ITAT Chennai Deletes Rs 29.87 Crore Addition on CA who Acted Merely as Medium for Payment of Clients’ Taxes

The Income Tax Appellate Tribunal (ITAT) Chennai allowed the appeal of the assessee and held that the additions made under Section 69A are unsustainable.

The assessee is a practising Chartered Accountant based in Pudukkottai, Chennai and he filed his return of income for assessment year 2016-17 declaring a total income of Rs 2.95 lakh. Information regarding some substantial deposits in his bank accounts led the AO to reopen the assessment under Section 148 of the Income Tax Act. According to the assessee, the bank account had been maintained for collecting funds from clients and remitting various statutory dues such as income tax, VAT, TDS and service tax on their behalf, but the AO rejected the explanation and treated deposits aggregating to about Rs 23 crore as unexplained money under Section 69A.

During appellate proceedings, the CIT(A) sustained the addition and also further enhanced it by Rs 6.87 crore after treating credits appearing in another HDFC Bank account of the assessee as unexplained, which increased the overall addition.

The Tribunal examined the evidence and documents put on record by the assessee, including bank statements and tax challans and found that tax payments amounting to approximately Rs 29.83 crore had actually been made through the bank accounts and corresponded with the debit entries reflected in the statements. The Tribunal observed that the authorities below had focused only on credit entries while completely ignoring the corresponding debit entries showing payments made to various Government authorities.

The Tribunal, after relying on the evidence on record, held that the assessee had received the money in a fiduciary capacity and had merely acted as an intermediary or conduit and such deposits of clients can not be treated as unexplained money.

Decision of the Tribunal. Accordingly, the appeal of the assessee was allowed, holding that the additions made under Section 69A were unsustainable.