INCOME TAX OFFICER, WARD-6(2)(1), BENGALURU, BENGALURU vs. CHIKKABORAIAH, BENGALURU

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ITA 1718/BANG/2025Status: DisposedITAT Bangalore23 June 2026AY 2020-218 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, stating that the AO failed to provide cogent reasons for not accepting the assessee's explanation. Since the entire sales were declared by the firm, the purchases should also be accounted for in the firm's hands.

What were the facts?

The assessee declared income from a liquor business, but the Assessing Officer (AO) treated a significant purchase amount as unexplained expenditure. This was because Tax Collected at Source (TCS) was deducted in the assessee's individual PAN, while the purchases and sales were declared by a partnership firm where the assessee was a partner.

What were the issues?

Whether the AO correctly treated the entire purchase amount as unexplained expenditure when sales were declared by a partnership firm and TCS was deducted in the individual's PAN. Whether the CIT(A) erred in allowing relief based on evidence without giving the AO an opportunity to examine it.

Which sections of the Income-tax Act were involved?

Section 69C,Section 143(3),Section 133(6)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE

Before: SHRI PRASHANT MAHARISHI & SHRI KESHAV DUBEY

For Respondent: Shri Shivanand Kalakeri, CIT-D.R
Hearing: 26.03.2026Pronounced: 23.06.2026

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the Revenue is directed against the order of the ld. CIT(A)/NFAC dated 3.6.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1076648499(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2020-21.

2.

The Revenue has raised the following grounds of appeal: -

ITA No.1718/Bang/2025 Chikkaboraiah, Bengaluru Page 2 of 8

3.

The brief facts of the case are that the assessee filed his return of income for the AY 2020-21 on 27.03.2021, declaring total income of Rs.7,53,540/-. The said return was processed & and accordingly intimation u/s 143(1) of the Act was passed accepting the returned income. Thereafter, the case of the assessee was selected for 'limited scrutiny' under CASS for the reason 'Income from liquor business'. Accordingly, notices u/s 143(2) of the Act & 142(1) of the Act were

ITA No.1718/Bang/2025 Chikkaboraiah, Bengaluru Page 3 of 8 issued along with the show cause notices. During the course of assessment proceedings, the AO on verification of Form No. 26AS, noticed that the Karnataka State Beverage Corporation Limited had collected TCS @ 1% of Rs.9,45,764/- on purchases made by the assessee amounting to Rs.9,45,72,055/- during the year under consideration. The assessee was asked to explain why this payment of Rs. Rs.9,45,72,055/- should not be treated as unexplained expenditure/payment u/s 69C of the Act as the assessee had claimed credit for the corresponding TCS amount in his return. The assessee explained that the entire purchases and sales had been declared in the hands of the Partnership firm M/S Liquor Mart Value, where the assessee is a partner. The purchases were made on the strength of the liquor license issued in the personal name of the assessee and accordingly credit for the TCS was claimed in his hand, being deducted against his personal PAN.

3.1 The assessee further submitted that no liquor business was carried out by him in his individual capacity and hence there is a difference in the income as compared to the TCS reflecting in his Form No.26AS online. The assessee also submitted that the TCS amount was not claimed again in the hands of the partnership firm where the entire purchases and sales have been declared. The AO did not accept the contention of the assessee by holding that the assessee individual had obtained a liquor license and TCS has been deducted by the Karnataka State Beverages Limited in his case, however, the assessee has not paid the due taxes and accordingly the entire payment of Rs.9,45,72,055/- made by the assessee towards purchase of liquor was treated as unexplained expenditure/payment u/s 69C of the Act. The AO completed the assessment proceedings vide order passed u/s 143(3) of the Act dated 2.9.2022 on a total assessed income of Rs.9,53,25,590/-.

ITA No.1718/Bang/2025 Chikkaboraiah, Bengaluru Page 4 of 8 4. Aggrieved by the aforesaid order of the AO passed u/s 143(3) of the Act dated 2.9.2022, the assessee preferred an appeal before the ld. CIT(A)/NFAC.

5.

The ld. CIT(A)/NFAC allowed the appeal of the assessee by observing that assessee had a license issued in his personal name by the State Excise Department. The liquor was procured from Karnataka State Beverage Corporation Ltd. to collect TCS @ 1% amounting to Rs.9,45,764/- on a total purchase of liquor amounting to Rs.9,45,72,055/- during the year under consideration. The purchase and sales of liquor was declared in the hands of partnership firm M/s. Liquor Mart Value, where the assessee is a partner. The purchases were made on the strength of the liquor license issued in the name of the assessee and credit for TCS was also claimed in his hands being deducted against his personal PAN. However, the same TCS was not claimed again in the hands of partnership firm where the entire purchases and sales have been declared. The firm M/s. Liquor Mart value has declared purchases of Rs.9,73,58,176/- and sales of Rs.10,62,08,028/- in its return of income for AY 2020-21. The ld. CIT(A)/NFAC held that there is no provision in the IT Rules for TCS cases equivalent to Rule 37BA(2)(i) for TDS matter. This makes the issue complicated like in the present case, the TCS has been made against the PAN of the licensee holder and is being claimed in his hands although the entire purchase and the corresponding sales have been declared in the hands of different entity i.e. a partnership firm. The ld. CIT(A)/NFAC also held that the AO should have verified from the records of the partnership firm M/s. Liquor Mart Value by issue of notice u/s 133(6) of the Act, whether the purchase of Rs.9,45,72,055/- was routed through the bank account of the firm or not? When the entire sales has been declared in the hands of the firm, the ld. CIT(A)/NFAC find no reason why the purchases should not be similarly accounted in the hands of the firm.

