INCOME TAX OFFICER, WARD-1, NALGONDA vs. IDDAIAH VARIKUPPALA, NALGONDA

Succinctly stated, the AO, based on NMS information, which revealed that the assessee during the subject year made cash deposits of Rs.2,04,75,000/- in his bank account, initiated proceedings under section 147 of the Act. Notice under section 148 of the Act, dated 25/03/2021, was issued to the assessee. However, the assessee failed to furnish his return of income in compliance with the aforesaid notice.

As is discernible from the record, the AO, in absence of any compliance on the part of the assessee who failed to furnish the requisite information that were called for by him vide notices issued under section 142(1) of the Act, dated 13/07/2021, 25/11/2021 and 02/12/2021 was constrained to proceed with and frame the assessment to the best of his judgment under section 144 of the Act. Accordingly, the AO, vide his order passed under section 147 r.w.s 144 r.w.s 144B of the Act, dated 30/03/2022, held the entire amount of cash deposits of Rs.2,04,75,000/- as the assessee’s unexplained money and determined his income at the same amount.

Aggrieved, the assessee carried the matter in appeal before the CIT(A).

As is discernible from the record, the assessee during the course of the appellate proceedings had submitted before the CIT(A), viz., (i) that the actual cash deposits in his bank accounts aggregated to Rs.49,55,000/- and the same had wrongly been taken by the AO at Rs.2,04,75,000/-; (ii) that based on supporting documents like bank account, sale deed an explanation was provided regarding each entry of cash deposit in the bank account; and (iii) the cash deposits in the bank account considering the multi facet sources for making the said deposits could not have been brought in the meaning of unexplained income. We find that the CIT(A) in his order has culled out the submissions of the assessee where he had explained the respective cash deposits made in his bank account held with Union Bank of India during the subject year, as under:

Ostensibly, the CIT(A), as can be gathered from his order, had found favor with the explanation of the assessee that the actual cash deposits made in his bank account aggregated to Rs.49.55 lakhs and, referring to his explanation regarding the date-wise cash deposits made in his bank account, accepted the same and allowed the appeal.

The Revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

Shri Mohan Babu, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) at the threshold of hearing of the appeal assailed the order passed by the CIT(A). Elaborating on his contention, the Ld. Sr-DR submitted that the solitary grievance of the Revenue is that the CIT(A) had admitted the explanation of the assessee regarding the source of the cash deposit of Rs.49.55 lakhs based on supporting documents that were filed before him without confronting the same to the AO, and thus admitting the same in violation of Rule 46A(3) of the Income Tax Rules, 1962. The Ld. AR, to buttress his contention, has taken us through the observations of the CIT(A), which at first glance revealed that the appellate authority had summarily admitted and acted upon the explanation along with the supporting documentary evidence that were filed by the assessee before him and vacated the impugned addition of Rs.49.55 lakhs made by the AO. The Ld. Sr. DR submitted that as the CIT(A) had violated the procedure for admission of additional evidence as contemplated in Rule 46A(3) of the Income Tax Rules, 1962, the order passed by him cannot be sustained and is liable to be set aside.

Per contra, Shri M V Anil Kumar, Advocate, Learned Authorized Representative (for short, “Ld. AR”) rebutted the aforesaid contentions of the Revenue. Elaborating on his contention, the Ld. AR submitted that the contention of the Revenue that the CIT(A) had admitted the additional evidence without controverting the same to the AO, and thus, violated the procedure contemplated under Rule 46A(3) of the Income Tax Rules, 1962 is misconceived and incorrect. Elaborating on his contention, the Ld. AR submitted that the assessee, in the course of the proceedings before the CIT(A), had come forth with the aforesaid explanation regarding the respective cash deposits made in his bank account aggregated to Rs.49.55 lakhs, based on which the CIT(A) had called for a “remand report” from the AO regarding the admission of the additional evidence so filed by the assessee. The Ld. AR submitted that the AO, i.e., Income Tax Officer, Ward-1, Nalgonda, had thereafter, vide his letter dated 28/08/2024, called upon the assessee to furnish the relevant information/documents in support of the submissions filed before the CIT(A) on or before 06/09/2024. The Ld. AR to buttress his aforesaid factual averment had drawn our attention to the letter issued by the ITO, Ward-1, Nalgonda, dated 28/08/2024, which is marked as “Subject: “Remand Report Proceedings – Letter” addressed to the assessee, wherein the AO after making a reference to the additional evidence that was filed by the assessee with the CIT(A), had called upon the assessee to furnish the relevant information/documents which was submitted before the CIT(A), Page-109 of APB. The Ld. AR based on his aforesaid contention submitted that the aforesaid letter issued by the ITO, Ward-1, Nalgonda 28/08/2024 reveals beyond doubt that the CIT(A) after considering the additional documentary evidence that were filed by the assessee to explain the source of the cash deposits at Rs.49.55 lakhs (supra), had confronted the same to the AO and called for his remand report, pursuant whereto the latter had directed the assessee to furnish the requisite information/documents. Carrying his contention further, the Ld. AR submitted that the assessee, pursuant to the aforesaid direction of the AO in the course of the remand proceedings, had furnished/uploaded with the AO the requisite details on 02/09/2024, Page 110-115 of APB. The Ld. AR submitted that the aforesaid facts which are borne from the record reveals beyond doubt that that the CIT(A) had admitted the additional evidence filed by the assessee with him only after confronting the same and calling for a remand report from the AO as required per the mandate of Rule 46A, and it is incorrect to say that the same had been admitted by him without following the procedure contemplated under law.

