An insurance agent based in Rajasthan came under the Income Tax Department’s scrutiny for alleged unexplained cash deposits in his bank account. The agent claimed these were payments for premiums of policyholders.The tax department however believed he had insufficient evidence to prove his claims and sent him a notice. Here is how he ultimately won relief in ITAT Jaipur:
What the case is about
The insurance agent in the case deposited Rs 35 lakh in cash into his bank account. The department classified the amount as “unexplained money” and sought details of its source.The man maintained that the cash was not his personal money but represented insurance premiums collected from customers who had bought policies through him.However, the tax officer noticed discrepancies while examining the insurance documents that the man submitted to support his explanation.In some instances, the policies named other individuals as the insurance agents. Asked to explain why the paperwork did not consistently identify him as the agent, the man said he had entered into commission-sharing arrangements with agents associated with other insurance companies.He explained that restrictions under the Insurance Act, which permit an agent to represent only one insurance company at a time, had led him to work with agents from other companies to meet his customers’ requirements. This arrangement, he said, helped him continue serving his existing clients and retain his established customer base.According to an ET report, he further submitted that he received commissions through these agents and that the transactions were routed through banking channels. To substantiate his account, the man produced affidavits from the agents concerned, who confirmed the facts stated by him on oath.The explanation, however, failed to convince the income tax officer in Alwar, who initiated proceedings against the insurance agent over alleged tax evasion and the possession of unexplained cash.Challenging the department’s action, the man first approached the Commissioner of Appeals before taking the matter to the Income Tax Appellate Tribunal (ITAT), Jaipur.On October 1, 2026, the ITAT Jaipur ruled in the insurance agent’s favour.
Why did ITAT Jaipur rule in favour of insurance agent?
Chartered Accountant Ashish Niraj, Partner at ASN & Company, told ET that the man succeeded because he produced detailed evidence that the lower authorities had not effectively rebutted.The documents established that the cash deposits of Rs 35,08,550 were from insurance premiums collected as part of his regular business activities.According to Niraj, the man submitted policy registers, cash flow statements and bank records to demonstrate how the money had moved through the business and ultimately reached the insurance companies.The appearance of other agents’ names on certain policies was another issue raised by the tax authorities. The insurance agent however clarified that, because the Insurance Act restricts an agent to one general insurance company, he had relied on commission-sharing arrangements with agents representing other insurers to continue serving his customers.He supported this explanation with sworn affidavits from the agents involved, along with bank statements showing that commission payments had been made to them through cheques.The man also demonstrated that the receipts recorded during the corresponding period in the preceding year were in a similar range to those during the demonetisation period. This evidence helped persuade the ITAT to accept his explanation and rule in his favour.In practical terms, policyholders should avoid paying insurance premiums in cash. Under the applicable provision, no person can receive Rs 2 lakh or more in cash from another person in a single day, through one transaction, or in connection with a single event or occasion. The penalty is equivalent to the amount received and is imposed on the recipient, which could be the insurer, broker or agent, rather than the person making the payment.This restriction on cash receipts took effect on April 1, 2017, and therefore did not apply to the year involved in this case. The provision is applicable to transactions taking place today.In its remand report, the income tax officer pointed out that several insurance documents named individuals other than the man as the agents. The officer also observed that the man had not produced evidence to support his claim that he had received cash from different individuals for insurance-related purposes during the demonetisation period. This was considered significant because transactions involving the demonetised Rs 500 and Rs 1,000 notes, classified as illegal tender, had been prohibited at the time.The insurance agent’s lawyer argued that accepting demonetised currency and failing to comply with the Reserve Bank of India’s (RBI) notification did not automatically amount to a violation of income tax law. According to the lawyer, the man had merely acted as an intermediary and had not accepted the demonetised notes for his personal benefit.After considering the submissions, the ITAT Jaipur found that the Commissioner of Income Tax (Appeals), or CIT(A), had not adequately examined the man’s explanations on two key points: why his name did not appear as the agent on certain insurance policies, and how he had accounted for the cash deposited during the demonetisation period.The Tribunal held that there was no merit in the CIT(A)’s decision to treat the man’s explanation regarding the source of the cash deposited in his bank account as unsatisfactory.According to the ITAT Jaipur, the CIT(A) had rejected the man’s explanation primarily because his name did not appear in the insurance policies as the agent. The Tribunal criticised this approach, observing: “This finding of the CIT(A) is clearly not based on appreciation of the explanation furnished of the same by the assessee (Sharma), noted by us duly substantiated with evidence.”On the question of demonetised currency, the Tribunal held that the man’s inability to produce evidence specifically establishing that he had collected the premiums in the form of the discontinued notes was not, by itself, sufficient reason to reject his explanation for the bank deposits.The ITAT Jaipur accordingly set aside the CIT(A)’s order and directed that the addition of Rs 35,08,550 made to the man’s income be deleted.
