HAMPAMMAGARI THIMMA REDDY,HYDERABAD vs. INCOME TAX OFFICER, WARD-1, ADONI

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ITA 1155/HYD/2025Status: HeardITAT Hyderabad08 May 2026AY 2017-186 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the additions were made without proper verification and directed the Assessing Officer to conduct a de novo assessment. The AO was instructed to examine the cash deposits and the reconciliation between bank credits and turnover, following CBDT guidelines.

What were the facts?

The assessee's assessment was completed under Section 144 due to non-compliance. Additions were made for cash deposits during demonetization and the difference between bank credits and turnover. The CIT(A) upheld these additions.

What were the issues?

Whether the best judgment assessment was justified without proper verification of cash deposits and bank credits, and if the assessee was provided a reasonable opportunity to present their case.

Which sections of the Income-tax Act were involved?

Section 144,Section 68,Section 250,Section 143(2),Section 142(1),Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad

For Appellant: Shri G V Pavan Kumar, Sr AR

PER RAVISH SOOD, JM: The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi, dated 15/10/2024, which in turn arises from the order passed by the AO under Section 144 of the Income tax Act, 1961 (for short, “Act”)

2 Hampammagari Thimma Reddy vs. ITO dated 06/12/2019 for AY 2017-18. The assessee has assailed the impugned order on the following grounds of appeal before us:

“1. The order passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi under section 250 of the Income Tax Act, 1961, dated 15.10.2024, is opposed to law, facts, and circumstances of the case.

2.

The learned CIT(A) erred in upholding the best judgment assessment passed under section 144 of the Act without appreciating the fact that the appellant had submitted all required information before the Assessing Officer, including audited financials, and that no reasonable opportunity was provided before finalising the assessment.

3.

The authorities below grossly erred in treating cash deposits of Rs.24,54,000/- made during the demonetization period as unexplained cash credits under section 68, without appreciating that the appellant is engaged in a regulated liquor business, wherein such deposits were part of regular business turnover.

4.

The learned CIT(A) failed to appreciate that the difference between the total bank credits and reported turnover of Rs.75,83,135/- arose due to business related bank transactions and did not constitute unexplained income. The authorities ought to have verified the nature of bank credits before making addition under section 68. 5. The learned CIT(A) erred in confirming the additions made by the AO solely based on non-compliance, without considering that relevant facts were stated in Form 35 and that a liberal approach ought to have been taken, especially for a small delay of 2 days and lack of representation due to genuine medical reasons.

6.

The CIT Appeals/NFAC authorities erred in confirming the levying interest under section 234B amounting to Rs.26,02,875/-, without appreciating that the same is consequential and subject to deletion if the additions under section 68 are deleted.

7.

The learned CIT(A) erred in confirming the action of assessing officer in determining the total income of Rs. 1,00,37,135/- against return of income an amount of Rs. 6,51,790/-.

8.

The above appellant grounds craves at the leave to add, amend, alter, or withdraw any of the time of hearing.”

2.

Succinctly stated, the assessee, who is an individual engaged in the liquor business under the name and style of M/s Vennela Wines at Kurukunda Village, Alur Mandal, Kurnool District, had filed his return of 3 Hampammagari Thimma Reddy vs. ITO income for AY 2017-18 on 25.10.2017 declaring an income of Rs. 6,51,790/-. Subsequently, the assessee's case was selected for scrutiny assessment, and notices under sections 143(2) and 142(1) were issued.

3.

The AO in the absence of any compliance by the assessee completed the assessment to the best of his judgment under section 144 of the Act, dated 06.12.2019, wherein the income of the assessee was determined at Rs. 1,00,37,135/- by making two additions, viz. (i). addition of cash deposits in in Specified Bank Notes (SBNs) during the demonetization period under section 68 of the Act: Rs. 24,54,000/-; and (ii). addition towards the difference between bank credits and reported turnover Rs. 75,83,135/-.

4.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). As the assessee, despite having been afforded sufficient opportunities, failed to participate in the proceedings, the CIT(A) upheld the additions made by the AO and dismissed the appeal.

5.

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

6.

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

4 Representative (for short, “AR”) for the assessee, at the threshold of hearing, submitted that the assessee is engaged in a regulated liquor business where sales are predominantly in cash and the cash deposits, including those made during the demonetization period, were out of business receipts. It was further submitted that the difference between bank deposits and turnover arose because turnover in the books was recorded net of VAT, and that the assessment was completed ex parte without proper appreciation of facts. Elaborating further on his contention, it was submitted that the matter may be restored to the AO's file for proper verification.

8.

Per Contra, the Ld. Departmental Representative (for short, “DR”) relied on the orders of the lower authorities.

9.

We have heard the Ld. Authorized Representatives of both parties and have given thoughtful consideration to their respective contentions.

10.

Admittedly, the assessment in the present case was framed under section 144 of the Act due to non-compliance on the part of the assessee. Also, the assessee, even before the CIT(A) had not effectively pursued the appeal. However, the explanations now furnished by the assessee before us, i.e., the cash deposits represent business receipts and that the difference between bank deposits and 5

11.

Apropos the addition of Rs. 24,54,000/- relating to cash deposits during the demonetization period, we find that the same had been made without examining the issue in the light of the Standard Operating Procedure (SOP) issued by CBDT for verification of such deposits.

12.

Coming to the addition of Rs. 75,83,135/- on account of the difference between bank credits and turnover, we are of the view that the same requires examination of books of account, VAT records, and reconciliation statements, as these aspects go to the root of the matter and have not been verified in the ex parte assessment.

13.

We, thus, in terms of our aforesaid observations, are of firm conviction that in the backdrop of the facts and circumstances of the case and in the interest of justice, the matter in all fairness requires to be set aside to the file of the AO with a direction to frame a de novo assessment. The AO is directed to examine the source of cash deposits, including those made during the demonetization period, in accordance with the CBDT guidelines and also verify the reconciliation between bank deposits and turnover, including the impact of VAT. S - - (मधुसूदन साव"डया) (रवीश सूद) (MADHUSUDAN SAWDIA) (RAVISH SOOD) लेखासद"य/ACCOUNTANT MEMBER "या"यकसद"य/JUDICIAL MEMBER d/- Hyderabad, dated 08/05/2026. OKK/sps आदेशक"""त"ल"पअ"े"षत/ Copy of the order forwarded to:-

1.

"नधा"रती/The : HAMPAMMAGARI THIMMA REDDY E-BLOCK, FLAT NO-101, ADITYA EMPRESS Assessee TOWERS, SHAIKPET NALA, TOLICHOWKI, GOLCONDA POST, Hyderabad, Telangana-500008. 2. राज"व/ The Revenue : THE INCOME TAX OFFICER WARD 1, ADONI Aayakar Bhavan, Near RTC Bus Stand, Aspari Road, Adoni, Kurnool, Andhra Pradesh-518301

3.

The Principal Commissioner of Income Tax, Kurnool.

4.

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

5.

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

आदेशानुसार / BY ORDER KAMALA KUMAR KUMAR ORUGANTI ORUGANTI Date: 2026.05.08 17:47:58 +05'30' Sr. Private Secretary ITAT, Hyderabad.

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