Large credits in bank accounts, especially where no return has been filed and no source is explained, often lead to an addition for unexplained investment. In ITO v. Deepak Vithaldas Suchak, the Surat Bench of the Income Tax Appellate Tribunal decided that such credits of ₹98,22,26,712 could not be taxed in full where the assessee was running a cheque discounting income tax business that the department had accepted in the previous year.
Case details
| Item | Details |
| Case | ITO, Ward-1(3)(1), Surat v. Shri Deepak Vithaldas Suchak |
| Appeal | ITA No. 361/SRT/2018 (Revenue’s appeal), with the assessee’s Cross Objection No. 02/SRT/2021 |
| Assessment year | 2010-11 |
| Bench | Shri Pawan Singh (Judicial Member) and Dr. A. L. Saini (Accountant Member); order authored by Dr. A. L. Saini |
| Date of hearing | 5 July 2021 (virtual hearing) |
| Date of order | 30 July 2021 |
| Appearing for the assessee | Shri Uday P. Nanavati, CA |
| Appearing for the Revenue | Shri O. P. Vaishnav, CIT(DR) |
| Order appealed against | CIT(A)-2, Surat, dated 15 March 2018, arising from an assessment under Section 144 read with Section 147 dated 22 November 2017 |
| Order | Download Judgement |
Facts
This case highlights the implications of cheque discounting income tax and its importance in the financial reporting of businesses.
The Assessing Officer found that during FY 2009-10 (AY 2010-11), the assessee’s four proprietary concerns received the following credits in their Union Bank of India accounts, by cheque, transfer and cash:
| Concern | Credits during 1.4.2009 to 31.3.2010 |
| M/s Shri Ganesh Enterprise | ₹94,44,50,719 |
| M/s Om Vinayak Enterprise | ₹30,32,097 |
| M/s Om Riddhi Enterprises | ₹23,71,332 |
| M/s Kaushal Corporation | ₹3,23,72,564 |
| Total | ₹98,22,26,712 |
The Assessing Officer recorded that the assessee gave no details, explanation or evidence of the source of these credits and had not filed a return of income for the year. The entire amount was therefore added as unexplained investment under Section 69.
An enquiry report from the Deputy Director of Income Tax (Investigation)-III, Surat, was the basis for the matter. The Investigation Wing had recorded the assessee’s statement on oath under Section 131, and reported that he was engaged in cheque discounting and used 18 bank accounts.
Proceedings before the CIT(A)
The CIT(A) noted that:
- the assessee used these accounts for cheque discounting, as the Assessing Officer had also held for AY 2009-10;
- the Investigation Wing’s report, on which the Assessing Officer himself relied, also referred to the cheque discounting business;
- the assessee’s complaint that the Assessing Officer had taken wrong turnover figures was incorrect, since the Assessing Officer had verified them in the remand report proceedings; and
- the assessee was doing the business of cheque discounting and had been showing commission income in the return of income.
He held that adding the entire turnover as undisclosed investment was an error, deleted the addition of ₹98,22,26,712, and directed the Assessing Officer to compute commission at ₹50 per lakh on that turnover.
Arguments before the Tribunal
The Revenue (CIT(DR)) argued that:
- the assessee produced no proof of the credit entries, turnover or cheque discounting business, whether in the investigation, the assessment or the appeal;
- every assessment year is separate, and the assessee must explain each credit the Assessing Officer doubts;
- the cash and cheques deposited totalled ₹98,22,26,712, and the assessee was the owner of all the transactions; and
- the CIT(A)’s relief at ₹50 per lakh was not justified, so the Assessing Officer’s addition should be restored.
The assessee (through counsel) argued that:
- customers who received third-party cheques asked him to discount them, he deposited the cheques in his accounts, and after clearance on about the third day he paid the money back by cash or cheque, deducting commission of ₹30 to ₹40 per lakh;
- he used these accounts for cheque discounting; and
- the Assessing Officer had accepted this business for AY 2009-10.
Findings of the Tribunal
1. The earlier year had accepted the business.
For AY 2009-10, the Assessing Officer’s order dated 25 November 2016 had held that the assessee earned commission at ₹50 per lakh on a turnover of ₹29,84,17,709, and made an addition of ₹14,92,088. The Tribunal observed that the department had thus accepted the claim of commission income on cheque discounting in the previous year.
