Lucknow ITAT Deletes ₹1.31 Crore Cash Deposit Addition Against Bank Mitra

Background of the case

The assessee worked as a Bank Mitra, also described as a Business Correspondent, for a bank. The record showed that the assessee worked as an authorised banking intermediary.

A Bank Mitra provides last-mile banking services to customers who may not easily reach a branch. The record referred to services such as opening accounts, accepting deposits, facilitating withdrawals and transfers, remittances, term deposits and Aadhaar seeding. The assessee filed a return declaring income of ₹1,70,000 for Assessment Year 2020–21.

How the ₹1.31 crore addition arose

The reassessment began with a notice under Section 148 dated 23 March 2024. The Assessing Officer noticed aggregate cash deposits of ₹1,31,66,770 in the assessee’s Bank of India account.

As the assessment proceeded ex parte, the Assessing Officer completed a best-judgment assessment under Sections 147 read with 144 and 144B. The entire amount of cash deposits was treated as unexplained money under Section 69A. A further ₹14,065 was added as alleged rental income.

Bank Mitra’s evidence explained the money trail

Before the appellate authorities, the assessee produced documents supporting his status and role as a Bank Mitra. These included the Business Correspondent certificate, bank material, account records and details showing that the transactions arose from customer-facing banking activities.

The crucial distinction was ownership. The money may have passed through an account connected with the Bank Mitra’s operations, but it represented deposits made by banking customers. Handling another person’s funds as an authorised intermediary does not, by itself, make those funds the intermediary’s income or unexplained money.

Why customer deposits were not taxable as the agent’s money

Section 69A applies where an assessee is found to be the owner of money or another valuable article that is not recorded in the books, and the explanation about its nature and source is absent or unsatisfactory. Ownership is therefore central to the provision.

The Tribunal accepted that the assessee was acting only as a facilitator for the bank. Once the documentary record established that the deposits belonged to customers and arose from authorised banking services, the Revenue could not assess the full cash flow as the Bank Mitra’s own unexplained money merely because it appeared in the bank account.

The Lucknow ITAT consequently deleted the entire addition of ₹1,31,66,770. The ruling reinforces that gross customer collections or pass-through funds must not automatically be equated with the agent’s taxable income.

Tribunal followed the Bank Mitra principle in Shyam Sagar Yadav

The Tribunal relied on its earlier decision in ITO v. Shyam Sagar Yadav, ITA Nos. 445 and 446/LKW/2024. That decision also concerned a Bank Mitra and recognised that customer funds handled during authorised banking operations cannot be taxed in the hands of the intermediary without evidence of beneficial ownership.

The result turned on evidence rather than the job title alone. A person claiming that deposits are customer funds should be able to connect the account, transaction pattern and banking authorisation with the Business Correspondent activity.

Rental-income addition also deleted

The Assessing Officer had separately added ₹14,065 as rental income. The Tribunal deleted this addition because the Revenue could not establish that the amount had not already been included in the income offered by the assessee.

This part of the order reflects a basic assessment principle: the same income should not be added again without first verifying whether it has already been disclosed.

Section 272A penalty reduced to ₹10,000

The penalty appeal concerned non-compliance with notices issued under Section 142(1). The Assessing Officer levied ₹20,000 under Section 272A(1)(d), treating two unanswered notices as separate defaults.

The Tribunal held that the penalty is linked to the default and should not multiply merely because the notice was repeated. It sustained one penalty of ₹10,000 and deleted the remaining ₹10,000. Accordingly, the quantum appeal was allowed and the penalty appeal was partly allowed.

Practical documentation checklist for Bank Mitras

• Preserve the Business Correspondent or Bank Mitra appointment letter and certificate.
• Keep the BC code, bank-branch confirmation and service-provider agreement readily available.
• Maintain complete bank statements and transaction-wise records connecting cash receipts with customer deposits, withdrawals or transfers.
• Reconcile daily or periodic customer collections with the amounts remitted or settled through the bank.
• Retain commission statements separately so the Bank Mitra’s actual income is distinguishable from customer funds.
• Respond to income-tax notices on time and upload supporting records during assessment instead of waiting for appeal.

Important limitation of the ruling

This decision does not mean that every cash deposit in a Bank Mitra’s account is automatically exempt from examination. Relief depends on credible evidence showing that the assessee acted as an authorised banking intermediary and that the disputed money belonged to customers.

Unexplained personal deposits, unreconciled differences or amounts not connected with authorised Business Correspondent activity may still be examined under the applicable provisions. Each case must be decided on its own facts and records.

Conclusion

The Lucknow ITAT’s decision provides important relief for genuine Bank Mitras. Where the evidence proves that cash deposits are customer funds processed in the ordinary course of banking services, the gross deposits cannot be taxed as the agent’s unexplained money under Section 69A.

For Bank Mitras and other collection agents, the strongest protection is a clear documentary trail demonstrating agency, customer ownership of funds and reconciliation with the principal bank.

Editorial and legal notice

This article is an educational summary of a reported judicial decision. It does not make any independent allegation against any person, bank or company. Names and facts are mentioned only where necessary to explain the decision. If any concerned party identifies an error or requests correction of unnecessary identifying information, please contact USAA Tax Consultant for prompt review.