RAMA RAO KOTHA, KAKINADA V. INCOME TAX OFFICER, WARD-2, KAKINADA

ITA 1/VIZ/2023

AI Insights

The case involves Shri Rama Rao Kotha, who appealed against the order of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, which upheld the Assessing Officer's decision. The Assessing Officer had treated substantial cash deposits in the assessee's bank accounts as business income and estimated the profit at 8% of the turnover, due to non-compliance with notices requesting the source of these deposits. The Tribunal's decision to reduce the estimated profit margin to 6% was influenced by the assessee's lack of response to notices, which was deemed unintentional due to business closure and relocation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135948 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 21-08-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 01-01-2023
• Other Referred Cases: Anjuman H Ghaswala (252 ITR 1), CIT Vs. Hindustan Bulk Carriers (259 ITR 449)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Set aside
• Section: 144; 234B; 250; 44AB

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम “एसएमसी”पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER आयकर अपील सं./I.T.A.No.1/Viz/2023 (ननधधारण वर्ा / Assessment Year : 2017-18) Rama Rao Kotha D.No.7-99, Near Indira Hospital Gokarakondavari Street Korukonda East Godavari Dist. [PAN : BPIPK0075H] Vs. Income Tax Officer Ward-2 Kakinada (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri P.Prabhakara Murthy, AR प्रत्यधथी की ओर से / Respondent by : Shri Madhukar Aves, DR सुनवधई की तधरीख / Date of Hearing : 22.08.2023 घोर्णध की तधरीख/Date of Pronouncement : 29 .08.2023 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi vide DIN & Order No.ITBA/NFAC/S/250/2021-22/1036714998(1) dated 02.01..2021, arising out of assessment order passed u/s 144 of the Income Tax Act, 1961 (in short ‘Act’) dated 05.12.2019 for the Assessment Year (A.Y.) 2017-18. 2 I.T.A. No.1/Viz/2023, A.Y.2017-18 Shri Rama Rao Kotha, Kakinada 2. Brief facts of the case are that the assessee is an individual, doing business in wholesale medical agency, e-filed his return of income of Rs.2,94,190/- along with audit report u/s 44AB of the Act. Subsequently, the case was selected for scrutiny through CASS and it was observed by the department that the assessee had deposited cash of Rs.1,24,01,841/- and Rs.78,68,800/- in his bank accounts. A series of notices were issued to the assessee calling for sources for cash deposits and to produce books of account to verify the sources for cash deposits, but the assessee did not comply with any of these notices. Hence, the Assessing Officer (AO) treated the amount as business income and considering profit margin @8% of turnover of Rs.1,49,63,719/-, estimated the profit at Rs.11,97,100/- and passed an order u/s 144 of the Act. 3. On being aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) upheld the addtion made by the AO and dismissed the appeal of the assessee, as the assessee failed to respond to the notices issued by the department and produce substantive evidence in support of source for cash deposits. 4. On being aggrieved, the assessee preferred an appeal before the Tribunal by raising the following grounds : 3 I.T.A. No.1/Viz/2023, A.Y.2017-18 Shri Rama Rao Kotha, Kakinada 1. In the facts and circumstances of appellant’s case, the impugned order u/s 250 of the I.T.Act by Learned Commissioner of Income –Tax (Appeals), National Faceless Centre is not correct both on facts and law applicable to the facts of appellant’s case. 2. In the facts and circumstances of appellant’s case, the Learned Commissioner of Income-Tax (Appeals), National Faceless Centre is erred in upholding the action of the learned Assessing Officer in rejecting books of account and determining appellant’s total income at Rs.11,97,100/- by estimating income @8% on gross receipts of Rs.1,49,63,719/- from wholesale medical agency and thereby raising a demand of Rs.2,52,222/-. 3. In the facts and circumstances of appellants case, the Learned Commissioner of Income Tax (Appeals), National Faceless Centre ought to have appreciated and accepted the income as returned at Rs.2,94,190/- duly supported by audited books of account and audit report as per provisions of section 44AB of I.T.Act, more particularly gross receipts accepted from same books of account and no adverse inference with regard to expenditure claimed. Without prejudice to the above, in the alternative. 4. In the facts and circumstances of appellants case, the estimation of income on gross receipts @8% by Assessing Officer and upheld by the Learned Commissioner of Income-Tax(Appeals), National Faceless Centre is very high and while upholding estimate @8%, the CIT(A) failed to appreciate that the learned assessing officer has not brought any comparable cases in the line of business with such high rate of profit, to ignore income returned by appellant supported by audited books of account. 