2. The principle of consistency applies.
The Tribunal said that where the Revenue has accepted a position on facts running across more than one year, it cannot take a contrary stand in a later year on identical facts unless the Assessing Officer shows a change in facts. It relied on the Supreme Court in Radhasoami Satsang v. CIT, 193 ITR 321 (SC), which says that although res judicata does not strictly apply to income tax proceedings, and each year is a unit, a fundamental fact accepted over the years should not be changed in a later year without a material change. Applying this, the Tribunal held that the assessee was engaged in the cheque discounting business.
3. The commission rate was raised.
Considering the time value of money, the Tribunal found ₹50 per lakh to be on the lower side and directed the Assessing Officer to compute the amount at ₹75 per lakh. The order uses the word “disallowance” for this computation.
4. Consistency covers the business, not the rate.
The Tribunal made it clear that the principle of consistency applied to the recognition of the cheque discounting business and not to the rate of ₹50 per lakh.
5. Result.
The Revenue’s appeal was partly allowed. The assessee’s cross objection, which supported the CIT(A)’s order, was dismissed as not pressed.
What the numbers mean
On the turnover of ₹98,22,26,712 (about 982.23 lakh), my own arithmetic gives these approximate figures:
| Basis | Approximate amount |
| Assessing Officer: entire credits under Section 69 | ₹98.22 crore |
| CIT(A): ₹50 per lakh | about ₹49.11 lakh |
| Tribunal: ₹75 per lakh | about ₹73.67 lakh |
Key takeaways
- Bank credits are not automatically unexplained investment. Where the material shows the accounts were used for cheque discounting, the taxable income is the commission, not the full turnover.
- Consistency across years has value. A business activity that the department accepted for an earlier year cannot ordinarily be disowned later without a change in facts.
- Consistency has limits. It protected the nature of the business here, but did not freeze the commission rate. The Tribunal increased it.
- Supporting material mattered. The Investigation Wing’s report, the assessee’s statement under Section 131 and the earlier assessment all pointed to the same business.
- Returns and records matter. The Assessing Officer’s order recorded that no return was filed and no explanation was given, while the CIT(A) recorded commission income as shown in the return. Filing returns on time and maintaining records of each cheque avoids this kind of dispute.
Practical suggestions
- Keep a register of cheques received for discounting, with dates of deposit and clearance, parties, amounts paid back and commission retained.
- Reconcile bank statements with the register and the commission shown in the return.
- Respond to notices and statements consistently, because the Tribunal relied on the earlier statement under Section 131.
- Where a notice proposes to add entire bank credits, reply with an explanation of the business model and supporting records before the order is passed.
- Support the commission rate with the assessee’s own records, since the rate was open to change at the appellate stage.
Frequently asked questions
Q1. Can the whole bank turnover be taxed under Section 69?
Where credits are unexplained, the Assessing Officer can make an addition. In this case the Tribunal held that the turnover arose from cheque discounting, so only commission income was to be assessed.
Q2. Why did the Tribunal accept the cheque discounting business?
The Investigation Wing’s report and the assessee’s sworn statement recorded it, and the department accepted it for AY 2009-10.
Q3. Which Supreme Court decision did the Tribunal apply?
Radhasoami Satsang v. CIT, 193 ITR 321 (SC), on consistency across assessment years.
Q4. Why was the rate changed from ₹50 to ₹75 per lakh?
The Tribunal considered ₹50 per lakh low in view of the time value of money, and said consistency did not extend to the rate.
Q5. Does this Tribunal order bind other cases?
It binds the parties on its facts. It can be cited elsewhere, but its use depends on how closely the facts, evidence and years match.
Conclusion
ITO v. Deepak Vithaldas Suchak shows that taxing an entire bank turnover as unexplained investment can be set aside when the activity is genuine cheque discounting that the department has accepted before. The commission can still be assessed at a higher rate, so careful records, timely returns and a clear explanation of the business remain the best protection.
Sagar S Gupta & Co, Chartered Accountants, Shivpur, Varanasi, assists with income tax assessments, replies to notices, appeals before the CIT(A) and the Tribunal, and tax planning for businesses. This article summarises a Tribunal order for general information and is not advice for any specific case.