ITAT Delhi Remands Section 68 Addition on Forex Business Receipts:

ITAT Delhi Remands Section 68 Addition on Forex Business Receipts Simply Money Services Pvt Ltd, an RBI-licensed Full-Fledged Money Changer (FFMC), engaged in the purchase and sale of foreign currency, traveller’s cheques, and prepaid forex cards, filed its return for AY 2017-18 declaring an income of Rs. 4,46,370. During scrutiny, the Assessing Officer treated a credit of Rs. 2,47,71,845 received from one of its major clients, M/s Vacation To Go Pvt Ltd, as unexplained income under Section 68. The AO concluded that the client was a non-genuine entity allegedly used for fund rotation, and that its creditworthiness was not proven. The assessee explained that the amount was a business advance received in the ordinary course for the issuance of prepaid forex cards, followed by corresponding procurement of foreign exchange from banks within a few days, demonstrating a complete commercial cycle. It asserted that no loans or financing arrangements existed with the said client and the sums were purely trade receipts. Appeal Before CIT(A): Upon appeal, the CIT(A) sought a remand report. The AO reported only that notices issued to M/s Vacation To Go Pvt Ltd under Section 133(6) had gone unanswered. Without any further factual examination or assessment of the commercial nature of the transactions, the CIT(A) dismissed the appeal relying solely on the remand report. The assessee then challenged the order before the Tribunal, arguing that the lower authorities ignored the nature of the business, documentary evidence, and the fact that the receipts directly related to forex card sales. Central Issue: Whether the credit of Rs. 2,47,71,845 received from M/s Vacation To Go Pvt Ltd, representing payments for prepaid forex card transactions, could be treated as unexplained cash credits under Section 68 when the CIT(A) had not independently verified the nature of the business transactions or appreciated the documentary evidence. ITAT Held: The ITAT Delhi set aside the order of the CIT(A) and remanded the matter for fresh adjudication. The Tribunal observed that the CIT(A) failed to discharge his statutory duty under Section 250(6), as he did not record independent findings on the evidence or facts. The only basis for sustaining the addition was the remand report stating that the third-party recipient of a Section 133(6) notice had not responded. The Tribunal held that such a cryptic and non-speaking approach could not sustain an addition under Section 68, especially when the transactions related to advance receipts in a regulated business requiring RBI authorization. To preserve principles of natural justice, the Tribunal directed the CIT(A) to re-examine the matter afresh, provide the assessee full opportunity to present evidence, and decide the issue by passing a reasoned, fact-based order. The assessee was also directed to cooperate and furnish all relevant documents. The appeal was thus allowed for statistical purposes. To Read Full Judgment, Download PDF Given Below