Rakesh Sawhney vs Income Tax Officer

PER M. BALAGANESH, A. M.:

The appeal in ITA No.5662/Del/2025 for AY 2017-18, arises out of the order of the ld Commissioner of Income Tax (Appeals)-25, New Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 22.07.2025 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 23.12.2019 by the Assessing Officer, ITO, Ward-59(5), Delhi (hereinafter referred to as ‘ld. AO’).

Though the assessee has raised several grounds of appeal before us, the only effective issue to be decided in this appeal is as to whether the Learned CITA was justified in confirming the addition made in the sum of Rs 1,44,85,500/- on account of cash deposits in bank account under section 69A read with section 115BBE of the Act in the facts and circumstances of the instant case.

We have heard the rival submissions and perused the materials available on record. The assessee was appointed as an Authorized Business Correspondent Agent (BCA) of Punjab National Bank. The assessee has been functioning as a Bank Mitra / BCA of Punjab National Bank since 2014. In accordance with the guidelines issued by the Reserve Bank of India governing Business Correspondents, the role of the assessee was to cater to the banking needs of, and to facilitate select banking transactions for, persons who are beyond the reach of formal banking services. The assessee in lieu of rendition of these services was entitled for commission which would be his income. The return of income for the assessment year 2017-18 was filed by the assessee on 3-11-2017 declaring total income of Rs. 3,00,100. The case was selected for limited scrutiny under CASS for examining the issue of cash deposits made during the demonetization period. Accordingly, scrutiny notice under section 143(2) of the Act was issued to the assessee on 20-9-2018. Vide notice under section 142(1) of the Act issued by the Learned AO, the assessee was directed to furnish the proof and supporting documents in respect of cash deposits amounting to Rs. 1,44,85,500 made in the Settlement Account during the demonetization period with Punjab National Bank. In response, the assessee vide his letters dated 3-10-2019, 29-10-2019, 23-11-2019 and 12-12-2019 explained along with documentary evidence that he was acting as BCA of PNB and that the cash deposits were not his own monies, but represented amounts collected by him in his capacity as BCA from the customers of the Bank. The assessee submitted that he was only acting in his fiduciary capacity as BCA. The Learned AO however disregarded the explanations and documentary evidences furnished by the assessee and proceeded to frame the assessment by treating the cash deposits in the sum of Rs. 1,44,85,500 as unexplained money under Section 69A read with Section 115BBE of the Act.

The assessee preferred an appeal before the Learned CITA by reiterating the contentions and also raising a fresh ground on the aspect that the Learned AO erred in computing the returned income at Rs 10,99,940 instead of correct figure of Rs 3,00,100. The assessee also filed additional evidences under Rule 46A of the Income Tax Rules on 8-2-2021 as the said evidences could not be filed during the assessment proceedings due to non-availability of time. The additional evidences filed before the Learned CITA included:

It was submitted that the assessee had duly qualified the examination of Business correspondents / Facilitators conducted by the Indian Institute of Banking and Finance. The certificate evidencing the successful completion of the said examination was placed on record by the assessee. Pursuant thereto, the assessee had submitted an application to Santosh Finlease Private Limited, a duly appointed Business Correspondent Organization, duly appointed by Punjab National Bank, seeking appointment as a Business Correspondent Agent (BCA) of Punjab National Bank (PNB). The application form submitted by the assessee with Santosh Finlease Private Limited was also placed on record. Thereafter, the assessee entered into a Memorandum Of Understanding (MOU) dated 26-08-2014 with Santosh Finlease Private Limited. The said MOU governed the terms and conditions of the assessee’s engagement as BCA and delineated his roles, responsibilities and scope of authority in that capacity. The said MOU is enclosed in page 40 of the paper book. In furtherance of the MOU, the assessee was formally appointed as BCA of Punjab National Bank, Krishnanagar branch, Delhi with effect from 27-09-2014. The said appointment is duly evidenced by the letter issued by Branch Manager, Punjab National Bank, Krishnanagar and the confirmatory letter issued by Branch Manager, Punjab National Bank, enclosed in Page 90 of the Paper Book. In the ordinary course of his engagement as BCA, the assessee performed functions including, but not limited to, identification of customers for the purpose of opening deposit accounts, facilitation of small value payments, and collection of cash deposits from customers of Punjab National Bank.

