AI Insights
The case involves Madasu Rambabu, who appealed against the orders of the Commissioner of Income-Tax (Appeals) concerning the assessment years 2013-14 and 2017-18. The primary contention was the estimation of income by the Assessing Officer (A.O.) and the subsequent reduction by the CIT(A). The A.O. had initially assessed the income based on unexplained money under Section 69A of the Income Tax Act, 1961, while the CIT(A) re-evaluated it as business income from trading in Bengal gram, estimating the profit margin at 50%. The Tribunal, after considering the lack of concrete past records and the nature of the business, adjusted the profit margin to 2.5%, leading to a reduced assessed income.
Appeal Details
Counselvise Citation
[2025] 140 COUNSELVISE.COM (IT) 708625 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-07-2025
Appeal Filed By
Assessee
Order Result
Partly Allowed
Assessment Year
2017-2018
Judgement Text
"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘ए’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ 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.Nos.241 and 242/Hyd/2023 (निर्धारण वर्ा/ Assessment Years: 2013-14 and 2017-18) Madasu Rambabu, R/o.Uppugundru, Andhra Pradesh. PAN : BBRPM8266K. Vs. The Income Tax Officer, Ward – 1, Ongole. (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri Sashank Dundu, Advocate. राजस्व का प्रतततितित्व/ Department Represented by : Shri Gurpreet Singh, Sr.DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 15.07.2025 घोर्णध की तधरीख/ Date of Pronouncement : 18.07.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The captioned appeals filed by the assessee are directed against the respective orders passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), 2 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu Delhi, dated 27.02.2023, which in turn arise from the respective orders passed by the Assessing Officer under Sections 147 r.w.s. 144 of the Income Tax Act, 1961 (for short “the Act”), dated 25.03.2022 and 27.03.2022 for A.Ys. 2013-14 and 2017-18, respectively. As common issues are involved in the captioned appeals, therefore, the same are taken up and disposed of by this consolidated order. 2. We shall first take up the appeal filed by the assessee for A.Y. 2017-18 in ITA No.242/Hyd/2023 wherein the impugned order has been assailed on the following grounds of appeal before us: “1. The order of CIT NFAC is contrary to law weight of evidence and probabilities of case in so far as it is against the appellant. 2. The CIT erred in estimate in the net profit @50% which is on very high side and beyond the normal expectancy of profit by a reasonable and prudential person/business as could be seen by the trend analysis, 3. The CIT ought have estimated the profit assuming the bank credits as turnover of the assessee in the absence of books of accounts for production after a long lapse of time. 4. The CIT ought have estimated the profit at a low figure reasonably and judiciously as an ordinary reasonable and prudential man could have earned in the ordinary course of business considering the facts and circumstances. 5. In any view of the matter the estimate of profit @ 50% of turnover is beyond any stretch of imagination of the facts of the case. 6. The information filed before assessing officer and grounds of appeal before CIT representing the attachments may kindly be read as part and parcel of these grounds of appeal. 3 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu 7. The assessee craves permission to add amend or alter or substitute any of the ground of appeal either in full or in part as the occasion may arise.” 3. Succinctly stated, the A.O., based on the information that though the assessee during the subject year, i.e. A.Y. 2017-18, had carried out certain transactions, viz. (i). cash deposits in his bank account: Rs.1,18,000/-; (ii). cash withdrawal from his current bank account: Rs.3,08,39,450/- and (iii). interest income: Rs.1,485/-, but had not filed his return of income for the said year, initiated proceedings under Section 147 of the Act. Notice under Section 148 of the Act, dated 28.03.2021 was issued by the A.O. 4. Although the assessee, in compliance to the notice issued under Section 148 of the Act, dated 28.03.2021, filed his return of income for the subject year, i.e., A.Y. 2017-18, on 04.01.2021, declaring an income of Rs.3,63,180/-, but as the same could not be e-verified by him, therefore, the same was held by the A.O. as a non-est return. 5. The A.O. issued notice under Section 142(1) of the Act to the assessee, calling for certain information. In compliance, the assessee furnished requisite details. Also, it was submitted by the 4 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu assessee that his auditor, viz. Mr. I.V. Surendra Kumar expired because of Covid, therefore, in the absence of the requisite details, the information could not be furnished as required. Apart from that, the assessee submitted that though he had tried to e-file his return of income for the subject year, A.Y. 2017-18, but could not succeed in doing so, therefore, he filed the copy of his balance sheet, profit and loss account, etc., manually before the A.O. 6. During the course of assessment proceedings, the assessee submitted that he was engaged in the business activity of trading, purchase and sale of Bengal gram on a wholesale basis and also commission income, wherein he would procure the raw material from the farmers and sell the same to the dealers in lieu thereof, he would receive commission income. 