HAMID ALI,GORAKHPUR vs. INCOME TAX OFFICER - 1 (1), GORAKHPUR

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos.41 & 42/VNS/2024 A.Y.-2017-18 Hamid Ali, vs. Income Tax Officer, Luchui, Ward No. 4, Sahjanwa, 1(1), Gorakhpur Gorakhpur-273209 PAN: ATKPA3349M (Appellant) (Respondent) Assessee by: Sh. Arvind Shukla, Advocate Revenue by: Smt. Amandeep Kaur, Sr. DR Date of hearing: 17.02.2026 Date of pronouncement: 30.03.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: These two appeals have been filed by the assessee against the separate orders of the ld. CIT(A), NFAC passed on 13.02.2024 and 14.02.2024 respectively, wherein the ld. CIT(A) has partly allowed the appeals of the assessee against the assessment order passed by the ld. AO on 26.03.2022 under section 147 r.w.s. 144 of the Income Tax Act and dismissed the appeal of the assessee against the penalty levied upon him on 6.09.2022 under section 272A(1)(d) of the Income Tax Act, 1961. The grounds of appeal in these two appeals are as under:- ITA No. 41/VNS/2024 “1. Because Learned the Commissioner of Income Tax (Appeals) (Ld. CIT(A)] has erred in law as well as on facts in passing order u/s. 250 without appreciating the facts and legal position in the correct perspective. 2. Because the Ld. CIT(A) has by erred in law as well as on facts Incorrectly estimating the business income of the assessee solely on the basis of cash deposits amounting 10 Rs.35.122,400/- in the bank account without duly considering the comprehensive financial records presented by the assessee. 3. Because the Ld. CIT(A) has failed to appreciate the actual turnover of the assessee, which stands at Rs.46,633,461/- as per the meticulously maintained 1

ITA Nos.41 & 42/VNS/2024 Hamid Ali A.Y. 2017-18 books of accounts and therefore, the substantial turnover figure was disregarded in the assessment process. 4. Because the Ld. CIT(A) has overlooked the gross profit declared by the assessee, which amounts to Rs.1,114,000/- without appreciating that this figure is a reflection of the profitability of the business and should have been given due consideration in determining the taxable income. 5. Because the net profit declared by the assessee, which stands at Rs.337,659/-as per the books of accounts, corresponds to a net profit rate of 1.09% which is consistent with the historical performance of the assessee and has been accepted by the department in previous and subsequent years. 6. Because the application of an incorrect and inflated net profit, solely based on cash deposits, is unjustified and lacks legal basis thereby not appreciating that such an approach disregards the normal profit ratio of the assessee's line of trade. which has been consistently maintained over the years. 7. Because the Ld. CITIA) has failed to appreciate that the failure to file the return of income does not serve as the sole basis for estimating the business income whereas the relevant financial data provided by the assessee should have been given due weightage in the assessment process. 8. Because the impugned order by the Ld. CIT(A) is contrary to the principles of natural justice and equity, as it fails to consider crucial evidence presented by the assessee and arbitrarily relies on isolated factors to estimate the income 9. Because the Ld. CIT(A) has made erroneous estimation of business income and not ensuring a fair and just assessment based on the actual financial records and performance of the assessee.”

ITA No. 42/VNS/2024 “1. Because the learned CIT(A) has erred in sustaining the penalty of Rs.30,000/- for alleged non-appearance against notices u/s.142(1) without appreciating that the illiterate non-computer educated assessee never came to know of any notice issued against him. 2. Because the learned CIT(A) has failed to appreciate the non-appearance by the assessee was not deliberate and only because he never came to know of the notices uploaded on the portal 3. Because the learned CIT(A) has failed to appreciate that the assessee has no taxable income nor had he filed any return then how could he be expected to comply with the notices uploaded on the portal when he has no access to the portal.”