We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties in the backdrop of the orders of the authorities below.

Admittedly, it is a matter of fact borne from record that the assessee had failed to participate in the proceedings before the AO, as a result whereof the latter was constrained to frame the assessment to the best of his judgment under section 147 r.w.s 144 r.w.s 144B of the Act, dated 30/03/2022. However, we find that thereafter, the assessee, in the course of the proceedings before the CIT(A), had filed his written submissions on 01/06/2024 along with supporting documentary evidence and requested that the same be admitted under Rule 46A of the Income Tax Rules, 1962. We find that the application filed by the assessee for admission of the additional documentary evidence under Rule 46A is placed on record at Page-64 of APB, along with supporting documentary evidence, i.e., copies of bank accounts, copies of ledger accounts, RTI appeal order, etc., at Pages 65-108 of APB. Also, a perusal of the written submissions filed by the assessee before the CIT(A) on 01/06/2024 reveals that the assessee had filed before him a “Chart” wherein he had explained the source of the impugned cash deposits of Rs.49.55 lakhs out of the withdrawals/amounts available with him on the respective dates aggregating to Rs.52.28 lakhs, Pages 46-62 of APB.

Although it is the claim of the Revenue that the CIT(A) had grossly erred in law and facts of the case in admitting the aforementioned additional evidence without following the procedure contemplated under Rule 46A, i.e., without confronting the said additional evidence to the AO and calling for his “remand report”, but we find that the said contention is factually incorrect and misconceived. We say so, for the reason that a perusal of the letter addressed by the Income Tax Officer, Ward-1, Nalgonda, dated 28/08/2024 to the assessee, which is marked as “Subject: “Remand Report Proceedings – Letter”, bearing DIN & Letter No. ITBA/COM/F/17/2024-25/1068074826(1), wherein the AO had called upon the assessee to furnish the relevant information/documents/claims regarding the additional evidence that was submitted by him before the CIT(A) on or before 06/09/2024, thus establishes beyond doubt that the CIT(A) had called for a “remand report” from the AO regarding the additional evidence furnished by the assessee in the course of hearing of the appeal before him. Although it is 8 the Ld. Sr. DR’s claim that the CIT(A) had not received the “remand report” from the AO, we are afraid that the same would not advance the case of the Revenue. We say so, for the reason that if the AO who apparently had initiated the remand proceedings vide his letter, dated 28/08/2024 had failed to furnish the “remand report” before the culmination of the proceedings before the CIT(A) who had disposed of the appeal vide his order, dated 30/06/2025, then the same is a failure on the part of the AO, which can neither be attributed to the assessee or the CIT(A).

We thus, in the backdrop of our aforesaid deliberations are of the considered view that as the CIT(A) prior to disposing of the appeal had called for the “remand report” of the AO as required per the procedure contemplated under Rule 46A, therefore, there is no substance in the claim of the Revenue that the CIT(A) had erred in admitting the additional evidence furnished by the assessee during the appellate proceedings in violation of Rule 46A(3) of the Income Tax Rules, 1962.

As the Revenue has assailed the impugned order of the CIT(A), wherein the latter had admitted and accepted the duly substantiated explanation of the assessee regarding the source of the cash deposits made in his bank accounts after following the procedure contemplated under Rule 46A(3) of the Income Tax Rules, 1962, we are unable to subscribe to the grievance of the Revenue that the first appellate authority had violated the procedure which was required to be followed for admitting the said additional evidences, and thus, reject the same.

We thus, finding no infirmity in the well-reasoned order passed by the CIT(A), uphold the same.

Resultantly, the appeal filed by the Revenue is dismissed.

As we have upheld the order of the CIT(A) wherein he had vacated the quantum addition made by the AO vide his order under section 147 r.w.s 144 r.w.s 144B of the Act, dated 30/03/2022 while disposing of the aforementioned appeal in ITA No.1519/Hyd/2025, therefore, as a consequence thereto, the order passed by the CIT(A) vacating the impugned penalty imposed by the AO under section 271(1)(c) of the Act is upheld.

Resultantly, the appeal filed by the Revenue is dismissed.

In the result, both the appeals filed by the Revenue are dismissed.