7. The A.O. observed that the assessee during the subject year was holding two bank accounts, viz. (i). bank account with Axis Bank’ and (ii). bank account with Andhra Bank. On a perusal of the record, the A.O. observed that the assessee during the subject year had gross withdrawals of Rs. 3,52,59,286/- and total credits amounting to Rs. 3,45,16,984/- in his bank account. On being queried, it was the assessee's claim that the aforesaid deposits/ 5 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu withdrawals in his bank accounts were his business receipts/ payments made in the normal course of his business of purchase/sales of trading in Bengal gram as well as deriving commission income. Elaborating further on his contention, the assessee submitted that he would purchase Bengal gram from agriculturalists and farmers and sell the same to the traders. Further, it was stated by him that the sale proceeds received from the traders would be deposited in the bank account, which thereafter, would be withdrawn for making payments to the farmers/agriculturalists. It was also stated by the assessee that the trading in agricultural produce carried out by him was exempt from GST. 8. On a perusal of the assessment order, we find that the A.O., after deliberating on the reply of the assessee, had observed that he had claimed to be involved in trading activities and earning business income. Also, the A.O., taking cognizance of the fact that the sales/turnover of the assessee during the year under consideration was Rs. 3.52 crore (approx.), therefore, he was liable to get his books of accounts audited, as required under Section 44AB of the Act. On being queried about the aforesaid aspect, it 6 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu was the assessee's claim that as it was the first year during which his sales/turnover had exceeded the threshold limit making him liable for getting his books of accounts audited under Section 44AB of the Act, he had failed to comply with the said statutory requirement. 9. Ostensibly, the A.O., inter alia, called upon the assessee to furnish the details of the parties along with their addresses from whom he had claimed to have received payments through banking channels in the course of his business transactions. In reply, the assessee furnished the details of four concerns, which revealed that the majority of the payments were received by him from one party i.e., M/s. Liberty Traders, Chennai, (amounting to Rs. 2,09,55,196/-). The A.O., observing that the assessee had primarily received the payments from one party, i.e., M/s. Liberty Traders, Chennai, therefore, held a conviction that the probability of the same being an accommodation entry could not be ruled out. Also, the A.O. observed that neither the assessee had filed GST returns nor his claim of having carried out any business activity could be gathered from the insight portal of the Department, therefore, the genuineness of the assessee's claim of having carried out business 7 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu transactions, i.e., trading in Bengal gram and also deriving commission income, could not be ascertained. Apart from that, the assessee had not placed on any record submitting documents/ evidence which would irrefutably evidence his claim of having carried out his genuine business transactions. 10. Accordingly, the A.O., based on his aforesaid deliberations, found no substance in the claim of the assessee that the amount of credit entries of Rs. 3,45,16,984/- in his bank account were the sale proceeds of Bengal gram, i.e., the goods which he claimed to have traded held the entire amount as having been sourced out of his unexplained money u/s 69A of the Act. The A.O., based on his aforesaid observations, vide his order passed under Section 147 r.w.s. 144 r.w.s. 144B of the Act, dated 27.03.2022, determined the income of the assessee at Rs. 3,45,16,984/-. 11. Aggrieved, the assessee carried the matter in appeal before the CIT(A). 12. The CIT(A), after deliberating at length on the contentions advanced by the assessee, found favour with his contentions that the transactions in his bank account, i.e. deposits/withdrawals 8 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu were the transactions of his business of trading in Bengal gram. The CIT(A) accepted the claim of the assessee and restricted the addition to the extent of profit/income element that he would have earned from the aforesaid business transactions. The CIT(A), taking cognizance of the fact that as neither the assessee had in the past filed any return of income nor had any past history which would assist in estimating the profit/income element, thus, holding a conviction that the profit margins from middlemen were generally huge while the farmers would only get pittance for the products sold by them, estimated the income/profit margin @ 50% of the amounts credited in his bank account, i.e., Rs.3,45,16,984/- and worked out his income at Rs.1,72,58,492/- observing that the assessee