A KALYANASUNDARAM,TRICHY vs. ITO, WARD-1(1), TRICHY

At the outset, it is noticed that the present appeal has been instituted by the assessee with a delay of 86 days beyond the period prescribed under the Act. The assessee has filed an affidavit setting forth the reasons and circumstances which occasioned the delay in preferring the appeal within the stipulated time. We have carefully considered the contents of the affidavit and examined the explanation tendered by the assessee. Having regard to the facts and circumstances of the case, and being satisfied that the assessee was prevented by sufficient and reasonable cause from filing the appeal within the prescribed period, we are of the considered opinion that the delay does not appear to be deliberate, intentional or attributable to any mala fide conduct.

It is a settled proposition of law that, while considering an application for condonation of delay, a liberal and justice-oriented approach is required to be adopted so as to advance substantial justice, particularly when no prejudice is shown to have been caused to the opposite party. In the present case, we are satisfied that sufficient cause has been demonstrated by the assessee for the delay in filing the appeal. Accordingly, the delay of 86 days in filing the present appeal is condoned, and the appeal is admitted for adjudication on merits in accordance with law.

The brief facts borne out from the record are that the assessee is an individual stated to be engaged in the business of money lending. For the assessment year under consideration, the assessee had not furnished a return of income u/s.139(1) of the Act. Information available on the Insight Portal of the Department revealed cash deposits aggregating to Rs.66,78,500/- and cash withdrawals aggregating to Rs.1,07,53,000/- in the bank account maintained by the assessee with Axis Bank. It was further noticed that the assessee had incurred credit card expenditure amounting to Rs.3,67,660/-. The said information was flagged under the category of "Non-Filing of Return (NMS)" in

In response to the notice issued u/s.148 of the Act, the assessee furnished his return of income on 12.10.2023 declaring business income of Rs.6,68,565/-, computed at 8% of Rs.83,57,052/-. The assessee arrived at the said figure of Rs.83,57,052/- by applying an interest rate of 15% per annum on the aggregate debits of Rs.8,99,74,270/- reflected in his bank accounts.

During the course of assessment proceedings, the AO initially proposed to treat the aggregate cash withdrawals from the Axis Bank account amounting to Rs.1,07,53,500/- as the turnover of the assessee and to estimate income therefrom at 8%, resulting in a proposed addition of Rs.8,60,280/- towards business income. In response, the assessee contended that he was carrying on the business of money lending and that recoveries received from borrowers were deposited into the bank account, while withdrawals therefrom were utilized for advancing loans in the ordinary course of such business activity. It was submitted that the total debits appearing in the bank accounts amounted to Rs.8,99,74,270/- and that interest thereon, calculated at 15% per annum, worked out to Rs.83,57,052/-, which represented the gross receipts for the year under consideration. On the said gross receipts, the assessee offered income of Rs.6,68,565/- by applying the presumptive rate of 8% u/s.44AD of the Act. However, the AO was not persuaded to accept the explanation furnished by the assessee.

The AO observed that the aggregate credits in all the bank accounts of the assessee amounted to Rs.8,92,26,261/-. According to the AO, the assessee had failed to substantiate his claim of carrying on money lending business with cogent documentary evidence. Accordingly, the contention of the assessee

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A), vide the impugned order dated 20.11.2025, dismissed the appeal ex parte on the ground that there was no compliance to the notices issued during the appellate proceedings.

Being aggrieved by the order passed by the Ld.CIT(A), the assessee is now in further appeal before this Tribunal.

The Ld.AR appearing on behalf of the assessee assailed the validity of the reassessment proceedings by contending that the notice issued u/s.148 of the Act dated 06.04.2022, is without proper jurisdiction and consequently bad in law. It was submitted that the impugned notice was issued after obtaining approval from the PCIT, whereas, in terms of the mandate contained in section 151(ii) of the Act, the competent authority empowered to accord sanction in cases where notice under section 148 is issued beyond a period of three years from the end of the relevant assessment year is the PCCIT.

The Ld.AR vehemently argued that the provisions of section 151(ii) are mandatory in nature and prescribe the specific authority competent to grant approval for initiation of reassessment proceedings in such cases. It was contended that the requirement of obtaining prior sanction from the designated authority is a jurisdictional pre-condition for assumption of valid jurisdiction u/s.148 of the Act and any deviation therefrom strikes at the very root of the proceedings. According to the Ld. AR, in the present case, admittedly the notice u/s.148 of the Act was issued beyond the prescribed period of three years from the end of the relevant assessment year and, therefore, approval ought to have

Without prejudice to the aforesaid legal ground challenging the validity of reassessment proceedings, the Ld.AR also advanced submissions on the merits of the addition. It was contended that the AO erred in treating the aggregate credits amounting to Rs.8.92 crores reflected in the bank account of the assessee as unexplained money u/s.69A r.w.s 115BBE of the Act without conducting any meaningful or independent enquiry and without properly appreciating the explanations furnished by the assessee. The Ld.AR submitted that the AO proceeded merely on the basis of bank deposits and failed to examine the nature, source and circulation of funds appearing in the account.

It was further argued that even assuming, without admitting, that some addition was warranted, the entire gross credits appearing in the bank account could not have been brought to tax as unexplained money. According to the Ld. AR, settled principles governing taxation of bank deposits require that, in appropriate circumstances, the addition, if any, should be confined either to the profit element embedded in such transactions on an estimated basis or, alternatively, restricted to the peak credit after considering the rotation and recycling of funds. Therefore, the action of the AO in treating the entire sum of Rs.8.92 crores representing bank credits as unexplained money u/s.69A r.w.s 115BBE of the Act was arbitrary, excessive, devoid of proper factual enquiry and contrary to settled legal principles, and hence liable to be deleted in toto.

