SIMHACHALAM KARRI,KRISHNA DISTRICT V. INCOME TAX OFFICER, WARD-1, GUDIVADA

ITA 91/VIZ/2025

AI Insights

The case involves two appeals by Simhachalam Karri against the orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. The first appeal (ITA No. 92/Viz/2025) was a quantum appeal concerning the assessment year 2018-19, where the AO had estimated the net profit at 10% on declared sales and treated the difference as business income. The second appeal (ITA No. 91/Viz/2025) was against a penalty levied under Section 271B of the Income Tax Act. Both appeals were heard together due to interconnected issues and were remitted back to the AO for re-assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633390 (ITAT-VISAKHAPATNAM)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Unexplained cash credit; Principle of natural justice
• Section: 147; 148; 144; 143(3); 68; 145

Judgement Text

"आयकर अपीलीय अधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM “DIVISION” BENCH, VISAKHAPATNAM (Hybrid Hearing) श्री िी. दुर्ाा राि, न्याधयक सदस्य, एिं श्री एस बालाक ृष्णन, लेखा सदस्य क ेसमक्ष BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A. No.91 & 92/Viz/2025 (निर्धारण वर्ा/ Assessment Year: 2018-19) Simhachalam Karri, D.No. 16-148, Velam Peta Colony, Kaikaluru, Krishna District, Andhra Pradesh-521333. PAN: CGVPK7461C v. Income Tax Officer, Ware-1, Gudivada. (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri M.V. Prasad, CA राजस्व का प्रतततितित्व/ Department Represented by : Dr. Aparna Villuri, Sr. PS सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 03/06/2025 घोर्णध की तधरीख/Date of Pronouncement : 10/06/2025 आदेश /O R D E R PER V. DURGA RAO, JM: The captioned appeals filed by the assessee are directed against the orders of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (in short “Ld. CIT(A)”). In these appeals, ITA No. 92/Viz/2025 is a quantum appeal and ITA No. 91/Viz/2025 is a penalty appeal. Since these appeals pertain to the 2 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 2 same assessee and the issues involved in these appeals are interconnected, both these appeals are clubbed, heard together and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order. Firstly, we shall take up the quantum appeal in ITA No. 92/Viz/ 2025. ITA No. 92/Viz/2025 (AY 2018-19) 2. This appeal filed by the assessee is against the order of the Ld. CIT(A) vide DIN & Order No. ITBA/NFAC/S/250/2024- 25/1071284622(1), dated 17/12/2024 arising out of the orders passed U/s. 147 r.w.s 144 of the Act, dated 23/03/2023 for the AY 2018-19. 3. Brief facts of the case are that the assessee is an individual. As pe the information available with the Department, it is noticed by the Ld. AO that the assessee has made cash deposit of Rs. 1,00,75,590/- in Bank of India during the FY 2017-18 relevant to the AY 2018-19. Thereafter, the case of the assessee was reopened by issue of notice U/s. 148 of the Act, dated 31/03/2022 requiring the assessee to file return of income within 30 days. In compliance to the notice issued U/s. 148 of the Act, the assessee filed his return of income on 31/03/2022 declaring a total income of Rs. 4,54,590/-. Accordingly, notice U/s. 143(2) of the Act was issued and during the assessment proceedings, the assessee was requested to furnish sources for cash deposits along 3 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 3 with documentary evidence. In response, the assessee has stated that the deposits are out of sale proceeds of liquor and furnished the copy of the bank account statement. On a perusal of the assessee’s submissions and on verification of the P & L Account, the Ld. AO noticed that the assessee has shown total sales of Rs. 1,57,25,890/- and declared net profit of Rs. 4,54,586/- which is too low compared to the same business activities carried on by the assessees in the same line of business. The assessee has explained that the reason for low profit is due to margin given by the Department of Prohibition and Excise, Govt of Andhra Pradesh and license fee and permit room fees has been paid to the Excise Department. However, the Ld. AO did not accept the submissions and the reasons advanced by the assessee and therefore, the Ld. AO issued a show cause notice dated 02/03/2023 proposing the addition and requested the assessee to furnish the reply on 09/03/2023. Thereafter, the Ld. AO observed that since the assessee has not proved the genuineness of low profit declared with supporting documentary evidence, the net profit has been estimated @ 10% on the sales declared