had already disclosed income of Rs.3,63,180/- in the return of income that was filed by him in compliance to the notice issued under Section 147 of the Act, dated 04.10.2021, the CIT(A) restricted the addition in his hands to Rs.1,68,95,312/- (Rs.1,72,58,492/- - Rs.3,63,180/-). For the sake of clarity, the observations of the CIT(A) are culled out as under: 9 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu “06. Findings and decision: I have carefully considered the facts of the case as well as submissions filed by the appellant. The AO has added all the credit entries in the bank account as per information available with him. The appellant has submitted copies of bank account statements in Union Bank of India and the Axis Bank. The same bank accounts have been mentioned in the assessment order also, and the AO has not mentioned any other bank account of the Assessee. As per these accounts the total credits, cash, cheque and RTGS together, are Rs. 3,45,16,984/-in the Axis bank account and NIL in the Union Bank account. Hence the total deposits in the bank accounts are Rs. 3,45,16,984/-. The appellant has not filed regular Return of Income and. admittedly, not maintained any books of accounts. Hence the bank accounts of the appellant are the only basis on which the Income of the Assessee for the year has to be determined. 6.1 The appellant has stated that he is a commission agent for sale of coriander, Bengal gram and other agricultural products. As per his submissions in the Video Conference, the appellant is selling the agricultural goods of various farmers, and the gross sale amounts gets credited to his bank account, and he withdraws the amounts and reimburses the same to the farmers, and his only income is a commission on this transaction. An analysis of the bank account also indicates various deposits and withdrawals of various amounts. The appellant has submitted that the sales were made to traders of nearby towns and the payments collected there was deposited in the bank account there. The cash was withdrawn and disbursed to the farmers in the village. Assessment for subsequent year 2013-14 has also been re- opened and it shows similar transactions in the bank account. Hence it is clear that the Assessee is in some business as claimed by him. 6.2 Now, that if the Assessee is doing some business, can the profit be 100% of the total receipts? This is least likely. It is admitted by the appellant that he has not maintained any books of accounts. So, this profit is to be estimated. The appellant has never filed any Return of Income so there is no past history to arrive at the estimate of net profit. In the first level marketing of such agricultural products, the profit margins for the middlemen are huge and generally the farmer gets only a pittance for the product sold. And also, the expenses are minimal as most of them are borne by the farmer. Considering all the factors, a profit margin of 50% is determined. But this would be on the actual receipts of Rs. 3,45,16,984/- as determined above from both the bank accounts of the appellant. Hence the addition on this account is restricted to Rs. 1,68,95,312/- (1,72,58,492 - 3,63,180). The grounds of appeal 1 to 8 are thus partly allowed.” 10 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu 13. The assessee, being aggrieved with the order of the CIT(A) on the ground that he had estimated his income at a rate fixed at 50% of the gross receipts of Rs.3,45,16,984/-, has carried the matter in appeal before us. 14. We have heard the learned Authorized Representatives of both parties, perused the orders of lower authorities and the material available on record. 15. Ostensibly, the A.O., after rejecting the explanation of the assessee regarding the source of the credits of Rs. 3,45,16,984/- in the bank account of the assessee for the subject year, had held the entire amount as having been sourced out of unexplained money under Section 69A of the Act. At this stage, it would be apposite to observe that though the A.O. had rejected the assessee's claim that the credits in the bank account were sourced out of the sales of Bengal gram carried out by him in the normal course of business, but, at the same time, he had, while framing the assessment, taken a view to the contrary and held the same as the sales/turnover of the assessee for the subject year. In fact, the A.O., on finding that the assessee, despite having carried out sales/turnover in excess of 11 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu the threshold limit contemplated under Section 44AB of the Act, had failed to get his books of accounts audited, initiated penalty proceedings under Section 271B of the Act, while framing the assessment. 16. Be that as it may, we find that the CIT(A) had, in unequivocal terms, concurred with the assessee’s claim that the total credits, i.e., cash, cheque, and RTGS aggregating to Rs.3,45,16,984/- in the assessee’s bank account was sourced out of sale proceeds of Coriander, Bengal gram, and other agricultural products which the assessee was selling in the normal course of his business, as a commission agent. The CIT(A), after concurring with the assessee’s claim, had estimated his income on the gross sale proceeds of Rs. 3,45,16,984/- by adopting a profit margin of 50%, which, thus, had resulted in scaling down of the addition made by the A.O. to an amount of Rs.1,72,58,492/- (gross). As the view taken by the CIT(A) that the amount of Rs.3,45,16,984/- credited in the bank account of the assessee were the sale proceeds gathered by him in the normal course of his business had not been assailed further by the Revenue by carrying the matter in appeal before the Tribunal, therefore, the same attained finality. 