INCOME TAX OFFICER, WARD-1, WARANGAL V. SATHISH PONNAM, PARKAL

ITA 929/HYD/2024

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which partially allowed the assessee's appeal regarding the assessment of unexplained cash credits. The assessee, Shri Sathish Ponnam, engaged in providing banking facilities to liquor merchants, had substantial cash deposits in his accounts which the Assessing Officer initially treated as unexplained cash credits under section 68 of the Income Tax Act, 1961. The CIT(A) recharacterized these deposits as business income, estimating a 10% profit on the total deposits. The Revenue challenged this recharacterization, arguing that the CIT(A) erred in law and fact by not allowing the Assessing Officer to examine additional evidence and by not adhering to procedural requirements under Rule 46A of the I.T. Rules, 1962.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471480 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2016-2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SACHIN KUMAR
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Set aside; Business income; Additional evidence; Unexplained cash credit

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD “B” BENCH : HYDERABAD BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MANJUNATHA G, ACCOUNTANT MEMBER ITA.No.929/Hyd/2024 Assessment Year 2016-2017 The Income Tax Officer, Ward-1, Warangal. vs. Shri Sathish Ponnam, PARKAL – 506 164. Telangana (Appellant) (Respondent) For Assessee : CA KA Sai Prasad For Revenue : Dr. Sachin Kumar, SR. AR Date of Hearing : 30.01.2025 Date of Pronouncement : 06.03.2025 ORDER PER MANJUNATHA G, A.M. : This appeal has been filed by the Revenue against the order of the learned CIT(A)-National Faceless Appeal Centre [in short “NFAC”], Delhi, relating to the assessment year 2016-2017. 2. Briefly stated facts of the case are that the assessee is an individual and filed his return of income on 16.08.2016 with gross total income of Rs.7,15,882/- and 2 ITA.No.929/Hyd./2024 net income of Rs.5,65,880/- earned through commission after claiming Chapter-VIA deductions. The assessee is doing business of providing bank facility held by him for purchase of Demand Drafts, etc., by the liquor merchants. The assessee mainly provided facilities to the liquor merchants for purchase of Demand Drafts. For this purpose, the assessee is maintaining two different bank accounts namely, SBI, Gopalpuram Branch, Warangal and IDBI, Warangal Branch. The facilities include depositing of the money into the bank account and getting the Demand Drafts issued by the bank. In order to verify the genuineness of the transactions, the Assessing Officer issued summons u/sec.133(6) of the Act and obtained bank statements. The Assessing Officer noticed that the aggregate of the deposits made into the said two bank accounts of the assessee were at Rs.3,44,85,085/-. The Assessing Officer noted that since the assessee failed to prove his onus i.e., identity, genuineness and creditworthiness of the transactions with respect to the cash deposits made in his two savings bank accounts, the Assessing Officer treated 3 ITA.No.929/Hyd./2024 the total cash deposits of Rs.3,44,85,085/- as unexplained cash credits u/sec.68 of the Act and made the addition vide order dated 29.12.2018 passed u/sec.143(3) of the Income Tax Act, 1961. 3. On being aggrieved, the assessee carried the matter in appeal before the learned CIT(A) and the learned CIT(A) noted that the assessee is engaged in the trading activity of liquor and purchase amount of Rs.3,44,85,085/- should be treated as sales in respect of trading of liquor activity. He, therefore, directed the Assessing Officer to consider 10% of total purchases as business income of the assessee on the total purchases of Rs.3,44,85,085/- and accordingly, partly allowed the appeal of the assessee. 4. Aggrieved by the order of the learned CIT(A), the Revenue is in appeal before the Tribunal with 28 days delay and has raised the following grounds : 1. The learned CIT(A) erred both in law and on facts in granting relief to the assessee on the basis of the submissions made by the assessee. 4 ITA.No.929/Hyd./2024 2. The ld CIT(A) erred in not granting opportunity to the Assessing officer to examine the additional evidence submitted by the assessee during the course of appeal proceedings and in not calling for remand report under Rule 46A of the I.T. Rules, 1962. 3. The Id CIT(A) erred both on facts and in law in directing the AO to estimate the income @ 100% of purchases in the absence of any proof in the form of valid Audit Reports or Audited Financials etc., to suggest that the cash receipts are sourced out of assessee's business. 4. The Id CIT(A) erred in directing to treat the entries in the bank accounts as liquor purchase in the absence of any valid proofs and even in the absence of liquor license in the name of the assessee.” 