of Rs. 1,57,25,890/- which works out to Rs. 15,72,589/- . Thus, the difference in net profit of Rs.11,18,003/- (Rs. 15,72,589 – Rs. 4,54,586/- already declared in the return of income) is treated as ‘business income’ and brought to tax. Further, the Ld. AO also observed that on verification of the capital account, though the assessee has 4 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 4 shown opening capital of Rs. 28,87,407/- in the return of income filed, the assessee has not furnished any documentary evidence in respect of opening capital. Therefore, in the absence of any documentary evidence, the Ld. AO treated the opening capital shown to the extent of Rs. 28,87,409/- as unexplained cash credit and brought to tax U/s. 68 of the Act and taxed U/s. 115BBE of the Act. Further, the Ld. AO also initiated the penalty proceedings U/s. 270A and U/s. 271AAC of the Act. Thus, the Ld. AO completed the assessment U/s. 143(3) r.w.s 144B of the Act and determined the total income at Rs. 44,60,002/- against the returned income of Rs. 4,54,590/-. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). 4. On appeal, the Ld. CIT(A) dismissed the appeal of the assessee and passed ex-parte order. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us by raising the following grounds of appeal: “1. The Ld. CIT(A) is erred in facts and law while passing the order. 2. The Ld. CIT(A) is not justified in confirming the addition of Rs. 11,18,003/- representing estimation of total income by the AO at 10% of the gross sales. 3. The Ld. CIT(A) is not justified in confirming the addition made by the AO of Rs. 28,87,409/- representing the cash deposits in the bank account as unexplained cash credit U/s. 68 of the Act. 5 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 5 4. The Ld. CIT(A) is not justified in adjudicating the appeal on the technical grounds that there was no compliance to the notices issued from time to time. The CIT(A) would have afforded another opportunity of being heard. 5. The Ld. CIT(A) would have adjudicated the case on the factual grounds instead of dismissing merely on technical grounds ie., non-production of documentary evidences by the appellant. 6. On the facts and circumstances of the case, the Ld. CIT(A) ought to have appreciated that the Assessing Officer is not justified in estimating the profit without rejecting the books of accounts U/s. 145 of the Act and as such the assessment made is invalid. 7. On the facts and circumstances of the case, the Ld. CIT(A) would have appreciated that when once the income is determined on estimation, no further addition based on same books of account can be made. 8. The appellant craves leave to add, amend, alter, vary and / or withdraw any or all the above grounds of appeal.” 5. At the outset, the Ld. AR submitted before us that the Ld. CIT(A) had passed ex-parte order without providing proper opportunity to the assessee of being heard. Ld. AR further submitted that the Ld. AO erred in estimating the profit without rejecting the books of accounts of the assessee and such assessment made is invalid. The Ld. AR further submitted that once the income of the assessee is determined on estimation, no further addition can be made based on the same books of account. The Ld. AR also submitted the Ld. AO did not consider the submissions / explanation of the assessee with regard to the sources of 6 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 6 credits in the capital account which are through banking channels. Further, the Ld. CIT(A) also did not consider the assessee’s petition filed under Rule 46A of the IT Rules, 1962 to substantiate the submissions of the assessee. Therefore, the Ld. AR pleaded that the assessee may be provided with one more opportunity to pursue his case before the Ld. AO. 6. Ld. DR on the other hand objected to the submissions of the Ld. AR and argued that sufficient opportunities had been provided to the assessee, however, on the given dates of hearing, neither the assessee nor his Representative appeared before the Ld. CIT (A). Ld. DR further submitted that even before the Ld. A.O. though the assessee got sufficient opportunity to substantiate his case, the assessee failed to do so. Under these circumstances, the Ld. CIT (A) had no other option but to pass ex-parte order based on the materials available on record. Hence, it was pleaded that the orders passed by the Ld. Revenue Authorities do not call for any interference and appeal of the assessee may be dismissed. 