KARUNAM SREEDHAR,BALLARI vs. INCOME TAX OFFICER, WARD -1, BALLARI, BALLARI

IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER

ITA No.624/Bang/2026 Assessment Year: 2013-14 Karunam Sreedhar, Vs. The Income Tax Officer, Sri Utsavamba Nilaya, Ward – 1, Behind Tharanatha College, Bellari. Ananthapur Road, Ballari – 583 101. PAN – ANNPK 0958 R APPELLANT RESPONDENT Assessee by : Shri Narayan Murthy & Shri Suresh, AR Revenue by : Shri N Balusamy, JCIT (DR) Date of hearing : 30.06.2026 Date of Pronouncement : 21.07.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This appeal has been instituted by the assessee against the order of the Ld. CIT(A) passed u/s 250 of the Act dated 22.12.2025.

ITA No.624/Bang/2026 Page 2 of 10 3. Ground Nos. 1 to 7 raised by assessee are interconnected and pertains the addition made by the AO u/s 69A of the Act which were subsequently confirmed by the ld. CIT-A in part.

5.1 Before the Ld. CIT(A), the assessee submitted that he was carrying on the business of trading in bakery items and juices. The cash deposited

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ITA No.624/Bang/2026 Page 3 of 10 in the bank accounts represented sale proceeds from the said business and could not be treated as unexplained money u/s 69A of the Act.

5.2 Further the assessee stated that the assessee was registered under the VAT law and had been regularly filing VAT returns. Reliance was also placed on the returns of income filed for the preceding years, wherein income from the same business had been declared on a presumptive basis at 8% of the turnover. It was contended that the AO had proceeded to treat the entire credits in the bank accounts as unexplained without examining the corresponding debit entries representing purchases made from suppliers. It was further submitted that certain credit entries were merely reversal or recycled entries. Accordingly, it was argued that the entire bank deposits could not be brought to tax and that only the profit element embedded in the business receipts was liable to be assessed.

5.3 The Ld. CIT(A) on examining the VAT returns observed that the assessee had disclosed a turnover of Rs. 98,52,713 from the business of trading in bakery products and juices. The Ld. CIT(A), therefore, accepted that the cash deposits to the extent of Rs. 98,52,713 were explained by the business turnover and deleted the addition to that extent.

5.4 However, the ld. CIT-A found that out of the total deposits of Rs. 1,26,93,880, the assessee failed to furnish evidence explaining the balance amount of Rs. 28,41,167.00 representing the cash deposits. Hence, the addition to that extent was accordingly confirmed u/s 69A of the Act by the ld. CIT-A. The appeal of the assessee was thus partly allowed.

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ITA No.624/Bang/2026 Page 4 of 10 6. Aggrieved by the partial relief granted by the Ld. CIT(A), the assessee has filed this appeal challenging the addition sustained by the Ld. CIT(A).

7.1 It was further submitted that the assessee before the Ld. CIT(A) had furnished bank statements, entry-wise explanations of the debits and credits, purchase and sale invoices, VAT returns, earlier years’ ROI and a profit and loss account. As per these records, the total sales were Rs. 1,24,35,874 and the net profit was Rs. 2,97,406.00 only. However, the Ld. CIT(A) considered only the turnover of Rs. 98,52,713 reflected in the VAT returns and ignored the sales of goods exempt from VAT, thereby sustaining the addition of Rs. 28,41,167.00 only.

7.2 It was contended that the deposits were duly recorded in the assessee's business records and had already been taken into account while computing the business income. Therefore, making a separate addition of the same receipts under section 69A of the Act would result in double taxation. The Ld. AR further submitted that the assessment framed under section 144 of the Act, wherein the entire bank deposits were

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ITA No.624/Bang/2026 Page 5 of 10 treated as income, was arbitrary and did not represent a fair estimation of the assessee's taxable income. He, therefore, prayed that the addition of Rs. 28,41,167 sustained by the Ld. CIT(A) be deleted and the business income of Rs. 2,97,406 declared by the assessee be accepted.

8.1 The Ld. DR further submitted that the assessee's claim of total sales of Rs. 1,24,35,874 was based only on a self-prepared profit and loss account and other records, the correctness of which could not be independently verified. According to the Ld. DR, the assessee had also failed to furnish any satisfactory reconciliation to establish that the balance deposits of Rs. 28,41,167 represented recorded business receipts. It was, therefore, contended that the Ld. CIT(A) was fully justified in sustaining the addition of Rs. 28,41,167 under section 69A of the Act and that no further relief was warranted.

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ITA No.624/Bang/2026 Page 6 of 10 “69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year.” 9.1 Section 69A of the Act, in essence, provides that where an assessee is found to be the owner of any money which is not recorded in the books of account, if any, maintained by him, and the assessee either fails to offer any explanation regarding its nature and source or the explanation furnished is found to be unsatisfactory, such money may be deemed to be the income of the assessee.

9.2 It is, therefore, evident that before the provisions of section 69A are invoked, certain foundational requirements must be satisfied. Firstly, the assessee must be found to be the owner of the money in question. Secondly, such money should not be recorded in the books of account, if any, maintained by the assessee. Lastly, the assessee must either fail to offer a satisfactory explanation regarding the nature and source of the money or the explanation so offered must be found unacceptable on the basis of the material available on record.

9.3 In the present case, the AO treated the aggregate deposits of Rs. 1,26,93,880 in the bank accounts as unexplained money merely because the assessee did not furnish the required evidence during the assessment proceedings. The AO did not examine the nature of the individual credits and debits appearing in the bank accounts. No exercise was undertaken to identify whether the deposits represented business receipts, cheque returns, reversal entries, transfers or recycling of funds. The entire

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ITA No.624/Bang/2026 Page 7 of 10 amount was added solely on the basis of the aggregate deposits appearing in the bank accounts.

9.4 The Ld. CIT(A) accepted that the assessee was carrying on the business of wholesale and retail trading in bakery products, juices and other consumer goods under the name of M/s Sree Durga Agencies. The Ld. CIT(A) also accepted cash deposits to the extent of Rs. 98,52,713 as arising from the turnover disclosed in the VAT returns. Thus, the existence of the business and the fact that substantial cash deposits arose from the business activity are not in dispute. However, the Ld. CIT(A) merely deducted the turnover disclosed in the VAT returns from the aggregate deposits and treated the resulting difference of Rs. 28,41,167 as unexplained money. No specific credit or deposit forming part of the said amount was identified as being unrelated to the business.

9.5 Before the Ld. CIT(A), as well as before us, the assessee furnished the bank statements along with a summary and entry-wise remarks explaining both the debit and credit entries. The assessee also furnished VAT returns, purchase invoices, sale bills and a reconstructed profit and loss account. The bank statements show continuous transactions relating to purchases, payments to suppliers, sale receipts, cheque returns and reversal entries. The corresponding debit entries also establish the movement of funds in the course of the assessee’s trading activity.

9.6 It is undoubtedly true that the bank summary and the profit and loss account were prepared subsequently and, therefore, cannot be regarded as regularly maintained books of accounts. However, that by itself is not sufficient to reject the explanation furnished by the assessee.

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ITA No.624/Bang/2026 Page 8 of 10 The bank summary was admittedly prepared on the basis of the original bank statements, and the entries therein were duly supported by the narrations reflected in those statements. Significantly, the Revenue has not brought any material on record to show that any specific deposit represented income from a source other than the assessee's business.

9.7 In our considered view, the deeming provisions of section 69A cannot be invoked merely because there is a variation between the turnover disclosed in the VAT returns and the deposits reflected in the bank accounts. At best, such a variation may give rise to an inference of unreported or suppressed business turnover. However, it does not, by itself, establish that the deposits constitute unexplained money from an independent source. Before the deeming fiction contained in section 69A is pressed into service, there must be some tangible material to connect the impugned amount with an unexplained source of income.

9.8 In the present case, the materials on record establish that the credits and debits arose substantially from the assessee’s trading activity. Therefore, even if a portion of the sales was not properly disclosed in the VAT returns, the same would retain the character of business receipts. The gross business receipts cannot be treated as income in its entirety. Only the profit element embedded in such receipts can be brought to tax. We, therefore, hold that the addition sustained by the Ld. CIT(A) u/s 69A of the Act is not justified and the same is liable to be deleted but after necessary verification whether the profit embedded in such suppressed sale has been suffered to tax.

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ITA No.624/Bang/2026 Page 9 of 10 9.9 As a corollary, the next question is to work out the profit embedded in such suppress sale of Rs. 28,41,167 only. As per the reconstructed profit & loss account furnished by the assessee, the total turnover was Rs. 1,24,35,874 & the net profit was Rs. 2,97,406, resulting in a net profit rate of approximately 2.4%. However, the assessee did not maintain regular & fully verifiable books of account in the normal course. Therefore, the profit rate of 2.4% shown in the subsequently prepared profit & loss account cannot be accepted without reasonable adjustment on the suppressed sales.

9.10 At the same time, it is an admitted position that in the preceding assessment years, the assessee had declared business income at 8% of the turnover under the presumptive taxation scheme, and the same had been accepted by the Department. While the said rate does reflect the assessee's past history, it cannot be applied mechanically to the year under consideration. This is particularly so when the assessee has placed on record a profit and loss account disclosing a lower profit margin and has consistently maintained that the business was ultimately discontinued on account of persistent losses.

9.11 Considering the nature of the assessee’s business, the low-margin character of wholesale and retail trading in bakery and consumer products, the profit rate of 2.4% shown for the year under consideration, and the rate of 8% disclosed in the preceding years, we find it fair, reasonable and to avoid possible revenue leakage to adopt the average of the two rates. The average rate works out to 5.2%.

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ITA No.624/Bang/2026 Page 10 of 10 9.12 Accordingly, the business income is estimated at 5.2% of the suppressed turnover of Rs. 28,41,167 which works out to Rs. 1,47,740.00 only. This is important to make it clear that such profit of Rs. 1,47,740 is in addition to the income already disclosed by the assessee in the profit and loss account i.e. Rs. 2,97,406.00. Hence, the AO is directed to assess the business income at Rs. 4,45,146.00 (Rs. 2,97,406 and 1,47,740.00). No separate addition shall be made in respect of the bank deposits u/s 69A of the Act, since the profit element arising from the business receipts has already been brought to tax. The addition of Rs. 28,41,167 sustained by the Ld. CIT(A) u/s 69A of the Act is, therefore, deleted and substituted by the estimated business income of Rs. 4,45,146.00 only. Hence, the grounds raised by the assessee are partly allowed.

Order pronounced in court on 21st day of July, 2026

Sd/- Sd/- (SANDEEP SINGH KARHAIL) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 21st July, 2026 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore

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