5. During the course of hearing, Learned DR at the very out submitted that the order of the learned CIT(A) was received in the office of PCIT-1, Hyderabad on 22.06.2024 and that the Assessing Officer could not file the appeal on or before the due date due to administrative exigencies and that the appeal was filed before the Tribunal on 21.08.2024 5 ITA.No.929/Hyd./2024 with a delay of 25 days [instead of 28 days]. He submitted that in the interest of justice the delay of 25-28 days in filing the appeal before the Tribunal may please be condoned. Coming to the merits of the case, the Learned DR vehemently relied on the order of the Assessing Officer. He submitted that the learned CIT(A) did not call for remand report on the additional evidences submitted by the assessee as required under Rule 46A of the I.T. Rules, 1962. Further, the learned CIT(A) directed the Assessing Officer to estimate the income of the assessee @ 10% by treating the total bank deposits of Rs.3,44,85,085/- as purchases, in absence of assessee’s failure to fulfill the three ingredients of sec.68 of the Act i.e., identity, creditworthiness and genuineness of the impugned cash deposits in the two bank accounts of assessee. He, accordingly, pleaded that the order of the learned CIT(A) be set aside and confirm the order of the Assessing Officer in the interest of justice. 6. Learned Counsel for the Assessee, on the other hand, fairly agreed for condonation delay of 28 days in filing the appeal by the Revenue before the Tribunal. 6 ITA.No.929/Hyd./2024 7. We have heard the submissions of both the parties for condoning the delay of 28 days in filing the appeal of the Revenue before the Tribunal. The Learned DR has explained the reasons and from the explanation of the Learned DR the Assessing Officer could not file appeal on or before the due date due to administrative exigencies. Therefore, in our considered view, there is a ‘sufficient cause’ for the Revenue in not filing the appeal in time and thus, the delay of 28 days in filing the appeal before the Tribunal is condoned and the appeal of the Revenue is admitted for adjudication. 8. Learned Counsel for the Assessee submitted that that in so far as additions made by the Assessing Officer towards cash deposits into bank accounts and estimation of 10% profit by the learned CIT(A), the assessee has furnished all evidences including relevant affidavits from various parties to whom the assessee has provided services in connection with submission of bids to Excise Department for allotment of liquor shop and on successful bidding for initial procurement of liquor from the Telangana State 7 ITA.No.929/Hyd./2024 Breweries Corporation. The assessee had also filed relevant ITR return filed by various parties to prove that persons who gave cash to the assessee has filed their income tax returns and also explained source for cash. The learned CIT(A) after considering the facts including the fact that most of the amounts deposited into bank account has been subsequently transferred to State Prohibition & Excise Department and also to Telangana State Breweries Corporation Limited and has come to the conclusion that the assessee is engaged in the business of providing services to various liquor traders and, therefore, total cash deposited in bank account has been treated as turnover from business and estimated the profit @ 10% on the total turnover. Therefore, he submitted that the order of the learned CIT(A) should be upheld. 9. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. In so far as the additions made by the Assessing Officer towards cash deposit into bank account, the Assessing Officer has given various reasons to make 8 ITA.No.929/Hyd./2024 additions on the ground that the assessee is having no means to explain the impugned cash deposited into bank account and further the assessee’s explanation that he was acting as a facilitator for various liquor dealers and the cash deposit is out of amount received from certain parties for purchasing in favour of Telangana State Breweries Corporation Limited and Prohibition & Excise Department is un-proved. The Assessing Officer further observed that although the assessee claims to have received funds from various liquor dealers, the fact remains that none of them have furnished relevant evidences including their income tax returns to prove source for cash given to the assessee. Therefore, the Assessing Officer opined that the total credits including cash deposits into bank account were treated as unexplained cash credits of the assessee and thus, addition has been made u/sec.68 of the Income Tax Act, 1961. It was the argument of the assessee before the Assessing Officer that, he was acting as a facilitator for various people for procuring license from Telangana