5. The very levy of interest under section 234B of Rs.62,568/- is not correct in the facts and circumstances of appellant’s case. 6. For the above grounds and any other grounds or request to allow submission of evidences, that may be urged during the course of hearing of the appeal, the appellant humbly prays the Hon’ble Income Tax Tribunal to allow the appeal or to give appropriate relief as the Hon’ble Tribunal may deem it fit, in the facts and circumstances of appellants case. 4 I.T.A. No.1/Viz/2023, A.Y.2017-18 Shri Rama Rao Kotha, Kakinada 5. Ground No.1 and 6 are general in nature, which do not require specific adjudication. 6. Ground No.2 to 4 relate to estimation of income @8% of gross receipts. At the outset, the Ld.AR submitted that the assessee was doing business in wholesale medical agency, closed his business in the month of March 2018 due to personal and financial reasons and vacated the business premises. The assessee was served with an order u/s 144 of the Act dated 05.12.2019 on 06.12.2019, through which the assessee came to know that the notices issued were not delivered to him as the notices were sent to the addresss, which he vacated. He submitted that non responding of the notices is unintentional due to closure of business and vacation of premises. He further submitted that estimation of income on gross receipts @8% by the AO, which was upheld by the Ld.CIT(A) is very high and the Ld.AO has not brought any comparable cases in the line of business with such high rate of profit. He, therefore, pleaded to set aside the orders passed by the lower authorities and estimate the income on gross receipts @2% in view of the principles of natural justice. 5 I.T.A. No.1/Viz/2023, A.Y.2017-18 Shri Rama Rao Kotha, Kakinada 7. Per contra, the Ld.DR relied on the order passed by the Ld.CIT(A) and pleaded to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the assessee. 8. I have heard both the parties and perused the material placed on record. It is undisputed fact that notices were issued on the assessee, but the assessee did not respond to the notices issued by the department. Hence, the assessee’s case was dismissed ex-parte by the lower authorities. However, the Ld.AR submitted that the assessee has no knowledge of the notices said to be issued for the fact that the assessee’s business is closed and the assessee vacated the premises to which the notices were sent and his non responding to the notices is not intentional. He, further submitted that estimating profit @8% on gross turnover is very high in this line of business and pleaded to estimate the profit @2% on gross turnover in order to meet the ends of justice. On careful examination of the facts and circumstances of the case and business model of the assessee, I am inclined to direct the AO to estimate the profit @6% on gross turnover. Hence, the ground Nos.2 to 5 raised by the assessee are partly allowed. 6 I.T.A. No.1/Viz/2023, A.Y.2017-18 Shri Rama Rao Kotha, Kakinada 9. Ground No. 5 is related to levy of interest u/s 234B of Rs.62,568/-. The Ld.AR submitted that the levy of interest is not correct in the facts and circumstances of the assessee’s case. He, therefore, pleaded to quash the orders passed by the lower authorities and delete the interest charged. 10. Per contra, the Ld.DR submitted that charging of interest is consequential and interest is mandatory and not discretionary. He, therefore, pleaded to uphold the orders passed by the lower authorities. 11. I have heard both the parties. As submitted by the Ld.DR, charging of interest is consequential and interest is mandatory and not discretionary as held by the Hon’ble Supreme Court in the case of Anjuman H Ghaswala (252 ITR 1) and also the decision of the Apex Court in the case of CIT Vs. Hindustan Bulk Carriers (259 ITR 449). Therefore, I direct the AO to restrict the charging of interest on the profit estimated @6% on gross turnover. Hence, the ground raised by the assessee is partly allowed. 12. In the result, appeal of the assessee is partly allowed. 7 I.T.A. No.1/Viz/2023, A.Y.2017-18 Shri Rama Rao Kotha, Kakinada Order pronounced in the open court on 29 th August, 2023. Sd/- (द ु व्वूरु आर.एल रेड्डी) (DUVVURU RL REDDY) न्याधयक सदस्य/JUDICIAL MEMBER Dated : 29.08.2023 L.Rama, SPS की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– Shri Rama Rao Kotha, D.No.7-99, Near Indira Hospital, Gokarakondavari Street, Korukonda, East Godavari Dist. 2. रधजस्व/The Revenue – The Income Tax Officer, Ward-2, 3 rd Floor, Deepthi Towers, Main Road, Kakinada 3. The Principal Commissioner of Income Tax, Visakhapatnam 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam