PALUGULA NARENDER,NALGONDA vs. ITO, WARD -1, SURYAPET

Succinctly stated, the assessee, who is engaged in the business of document writing under the trade name “Siri Lakshmi Document Writers”, had not filed his return of income for the year under consideration. Based on information regarding cash deposits aggregating to Rs. 97,89,600/- in his bank accounts maintained with State Bank of India during the year under consideration, the AO initiated proceedings under Section 147 of the Act.

During the assessment proceedings, the AO noticed credits aggregating to Rs. 1,19,53,739/- in the assessee’s two bank accounts (including cash deposits). On being queried, the assessee explained that the cash deposits represented amounts collected from customers and thereafter paid on their behalf to the Registration and Stamps Department. The AO, however, estimated commission income at 5% of the cash deposits and treated the unexplained balance credits as the assessee’s

Aggrieved, the assessee carried the matter in appeal before the CIT(A), who restricted the addition towards commission income to 4% of the cash deposits and determined the addition on that count at Rs. 3,84,053/-. As regards the other credits, the CIT(A) accepted credits aggregating to Rs. 10,70,681/-, but sustained an addition of Rs. 12,81,719/- (out of Rs. 23,52,400/-). However, though the AO had made the addition under Section 69 of the Act, the CIT(A) re-characterized the said addition as unexplained money under Section 69A of the Act.

The assessee, aggrieved with the CIT(A) order, has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them.

Shri GN Harish Kumar Yadav, the Ld. The Authorized Representative (for short, “AR”) for the assessee-appellant submitted that as the AO had initiated proceedings under Section 147 of the Act on the basis of cash deposits of Rs. 97,89,600/-, but had not made any addition

Per contra, the Ld. Sr. DR relied upon the orders of the authorities below and submitted that the AO had, in fact, made an addition with reference to the cash deposits which formed the basis for initiation of proceedings under Section 147 of the Act. It was further submitted that the CIT(A) had reduced the overall commission rate from 5% to 4% and had not enhanced the assessee's income. As regards the addition of Rs. 12,81,719/-, the Ld. Sr. DR submitted that, as the assessee had failed to substantiate the nature and source of the said credits, the CIT(A) had rightly sustained the addition to that extent.

We have heard the Ld. Authorized Representatives of both parties in the backdrop of the orders of the authorities below.

As the assessee has assailed the validity of the juri iction assumed by the AO for framing the impugned assessment, we deem it 6 Palugula Narender apposite to first deal with the same. We have given thoughtful consideration to the Ld. AR’s contentions, on which he has challenged the AO's assumption of juri iction, and find the same to be devoid of any substance. We say so because the AO had added commission income by reference to cash deposits, which formed the basis for initiating proceedings under Section 147 of the Act. Accordingly, the Ld AR’s contention that no addition was made on the issue forming the basis of reopening is factually incorrect and is rejected.

Apropos the estimation of commission income, we find that the CIT(A) had reduced the rate adopted by the AO from 5% to 4%. In our view, the break-up given by the CIT(A), viz., (i). towards document- writing services: 2.5%; and (ii). towards facilitating payments to the Revenue Department: 1.5%, is merely a manner of explaining the overall estimation of 4%. Since the overall commission rate was reduced from 5% to 4%, we find no substance in the Ld AR’s contention that the CIT(A) enhanced the assessee's income.

Coming to the addition of Rs. 12,81,719/- sustained by the CIT(A), we are of the view that, as the assessee had failed to substantiate his claim that the said credits represented transactions with family members, relatives and friends, therefore, to that extent, his explanation had rightly been rejected by the CIT(A).

However, we find substance in the Ld. AR’s contention that the CIT(A) was not justified in recharacterizing the addition of Rs. 12,81,719/- made by the AO under Section 69 of the Act as an addition under Section 69A of the Act without putting the assessee to notice. We find that a similar issue had come up for consideration before this Tribunal in the case of Shyamprasad Reddy Gaddam vs. DCIT, Central Circle-3(3), Hyderabad, ITA No. 196/Hyd/2024, A.Y. 2014- 15, dated 10.10.2025. In the said case also, the AO had made an addition under Section 68 of the Act, which was thereafter re-characterized by the CIT(A) as an addition under Section 69A of the Act without putting the assessee to notice. The Tribunal held that although the CIT(A), in terms of Section 251(1)(a) of the Act, is vested with the juri iction to confirm, reduce, enhance or annul an assessment, where he seeks to sustain an addition under a different statutory provision, the assessee is required to be put to notice of the proposed course of action and afforded an opportunity to explain his case. Accordingly, the Tribunal, based on its aforesaid observations, vacated the addition so sustained by the CIT(A). We thus, respectfully follow the aforesaid decision of this Tribunal, and hold that, as the CIT(A), having re-characterized the addition of Rs. 12,81,719/- from one made under Section 69 of the Act to one under Section 69A of the Act without affording the assessee an opportunity of 8 Palugula Narender being heard on the proposed re-characterization, therefore, he was not justified in sustaining the said addition under Section 69A of the Act. Accordingly, the addition to the said extent, therefore, cannot be sustained and is liable to be deleted.

Apart from the aforesaid procedural infirmity, we also find merit in the Ld. AR’s contention that the very invocation of Section 69A of the Act is not justified on the facts of the present case. We say so because Section 69A contemplates a situation in which the assessee is found to be the owner of money, bullion, jewelry, or other valuable articles that are not recorded in the books of account and fails to satisfactorily explain their nature and source. In the present case, the impugned addition comprises unexplained credit entries in the assessee's bank account. In our view, such unexplained credit entries in the bank account cannot, on that basis alone, be brought within the meaning of Section 69A of the Act.

We, therefore, in terms of our aforesaid observations, delete the addition of Rs. 12,81,719/- sustained by the CIT(A) under Section 69A of the Act.

Coming to the other grounds, we are of the view that as the addition on account of estimated commission income has been sustained at 4% by the CIT(A), and the assessee had failed to establish any 9 Palugula Narender infirmity in such estimation, no further interference is called for on this count.

In the result, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file