GOVINDASWAMY RAGHUPATHY,KGF vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE

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ITA 2002/BANG/2025Status: DisposedITAT Bangalore08 July 2026AY 2022-236 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal admitted the additional evidence filed by the assessee, finding sufficient cause for non-furnishing before lower authorities. The matter was restored to the AO for de novo adjudication.

What were the facts?

The assessee's books of accounts were rejected by the AO due to non-compliance with notices. The CIT(A) upheld this rejection and dismissed the appeal. The assessee claimed an accident prevented them from furnishing evidence earlier.

What were the issues?

Whether the rejection of books of accounts and estimation of profit were justified without considering the additional evidence due to the assessee's medical condition.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 143(3),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE

Before: SHRI WASEEM AHMED & SHRI SANDEEP SINGH KARHAIL

For Appellant: Shri Keshav Prasad CA

PER SANDEEP SINGH KARHAIL, JUDICIAL MEMBER 1. The assessee has filed the present appeal against the impugned order dated 15.07.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”] for the assessment year 2022-23. 2. In this appeal, the assessee has raised the following grounds: - 1. Ground No. 1 – Rejection of Books of Accounts u/s 145(3) Without Pointing Out Specific Defects Page 1 of 6 That the Learned Assessing Officer (AO) as well as the Learned Commissioner of Income Tax (Appeals) [CIT(A)] have erred in law and on facts in rejecting the books of accounts u/s 145(3) of the Income-tax Act, 1961, without pointing out any specific, material, or quantifiable defects in the duly maintained and audited books of accounts, which were kept in the regular course of business and duly subjected to audit under section 44AB of the Act. 2. Ground No. 2 – Arbitrary Estimation of Net Profit @ 7% That the Learned AO erred in estimating the net profit @7% of turnover, and the Learned CIT(A) further erred in confirming such estimation, ignoring the peculiar business model of liquor retail in Karnataka, wherein purchases are compulsorily made from KSBCL at government-fixed prices and sales are mandatorily restricted to MRP under the Karnataka Excise Rules and the Legal Metrology Act, 2009. The estimation made is arbitrary, excessive, and devoid of any reasonable or comparable basis. 3. Ground No. 3 – Disallowance of Fixed and Statutory Expenses Despite Estimation That the Learned AO erred in separately disallowing fixed and statutory expenses such as license fees, GST/VAT, bank overdraft interest, depreciation, etc., despite having already estimated income on a presumptive/net profit basis. Such separate disallowances amount to double taxation and violate the settled principle of law that once income is estimated, all incidental and normal business expenses are deemed to have been subsumed within such estimation. 4. Ground No. 4 – Non-Consideration of Government-Mandated Pricing Structure That the lower authorities failed to appreciate that liquor retailing in Karnataka operates under a fully regulated framework wherein: o Purchases can be made only from KSBCL at fixed prices; and o Sale prices are mandatorily fixed at MRP.

Accordingly, estimation of profit margin beyond 2.5% to 4% is unrealistic, contrary to industry norms, and against settled judicial precedents. Ground No. 5 – Non-Admission of Additional Evidence under Rule 46A That the Learned CIT(A) erred in refusing to admit additional evidence under Rule 46A of the Income-tax Rules, 1962, despite genuine and bona fide reasons such as the appellant’s accident, medical issues, and non- cooperation of the accountant, which prevented due compliance before the AO. These reasons squarely fall within the purview of Rule 46A(1)(c) and 46A(1)(d). Ground No. 6 – Violation of Principles of Natural Justice That the authorities below failed to provide adequate and fair opportunity of being heard to the appellant and further ignored material evidence and explanations furnished at the appellate stage, thereby violating the fundamental principles of natural justice. Ground No.7 – General Ground The appellant craves leave to add, alter, amend, substitute, or withdraw any of the above grounds of appeal at or before the time of hearing.

3.

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that the assessee is an individual and for the year under consideration filed its return of income on 27.09.2022, declaring a total income of Rs. 49,98,238/-. The return filed by the assessee was selected for scrutiny, and the statutory notices under section 143(2) and 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was noticed that the assessee is running and maintaining a bar and has disclosed low income from the sale of liquor on which TCS has been deducted. From the perusal of the profit and loss account, it was also found that the assessee has claimed Rs. 85,10,300/- towards expenditure on salary and wages and Rs. 11,09,040/- towards expenditure on staff welfare, which are the biggest expenses claimed in the profit and loss account. Accordingly, the assessee was asked to furnish the necessary details to substantiate his claim with respect to these expenses. However, despite the grant of sufficient opportunity, the assessee did not bring any material on record to prove the correctness of the accounts. Accordingly, the Assessing Officer (“AO”), vide order dated 26.08.2024 passed under section 143(3) r.w.s. 144B of the Act, rejected the books of accounts of the assessee under section 145(3) of the Act and calculated the net profit @7% of the total turnover.

4.

In its appeal before the learned CIT(A), the assessee filed an application seeking admission of additional evidence under Rule 46A of the Income Tax Rules, 1962. However, the learned CIT(A), vide impugned order, rejected the application on the basis that the assessee had failed to substantiate the circumstances under which such evidence could not be furnished before the AO. The learned CIT(A) further held that the AO granted the assessee multiple opportunities to furnish details in support of his claim. However, the assessee failed to comply with the notices issued by the AO. Accordingly, the learned CIT(A) upheld the additions made by the AO and dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us.

5.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee could not produce books of accounts, vouchers, salary, registers, and supporting evidence before the AO as the assessee met with an accident in December 2023 and was on bed rest till 30.03.2024. In this regard, the learned AR placed on record the medical certificate issued to the assessee. Further, the learned AR also referred to the application filed by the assessee under Rule 29 of the ITAT Rules, 1963, seeking admission of additional evidence. Accordingly, the learned AR submitted that there is no basis in the findings of the AO in rejecting the books of accounts of the assessee and computing a net profit at 7% of the total turnover.

6.

On the other hand, the learned Departmental Representative vehemently relied upon the order passed by the lower authorities.

7.

Having considered the submissions of both sides and perused the material available on record, it is evident that in the present case, the assessee did not comply with the notices issued by the AO, and accordingly, the books of accounts were rejected under section 145(3) of the Act, and net profit was computed at 7% of the turnover. It is further evident from the record that in the appellate proceedings before the learned CIT(A), the assessee filed all the documentary evidence. However, the learned CIT(A) rejected the assessee's prayer for admission of additional evidence. Even in the appeal before us, the assessee has sought admission of these additional evidences under Rule 29 of the ITAT Rules, 1963.

8.

Considering the documents placed on record, we are of the considered view that there was sufficient cause which prevented the assessee from furnishing these details before the lower authorities. Accordingly, the additional evidences filed by the assessee are admitted. However, as these documents have been furnished before us for the first time and were not examined by any of the lower authorities, we deem it appropriate to restore Page 5 of 6 this issue to the file of the Jurisdictional AO for de novo adjudication after necessary verification/examination of the details filed by the assessee. As the matter has been restored to the file of the AO for consideration afresh, the AO shall be at liberty to seek any other information from the assessee for complete adjudication of the issue. Needless to mention, no order shall be passed without affording reasonable and adequate opportunity of hearing to the assessee. With the above directions, the impugned order is set aside, and the grounds raised by the assessee are allowed for statistical purposes.

9.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 8th July, 2026 Sd/- Sd/- (WASEEM AHMED) (SANDEEP SINGH KARHAIL) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore,

Dated, the 8th July, 2026. *VM* Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Bangalore 5. CIT(A)

By order Assistant Registrar, ITAT,Bangalore Page 6 of 6

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