SHIVAKUMAR,BENGALURU vs. ITO, WARD 3(2)(1), BENGALURU

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC, Delhi dated 14.01.2026 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1084769053(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2020-21.

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 2 of 13

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 3 of 13

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 4 of 13 the profit margin the sale of eggs is very negligible and less than 1%. The AO however, observed that the assessee had not submitted any documentary evidences in support of his claim of doing egg business such as invoice/receipts, details of purchases/sales, rent agreement, ownership document of the shop/warehouse, utility bills in the business name, trade license issued by competent authority, payroll records for the employees etc. The AO further observed that there were cash deposits/credit entries (including through bearer’s cheque) aggregating to Rs.7,14,99,300/-, however, as the assessee failed to substantiate the nature and source of total credits including the cash deposit entries, accordingly the AO held that the income incidental to above reported financial transactions remained unexplained in the hands of the assessee.

3.1. Thus, as the assessee had declared total sales/receipts of Rs.9,05,02,400/- in his return of income filed in response to notice u/s 148 of the Act and the assessee had not filed any information or document in support of the disclosed sales as well as credits shown in his current account, the AO treated the entire credits in the current account were from the business transaction of the assessee and held that the credits shown in his current account had been incorporated in the disclosed turnover. However, in the absence of any supporting details/document despite providing ample opportunities to the assessee, the AO estimated the profit @ 8% of total receipts of Rs.9,05,02,400/-, which is Rs.72,40,192/-. Further, as the assessee had already disclosed net profit of Rs.4,99,463/- and therefore, the remaining undisclosed net profit of Rs.67,40,729/- was added to the total income of the assessee. Thus, the AO completed the assessment proceedings on a total assessed income of Rs.72,40,169/- while passing the order u/s 147 r.w.s. 144B of the Act on 11.02.2025.

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 5 of 13

i. The reassessment u/s 147 r.w.s. 144B of the Act is held valid.

ii. The addition of Rs.67,40,729/- on account of unexplained cash deposits taxable u/s 115BBE of the Act is confirmed. In the present case, no day to day quantitative stock records were produced to correlate purchased and sold quantities with daily cash collections. Further, no contemporaneous sale registers, vouchers or customer-wise details were submitted to match dates and amount of cash deposits with actual sales. Merely producing a summarized trading & Profit & Loss account and some purchase bills, without underlying primary records is insufficient for the appellant to discharge the burden u/s 68 to 69A of the Act. Further, the plea that profit margin in egg business is below 1% is general and unsupported by third party market data, industry comparables or past year audited margins. In the opinion of the ld. CIT(A)/NFAC, the AO had reasonably inferred that over and above recorded turnover, a portion of cash deposits was from unexplained sources and cannot be fully related to business receipts.

iii. Levy of interest u/s 234A and fee u/s 234F of the Act, being consequential and mandatory is upheld.

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 6 of 13

iv. Initiation of penalty u/s 270A is confirmed as valid, without prejudice to the appellant’s right to contest any separate penalty order.

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 7 of 13

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 8 of 13 fact that in response to notice u/s 148 of the Act, the assessee again filed his return of income on 25/03/2024 by declaring the same taxable income of Rs.4,99,463/-. The assessee had declared turnover of eggs amounting to Rs.9,05,02,400/-, Purchase cost of the eggs from poultry amounting to Rs.8,86,92,352/- and the office & salary expenses of Rs.13,10,585/- to arrive at the net profit of Rs.4,99,463/-.

9.1 On perusal of the order of assessment dated 11.02.2025, we observed that the assessee had deposited cash of Rs.7,14,99,300/- in his current account maintained with Andhra Bank (including through bearer’s cheque). We also observed that during the course of the assessment proceedings, the assessee failed to substantiate his claim of sources of cash deposits/credits entries in the bank account were from the business of trading in eggs. The AO had categorically observed that except the averment made by the assessee, no documents/records/accounts in support of his claim of doing egg business such as invoice/receipts, details of purchases/sales, rent agreement, ownership document of the shop/warehouse, utility bills in the business name, trade license issued by competent authority, payroll records for the employees etc. were submitted by the assessee. We also take a note of the fact that the AO despite treating the entire cash deposits amounting to Rs.7,14,99,300/-(including through bearer’s cheque) in the current account maintained with Andhra Bank as unexplained money in the hands of the assessee u/s 69A of the Act r.w.s. 115BBE of the Act as the nature & source of total credits including cash deposits remained unexplained, later on changed his opinion & held that the income incidental to the above reported financial transactions remained unexplained in the hands of the assessee for the year under consideration and accordingly applied the net profit of 8% on the total turnover of Rs.9,05,02,400/- declared by the

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 9 of 13 assessee in his return of income filed in response to notice u/s 148 of the Act to arrive at the net profit of Rs.72,40,192/-. Thus, undisputedly, in the present case, the AO had accepted the sources of cash deposits/credits in the bank account of the assessee as part of the total turnover/receipts from the eggs business and accordingly held that the credit shown in the current account had been incorporated in the disclosed turnover. Therefore, in our view the only dispute is with regard to the applying of net profit margin of 8% on estimate basis which the ld. A.R. is contending to be arbitrary and without any basis.