Per contra, the Ld.DR strongly supported the orders of the lower authorities and opposed the contentions advanced on behalf of the assessee. With regard to the legal challenge to the validity of reassessment proceedings,

The Ld.DR further submitted that the reassessment proceedings had been initiated on the basis of credible information regarding substantial unexplained credits in the bank account of the assessee and that the AO had rightly exercised jurisdiction under the provisions of the Act. It was argued that the assessee had failed to discharge the primary burden cast upon him under the Act to satisfactorily explain the nature and source of the deposits reflected in the bank account.

On merits, the Ld.DR contended that the AO was justified in treating the aggregate credits amounting to Rs.8.92 crores as unexplained money u/s.69A r.w.s 115BBE of the Act, since the assessee had not furnished cogent documentary evidence to establish the genuineness of the transactions or the source of the funds deposited. It was submitted that mere entries in the bank account or bald assertions regarding business activity, in the absence of supporting books of account, bills, vouchers or corroborative evidence, cannot constitute a satisfactory explanation within the meaning of section 69A of the Act.

The Ld. DR further argued that the theory of peak credit or estimation of income could not be mechanically applied in every case and that the same would arise only where the assessee demonstrates, with supporting material, that there was rotation or circulation of the same funds. In the absence of any such evidence having been brought on record by the assessee, the AO was

We have carefully considered the rival submissions, perused the orders of the authorities below and examined the material available on record. The assessee has assailed the validity of the reassessment proceedings on the ground that the sanction contemplated u/s.151(ii) of the Act had been accorded by the PCIT instead of the PCCIT, though the notice u/s.148 of the Act was issued beyond a period of three years from the end of the relevant assessment year. The assessee has also challenged the addition made on merits by contending that the AO had mechanically treated the entire bank credits aggregating to Rs.8,92,26,261/- as unexplained money u/s.69A r.w.s 115BBE of the Act without undertaking any meaningful enquiry into the nature and character of the transactions reflected in the bank accounts.

At the outset, it is noticed that the impugned order passed by the Ld.CIT(A) is an ex parte order and the appeal came to be dismissed primarily on account of non-compliance by the assessee during the appellate proceedings. It is well settled that an appellate authority, being vested with quasi-judicial powers, is under an obligation to adjudicate the issues arising in appeal on the basis of the material available on record and by passing a speaking order dealing with the contentions advanced by the assessee. In the present case, the Ld.CIT(A) has not examined the factual matrix in detail nor rendered any findings on the legal challenge raised by the assessee regarding the validity of sanction obtained u/s.151 of the Act. Likewise, the issues arising on merits concerning the nature of bank deposits, the claim of the assessee that he was engaged in money lending activities, the question as to whether there was rotation and circulation of funds, and the applicability of the provisions

A perusal of the assessment order further reveals that the AO had initially proposed to estimate income by adopting the cash withdrawals as turnover and applying the presumptive rate prescribed u/s.44AD of the Act. Subsequently, however, the AO proceeded to treat the entire aggregate credits appearing in the bank accounts of the assessee amounting to Rs.8.92 crores as unexplained money u/s.69A r.w.s 115BBE of the Act on the premise that the assessee had failed to substantiate his claim of carrying on money lending business. Though the assessee had advanced an explanation that the deposits represented recoveries from borrowers and the withdrawals represented advances made in the course of money lending activities, it is evident that no comprehensive enquiry appears to have been undertaken by the AO to verify the veracity of such explanation by calling for supporting evidence, details of borrowers, confirmations, fund flow statements, cash flow statements or any other material which could throw light on the true nature of the transactions. Equally, the AO has not examined whether the transactions reflected circulation or recycling of the same funds and whether the concept of peak credit or estimation of income would become relevant in the facts and circumstances of the case.

In our considered view, the peculiar facts of the present case require a thorough factual examination. The additions made are substantial in nature and involve complex issues relating to characterization of bank credits, the existence or otherwise of money lending activity, applicability of presumptive provisions, determination of peak credit and the scope of section 69A of the Act. The interests of substantial justice would therefore be better served if the matter is restored to the file of the AO for a fresh adjudication after affording adequate opportunity to the assessee to place all relevant materials in support of his claim.

Insofar as the legal contention advanced by the assessee regarding the validity of sanction obtained from the PCIT as against the PCCIT u/s.151(ii) of the Act is concerned, we are of the considered opinion that, in the facts of the present case, the said jurisdictional issue need not be adjudicated at this stage. Since the matter is being restored to the file of the AO for fresh examination on factual aspects, we deem it appropriate to keep the aforesaid legal contention open, without expressing any opinion either in favour of or against the assessee, to be urged and adjudicated in appropriate proceedings, if so warranted. Consequently, all contentions of both parties on the said legal issue are left open.

At the same time, we cannot lose sight of the fact that the assessee did not effectively participate before the Ld.CIT(A), resulting in dismissal of the appeal ex parte and contributing to avoidable prolongation of litigation. Considering the conduct of the assessee and in order to balance the equities while granting one more opportunity, we deem it fit to impose cost of Rs.10,000/- (Rupees Ten Thousand only). The said amount shall be remitted by the assessee to the Tamil Nadu State Legal Services Authority, Madras High Court, within a period of thirty days from the date of receipt of this order. The assessee

In the result, the appeal of the assessee is treated as allowed for statistical purposes.