartered Accountant For Client Tax Payments Not Unexplained Income: ITAT Chennai

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) on 11 June held that a practising Chartered Accountant does not incur liability under Section 69A of the Income Tax Act merely because clients deposit cash into his bank account for payment of statutory dues, where the evidence shows he used the funds to remit taxes on their behalf.

Judicial Member Aby T. Varkey and Accountant Member Padmavathy S allowed the appeal filed by Bose Saravanan and directed the Assessing Officer to delete additions exceeding Rs. 29.87 crore. The Bench held:

"We see merit in the submission that the assessee has acted as a conduit for payment of taxes on behalf of the clients and that the deposits reflecting in the bank account of the assessee does not belong to the assessee."

Bose Saravanan, a practising Chartered Accountant in Pudukkottai, explained that many of his clients from rural areas were unfamiliar with online tax payment systems and entrusted him with funds to remit their income tax, TDS, VAT and service tax liabilities.

The Assessing Officer rejected the explanation and treated cash deposits of about Rs. 23 crore as unexplained money under Section 69A. The Commissioner (Appeals) examined another bank account and enhanced the addition by Rs. 6.87 crore.

The Tribunal examined the bank statements and tax challans that Bose Saravanan produced. It found that he had used the deposits to pay statutory dues aggregating Rs. 29.83 crore on behalf of his clients. It also found that the lower authorities had ignored the corresponding debit entries showing payments to government authorities.

The Bench held that Bose Saravanan had handled the deposits in a fiduciary capacity as a conduit for his clients and that the money did not belong to him.

Accordingly, the ITAT directed the Assessing Officer to delete the entire addition.