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Facts
The assessee, an individual, failed to file an income tax return for AY 2018-19. The AO initiated reassessment proceedings based on information from the Insight Portal regarding cash deposits in the assessee's bank account. The AO treated these deposits as unexplained income and also added interest income, determining a total income of Rs. 5,68,24,840/-. The CIT(A) dismissed the assessee's appeal for non-compliance.
Held
The Tribunal admitted additional evidence filed by the assessee, which suggested the deposits were business proceeds of wine shops belonging to third parties, already accounted for in their returns. The Tribunal found that these aspects required proper verification by the AO and that adding the same amount to the assessee's income would lead to double taxation.
Key Issues
Whether the cash deposits in the assessee's bank account constitute unexplained income, or if they represent business proceeds of third-party concerns. Whether the CIT(A) erred in dismissing the appeal without adjudicating on merits due to procedural non-compliance.
Sections Cited
139, 144, 144B, 147, 148, 148A, 250, 69A
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Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by Shri Poreddy Sambasiva Reddy, Kadiri (“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 22/10/2025 for the Assessment Year (“A.Y.” 2018-19.
“1. Incorrect Addition of Rs 3,45,51,000/- as Unexplained Income u/s 69A The Assessing Officer and the CIT(A) erred in treating the cash deposits in Andhra Pragathi Grameena Bank as unexplained income uls 69A. In reality, these deposits represented business proceeds belonging to Mr. Vuturi Ramana Reddy and Mr. Bandaru Murali, who were operating liquor business and had duly declared such income in their own returns. The appellant merely acted as a conduit to facilitate the deposit and transfer of sale proceeds, having no ownership OR beneficial interest in the funds.
Failure to Consider Relevant Evidence and Circumstances Both the AO and CIT(A) failed to consider the factual context, namely that the appellant was a non-proprietor employee assisting in cash handling for the liquor business. The authorities should have verified the ownership of the funds before drawing adverse conclusions. The impugned addition, made without corroboration OR ownership nexus, is arbitrary and unsustainable.
3. Improper Invocation of Section 144 (Best Judgment Assessment) The learned AO wrongly invoked section 144 despite absence of valid service OR effective communication of notices under section 142(1) and 148A(b). The appellant was 3 unaware of the electronic communication process under the Faceless Scheme and hence could not respond in time which was not deliberate default but due to genuine ignorance and third party dependency. The CIT(A) also erred in upholding the assessment without addressing this procedural irregularity.
Erroneous Determination of Income at Rs 5,68,24,840/- The estimation of total income at Rs 5.68 crores has no rational basis 4 OR supporting evidence. It is grossly excessive, contrary to the facts, and disproportionate to the appellants financial profile and actual role in the transaction chain.
5. Condonation of Non-Compliance Under Bona Fide Circumstances The non-response to the notices issued u/s 250 was not intentional but due to genuine inability to secure the required data from the actual business owners. The CIT(A) 5 ought to have exercised discretion to admit the additional evidence OR adjourn the matter rather than dismissing the appeal outright. The appellant now possesses all relevant details and prays for their admission before the Hon’ble Tribunal under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.
Excessive and Unjust Demand of Rs 10,17,29,971/-The resultant tax demand is grossly excessive and not reflective of 6 the appellants real income OR capacity. The addition being based on presumption and not evidence deserves to be deleted in entirety.
7. Invalid Reopening of Assessment u/s 147 The reassessment initiated u/s 148 was bad in law and void ab initio since it was based solely on Insight Portal flagged information of cash deposits without any independent application of mind OR 7 tangible material to form a belief that income had escaped assessment. The CIT(A) failed to appreciate that the Assessing Officer had merely relied on third-party information without establishing a direct nexus between the appellant and the alleged escaped income.
8. Erroneous Dismissal Without Adjudication on Merits The CIT(A) erred in dismissing the appeal merely for non-compliance to hearing notices without Page 2 of Poreddy Sambasiva Reddy vs. ITO deciding on the substantive issues raised. As per settled judicial precedent (e.g., CIT v. Premkumar Arjundas Luthra (2016) 240 Taxman 133 (Bom)), the CIT(A) is statutorily obliged to dispose of the appeal on merits even in the absence of the appellant. The impugned order is thus void ab initio and deserves to be quashed.
Violation of Principles of Natural Justice Ex Parte Dismissal The learned CIT(A) erred in law and on facts in dismissing the appeal ex parte under section 250 without considering the merits of the case. Despite genuine reasons for non compliance namely, the appellants dependency on Mr. Vuturi Ramana Reddy and Mr. Bandaru Murali, who were in possession of the relevant details and initially refused to share information fearing departmental scrutiny the learned CIT(A) failed to appreciate the bona fide nature of the appellants non appearance. The appellant has now obtained all the necessary documentary evidence and is ready to furnish the same. Hence, the order of the CIT(A) deserves to be set aside.”
