KONDAL REDDY KOTHA,HANAMAKONDA vs. INCOME TAX OFFICER, WARD-1, WARANGAL

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ DB-A ‘ Bench, Hyderabad �ी रिवश सूद,�ाियक सद� एवं �ी मधुसूदन साविड़या लेखा सद� सम� | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.106/Hyd/2025 (िनधा�रण वष�/Assessment Year: 2018-19) Shri Kondal Reddy Kotha Vs. Income Tax Officer Hanamakonda Ward – 1 PAN:AHTPK1332M Warangal (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Advocate S. Rama Rao राज� व �ारा/Revenue by:: Shri AVES Madhukar, Sr. AR सुनवाई की तारीख/Date of hearing: 17/03/2026 घोषणा की तारीख/Pronouncement: 15/04/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.:

This appeal is filed by Shri Kondal Reddy Kotha (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 22.11.2024 for the A.Y.2018-19. 2. The assessee has raised the following grounds of appeal: “1) The order of the learned CIT (A) is erroneous to the extent it is prejudicial to the appellant herein; 2) The learned CIT (A) erred in confirming the action of the Assessing Officer in estimating the business profit at 3% of the turn over; 3) The learned CIT (A) ought to have seen that the percentage of 3 is higher during the year the appellant suffered high

2 expenses and, therefore, the rate of 3% is huge and could not have been confirmed by the learned CIT (A); 4) The learned CIT (A) erred in confirming the action of the Assessing Officer in making addition of Rs.8,52,573/- as the income assessable u/s 68 of the I.T.Act; 5) The learned CIT (A) erred in confirming the action of the Assessing Officer in making addition of Rs.2,00,000/- on the ground that it represents unexplained and unrecorded household expenses ; 6) The learned CIT (A) erred in confirming the action of the Assessing Officer in assessing Rs.67,56,383/- u/s 69A of the I.T.Act on the ground that the deposits made into the bank account are not properly explained; 7) The learned CIT (A) ought to have considered the explanations already submitted and taken into account the evidences filed and allowed the appeal filed; 8) Any other ground/grounds that may be urged at the time of hearing” 3. The brief facts of the case are that the assessee is an individual who filed his return of income for the Assessment Year 2018–19 on 28.09.2018 declaring total income of Rs.2,75,890/-. The case of the assessee was selected for complete scrutiny and accordingly, notice under section 143(2) of the Income Tax Act, 1961 (“the Act”) was issued by the Learned Assessing Officer (“Ld. AO”) on 22.09.2019. After considering the submissions of the assessee, the Ld. AO made addition of Rs.67,56,383/- under section 69 of the Act on account of cash deposits, Rs.13,16,098/- on account of estimation of net profit, Rs.8,52,573/- under section 68 of the Act on account of increase in capital and Rs.2,00,000/- on account of household withdrawals. Accordingly, the Ld. AO completed the assessment under section 143(3) read with sections 143(3A) and 143(3B) of the Act on 23.03.2021 assessing the total income of the assessee at Rs.95,50,944/-.

3 5. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. At the outset, we observe that ground nos. 1, 7 and 8 of the assessee are general in nature and do not require any separate adjudication. Accordingly, the ground nos. 1, 7 and 8 of the assessee are dismissed. 6. Ground nos. 2 and 3 of the assessee relate to the addition of Rs.13,16,098/- made on account of estimation of net profit. In this regard, the Learned Authorized Representative (“Ld. AR”) submitted that the assessee had declared net profit of Rs.2,08,012/-, which worked out to 0.41% of the turnover. It was contended that the Ld. AO, without pointing out any specific defect in the books of account or discrepancy in the financial statements of the assessee, has arbitrarily estimated the net profit at 3% of the turnover and accordingly made the addition of Rs.13,16,098/-. It was further submitted that the addition made by the Ld. AO is purely on ad hoc estimation without any cogent basis and therefore the same is liable to be deleted. 7. Per contra, the Learned Departmental Representative (“Ld. DR”) invited our attention to para no. 3.2 of the assessment order and submitted that the Ld. AO had observed that in the same line of business, net profit margins are generally in the range of around 5% to 6% and accordingly the assessee was asked to explain as to why the net profit should not be estimated at 5% rate. The Ld. DR further submitted that in response, the assessee himself relied upon judicial precedents of the Hyderabad Bench of the Tribunal wherein net profit margins of 2.5% to 3% were accepted in similar cases. It was also submitted that in the immediately preceding Assessment Year 2017–18, the income of the assessee was assessed by estimating the net profit at 3% of the turnover, which was accepted by the assessee. Therefore, the Ld. DR submitted that the Ld. AO has reasonably estimated the net profit at 3% of the turnover

4 based on the past history of the assessee as well as judicial precedents relied upon by the assessee himself, and thus the order of the Ld. CIT(A) deserves to be upheld. 8. We have heard the rival submissions and perused the material available on record. The issue involved in ground nos. 2 and 3 relates to the addition of Rs.13,16,098/- made by the Ld. AO on account of estimation of net profit. In this regard, we have gone through para no. 3.2 of the order of the Ld. AO, which is to the following effect:

