ATIKALAGUNDU L NARAYANA REDDY AMD CO,ADONI vs. INCOME TAX OFFICER, WARD-1, ADONI

“The Order of the NFAC is passed on dt. 29.06.2024. The due date for filing the appeal falls on 28.08.2024. However, the appeal has been filed on 14.05.2025 and received in Tribunal on 15. 05.2025 with a delay of 257 days. The delay in filing the appeal due to unavoidable and reasonable circumstances. Shri L. Sudhakara Reddy, the active partner in the firm, entrusted with handling income tax proceedings, was having medical issued and was also advised complete bed rest due to Lumbar Disk Syndrome causing severe back pain and immobility. He has been undergoing treatment and advised strict bed rest for a period of 6 to 8 months starting from 08.08.2024 to 10.04.25 (Copies of medical certificates evidencing the same are enclosed). Due to the unforeseen and incapacitating medical condition of the key partner handling tax matters, the order passed by NFAC could not be noticed and hence the appeal could not be filed within the prescribed time limit. The delay is neither intentional nor

4 ITA.No.834/Hyd./2025 deliberate, but your due to health exigencies beyond the control of the firm. The Appellant-firm was genuinely not aware of the order passed by NFAC and accordingly could not file the appeal before the Honourable ITAT within the prescribed timeline. It was only after the Active parter resumed his duties, the firm became aware of the fact that an order had been passed. Accordingly, the Appellant- firm approached a Tax Counsel immediately and filed the present appeal before your Honors. There is a prima facie case on merits and in law and hence we have taken immediate steps to file the present appeal. Thus, reckoned from the date of information, the appeal was preferred within one month and thus there is no delay and the delay, if any, reckoned from the date of the order passed by NFAC till the date of filing, was on account of peculiar circumstances beyond the control of the appellant-company and when the facts are pitted against the reasonable cause, justice cannot be denied on technicalities and therefore the Appellant-firm prays for condonation of delay so that the matter can be heard on merits.” 4.1. The assessee has also filed medical certificates issued by Sree Teja Nursing Home for advising the assessee one month bed rest twice during the treatment of Lumbar Disk Syndrome. Accordingly, in the facts and circumstances of the case as well as in the interest of justice, we take a lenient view to condone the delay of 257 days, subject to cost of Rs.5000/- [Rs. Five Thousand Only] to be paid to Prime

5 ITA.No.834/Hyd./2025 Minister’s National Relief Fund within a period of one month from the date of this order.

6 ITA.No.834/Hyd./2025 in the notice under section 148. They falled to appreciate that as per the proviso to section 148, a return filed in response to such notice shall be treated as a return under section 139. Hence, at the very least, the return ought to have been treated as a valid belated return. 7. The lower authorities acted inconsistently by treating the return of income as invalid yet proceeding to consider the income returned while making further disallowances. 8. Without prejudice, the tax authorities erred in arbitrarily disallowing claim of expenditure to the extent of 50% overlooking the nature of business wherein a commission agent would hardly earn 5% or less of the total commission income as his net profit, upon incurring expenditure for procuring the goods from the villagers, keeping it in the storage of the appellant and handing over the same to the wholesalers; thus the disallowance of 50% was arbitrary and without any basis. 9. The appellant craves leave to add, amend, alter, or delete any of the above grounds at the time of hearing. It is respectfully submitted that, for the reasons stated herein and those to be urged during oral submissions, the Hon'ble Tribunal may be pleased to delete the arbitrary additions and allow the appeal in favour of the appellant.” 6. The learned Authorised Representative of the Assessee has submitted that the assessee is a partnership firm and in the business of license commission agent for agricultural commodities. The assessee was also allotted a godown in agriculture market yard. The assessee was having

7 ITA.No.834/Hyd./2025 very meagre income of Rs.88,190/- during the year under consideration. Therefore, the assessee did not file any return of income u/sec.139 of the Income Tax Act [in short "the Act"], 1961. The Assessing Officer reopened the assessment on the basis of information regarding cash withdrawal from the current account of the assessee by issuing notice u/sec.148 of the Act on 29.03.2021. In response to the notice u/sec.148 of the Act, the assessee filed return of income and declared total income of Rs.88,190/-. During the assessment proceedings, the assessee filed relevant details along with P & L A/c, balance sheet as well as other relevant material and details. The Assessing Officer has completed the assessment by making an adhoc disallowance of 50% of the expenses. The learned Authorised Representative of the Assessee has thus submitted that the adhoc disallowance of Assessing Officer is highly arbitrary and without any basis. Even the expenses which are otherwise allowable under the provisions of the Act were disallowed by the Assessing Officer. He has pointed out that the assessee has claimed various expenses as booked in the P & L A/c including the salary of the staff,

8 ITA.No.834/Hyd./2025 godown rent, audit fee, interest on capital paid to the partners and other expenses relating to the business activity of the assessee. Thus, he has submitted that the interest on capital paid to the partners is an allowable expenditure as per the provisions of the Act as the same is provided in the Partnership Deed. The learned Authorised Representative of the Assessee has submitted that the assessee has now filed the additional evidence in support of various expenses in the shape of confirmation along with an application under Rule 29 of IT Rules, 1963. Thus, he has pleaded that the impugned order of the learned CIT(A) confirming the ad-hoc disallowance made by the Assessing Officer be set aside and the matter may be remanded to the record of the Assessing Officer for deciding the same afresh as per law after considering the additional evidence filed by the assessee.