ITA No.1718/Bang/2025 Chikkaboraiah, Bengaluru Page 5 of 8

5.1 Further, the ld. CIT(A)/NFAC held that the AO has not made out a case that sales has been made by the assessee himself and the entire purchase was not reflected in his accounts and/or was made out of some undisclosed sources. Further, considering the fact that the entire profit of liquor business has been offered to tax in the hands of the firm M/s. Liquor Mart Value and the claim for same TCS amounting to Rs.9,45,764/- was not made in the hands of the partnership firm, the ld. CIT(A)/NFAC was of considered view that addition made u/s 69C of the Act amounting to Rs.9,45,72,055/- cannot be sustained and accordingly directed to delete the same. The ld. CIT(A)/NFAC thus allowed the appeal of the assessee.

6.

Aggrieved by the order of ld. CIT(A)/NFAC, the Revenue has filed the present appeal before this Tribunal.

7.

Before us, the ld. D.R. vehemently submitted that the liquor license was held in the name of the assessee and no documentary evidence was furnished during the assessment to support the assessee’s claim that entire purchases has been declared in the hands of the partnership firm and they were actually recorded in the books of the firm and offered to tax. Lastly, the ld. D.R. submitted that ld. CIT(A)/NFAC grossly erred in allowing relief on the basis of fresh evidence produced during the appellate proceedings without affording an opportunity to the AO to examine or rebut the said evidence.

8.

The ld. A.R. of the assessee vehemently supported the order of ld. CIT(A)/NFAC and submitted that although the entire purchases were declared in the hands of the partnership firm M/s. Liquor Mart Value, however, no TCS credit had been claimed by the firm and all the due taxes have been paid by the firm on the income earned.

ITA No.1718/Bang/2025 Chikkaboraiah, Bengaluru Page 6 of 8 Further, ld. A.R. of the assessee submitted that as the TCS credit was appearing in Form No.26AS in his individual capacity, the assessee had no option but to claim the TCS credit of Rs.9,45,764/- in his personal return of income.

9.

We have heard the rival submissions and perused the materials available on record. Undisputedly, the assessee in his individual capacity had obtained a liquor license by the State Excise Department. It is also an undisputed fact that the liquor were procured from Karnataka State Beverages Corporation Ltd. and the payments were made by deducting TCS @1% amounting to Rs.9,45,764/- on a total purchase of Rs.9,45,72,055/-. The assessee during the course of assessment proceeding had contended that no liquor business was carried out by him in his individual capacity and hence there is a difference in the income as reflected in Form No.26AS. Further, during the course of assessment proceeding the assessee vide reply dated 10.3.2022 had also submitted that the purchases and sales of liquor were recorded in the books of accounts of the partnership firm and accordingly declared in the return of income in the hands of partnership firm M/s. Liquor Mart Value where the assessee is a partner. Since the purchases were made on the strength of the liquor license issued in the name of the assessee in his individual capacity and accordingly credit for TCS was also claimed in his hand only as the TCS were deducted against his personal PAN. We also take a note of the fact that the partnership firm M/s. Liquor Mart Value has declared purchases of Rs.9,73,58,176/- and sales of Rs.10,62,08,028/- in its return of income for AY 2020-21 as observed by the ld. CIT(A)/NFAC. We accept the contention of the ld. CIT(A)/NFAC that AO could have examined the contention of the assessee by issuing notice u/s 133(6) of the Act to the partnership firm namely M/s. Liquor Mart Value. On perusal of the assessment order, we observe that the AO had only

ITA No.1718/Bang/2025 Chikkaboraiah, Bengaluru Page 7 of 8 stated that the reply of the assessee was carefully considered but not found acceptable. In our opinion, the AO has given no cogent reason for not accepting the contention of the assessee. We are of the considered opinion that when the entire sales of liquor has been declared in the hands of the partnership firm, then there is no reason why the purchases should not be accounted for in the hands of the firm. We fully agree with the contention of ld. CIT(A)/NFAC that AO has not made out a case that sales has been made by the assessee himself and the entire purchases were not reflected in his accounts and/or was made out of some undisclosed sources. We also agree with the contention of the ld. CIT(A)/NFAC the claim of TCS has been made in the hands of the assessee since there is no other provision equivalent to Rule 37BA (2)(i) of the I.T. Rules. When the profit of the liquor business had been offered to tax by the partnership firm and the due tax had been paid by the firm without claiming the TCS amount of Rs.9,45,764/-, then we are of the considered view that the assessee is entitled to claim TCS of Rs.9,45,764/- in his own hand in the individual capacity. Thus, we upheld the order of ld. CIT(A)/NFAC in deleting the additions made u/s 69C of the Act amounting to Rs.9,45,72,055/-.

10.

In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 23rd June, 2026

Sd/- Sd/- (Prashant Maharishi) (Keshav Dubey) Vice President Judicial Member

Bangalore, Dated 23rd June, 2026. VG/SPS

ITA No.1718/Bang/2025 Chikkaboraiah, Bengaluru Page 8 of 8

Copy to:

1.

The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order

Asst. Registrar, ITAT, Bangalore.

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