5 the turnover, which was accepted by the assessee. Thus, it is evident that the estimation made by the Ld. AO at 3% of the turnover is based on (i) the past history of the assessee, and (ii) the judicial precedents relied upon by the assessee himself. Therefore, the estimation cannot be said to be arbitrary or without basis. Before us, the Ld. AR has contended that the addition is purely on estimation and no defects have been pointed out in the books of account. However, we are unable to accept this contention in the facts of the present case. The assessee having himself relied upon comparable judicial precedents and having accepted similar estimation in the earlier year, cannot take a contrary stand at this stage without bringing any distinguishing facts on record. We also note that no additional material has been produced before us by the assessee to substantiate the lower profit declared or to rebut the findings of the Ld. AO. In absence of any such material, the estimation made by the Ld. AO, being consistent with past history and supported by judicial precedents relied upon by the assessee himself, deserves to be upheld. Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and the addition made by the Ld. AO is sustained. Accordingly, ground nos. 2 and 3 raised by the assessee are dismissed. 10. Ground no. 4 of the assessee relates to the addition of Rs.8,52,573/- made by the Ld. AO under section 68 of the Act on account of fresh capital introduced by the assessee during the year under consideration. The Ld. AO observed that the assessee has introduced capital during the year, however, failed to substantiate the source of such introduction with supporting evidence. Accordingly, the said amount was treated as unexplained cash credit under section 68 of the Act. The addition was confirmed by the Ld. CIT(A). In this regard, the Ld. AR submitted that during the year under consideration, the assessee had started a pharmacy distribution business and introduced capital of Rs.8,52,573/- out

6 of his personal savings accumulated from earlier years. The Ld. AR further submitted that apart from the income disclosed in the financial statements, the assessee was also earning agricultural income from agricultural land admeasuring 17.14 acres. In support of this contention, the assessee filed copies of Pattadar passbook and electricity bills placed at page nos. 25 to 36 of the paper book. It was further submitted that the agricultural income was not routed through the books of account of the business and was retained by the assessee in his personal capacity. The Ld. AR invited our attention to the copies of returns of income for Assessment Years 2016–17, 2017–18 and 2018–19 placed at page nos. 3, 8 and 15 of the paper book respectively, wherein agricultural income of Rs.1,98,560/-, Rs.1,98,560/- and Rs.2,85,600/- respectively has been disclosed by the assessee. The Ld. AR submitted that both the lower authorities have failed to consider these factual aspects and prayed that the addition made under section 68 of the Act be deleted. 11. Per contra, the Ld. DR submitted that the assessee has failed to furnish any year-wise working of income and savings to justify the capital introduced during the year under consideration. It was submitted that mere claim of past savings without proper substantiation cannot be accepted. The Ld. DR, therefore, submitted that the assessee has failed to discharge the onus cast upon him under section 68 of the Act and accordingly, there is no infirmity in the order of the Ld. CIT(A) in confirming the addition made by the Ld. AO. 12. We have heard the rival submissions and perused the material available on record. The issue involved in the present ground relates to the addition of Rs.8,52,573/- made under section 68 of the Act on account of capital introduced by the assessee during the year under consideration. We find that the assessee has

7 explained that the capital introduced during the year is out of his personal savings accumulated from earlier years, including agricultural income earned from land holding of 17.14 acres. It was further submitted that the agricultural income was not routed through the books of account of the business and was retained by the assessee in his personal capacity. In support of this contention, the assessee has placed on record copies of Pattadar passbook and electricity bills as well as copies of returns of income for Assessment Years 2016–17, 2017–18 and 2018–19. We have gone through the returns of income of the assessee for Assessment Years 2016–17, 2017–18 and 2018–19 and on perusal of the same, we find that the assessee has disclosed agricultural income in those years. We have also gone through the Pattadar passbook placed on record and find that the assessee is the owner of agricultural land. Thus, the claim of the assessee regarding earning of agricultural income cannot be brushed aside. At the same time, we find that the assessee has not placed on record any proper year-wise cash flow statement or working of savings to demonstrate the availability of sufficient funds in his hands to justify the capital introduced during the year under consideration. In our considered view, though it cannot be entirely denied that the assessee might have had savings in his personal hands, particularly in view of the agricultural income disclosed in earlier years, the assessee is required to substantiate the availability of such funds with proper evidence and working. Considering the totality of the facts and circumstances of the case, we deem it appropriate to set aside this issue to the file of the Ld. AO for fresh adjudication. The assessee is directed to file year-wise working of cash flow statement substantiating the availability of savings in his hands, including agricultural income, to justify the capital introduced during the year under consideration. The Ld. AO shall verify the same and decide the issue in accordance with law after providing reasonable opportunity of being heard to the

