ITO., WARD-9(1), HYDERABAD vs. POTHIREDDY SUDHAKAR REDDY, HYDERABAD

Succinctly stated, the AO based on information that the assessee

During the course of the assessment proceedings, the AO observed that the assessee, who was engaged in the business of a travel agency, had minimal paraphernalia and unsubstantial office expenses in the form of computer software to book tickets, a small office, minimal staff, etc. The AO observed that the assessee, when queried about the substantial cash deposits in his bank account, had stated that they were sourced from his travel agency business. However, the AO, taking cognizance of the fact that the income returned by the assessee was not commensurate with the substantial amount of cash deposits in his bank account, did not find favor with his explanation. Accordingly, the AO, after taking cognizance of the net cash deposits of Rs.1,91,22,123/- (after netting the cash withdrawals of Rs.3,88,378/-), held the same as unexplained cash deposits under section 68 of the Act. Apart from that, the AO made an addition of the commission/brokerage income of Rs.1,43,911/- on which tax was deducted at source (TDS) under section 194H of the Act. The AO, based on his aforesaid observations vide his order passed under 4 ITO vs. Pothireddy Sudhakar Reddy section 147 r.w.s 144B of the Act, dated 25/03/2022, determined the income of the assessee at Rs.1,96,39,960/-.

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

Ostensibly, the CIT(A) observed that the assessee during the subject year had, as per the “receipts and payments account” filed before him, admitted a turnover of Rs.3,67,34,434/-. However, he observed that the assessee had neither had his accounts audited as required under section 44AB of the Act nor deducted tax at source (TDS) from payments made to various travel agencies and tour operators, as he was obligated to do. Although the CIT(A) observed that, considering the aforesaid deficiencies, the meagre income returned by the assessee in response to notice under section 148 of the Act did not merit acceptance, but at the same time he held a conviction that as per the bank statement filed before him it could safely be concluded that the cash deposits made in the said bank account were sourced from his business receipts.

The CIT(A) based on his conviction that the cash deposits made in the bank account of the assessee were sourced from his business receipts of the travel agency, therein estimated his income from the said stream of business, i.e., commission income on booking flights tickets @ 8% of his disclosed turnover of Rs.3,67,34,434/- and computed the 5 ITO vs. Pothireddy Sudhakar Reddy same at Rs.29,38,755/-. Thereafter, the CIT(A) observing that the assessee had returned an income of Rs.3,73,930/-, restricted the addition based on his aforesaid deliberations to an amount of Rs.25,64,825/- (Rs.29,38,755/- - Rs.3,73,930/-).

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 lower authorities, and considered the material available on record.

Ms. Uppaluri Meena, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”), at the threshold of hearing of the appeal, placed on record the revised grounds of appeal for the reason that, inadvertently, a wrong set of grounds of appeal was earlier placed on record.

The Ld. Sr-DR submitted that the CIT(A) had, without any cogent basis, substituted the addition of unexplained cash deposits of Rs.1,91,22,123/- made by the AO by the business income of the assessee estimated by him on an ad hoc basis @ 8% of his disclosed turnover of Rs. 3,67,34,434/-. Elaborating on her contention, the Ld. Sr- DR submitted that as the assessee had failed to place on record any material which would irrefutably evidence that the cash deposits in his bank account amounting to Rs.1,91,22,123/- formed part of his

Per contra, Shri Pavan Kumar Gorti, CA, the Learned Authorized Representative (for short, “Ld. AR”) for the assessee, relied upon the CIT(A) order.

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 the record that the assessee during the subject year had made cash deposits of Rs.1,95,10,500/- in his current bank account. As the assessee in the course of the assessment proceedings had failed to come forth with any plausible explanation regarding the source of the cash deposits, the AO, after allowing credit of the cash withdrawals made from the same bank account, had held the balance amount of cash deposits of Rs.1,91,22,122/- as having been sourced out of the assessee’s unexplained money under section 69A of the Act. Also, the AO added commission and brokerage of Rs. 1,43,911/-, on which TDS was reported to have been deducted under section 194H of the Act.

As observed herein above, the CIT(A), going by the “receipts and payments account” filed by the assessee before him, wherein he had disclosed a turnover of Rs.3,67,34,434/-, observed that it could not be established as to whether the assessee had maintained the accounts as required under section 44AA of the Act. Apart therefrom, the CIT(A) after taking cognizance of the deficiencies pertaining to the “receipts and payments account” filed by the assessee, viz., (i) that the assessee had not got his accounts audited under section 44AB of the Act; and (ii) that the assessee had not deducted tax at source on the payments made to travel agents and tour operators, as required under law, had clearly observed that it was difficult to accept the meagre income disclosed by the assessee in his return of income filed in his response filed under section 148 of the Act. However, we find that the CIT(A) despite observing as herein above, had without any basis vacated the addition of the unexplained cash deposits made during the subject year in the assessee’s current account by holding a conviction that if the income of the assessee on his disclosed turnover of Rs. 3,67,34,434/- is estimated @ 8%, i.e., at Rs.25,64,825/-, then by so doing the impugned

We have given thoughtful consideration and are unable to comprehend the aforesaid observation of the CIT(A). We say so, for more than one reason, viz., (i) that the CIT(A) had himself observed that the veracity of the “receipts and payments account” in absence of any material which would reveal that the assessee had maintained his accounts under section 44AA of the Act was itself not free from doubts; (ii) that no material has been placed on record by the assessee which would irrefutably evidence that the cash deposits of Rs.1,91,22,122/- made in his current bank account was sourced out of his receipts from the business of travel agency; and (iii) that in absence of any evidence supporting that the cash deposits of Rs.1,91,22,122/- were the business receipts of the assessee, there could be no justification for vacating the addition made by the AO and substituting he same by estimating his income on an ad hoc basis, i.e., @ 8% of his turnover of Rs.3,67,34,434/-.

In our view, the CIT(A) before concluding that the cash deposits of Rs.1,91,22,122/- (supra) was sourced from the receipts of the assessee from his business of travel agency, ought to have looked into the fact that as to whether or not the said amount was transferred by the assessee to the principal travel agent and tour operators in the normal

We thus, in terms of our aforesaid deliberations are unable to persuade ourselves to subscribe to the view taken by the CIT(A), who had without any cogent basis vacated the addition of Rs.1,91,22,122/- made by the AO under Section 68 of the Act, on the presumption that as the said amount formed part of the turnover of Rs. 3,67,34,434/- disclosed by the assessee, on which the income element was estimated @ 8%, thus no separate addition was called for in his hands. In our view, the matter, in all fairness, needs to be set aside to the file of the AO, who is directed to re-adjudicate the same. In case the assessee in the course of the set aside proceedings is able to irrefutably support his claim that the cash deposits of Rs.1,91,22,122/- is sourced from the receipts of his business of travel agency and forms part of his business turnover of Rs.3,67,34,434/-, then the AO shall restrict the addition only to the extent of the income element of the subject receipts of Rs. 1,91,22,122/-. Needless to say, the CIT(A) shall, in the course of the set aside proceedings, afford a reasonable opportunity of being heard to the assessee who shall remain at liberty to substantiate his claim based on fresh documentary evidence, if any.

In the result, the appeal filed by the Revenue is allowed for statistical purposes in terms of our aforesaid observations.

The Principal Commissioner of Income Tax, Hyderabad.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file