7. We have heard the rival submissions and carefully perused the materials on record. On examining the facts of the case, we find that though Ld. CIT (A) had posted the case on several occasions, none appeared on behalf of the assessee before the Ld. CIT(A) on the given dates of hearing. Hence, the Ld. CIT(A) left with no other option except 7 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 7 to pass ex-parte order based on the material available on record. In our opinion the Ld. CIT(A) ought to have decided the case on merits instead of dismissing the appeal ex-parte. Further, from the order of the Ld. AO we find that while resorting to estimate the profit of the assessee, the AO did not reject the books of accounts of the assessee U/s. 145 of the Act. Further, the Ld. AO ought to have considered the submissions of the assessee with regard to the sources of credits in the assessee’s capital account and decide the case on merits. In this situation, we find strength in the arguments advanced by the ld. AR. Therefore, considering the prayer and the submissions of the Ld. AR and the issues involved in the appeal, in the interest of justice, we hereby remit the matter back to the file of Ld. AO for de-novo consideration thereby providing one more opportunity to the assessee of being heard. At the same breath, we also hereby caution the assessee to promptly co- operate before the Ld. Revenue Authorities in their proceedings failing which the Ld. Revenue Authorities shall be at liberty to pass appropriate orders in accordance with law and merits based on the materials on the record. It is ordered accordingly. 8. In the result, the appeal filed by the assessee is allowed for statistical purposes as indicated hereinabove. 8 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 8 ITA No. 91/Viz/2025 (AY: 2018-19) 9. This appeal is filed by the assessee is directed against the order of the Ld. CIT(A), NFAC vide DIN & Order No. ITBA/NFAC/S/250/2024- 25/1072118598(1), dated 13/01/2025 arising out of the order passed U/s. 271B of the Act, dated 22/09/2023. 10. The assessee has raised the following grounds of appeal: “1. The Ld. CIT(A) is erred in facts and law while passing the order. 2. The Ld. CIT(A) is not justified in confirming the penalty levied by the AO of Rs. 78,630/- U/s. 271B of the Act. 3. The Ld. CIT(A) is not justified in confirming the penalty levied on technical ground by stating that there was no compliance to the various notices by the appellant. The Ld. CIT(A) ought to have afforded a further opportunity of being heard before dismissing the appeal in view of principles of natural justice. 4. The Ld. CIT(A) would have appreciated that the books of account were in fact duly got audited however such report was not filed within the time which is only a technical breach and therefore, would have allowed the appeal. 5. The appellant craves leave to add, amend, alter, vary and / or withdraw any or al the above grounds of appeal.” 11. In quantum appeal of the assessee in ITA No.92/Viz/2025 which is adjudicated in the above paragraphs of this order, we have remitted the matter back to the file of the Ld. AO for deciding the issues de-novo. Since, the appeal ITA No. 91/Viz/2025 pertains to the penalty levied by the Ld. AO U/s. 271B of the Act, ensuing our decision on the quantum appeal in ITA No.92/Viz/2025 (supra), this penalty appeal is also 9 ITA No. 91 & 92/Viz/2025 Simhachalam Karri vs. ITO Page No. 9 remitted back to the file of the Ld. AO to decide the case in tune with the quantum appeal. Accordingly, grounds raised by the assessee are allowed for statistical purposes. 12. In the result, appeal of the assessee is allowed for statistical purposes as indicated herein above. 13. Ex-consequenti, both the appeals filed by the assessee are allowed for statistical purposes. Order pronounced in the open court on 10th June, 2025. Sd/- (एस बालाक ृष्णन) (S. BALAKRISHNAN) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (िी. दुर्ाा राि)Sd/- (V. DURGA RAO) न्याधयक सदस्य/JUDICIAL MEMBER Dated : 10/06/2025 Okk, Sr.PS आदेशकीप्रनतनलनपअग्रेनर्त/ Copy of the order forwarded to :- 1. निर्धाररती/ The Assessee : Simhachalam Karri C/o. CA MV Prasad, D.No. 60-7- 13, Ground Floor, Siddhartha Nagar, 4th Lane, Vijayadwada, Andhra Pradesh-521333. 2. रधजस्व/ The Revenue : Income Tax Officer, Ward-1, Opp. Bhaskar Talkies, Gudivada, Andhra Pradesh-521301. 3. The Principal Commissioner of Income Tax 4. नवभधगीयप्रनतनिनर्, आयकरअपीलीयअनर्करण, नवशधखधपटणम/DR,ITAT, Visakhapatnam 5. The Commissioner of Income Tax 6. गधर्ाफ़धईल/ Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam "