Non-deduction of TDS does not make transaction as unexplained in the hands of deductee – ITAT

Mere non-deduction of TDS by the deductor on a transaction does not change the character of the transaction to make it unexplained income.

In a recent judgment, ITAT has held that merely, because TDS has not been deducted on a particular transaction does not change the character of the transaction and make it unexplained.

ABCAUS Case Law Citation:
5221 (2026) (08) abacus.in ITAT

In the instant case, the Revenue had challenged the order passed by the CIT(A) in deleting the addition made by the Assessing Officer (AO) as unexplained money u/s 69A of the Income Tax Act, 1961 (the Act).

The AO was in possession of information that during the impugned year the assessee had made large amount of cash deposits in his Bank account and had received interest but had not filed his return of income. Accordingly, the case of the assessee was reopened as per the procedure prescribed in law by passing order u/s 148A(d) of the Act.

During the assessment proceedings, the assessee explained the source of cash deposits as emanating from his business of distribution of milk to a milk plant.

The assessee explained that he had received interest income of from FDR which was given to District Zila Dugdh Utpadak Sahakari Sangh Ltd. as Bank Guarantee security. The assessee also stated that the entire cash deposits belonged to said Zila Dugdh Utpadak Sahakari Sangh Ltd. and was not his own, and in support of the same filed its computation of income, bank account statement, work contract order, ledger of Dairy transfer entry verification, note of business activity and chart showing quantity of milk supply.

The AO however rejected the assessee’s contention on the ground that if the cash belonged to Zila Dugdh Utpadak Sahakari Sangh then why was the same deposited in his Bank account.

Accordingly, the AO treated the amount of cash deposited in his bank account as unexplained and added the same to the income of the assessee as also the interest income earned by the assessee during the year.

The assessee carried the matter in appeal before the CIT(A), who noted that the cash deposited in the bank account of the assessee was transferred to  Zila Dugdh Utpadak Sahakari Sangh Ltd regularly on day to day basis. From the evidence filed by the assessee he noted that the cash was deposited in the current account of the assessee, and the cash deposited was immediately transferred on daily basis to Zila Dugdh Utpadak Sahakari Sangh Ltd and that in the books of accounts and other documents submitted by the assessee  no infirmity was found by the AO As a result, the CIT(A) deleted the addition u/s 69A of the Act.

The Tribunal noted that the Revenue could not controvert the factual finding of the CIT(A). However, it was contended that the AO had rightly treated the cash deposits as unexplained since as per the assessee’s explanation he had earned commission income by way of selling milk on behalf of Zila Dugdh Utpadak Sahakari Sangh Ltd, but no TDS had been deducted on the same despite the provisions of deduction of tax at source being attracted.

The Tribunal observed that the liability and onus of deducting tax at source lies on the party which makes the payment, which in the facts of the present case is commission paid by Zila Dugdh Utpadak Sahakari Sangh Ltd. which may not have deducted TDS for reasons best known to it, but the same has no effect on the nature of the transaction carried out.

The Tribunal opined that merely, because TDS has not been deducted at a particular transaction does not change the character of the transaction which otherwise has been categorically noted from the facts on record to be revealing sufficiently that the assessee was in the business of dealing in trading of milk and the cash deposited in his bank account emanated from the said business, which facts have remained uncontroverted by the Revenue.

Accordingly, the Tribunal dismissed the appeal of the Revenue.   

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