9.2 Further, on perusal of the order of the ld. CIT(A)/NFAC, we are surprised to note that the ld. CIT(A)/NFAC without properly understanding the real dispute in appeal had given the incoorect findings that the AO completed the assessment by treating part of the cash deposits as unexplained resulting in an addition of Rs.67,40,729/- taxable u/s 115BBE. Further, the ld. CIT(A)/NFAC misdirected himself in holding that the AO had reasonably inferred that over and above recorded turnover, a portion of the cash deposits was from unexplained sources and cannot be fully related to business receipts. In our considered view, infact the AO had already accepted the sources of cash deposits/credits in the bank account were to be part of the turnover of the egg business of the assessee and therefore, the findings of the ld. CIT(A)/NFAC are quite misleading. We observed that the AO had not made any addition u/s 68 to 69A of the Act and in fact the AO had added an amount of Rs.67,40,729/- treating the same to be business profit of the assessee after deducting the net profit of Rs.4,99,460/- declared by the assessee in his return of income. We also take note of the fact that before the ld. CIT(A)/NFAC, the assessee claimed to have maintained the books of accounts and also submitted the copy of the bank statement, the copy of purchase bills, copy of the

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 10 of 13 financials in order to substantiate his claim. We also observed that before both the authorities below, the assessee is consistently contending that the margin of profit of his egg business is less than 1%.

9.3 Further, before us the ld. A.R. of the assessee drew our attention on the assessment order dated 07.12.2023 passed in the assessee’s own case for the AY 2019-20 and submitted that the AO had in fact accepted the source of income of the assessee to be from purchase and sale of eggs (chick eggs) and also accepted the returned income of Rs.4,12,010/- by looking at the nature of business of the assessee and held the return of income filed by the assessee for the AY 2019-20 to be genuine. We also take a note of the fact that for the AY 2019-20, the assessee had declared a net profit of Rs.4,07,507/- on a total turnover of Rs.6,56,07,649/- which works out to be 0.62% of the total turnover. In the year under consideration the assessee had declared net profit of Rs.4,99,463/- on a turnover of Rs.9,05,02,400/- which works out to be 0.55% of the turnover. Undisputedly, the AO accepted that the assessee was engaged in the business of trading in eggs and accepted the turnover of Rs.9,05,02,400/- and also accepted that the cash deposits of Rs.7,14,99,300/- were out of the sale proceeds of the eggs. Undisputedly, no addition was made under section 68 or section 69A of the Act in respect of the cash deposits. In our considered opinion, once the AO had accepted the cash deposits as sale proceeds forming part of the turnover, the deposits ceases to be unexplained. What remains taxable is only the profit element embedded in that turnover. The exercise is therefore one of reasonable estimation which must rest on some rational basis and on material on record and not on guesswork untethered to facts. The estimate must have a reasonable nexus with the material available. In our considered opinion, the AO did not accept the net

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 11 of 13 profit rate of 0.55% as declared by the assessee without bringing on record any comparable case or any material showing a higher margin in this trade & applied 8% on the turnover and determined the business income of Rs.72,40,169/- arbitrarily & without any basis. In our opinion, the best guide for estimating the profit of a business is its own accepted past results, especially where the same authority had examined them in scrutiny. In AY 2019-20, the AO accepted the net profit of 0.62% from the very same business while passing the order u/s 147 of the Act dated 07/12/2023. The Revenue has also not pointed out any change in the nature of business, the method of trading, the customer base or the market conditions in the AY 2020-21 nor the AO recorded any reason for departing from the rate accepted only a year earlier. We also find merits in the contention of the assessee that the eggs markets are highly competitive and the price is published online on daily basis and also there are numerous suppliers in the market. Further, the damages are very high in the transportation of the eggs & hence the profit margin becomes very negligible.

9.4 Further, the Apex court in the case of Parashuram Pottery Works Ltd., Vs. ITO (1977) 106 ITR 1 has categorically held as follows:

“We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Further, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permitting through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.On these reasonings, in the

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 12 of 13 absence of any material change justifying the revenue to take a different view of the matter - and if there was no change, it was in support of the assessee – we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income Tax in the earlier proceedings, a different and contradictory stand should have been taken.”

The Apex Court in the case of Radhasoami Satsang Saomi Bagh v. CIT (1992) 193 ITR 321 has held that where a fundamental aspect permeating through different years has been accepted by the Revenue, it is not proper to take a contrary position in a subsequent year without any change in facts. The same principle was reiterated in CIT v. Excel Industries Ltd (2013) 358 ITR 295 (SC).

9.5 In view of the above, we hold that the AO was not justified in estimating the net profit @ 8% of the turnover. However, following the rule of consistency and taking into consideration the fact that the authorities below have accepted that the assessee was engaged in the business of trading in eggs and accepted the turnover of Rs.9,05,02,400/- and also accepted that the cash deposits of Rs.7,14,99,300/- were out of the sale proceeds of the eggs and also considering the fact that the assessee failed to submit the relevant document/record/accounts/information fully before both the authorities and also in our considered opinion in order to meet the ends of justice, we direct the AO to compute the net profit of the assessee @ 1% of the total turnover of Rs.9,05,02,400/- as declared by the assessee which in our opinion represents a fair and reasonable estimate of the assessee’s income for the year under consideration.

ITA No.544/Bang/2026 Shivakumar, Bengaluru Page 13 of 13

Order pronounced in the open court on 6th Oct, 2026

Sd/- Sd/- (Balakrishnan S.) (Keshav Dubey) Accountant Member Judicial Member

Bangalore, Dated 6th Oct, 2026. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.

P G Digitally signed by P G RAJANI RAJANI Date: 2026.10.14 16:51:08 +05'30'