KURRI NARASIMHA RAO,HYDERABAD V. INCOME TAX OFFICER, WARD-1, KOTHAGUDEM

ITA 131/HYD/2025

AI Insights

The case involves Kurri Narasimha Rao, the appellant, who contested the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2013-14. The Assessing Officer had treated substantial cash deposits in Rao's bank account as unexplained investments under Section 69 of the Income Tax Act, 1961, due to insufficient explanation of their source. The Tribunal examined whether the Assessing Officer had correctly assumed jurisdiction under Section 147 and whether the cash deposits were indeed unexplained. The Tribunal found that part of the deposits were business receipts already taxed, and thus, only a portion was rightly treated as unexplained.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 712439 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2013-2014
• Other Referred Cases: Somnath Konduru Vs. ITO, International Taxation-1, Hyderabad, Sh. Gaurav Joshi Vs. ITO, Ward \\u2013 1(5), Jalandhar
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Reassessment proceedings; Unexplained investment
• Section: 147; 148; 69; 44AD

Judgement Text

"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘ए’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ SM-A ‘ Bench, Hyderabad श्री मंजूनाथ जी, माननीय लेखा सदस्य एवं श्री रवीश सूद, माननीय न्याययक सदस्य SHRI G. MANJUNATHA, HON’BLE ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER आयकरअपीलसं./I.T.A.No.131/Hyd/2025 (निर्धारण वर्ा/ Assessment Year:2013-14) Kurri Narasimha Rao, R/o. Hyderabad. PAN : AFFPN1594J Vs. The Income Tax Officer, Ward – 1, Kothagudem. (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri K. A. Sai Prasad, C.A. राजस्व का प्रतततितित्व/ Department Represented by : Ms. P. Sumitha, Sr.DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 24.07.2025 घोर्णध की तधरीख/ Date of Pronouncement : 30.07.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 14.11.2024, Printed from counselvise.com 2 ITA No.131/Hyd/2025 Kurri Narasimha Rao which in turn arises from the order passed by the Assessing Officer under Section 147 r.w.s. 144 of the Income Tax Act, 1961 for short “the Act”), dated 23.03.2022 for A.Y. 2013-14. The assessee has assailed the impugned order on the following grounds of appeal before us: “1.The order of the learned Commissioner of Income Tax (A) is not correct either on facts or in law and in both. 2. The Ld. First Appellate Authority is not justified in confirming the Order of Assessing Officer without appreciating the fact that the proceedings u/s 147 initiated on the basis of wrong facts and incorrect figures are void ab initio and consequently the Assessment is illegal and bad in law. 3. In the facts and circumstances of the case, The Ld. Commissioner of Income Tax (A) erred in upholding the Assessing Officer's order dated 23.03.2022, treating the cash deposits of ₹38,52,500/- as unexplained u/s 69, without considering that the deposits were business receipts already offered to tax under Section 44AD of the Income Tax Act. 4. The Ld. First Appellate Authority is not justified in confirming the Order of Assessing Officer without appreciating the fact that only the income element embedded in the cash deposits being business receipts is liable to tax, and blanket addition of the entire cash deposit of Rs 38,52,500/- is unjustified. 5. The Ld. CIT(A) is not justified in confirming the addition of cash deposits of ₹38,52,500/- u/s 69 of the Income-tax Act without appreciating that these deposits were already included in the declared and accepted turnover of ₹40,91,585/- and business income of ₹3,36,930/- Adding the same amount again results in double taxation. 6. The appellant craves, leave to add amend or alter any of the grounds at the time of the hearing of the appeal.” 2. Succinctly stated, the A.O., based on information gathered from the AIMS module from ITBA that though the assessee had, Printed from counselvise.com 3 ITA No.131/Hyd/2025 Kurri Narasimha Rao during the subject year, made substantial cash deposits of Rs. 1,15,57,500/- in his bank account, but had not filed his return of income for the year in question, initiated proceedings under Section 147 of the Act. Notice under Section 148 of the Act, dated 31.03.2021, was issued to the assessee. In compliance, the assessee filed his return of income, declaring an income of Rs. 3,36,930/-. 3. During the course of assessment proceedings, the assessee, on being queried about the source of investment of Rs. 1,15,57,500/- made in his bank account during the year under consideration, submitted that there were only cash deposits of Rs. 38,52,500/- made in his bank account which were sourced out of the commission income earned by him during the year. However, the A.O. partly accepted the explanation of the assessee and observed that, as he had earned commission income, therefore, there was no justification for him to have computed his income under Section 44AD of the Act. Accordingly, the A.O., in the absence of any explanation forthcoming regarding the source of cash deposits of Rs. 1,15,57,500/-, treated the same as his unexplained investment under Section 69 of the Act. As such, the Printed from counselvise.com 4 ITA No.131/Hyd/2025 Kurri Narasimha Rao A.O. vide his order under Section 147 r.w.s. 144 r.w.s. 144B of the Act, dated 23.03.2022, determined the income of the assessee at Rs. 41,89,430/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). During the course of the appellate proceedings before the CIT(A), the assessee, by way of an additional ground of appeal, assailed the validity of jurisdiction that was assumed by the A.O. for framing the assessment on the ground that the A.O. had failed to issue any notice under Section 148 of the Act. However, the CIT(A) did not find favour with the aforesaid claim of the assessee and dismissed the said contention by observing that a valid notice under Section 148 was issued on 31.03.2021. 