The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹32.68 lakh made under Section 68 of the Income Tax Act, 1961, after finding that the cash deposited in the assessee’s bank account represented receipts from the sale of mobile recharge coupons.

The bench of  Dr B.R.R. Kumar (Vice-President) has observed that the assessee’s sale of recharge coupons and the subsequent transfer of the money to telecom service providers were not disputed by the Income Tax Department. It consequently held that no addition could be made merely because the business receipts had been deposited in cash.

The appellant/assessee was engaged in the business of selling recharge vouchers issued by telecom companies such as Idea and Airtel. He filed his income tax return on November 1, 2017, declaring a total income of ₹3,47,610.

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The assessee maintained books of account that were audited under Section 44AB of the Income Tax Act. The return was initially processed under Section 143(1) and was subsequently selected for scrutiny. Notices under Sections 143(2) and 142(1) were issued during the assessment proceedings.

The assessee furnished books of account, documentary evidence, explanations and other details sought by the Assessing Officer. Nevertheless, while completing the assessment under Section 143(3), the Assessing Officer made three additions under Section 68.

These included an addition of ₹1 lakh as unexplained cash credit, another addition of ₹85,313 on the same ground, and an addition of ₹32.68 lakh relating to cash deposited in the assessee’s bank account. Following these additions, the Assessing Officer raised a tax demand of ₹35,45,424.

The assessee challenged the assessment before the CIT(A) and submitted detailed written arguments and supporting documents. The appellate authority deleted the additions of ₹1 lakh and ₹85,313 but upheld the addition of ₹32.68 lakh by treating the bank deposits as unexplained cash credits.

Aggrieved by the partial confirmation of the assessment, the assessee approached the ITAT. He contended, among other grounds, that the assessment had been completed without properly assuming jurisdiction and that the authorities had failed to appreciate the audited books of account.

CA Chirag Bhalani, the counsel on behalf of the assessee also argued that no discrepancy or adverse remark had been recorded during the audit and that the CIT(A) had failed to consider the documents and submissions placed on record during the appellate proceedings.

After examining the record, the Tribunal noted that the assessee had received approximately ₹2.95 crore in cash during the relevant financial year against recharge coupon sales of approximately ₹3.02 crore.

The cash receipts were deposited in the assessee’s bank account and the corresponding amounts were subsequently transferred to the telecom service providers. The transaction trail was, therefore, consistent with the nature of the assessee’s recharge-voucher business.

The ITAT recorded that neither the sale of recharge coupons nor the subsequent transfer of the money to the service providers was in dispute. Both aspects were also evident from the material available on record.

“Since the factum of sale of recharge coupons and subsequent transferring of monies to the service provider are not in dispute and clear from record, it is hereby held that no addition on account of cash deposit on account of assessee is called for,” the Tribunal observed.

On this basis, the ITAT deleted the ₹32.68 lakh addition sustained by the CIT(A) and allowed the assessee’s appeal.

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