Insurance agent deposits Rs 35 lakh cash collected from policyholders in his bank account, gets tax notice; he fights and wins in ITAT Jaipur

Mr Sharma, an insurance agent from Neem Ka Thana, Rajasthan, landed in trouble with the Income Tax Department after depositing Rs 35 lakh cash in his bank account. The tax department treated it as “unexplained money.” When the income tax department asked Sharma to explain the source of this cash, he said that the money did not belong to him but to several policyholders who had purchased insurance policies from him, and this cash represented the premiums collected from these policyholders.

However, when the tax officer checked the insurance policy papers submitted by Sharma as evidence, it was found that in some cases, the insurance agent was someone else. When asked about this discrepancy, Sharma said that due to limitations in the insurance Act, which allows a person to work as an agent only for one insurance company at a time, he engaged the services of agents from other companies on a commission-sharing basis to serve his customers and retain his permanent clientele.

Sharma also told the income tax officer that he received commissions from these agents, and all payments were made to him through banking channels. To support his story, Sharma also furnished affidavits from all these agents, who had confirmed on oath the facts he stated.


However, the income tax officer in Alwar was not convinced by Sharma’s explanation and started the legal proceedings against him for alleged tax evasion and possession of unexplained cash. Feeling aggrieved, Sharma first filed a case before the Commissioner of Appeals and then filed an appeal before the ITAT Jaipur.

On October 1, 2026, Sharma won the case in the ITAT Jaipur with Advocate Vedant Agarwal’s help.

Also read: Son gets income tax notice for Rs 33.23 lakh in property investment and cash; he gets relief in ITAT Jaipur for this reason

ITAT Jaipur discussion

The income tax officer, in his remand report, wrote that in several insurance documents, the names of individuals other than Sharma are mentioned as agents. The tax officer also wrote that S.K Sharma has not provided evidence to support his claim of receiving cash from different individuals for insurance purposes during the demonetisation period, particularly given that transactions involving illegal tender (demonetised Rs 500 and Rs 1,000 currency notes) were banned at that time.

Sharma’s lawyer argued that just because he had accepted the demonetised currency cash notes and had not followed the RBI’s (Reserve Bank of India) notification, it does not mean that he violated the income tax law. Sharma’s lawyer said that he acted only as an intermediary and did not accept the demonetised cash currency notes for his own benefit.

After hearing the arguments, the ITAT Jaipur observed that CIT(A) had not properly dealt with Sharma’s explanation on both the issues: why his name did not appear in the insurance policy documents under agent category, and about the source of demonetised cash deposit.

Also read: Rs 24 crore cash sales in Form 26AS, Rs 4-crore tax demand: How a five-star hotel cook won his case in Delhi High Court

The ITAT Jaipur said that they do not find any merit in the order passed by the CIT(A) holding Sharma’s explanation of the source of cash deposited in his bank account to have remained unexplained.

The only basis with the CIT(A) for rejecting Sharma’s explanation is that the evidence filed by him, namely the insurance policies, did not mention his name as agent. ITAT Jaipur said: “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.”

The ITAT Jaipur observed that Sharma had substantiated the circumstances in which he roped in other agents to work on his behalf.

Sharma had substantiated this explanation with the affidavits from such agents, and he had also demonstrated the fact of receiving commission from these agents by furnishing a copy of his bank statement, reflecting receipt of commission by way of cheque. The ITAT Jaipur said that none of these facts have been dislodged by the CIT(A).

The ITAT Jaipur said that it is clear that the CIT(A) has held Sharma to have not substantiated his explanation for the insurance policies reflecting the names of other agents, without even appreciating Sharma’s contention, which was duly supported with evidence also.

The ITAT Jaipur said Sharma’s failure to provide evidence showing that he had collected the said demonetised currency notes was, by itself, not sufficient grounds to reject his explanation of the source of cash deposited in his bank account.

“In any case, it is weird to expect any person to keep details of currency in which payment is collected. Not substantiating the fact that premiums were collected in SBNs (specified bank notes, demonetised currency notes) cannot be the basis for rejecting explanation of the assessee (Sharma).”

Thus, the ITAT Jaipur set aside the CIT (A)’s order and directed the addition made to Sharma’s of Rs 35,08,550 be deleted.