5. On merits, the CIT(A) observed that the A.O. had rightly held the cash deposits made by the assessee in his bank account, in the absence of any plausible explanation, as having been sourced out of his unexplained money. For the sake of clarity, the observations of the CIT(A) are culled out as under: Printed from counselvise.com 5 ITA No.131/Hyd/2025 Kurri Narasimha Rao ……………. …………. 6. The assessee, being aggrieved with the order of the CIT(A), has carried the matter in appeal before us. 7. We have heard the Ld. Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as the judicial Printed from counselvise.com 6 ITA No.131/Hyd/2025 Kurri Narasimha Rao pronouncements that have been pressed into service by the Ld. AR to drive home his contentions. 8. Shri K.A. Sai Prasad, C.A. the learned Authorized Representative (for short “Ld.AR”) for the assessee, at the threshold of hearing of the appeal, submitted that the A.O. had grossly erred in law and on facts of the case in assuming jurisdiction for initiating proceedings under Section 147 of the Act. Elaborating on his contention, the Ld. AR submitted that though the A.O. had initiated the reassessment proceedings on the ground that there were cash deposits of Rs. 1,15,57,500/- in the assessee's bank account during the subject year, but, the fact was that the total cash deposits in the said bank account during the year under consideration aggregated to Rs. 38,52,500/-. The Ld. AR submitted that, in the absence of any valid assumption of jurisdiction, the impugned assessment framed by the A.O. vide his order under Section 147, dated 23.03.2022, could not be sustained and is liable to be struck down on the said count itself. 9. The Ld. AR, in support of his contention, had relied upon the order passed by the ITAT Hyderabad in the case of Somnath Konduru Vs. ITO, International Taxation-1, Hyderabad in ITA Printed from counselvise.com 7 ITA No.131/Hyd/2025 Kurri Narasimha Rao No.179/Hyd/2024 dated 21.04.2025 and ITAT, Camp Bench, Jalandhar in the case of Sh. Gaurav Joshi Vs. ITO, Ward – 1(5), Jalandhar in ITA No. 274/Asr/2018, dated 16.01.2019. 10. On merits, the Ld. AR submitted that the assessee, who is a resident of Manuguru, i.e., a remote area, was working as an agent/mediator for various automobile shops, wherein he would procure orders from the customers, who wanted to purchase vehicles and would deposit the purchase consideration in his bank account, which thereafter would be remitted/transferred by him to the concerned Automobile Agency, and, in lieu thereof, he would receive commission income from both the parties. 11. The Ld. AR, to buttress his claim, had taken us through the copy of the bank account of the assessee (culled out by the CIT(A) in his order) and also the respective amounts that were remitted/transferred from the bank account of the assessee to certain automobile dealers, viz. (i). M/s.Sai Anjana Motors; and (ii). M/s. Varun Motors. Accordingly, the Ld. AR submitted that now when the source of the subject cash deposits of Rs. 38.52 lac (supra) appearing in the assessee's bank account during the year under consideration was sourced out of the cash collections made Printed from counselvise.com 8 ITA No.131/Hyd/2025 Kurri Narasimha Rao by the assessee from the customers, who had purchased the vehicles through him, there was no justification for the A.O. to have drawn any adverse inference, much less held the subject cash deposits, as the assessee's unexplained investment under Section 69 of the Act. 12. Per contra, Ms. P. Sumitha, the learned Senior Departmental Representative (for short “Ld. DR”) relied upon the orders of the lower authorities. 13. At the threshold of hearing, we may herein observe, that, as the A.O. had before him information received from the AIMS module of the ITBA portal, that the assessee had, during the subject year, made cash deposits of Rs.1,15,57,500/- in his bank account, therefore, based on the said information, he had validly formed a bona fide belief that, as the assessee had not filed his return of income for the year under consideration, therefore, his income to the said extent chargeable to tax had escaped assessment. 