12 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu 17. Controversy involved in the present case, in the backdrop of the aforesaid facts, boils down to the solitary aspect, i.e., as to whether or not the CIT(A) was right in law and on facts of the case in concluding that the assessee would have earned a profit margin of 50% on his business receipts of Rs.3,45,16,984/- ? 18. We have thoughtfully considered the issue in hand i.e. the sustainability of the view taken by the CIT(A) regarding the quantification of the profit/income element on the gross business receipts that had been worked out by him @ 50%. At the threshold, we may herein observe that the CIT(A), holding a conviction that in the first-level marketing of agricultural products, the profit margins of middlemen are huge and generally the farmers only get a pittance of the product sold, had estimated the profit margin in the hands of the assessee @ 50% of the gross receipts. Although, we concur with the CIT(A) that there was no concrete past record of the assessee which could be adopted as an yardstick for estimation of the profit/income element on the aforesaid business receipts of Rs. 3,45,16,984/-, but at the same time, unable to comprehend the exorbitant profit margin of 50% that had been adopted by him for estimating the business income of the assessee. We are of a firm 13 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu conviction that even in the case of estimation of income, there has to be some basis which could justify the quantification of the profit/income element in the hands of the assessee. Although, we are not oblivion of the fact that there is no such material on record, based on which the profit/income element of the assessee from his business of trading in Bengal gram on a wholesale basis and commission income as a facilitator for sale of agricultural produce of the farmers to the dealers/traders can fairly be determined, but, under such circumstances, can draw support from the Net Profit (N.P) rate disclosed by the assessee from the said stream of business in the preceding and succeeding years. 19. The Ld. AR had drawn our attention to a “Chart” disclosing the net profit/gross profit disclosed by the assessee in the succeeding years i.e., A.Y. 2017-18 to 2022-23 (Page 200 of APB). Also, we find that the assessee had in the preceding years, i.e., A.Y. 2014–15 to A.Y. 2016–17, disclosed income from his aforesaid business at an ad hoc rate of 8% in each year (Pages 1 to 12 of APB). On a conjoint perusal of the profit/income element disclosed by the assessee in the aforementioned preceding and succeeding years, we find that the average net profit rate of 2.52% is worked out. 14 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu Considering the aforesaid facts, we are of the view that the Net Profit rate in the case of the assessee from the aforesaid business can safely be taken @ 2.50%, i.e., a net profit of Rs. 8,62,925/-, being 2.5% of Rs. 3,45,16,984/-. As the assessee had disclosed income of Rs. 3,63,180/- in his return of income filed under Section 148 of the Act, on 04.10.2021, therefore, the addition in his case is restricted to Rs.4,99,745/-. 20. Resultantly, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations. ITA No.241/Hyd/2023 for A.Y. 2013-14 21. As the facts and the issues involved in the present appeal remains the same as were there before us in the assessee’s appeal for A.Y. 2017-18 i.e. ITA No.242/Hyd/2023, therefore, our order therein passed shall apply mutatis mutandis for the purpose of disposing of the present appeal. 22. Accordingly, the findings in the case of the assessee based on the aforesaid process of estimation would work out at Rs.1,78,550/- (2.5% of Rs.71,41,993/-) (the total deposits in the bank accounts as observed by the CIT(A)]. As the assessee had 15 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu disclosed an income of Rs.1,95,000/- in his return of income filed in response to notice u/s 148 of the Act, therefore, no addition would be called for in his case. 23. Resultantly, the appeal filed by the assessee is allowed in terms of our aforesaid observations. 24. To sum up, the appeal filed by the assessee in ITA No.241/Hyd/2023 for A.Y. 2013-14 is allowed while for the appeal in ITA No.242/Hyd/2023 for A.Y. 2017-18 is partly allowed. Order pronounced in the Open Court on 18th 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 18.07.2025. TYNM/sps 16 ITA Nos.241 and 242/Hyd/2023 Madasu Rambabu आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : Madasu Rambabu, 11-29, Madasu Vari Street, Uppugundur – 523186, Andhra Pradesh. 2. रधजस्व/ The Revenue : The Income Tax Officer, Ward – 1, Ongole. 3. The Principal Commissioner of Income Tax, Guntur. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad "
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