ITA Nos.41 & 42/VNS/2024 Hamid Ali A.Y. 2017-18 Therefore, notices under section 148 were issued and when the same were not complied with, notices under section 142(1) were issued to the assessee. The ld. AO records that he issued four notices under section 142(1) to the assessee, but none were complied with. Therefore, a show cause notice was issued under section 144 and on account of the failure to reply to this notice also, the amount of Rs. 3,51,22,400/- was held to be unexplained money under section 69A of the Income Tax Act, 1961 and brought to tax under section 115BBE of the Income Tax Act. On account of the failure to comply with the notices during assessment, the AO also initiated penalty proceedings under section 272A(1)(d) of the Income Tax Act, 1961. As the assessee did not make compliance to the notices issued by the AO, penalty of Rs. 30,000/- was imposed for the failure to make compliance to three notices under section 142(1) during the course of assessment proceedings. 3. Aggrieved with this assessment and the levy of penalty, the assessee went in appeal before the ld. CIT(A). Before the ld. CIT(A), it was submitted that the assessee was semi-literate trader of Eggs in the rural areas of Gorakhpur in the name and style of Golden Feed Agency, Sahjanwa, District-Gorakhpur and had no taxable income. It was submitted that the assessee’s business was being done since 2011-12 but the returns were being filed from 2017-18 onwards. The assessee was totally unaware of tax laws, and had no knowledge of computers or of the Departmental portal. He has regularly maintained accounts and had even got his accounts audited but had been advised that since he did not have income above the taxable threshold limit, he was not required to file income. He submitted that his turnover for the year was Rs. 4,66,33,761/- but that his NP rate was only .72% and therefore, his net profit was only Rs. 3,47,659/-. It was further submitted that the fact of high transactions in the bank account, did not mean that the total transactions had escaped assessment. The assessee submitted the results of his business over the period A.Y. 2015-16 to A.Y. 2022-23 to demonstrate that he had taxable income for the first time only in the A.Y. 2019-20. It was also submitted that the opening balance, closing balance and the trend of transactions in the bank account reflected the trading nature of the account. He submitted that to 3

ITA Nos.41 & 42/VNS/2024 Hamid Ali A.Y. 2017-18 demonstrate the fact that he was actually carrying out the business of trading in Eggs, he was filing a few purchase bills, but if required he would file the complete accounts. The assessee submitted that he was a semi-literate person living in a rural area and he never came to know about any notice for verification or for reopening of his case. He only came to know of such re-assessment when his bank accounts were frozen and a sum of Rs. 67,52,832/- was recovered from the account by the Department. As all the bank accounts had been frozen, the assessee had come in appeal and prayed that the belated appeal may be treated as being on account of ignorance, but if it was not admitted a grave injustice would be done to him. He, therefore, submitted a prayer under Rule 46A for admission of additional evidences before the ld. CIT(A) and submitted a copy of his audited accounts for the consideration of the ld. CIT(A). It was submitted that in the wholesale business of Eggs, the net profit was very meagre which ranged between .5% to 1.5% at the most and it was not justified to take the entire credit during the whole year in the bank account as his undisclosed income without appreciating the trend of regular debits and credit, showing the business nature of the accounts. The assessee submitted that Article 265 of the Constitution, laid down that no tax could be levied upon any person except by authority of law. He also invited attention to the CBDT Circular No. 14(XL-35) dated April, 11, 1955 which enjoined the officers of the Department to assist the assessee in the assessment proceedings. He expressed remorse for non-compliance before the Assessing Officer and submitted that he could not make compliance because he could not locate any notices on the email ID goldenfeedagency@gmail.com. Furthermore, it was submitted that since the assessee was uneducated and had no knowledge of computers, he was totally dependent upon his Accountant for making compliances to notices sent on electronic media. Furthermore, he was unaware of the change in the process of assessment from manual face to face assessment to online faceless assessment and therefore, also could not make compliance. It was submitted that the total sales made by the assessee during the year were Rs. 4,66,33,661.83/- while the total

ITA Nos.41 & 42/VNS/2024 Hamid Ali A.Y. 2017-18 purchases were Rs. 4,55,19,761.60/-. The net profit was only Rs. 3,37,659.79/- i.e. .72% of the total sales. 4. The ld. CIT(A) recorded that he issued notices to the assessee on numerous occasions and that compliance was made. A video conference was also held during appeal proceedings and during the same, an audit report was uploaded but he noted that the said audit report had not been uploaded in the time allowed by the Act or during the assessment proceedings. There were no supporting documents submitted by the assessee except receipts of Egg purchases and he noticed that from the same, only Rs. 68,08,377/- worth of purchases had been accounted for, which left a gross profit of Rs. 2,83,14,023/- in the hands of the assessee. He calculated the net profit at 50% of this gross profit and held that a sum of Rs. 1,41,57,011/- should be treated as the business income of the assessee. As regards the failure of the assessee to comply, the ld. CIT(A) held that the email ID goldenfeedagency@gmail.com was the same email ID on which the notices for appeal were being sent. Therefore, he did not find any substance in the claim of the assessee, especially when the assessee had an accounts office for his business. He, therefore, concluded that either the assessee did not consider the notices issued during assessment proceedings as important, or had deliberately avoided them. Therefore, he held that the penalty of Rs. 30,000/- imposed under section 272A(1)(d) had been imposed in justified circumstances and was in accordance with law. Accordingly, the quantum appeal of the assessee was partly allowed while the appeal against the levy of penalty was dismissed. 5. The assessee is aggrieved at these orders passed by the ld. CIT(A) and has therefore, come in appeal before us. Sh. Arvind Shukla, Advocate (hereinafter referred to as the ld. AR) submitted that the assessee had submitted that he was poorly educated and not well-versed in online proceedings or with computers systems. He had also submitted that he was unaware about the fact that the Department had transitioned from a manual assessment proceedings to an online faceless proceeding and for these reasons he was totally dependent upon the accountant for receipt and compliance to the notices issued by the ld. AO. It was 5