State Breweries Corporation for online submission of applications and for 9 ITA.No.929/Hyd./2024 this purpose he has received cash from various parties and the same has been converted into DDs and transferred to Prohibition & Excise Department for procuring excise license. Further on successful bidding, those who were got licenses from the Telangana State Excise Department, has approached the assessee for initial procurement/ arrangement of purchase of liquor from Telangana State Breweries Corporation Limited and for this purpose, the assessee received cash from various parties which are deposited into bank account. Further, the same has been transferred to Telangana State Breweries Corporation Limited for purchase of the liquor. In this regard, the assessee has filed relevant bank statements and claimed that the amount received from various parties has been treated as sales and amount transferred to Telangana State Breweries Corporation Limited has been treated as purchases. The assessee had also submitted relevant confirmation letter from Telangana State Breweries Corporation Limited to prove his plea. 10 ITA.No.929/Hyd./2024 9.1. We have given our thoughtful consideration to the reasons given by the learned CIT(A) to estimate the business profit @ 10% on total cash deposited into bank account in light of various arguments advanced by Learned Counsel for the Assessee and we ourselves fully subscribe to the reasons given by the learned CIT(A) for the simple reason that, assessee with a no means has worked as a facilitator for various liquor dealers for online submission of application to State Prohibition & Excise Department for getting licenses which is evident from the DDs obtained from the Bank and transferred to State Prohibition & Excise Department. Further the assessee had also extended services to few people who got licenses from State Excise Department and for procurement of liquor from Telangana State Breweries Corporation Limited, he has taken DDs in favour of Corporation, which is evident from funds transferred to Telangana State Breweries Corporation Limited. The assessee has treated the amount received from various parties as his income and amount transferred to Telangana State Breweries Corporation Limited as his 11 ITA.No.929/Hyd./2024 expenses and net commission income has been treated as his income. This fact is further strengthened by statements recorded by the Assessing Officer from various persons from whom the assessee claimed to have received cash for online submission of the application and online payment of purchases for liquor from Telangana State Breweries Corporation Limited. From the details filed by the assessee, it is undisputedly clear that assessee is providing services to various persons who are not aware of process of online submission of application form and online procurement of liquor from Telangana State Breweries Corporation Limited. Therefore, we are of the considered view that the assessee is into the business of providing services to various liquor merchants and earned commission. The learned CIT(A) after considering all the relevant facts has rightly treated the assessee as a facilitator and considered the total cash credits/deposits in the bank account as his business receipts and estimated @ 10% profit on total credits appearing in the bank account. The finding of fact recorded by the learned CIT(A) is uncontroverted by the Revenue, 12 ITA.No.929/Hyd./2024 except stating that the learned CIT(A) has accepted the argument of the assessee in light of certain additional evidences contrary to Rule 46A of I.T. Rules, 1962. In our considered view, whatever evidences considered by the learned CIT(A) were already on record before the Assessing Officer and, therefore, in our considered view, it is not a case of violation of Rule 46A of I.T. Rules, 1962 as alleged by the Learned DR. 9.2. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that there is no error in the reasons given by the learned CIT(A) in estimating the profit @ 10% on total credits appearing in the bank account of the assessee. Thus, we are inclined to uphold the order of the learned CIT(A) and reject the grounds raised by the Revenue. Accordingly, the appeal of the Revenue is dismissed. 10. In the result, appeal of the Revenue is dismissed. 13 ITA.No.929/Hyd./2024 Order pronounced in the open Court on 06.03.2025 Sd/- Sd/- [VIJAY PAL RAO] [MANJUNATHA G] VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad, Dated 06th March, 2025 VBP Copy to 1. The Income Tax Officer, Ward-1, Aaykar Bhavan, C/o. BSNL Bhavan, Beside KMC, Warangal. 2. Shri Sathish Ponnam, 19-56, Gouda Street, PARKAL. PIN – 506 164. Telangana 3. The Pr. CIT, Hyderabad. 4. The DR ITAT “B” Bench, Hyderabad. 5. Guard File. //By Order// //True Copy// Sr. Private Secretary, ITAT, Hyderabad Benches, Hyderabad. "