During the demonetization period, the assessee was specifically authorized to accept deposits in Specified Bank Notes (SBNs) from 10-11-2016 to 31-12-2016, vide Circular No. 31 / 2016 dated 12-11-2016 of the Financial Inclusion Division of Punjab National Bank. The PNB circular expressly authorized BCAs of Punjab National Bank to accept SBNs from customers in respect of cash deposits processed through the Aadhaar-Enabled Payment System (AEPS). The evidence in this regard is enclosed in page 218 of the paper book. The assessee acting in terms of the PNB circular and in its capacity as a duly authorized BCA was fully empowered to accept and collect SBNs through the AEPS platform. The PNB circular, being a specific operational direction issued by Punjab National Bank pursuant to the RBI circular, constituted the governing and overriding framework for the acceptance of SBNs during the demonetization period and imposed no obligation upon the assessee beyond the requirement of processing deposits through AEPS. There was absolutely no obligation for the assessee to maintain the name, address or PAN of depositors. The assessee is only acting as a BCA of customers of PNB by collecting the cash from the customers and depositing the same in the Settlement Account of PNB. It was further submitted that the AEPS platform, by its inherent design, effected the authentication and identification of each depositor through biometric verification of their Aadhaar number via the Unique Identification Authority of India (UIDAI). The identity of each depositor was therefore verified and recorded at the system level within the centralized AEPS infrastructure operated by the National Payments Corporation of India (NPCI) and Punjab National Bank. The transaction data pertaining to each AEPS-enabled deposit was captured entirely within the banking system of Punjab National Bank and was not independently accessible to the assessee. It was therefore both technically and practically impossible for the assessee to maintain depositor-specific records in his personal possession and he cannot be made to bear an obligation that was neither imposed upon him by the PNB Circular nor capable of performance given the structure of the AEPS system. Hence it was submitted that the assessee was duly and lawfully authorized to accept SBNs during the demonetization period under the express mandate of the PNB Circular and PNB was fully competent to confer such authorization upon the assessee and had done so through the PNB Circular and no obligation was imposed upon the assessee under the PNB Circular to maintain the names, addresses, PAN details or denomination wise details of individual depositors and the technical architecture of the AEPS system rendered the maintenance of such records independently by the assessee practically impossible especially considering the extraordinary situation posed during the demonetization period. Hence, the contentions raised by the lower authorities in this regard are completely devoid of merit. It was submitted that assessee is not the owner of the monies that were collected from the customers of the PNB for onward deposit in the settlement account of PNB. Hence, the provisions of section 69A of the Act per se could not be made applicable to the facts of the instant case.

The assessee on his part had duly explained the source and nature of deposits fully and satisfactorily. The finding of the lower authorities in this regard are totally erroneous and unsustainable in the eyes of law. When the basic prerequisite of assessee not being the owner of the monies stand established by the Assessee, then the provisions of section 69A of the Act per se could not be made applicable in his hands. On this count itself, the addition made under section 69A of the Act deserves to be deleted. Even on merits, we find that assessee had duly explained the nature and source of deposits made in the settlement account vide elaborate submissions which are dealt herein above. None of the aforesaid factual contentions raised by the assessee could be controverted by the revenue with contrary evidences brought on record. Hence, we have no hesitation to delete the addition made in the sum of Rs. 1,44,85,500 under Section 69A read with Section 115BBE of the Act both on law as well as on facts.

Further, we also find that Hon’ble Madras High Court in the case of of SMILE Microfinance Limited vs ACIT in WP (MD) No. 2078 of 2020 and WMP (MD) No. 1742 of 2020 dated 19-11-2024 had held that the provisions of section 115BBE of the Act which enhanced the rate of tax could be made applicable only from 01.04.2017, relevant to assessment year 2018-19 onwards and not earlier.

Accordingly grounds raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.