14. We are unable to concur with the Ld. AR that, now when the actual cash deposits in the bank account of the assessee during Printed from counselvise.com 9 ITA No.131/Hyd/2025 Kurri Narasimha Rao the subject year aggregated to Rs. 38,52,500/-, therefore, the very assumption of jurisdiction by the A.O. for initiating the impugned reassessment proceedings was found to be based on misconceived and wrong facts. As at the stage of initiating the reassessment proceedings, the A.O. had before him information gathered from the AIMS module of ITBA that the assessee had made cash deposits of Rs.1,15,57,500/-, therefore, we are of a firm conviction that he had based on the material available before him arrived at a bona fide belief that the income of the assessee chargeable to tax had escaped assessment. We, thus, are of firm conviction that as the bona fide belief arrived at by the AO that the income of the assessee chargeable to tax had escaped assessment, based on which he had initiated the reassessment proceedings, has a clear nexus with the material available before him. At this stage, we may observe that what is required at the stage of reopening of an assessment is the existence of a nexus between the material available with the AO, based on which he had arrived at a bona fide belief that the income of the assessee chargeable to tax has escaped assessment. Our conviction is fortified by the judgment of Hon'ble Supreme Court in the case of Printed from counselvise.com 10 ITA No.131/Hyd/2025 Kurri Narasimha Rao Raymond Wollen Mills Ltd. Vs. ITO & Ors. (1999) 236 ITR 34 (SC), wherein it has been held that what is required for validly initiating proceedings u/s 147 of the Act is the availability of some material on the basis of which the department could reopen the case, and the sufficiency and correctness of the material is not a thing to be considered at that stage. For the sake of clarity, the observations of the Hon’ble Apex Court are culled out as under: \"3. In this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case. It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding. We are not expressing any opinion on the merits of the case. The questions of fact and law are left open to be investigated and decided by the assessing authority. The appellant will be entitled to take all the points before the assessing authority. The appeals are dismissed. There will be no order as to costs.\" (emphasis supplied by us) 15. We thus, in terms of our aforesaid deliberations, are unable to persuade ourselves to subscribe to the contention of the Ld. AR that the A.O. has wrongly assumed jurisdiction for initiating Printed from counselvise.com 11 ITA No.131/Hyd/2025 Kurri Narasimha Rao proceedings under Section 147 of the Act in the hands of the assessee. 16. On merits, we find substance in the Ld. AR's claim that the assessee had, during the subject year, acted as an agent/ mediator for the automobile shops and the customers, who wanted to purchase vehicles and, in lieu thereof, was in receipt of commission income from them. Rathe, we find that the A.O., while framing the assessment at Page 2 - Para 5 of his order, had himself admitted that the assessee, during the subject year, had earned commission income. 17. Be that as it may, we find, on a perusal of the assessee's bank account No. 085310021002701 that there is an aggregate of Rs. 24.75 lacs that had been transferred/remitted by the assessee to the aforementioned automobile dealers, i.e., M/s. Sai Anjana Motors and M/s. Varun Motors, as under: Sl.No. Date Particulars Amount 1 22.02.2013 659255- RTGS/ Sai Anajana Motors 5,00,000/- 2 11.02.2013 659254-RTGS/ Sai Anjana Motors 5,00,000/- 3 08.02.2013 659253-RTGS/ Sai Anjana Motors 60,000/- 4 03.10.2012 659251-Varun Motors 65,000/- 5 25.09.2012 570770-RTGS/ 6,50,000/- Printed from counselvise.com 12 ITA No.131/Hyd/2025 Kurri Narasimha Rao Sai Anjana Motors 6 11.09.2012 570768-RTGS/ Sai Anjana Motors 3,00,000/- 7 30.07.2012 570765- RTGS/ Sai Anjana Motors RTGS/Sai Anjana Motors 4,00,000/- 18. We thus, in terms of the aforesaid facts are of a firm conviction that to the extent of an amount of Rs. 24.75 lacs (supra), that have been transferred by the assessee to the above- mentioned automobile dealers, it can safely be inferred that the amount to the said extent was collected by the assessee, as an agent/mediator from the customers and thereafter remitted/ transferred through the banking channels to the said vehicle dealers viz. (i). M/s. Sai Anjana Motors and (ii). M/s. Varun Motors. Our aforesaid conviction is all the more fortified by the fact that the transfer/remittance of the aforementioned amount to the vehicle dealers is immediately preceded by the cash deposits in the bank account of the assessee. Accordingly, we partly accept the assessee's claim that the cash deposits to the extent of Rs. 24.75 lacs (supra) was sourced out of the collections by the assessee, as an agent/mediator from the customers, which thereafter were transferred/remitted to the respective dealers. Printed from counselvise.com 13 ITA No.131/Hyd/2025 Kurri Narasimha Rao However, in the absence of any plausible explanation forthcoming as regards the balance amount of cash deposits of Rs. 13,77,500/- [i.e., Rs. 38,52,500/- (minus) Rs. 24,75,000/-], the addition to the said extent is sustained. 19. We thus, in terms of our aforesaid deliberations, modify the order passed by the CIT(A) and direct the A.O. to sustain the addition in the hands of the assessee under Section 69 of the Act to the extent of Rs. 13,77,500/-. 20. Resultantly, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations. Order pronounced in the Open Court on 30th July, 2025. Sd/- Sd/- (मंजूनाथ जी) (MANJUNATHA G.) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER Sd/- Hyderabad, dated 30.07.2025. *TYNM/sps Printed from counselvise.com 14 ITA No.131/Hyd/2025 Kurri Narasimha Rao आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : Karri Narasimha Rao, C/o.Katrapati & Associates, 1-1-298/2/B/3, Sowbhagya Avenue Apartments, 1st Floor, Ashok Nagar Street No.1, Hyderabad – 500020. 2. रधजस्व/ The Revenue : The Income Tax Officer, Ward – 1, Kothagudem. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad Printed from counselvise.com "