ITAT Delhi Grants Relief to Licensed Money Transfer Collection Agent

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) on 22 May held that cash deposits received by a money transfer agent during the demonetisation period could not be treated as unexplained money under Section 69A of the Income Tax Act when the amounts belonged to principal payment companies and were subsequently transferred to them. A bench comprising Judicial Member Yogesh Kumar U.S. and Accountant Member Manish Agarwal deleted the addition of Rs 15.40 lakh made against Vivek Mittal and partly allowed the appeal relating to the estimation of commission income.

The assessee, engaged in the business of a money transfer agency under licences issued by companies such as Ezspend Prepaid Payments Solutions Pvt. Ltd., Oxigen Service India Pvt. Ltd. and Ebix Payment Services Pvt. Ltd., had filed his return declaring income of Rs 3.19 lakh for AY 2017-18. The case was selected for scrutiny to verify cash deposits made during the demonetisation period. The Assessing Officer observed that out of the total cash deposits of Rs 9.22 crore, deposits of Rs  40.34 lakh in Specified Bank Notes (SBNs) remained unexplained and accordingly made an addition under Section 69A. The AO further estimated commission income at 2% of total deposits and made an additional addition of Rs 18.45 lakh.

Before the Tribunal, the assessee submitted that the cash deposits represented collections received from customers as part of money transfer services rendered on behalf of principal companies. It was argued that the amounts were subsequently transferred to the accounts of the respective principals and that the commission earned from such activity had already been offered to tax. “When the assessee acted as a broker for the principals i.e. money transfer agency, no addition could be made in the hands of the assessee for the money belonging to those principals.”

The Tribunal noted that the assessee had furnished details showing that Rs 15.40 lakh deposited in SBNs in two bank accounts maintained with Punjab National Bank was later transferred to the accounts of Ezspend Prepaid Payments Solutions Pvt. Ltd. and Ebix Payment Services Pvt. Ltd. The Bench observed that the Revenue had accepted the assessee’s commission business model and had not disputed the nature of activities carried out by him.

Holding that the deposited funds belonged to the principal companies and not to the assessee, the Tribunal ruled that the addition under Section 69A was unsustainable and directed the deletion of the Rs 15.40 lakh addition.

On the issue of the estimation of commission income, the Tribunal observed that the assessee was entitled to a commission ranging between 0.15% and 0.50% under arrangements with principal companies. However, since the assessee had not considered the entire deposits reflected in the bank accounts while computing commission income, the Tribunal directed the Assessing Officer to recompute the income by applying a commission rate of 1% on gross deposits of Rs 3.69 crore instead of 2% adopted by the lower authorities. The tribunal held that, “The Bench further observed that once the source and nature of deposits were explained as part of commission agency business, only reasonable commission income arising from such transactions could be subjected to tax.”

Thus, the appeal of the assessee was partly allowed.

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