ITA Nos.41 & 42/VNS/2024 Hamid Ali A.Y. 2017-18 submitted that the assessee had made due compliance before the ld. CIT(A) when he became aware of the passing of the aforesaid orders by virtue of attachment of his bank accounts and had even presented a copy of an audit report to the ld. CIT(A) which had shown that he did not have the income that had been assessd in his hands. However, the ld. CIT(A) had refused to consider the same on account of the fact that this audit report had not been uploaded earlier. As a result, the assessee had been assessed on a rule of thumb basis without looking into his accounts. It was accordingly prayed that in the interest of justice, the matter may be restored to the file of the Assessing Officer and the ld. Advocate undertook to ensure compliance before the assessment authorities, so that the assessee could demonstrate that there was no income escaping assessment. On the issue of levy of penalty, it was submitted that the circumstances for non-compliance had been explained and the assessee did not stand to benefit in any way by not making compliance. He prayed that the delayed filing of the quantum appeal itself demonstrated that the assessee was unaware of the proceedings and therefore, he prayed that the assessee should not be penalized for default committed in ignorance. 6. On the other hand, Smt. Amandeep Kaur, Sr. DR, (hereinafter referred to as the ld. DR) submitted that the assessee had been non-compliant throughout the assessment and the penalty proceedings. Even during the appellate proceedings, the assessee had submitted incomplete details and the ld. CIT(A) had allowed the relief to the extent possible. In the absence of evidences, she held that it was not desirable to provide further relief and she also prayed that the penalty for non- compliance deserves to be confirmed as the assessee had not come up with a plausible explanation to explain the non-compliance. 7. We have duly considered the facts and circumstances of the case. Considering the fact that the assessee is uneducated and not well-versed with computers and also claims to have been unaware of the transition from a face-to- face manual assessment to a faceless regime during the period, in our view, these could constitute sufficient reasons to explain the non-compliance before the ld. AO. 6

ITA Nos.41 & 42/VNS/2024 Hamid Ali A.Y. 2017-18 We note that the appeal against the assessment and penalty orders, were both filed before the ld. CIT(A) with a delay and the plea that the assessee was not aware of the existence of the assessment or penalty orders and only came to know about them, when his accounts were attached. Even if we were to hold, as the ld. CIT(A) has, that the assessee was aware of the notices issued during assessment because he had made compliance to notices sent on the same email address during appellate proceedings, this does not explain the delay in the filing of the appeal before the ld. CIT(A). No assessee stands to benefit for delayed filing of an appeal against the demand which may not be sustainable upon making of due compliance. Therefore, it has to be held that the circumstances indicate that the assessee was not aware of the fact of his case being reopened or notices being issued, which is what led to his non-compliance during the assessment proceedings albeit on account of his lack of education, his lack of knowledge of computers and electronic systems and his dependence on his Accountant for compliances to notices issued online. 8. We have noted that the assessee furnished a copy of an audit report before the ld. CIT(A) which demonstrated that his income was not what had been assessed by the AO but the ld. CIT(A) has declined to consider the same on account of the fact that it was not filed on time. We believe that the failure to file the audit report on time can be a valid ground for the initiation of penalty against the assessee for the said default, but its results could not be altogether ignored so as to levy a tax upon the assessee, which it may not be obliged to pay as per the law. Accordingly, we feel that in the interest of justice, the matter should be restored to the file of the AO, with a direction to the assessee to produce the relevant books, documents, audit report before the AO, so as to explain the AO as to why the conclusions arrived by him in the assessment proceedings were incorrect and why income had not escaped assessment in the hands of the assessee. As regards, the penalty, since we have already held that the non-compliance to be explained by the fact that the asseseee was unaware about the proceedings, in our opinion,

ITA Nos.41 & 42/VNS/2024 Hamid Ali A.Y. 2017-18 levying the penalty for the same would not be justified. Accordingly, we delete the penalty of Rs. 30,000/- levied under section 272A(1)(d) of the Act. 9. In the result, ITA No. 41/VNS/2024 is held to be allowed for statistical purposes while ITA No. 42/VNS/2024 is held to be allowed. Order pronounced on 30.03.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30/03/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT 4. CIT, 5. The CIT(A) By order Sr. P.S.