8 assessee. Accordingly, ground no. 4 of the assessee is allowed for statistical purposes. 13. Ground no. 5 of the assessee relates to the addition of Rs.2,00,000/- made by the Ld. AO on account of no household withdrawals shown by the assessee during the year under consideration. We find that this issue is intrinsically linked with the availability of accumulated savings in the hands of the assessee during the year under consideration. While adjudicating ground no. 4 of the assessee, we have already set aside the issue to the file of the Ld. AO for verification of accumulation of past savings in the hands of the assessee, including agricultural income. Since the determination of availability of funds in the hands of the assessee would have a direct bearing on the present issue of household withdrawals, we are of the considered view that this issue also requires fresh examination. Accordingly, we set aside this issue to the file of the Ld. AO with a direction to decide the same in accordance with law after verifying the availability of accumulated savings in the hands of the assessee. The assessee is directed to furnish necessary details and explanations in support of his claim. The Ld. AO shall provide reasonable opportunity of being heard to the assessee before passing the order. Accordingly, ground no. 5 of the assessee is allowed for statistical purposes. 14. Ground no. 6 of the assessee relates to the addition of Rs.67,56,383/- made by the Ld. AO under section 69A of the Act on account of excess cash deposits. The facts with regard to this issue are that the Ld. AO observed that during the year under consideration, the assessee had deposited cash of Rs.5,75,60,040/- in his bank account. The assessee had shown total sales of Rs.5,08,03,657/- during the year under consideration. Accordingly, the Ld. AO noted that there was excess cash deposit of Rs.67,56,383/- over and above the total sales declared by the

9 assessee. In absence of satisfactory explanation, the Ld. AO treated the same as unexplained money under section 69 of the Act. The addition was confirmed by the Ld. CIT(A).In this regard, the Ld. AR submitted that the assessee was allotted a liquor license by the State Government of Telangana for a period from 01.10.2015 to 30.09.2017. However, the assessee did not run the liquor business himself and had given the license on lease for a monthly rent of Rs.12,000/- to Mr. M. Nagesware Rao. It was further submitted that Mr. M. Nagesware Rao was also made authorized signatory in the impugned bank account maintained with Canara Bank and the cash deposited in the said bank account pertained to the liquor business carried on by him. Therefore, it was contended that the cash deposits in the bank account relate to the business transactions of Mr. M. Nagesware Rao and not of the assessee, and hence the addition made in the hands of the assessee is liable to be deleted. 15. Per contra, the Ld. DR submitted that both the liquor license as well as the bank account are in the name of the assessee. Though the assessee may have given the license on lease and appointed Mr. M. Nagesware Rao as authorized signatory, the primary responsibility to explain the transactions in the bank account rests with the assessee. It was further submitted that during the assessment proceedings, the assessee failed to furnish complete details of deposits and withdrawals in the bank account and expressed inability to do so on the ground that Mr. M. Nagesware Rao was not cooperating. The Ld. DR submitted that such explanation cannot absolve the assessee of his statutory obligation under the Act to explain the source of cash deposits in his own bank account. Therefore, there is no infirmity in the orders of the lower authorities.

10 16. We have heard the rival submissions and perused the material available on record. The issue involved in the present ground relates to the addition of Rs.67,56,383/- made under section 69 of the Act on account of excess cash deposits. The primary contention of the assessee is that the cash deposits in the bank account relate to the liquor business carried on by Mr. M. Nagesware Rao, to whom the liquor license was given on lease and who was also made authorised signatory to the bank account. In this regard, we are of the considered view that even if the assessee had given the liquor license on lease to Mr. M. Nagesware Rao and had made him an authorized signatory in the bank account maintained with Canara Bank, the assessee cannot escape from his responsibility of explaining the transactions in his own bank account. It is an admitted position that both the liquor license and the bank account are in the name of the assessee. Therefore, the primary onus to explain the nature and source of cash deposits lies upon the assessee. We further find that during the assessment proceedings, the assessee has failed to furnish complete details of deposits and withdrawals in the said bank account and has taken the plea of non-cooperation by Mr. M. Nagesware Rao. Such a plea, in our view, cannot absolve the assessee from discharging the burden cast upon him under the provisions of the Act. 17. Without prejudice to the above, we have gone through the Profit & Loss account of the assessee for Assessment Year 2018– 19 placed at page no. 47 of the paper book, which is to the following

11 effect:

12 infirmity in the order of the Ld. CIT(A) in confirming the addition made by the Ld. AO under section 69 of the Act. Accordingly, ground no. 6 raised by the assessee is dismissed. 19. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the Open Court on 15th April, 2026. Sd/- Sd/- (RAVISH SOOD) (MADHUSUDAN SAWDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated 15th April, 2026. Vinodan/sps Copy to: S.No Addresses 1 Shri KONDAL REDDY KOTHA FLAT NO. E4, 4TH FLOOR SIRI APARTMENTS ,ADVOCATES COLONY HANAMAKONDA WARANGAL 506001 ,Telangana 2 Income Tax Officer Ward 1, Office of the Income Tax Officer, Warangal 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order Digitally signed VADREVU by VADREVU PRASADA RAO PRASADA Date: RAO 2026.04.17 10:35:54 +05'30'