ITAT Chennai Upholds Deletion Of Unexplained Money Addition Against Forex Commission Agent

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of an addition of ₹3.44 crore made against an individual who worked as a commission agent for foreign exchange companies.

It held that cash withdrawn from the agent's own bank account for disbursal to customers could not be treated as unexplained money under Section 69A of the Income Tax Act, which addresses unexplained assets.

The case involved an individual who acted as an authorised sub-agent for Transcorp International Ltd. and Muthoot Forex Ltd.

During reassessment proceedings for AY 2017-18, the Income Tax Department noticed credits of over ₹3.67 crore in his bank account and treated cash withdrawals of ₹3.44 crore as unexplained money under Section 69A, alleging that he failed to furnish complete details of the beneficiaries who received the cash.

The Bench comprising George George K (Vice President) and Padmavathy S (Accountant Member) observed that the assessee had consistently explained that the funds were received from the foreign exchange companies solely for onward disbursal to customers after KYC verification, while he earned only commission on such transactions.

The Tribunal noted that bank statements, books of account, ledger entries and Form 26AS supported the assessee's claim. It also observed that the commission received from the foreign exchange companies was subjected to tax deduction at source under Section 194H, confirming his role as an intermediary rather than the owner of the funds.

It further held that Section 69A is meant to tax unexplained money owned by the assessee and is generally applicable to unexplained cash deposits or credits, not cash withdrawals from the assessee's own bank account.

"we are of the view that the provision may apply to unexplained cash deposits or credits and not to cash withdrawals from the assessee's own bank account. Therefore, the basis for invoking section 69A of the Act in respect of cash withdrawals in our view is misplaced given the facts and circumstances of the case", the bench held.

Since the Revenue failed to produce any evidence showing that the withdrawn money belonged to the assessee or represented his undisclosed income, the addition was held to be unsustainable, the Tribunal said.

"The Revenue has not brought any material on record to controvert the factual findings recorded by the FAA or to establish that the assessee was the beneficial owner of the funds withdrawn from the bank account", it said.

Accordingly, the Tribunal dismissed the Revenue's appeal and upheld the order deleting the ₹3.44 crore addition. It also dismissed the assessee's cross-objection challenging the reassessment proceedings.

Appearance:

For Appellant: Ms. Nayani Swapna, CIT

For Respondent: Shri H. Yeshwanth Kumar, Advocate