9 ITA.No.834/Hyd./2025 expenditure without any documentary evidence to substantiate the said claim. Thus, the learned DR has submitted that when the assessee has neither filed any return of income u/sec.139 of the Act and even the return of income filed in response to notice u/sec.148 of the Act was belated and was treated as invalid then, the claim of the assessee is not acceptable in the absence of any supporting evidence. He has referred to the finding of the Assessing Officer as well as learned CIT(A) and submitted that the learned CIT(A) has discussed all the relevant facts and given a finding that the assessee has admitted the commission only @ 0.2% on the total value of the transaction which is reflected from the bank account of the assessee. The learned DR has submitted that there is a withdrawal of Rs.3,54,80,000/- from the bank account of the assessee whereas the has declared the commission receipts of Rs.15,99,219/- and the profit of Rs.88,191/-. The expenditure on account of commission to farmers, hamali expenses, ladies coolie, pada expenses, salaries, bonus to staff, weigh men are not supported by any evidence. These expenses are rather related

10 ITA.No.834/Hyd./2025 to the farmers or the purchaser of the commodity and not to the assessee. The interest to the partners is disallowed u/sec.40(b)(iv) of the Act because the assessee has not produced the Partnership Deed before the authorities below. He has relied upon the Orders of the authorities below.

“5.2. The reply filed by the assessee has been considered but partially acceptable. The return filed by the assessee on 17.03.2022 is treated as an invalid return and as such there is no requirement of issuance of notice uls 143(2) of the I.T. Act. The Assessee has already been issued notice u/s 142(1) vide this office communication dated 21.06.2021, 10.12.2021 and 02.02.2022 to file his ITR in response to the notice u/s 148 of the IT Act, 1961. Accordingly, the assessee is accorded an opportunity on 02.03.2022 u/s 144 of the I.T. Act requiring it to explain why the income escaping assessment should not be added. Moreover, Hon'ble Delhi Batch of the ITAT in ITA no. 2461/DEL/2019 read with MА.Nо.249/Del/2020 has dealt with the issue of validity of Return of Income filed in response to notice u/s 148 beyond the specified time, for the purpose of analyzing the necessity of notice u/s 143(2) before the completion of assessments in such cases, In this case, it was held that a Return filed after the expiry of

11 ITA.No.834/Hyd./2025 prescribed period cannot be considered a valid Return in response to notice u/s 148 and is required to be treated as non-est and as such there is no requirement of issuance of notice u/s 143(2) when there is no valid return available before the assessing officer. 5.3. Moreover, since, the assessee has earned commission income on sale of agricultural produces, it must have incurred some expenses to earn the said commission income. In view of the same, 50% of the expenses of Rs.15,11,110/- claimed in the Profit & Loss Account filed by the assessee, which comes to Rs.7,55,555/- is allowed and balance of Rs.7,55,555/- is disallowed and added back to the Income of the assessee. [Addition: Rs.7,55,555/-]”

8.1. Thus, the action of the Assessing Officer making an adhoc disallowance on the entire expenditure claimed by the assessee is highly arbitrary and unjustified when some of the expenditure claimed by the assessee are otherwise allowable as per the provisions of the Act and also paid through the banking channel. Even otherwise, the Assessing Officer ought to have consider each and every expenditure on its own merits independently and if the assessee failed to substantiate the claim of any item of expenditure the same may be disallowed. Further, making an ad-hoc disallowance of 50% of the expenses is not based either on the past history of the assessee or the net profit prevailing in the said

12 ITA.No.834/Hyd./2025 business of the assessee and hence, in our view, the adhoc disallowance made by the Assessing Officer is not justified. The learned CIT(A) has confirmed the disallowance made by the Assessing Officer on the similar reasoning and specifically the profit declared by the assessee is very meagre. Declaring the profit at very low or loss declared by the assessee cannot be a basis for disallowance. The low profit declared by the assessee can be a reason for conducting an enquiry and taking up the matter for scrutiny but the low profit or loss declared by the assessee cannot be a basis for disallowance of expenses. Accordingly, in the facts and circumstances of the case, we set aside the impugned order of the learned CIT(A) and remand the matter back to the record of the Assessing Officer for fresh adjudication by verifying and examining each and every item of claim of expenditure independently along with the supporting evidence and details to be filed by the assessee. Needless to say, the assessee be given a sufficient opportunity of being heard before passing the fresh order.

13 ITA.No.834/Hyd./2025 9. In the result, appeal of the Assessee is allowed for statistical purposes.

Order pronounced in the open Court on 17.04.2026.

Sd/- Sd/- [MADHUSUDAN SAWDIA] [VIJAY PAL RAO] ACCOUNTANT MEMBER VICE PRESIDENT Hyderabad, Dated 17th April, 2026 VBP Copy to: Atikalagundu L Narayana Reddy & Co. 1. # Godown No.36, ADONI – 518 301. State of Andhra Pradesh. The Income Tax Officer, Ward-1, Aayakar Bhavan, Near RTC Bus Stand, Aspari Road, ADONI. 2. PIN – 518 301. State of Andhra Pradesh 3. The Pr. CIT, Kurnool. 4. The DR, ITAT, “SMC” Bench, Hyderabad. 5. Guard file. BY ORDER Digitally signed VADREVU by VADREVU PRASADA RAO PRASADA Date: RAO 2026.04.17 12:33:14 +05'30'