The brief facts of the case are that the assessee is an individual who did not file any return of income for the Assessment Year 2018–19 under section 139 of the Income Tax Act, 1961 (“the Act”). Based on the information available in the Insight Portal of the Department, the Learned Assessing Officer (“Ld. AO”) issued a notice dated 22.03.2022 under section 148A(b) of the Act calling upon the assessee to explain certain transactions reflected in his bank account. However, the assessee did not respond to the said notice. Accordingly, the Ld. AO passed an order under section 148A(d) of the Act on 02.04.2022 holding that it was a fit case for issuance of notice under section 148 of the Act and consequently issued notice under section 148 of the Act on 03.04.2022. During the reassessment proceedings, the assessee neither filed the return of income in response to the notice issued under section 148 of the Act nor complied with the various notices issued by the Ld. AO. Consequently, the Ld. AO proceeded to complete the assessment on the basis of the information available on record. On verification of the bank account of the assessee, the Ld. AO found that there was a total deposited of Rs.5,67,57,068/- including cash in his bank account Page 3 of Poreddy Sambasiva Reddy vs. ITO during the year under consideration. Since no explanation was furnished by the assessee regarding the source of the said deposits, the Ld. AO treated the same as unexplained money under section 69A of the Act and added the same to the income of the assessee. The Ld. AO also observed that the assessee had earned interest income of Rs.67,772/- from the bank during the year under consideration and since the assessee had not filed any return of income, the same was also added to the income of the assessee. Accordingly, the Ld. AO completed the assessment under section 147 read with sections 144 and 144B of the Act vide order dated 28.02.2024, determining the total income of the assessee at Rs.5,68,24,840/-, comprising addition of Rs.5,67,57,068/- under section 69A of the Act and Rs.67,772/- on account of interest income.
4. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). However, the assessee failed to comply with the notices issued by the Ld. CIT(A). Consequently, the Ld. CIT(A) dismissed the appeal of the assessee and upheld the order passed by the Ld. AO.
Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. The Learned Authorised Representative (“Ld. AR”) submitted that the assessee was working as an employee with M/s Rekha Wines for the period from 01.04.2017 to 30.06.2017 and thereafter with M/s Chandana Wines for the period from 01.07.2017 to 31.03.2018. The Ld. AR further submitted that both the said concerns were engaged in the business of sale of wines and liquor where substantial transactions were carried out in cash. The Ld. AR submitted that the cash sales proceeds of the wine shops were temporarily deposited in Page 4 of Poreddy Sambasiva Reddy vs. ITO the bank account of the assessee and thereafter the assessee transferred the said amounts to the bank accounts of the respective concerns who in turn utilized the same for making payments for purchase of liquor. In support of the said contention, the Ld. AR invited our attention to the bank account of the assessee placed at page nos. 28 to 45 of the paper book and also the bank account of M/s Rekha Wines placed at page nos. 46 to 87 of the paper book. The Ld. AR further submitted that the proprietor of M/s Rekha Wines is Shri Vuturi Ramana Reddy and the proprietor of M/s Chandana Wines is Shri Bandaru Murali and both the concerns have duly accounted the sale proceeds of the wine shops in their respective returns of income. The Ld. AR therefore submitted that if the entire deposits in the bank account of the assessee are treated as income of the assessee, it would result in double taxation of the same income, as the sale proceeds have already been accounted for by the respective concerns in their returns of income. In support of the said submission, the Ld. AR filed copies of income tax returns, Form 26AS and financial statements of the said concerns. The Ld. AR further submitted that these documents are being filed for the first time before the Tribunal and therefore the assessee has filed a petition for admission of additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963 requesting the Bench to admit the same. The Ld. AR further submitted that the assessee has a good case on merits and since the case of the assessee could not be properly adjudicated on merits before the lower authorities due to ex-parte assessment, the issue may be set aside to the file of the Ld. AO for fresh adjudication.
Page 5 of Poreddy Sambasiva Reddy vs. ITO 6. Per contra, the Learned Departmental Representative (“Ld. DR”) strongly objected to the request of the assessee and submitted that adequate opportunities had already been provided by both the lower authorities. However, the assessee failed to avail the said opportunities and did not furnish any explanation or documentary evidence before the Ld. AO as well as before the Ld. CIT(A). Therefore, the Ld. DR submitted that the assessee should not be given another opportunity and the orders of the lower authorities deserve to be upheld.
We have heard the rival submissions and perused the material available on record. It is an undisputed fact that the assessee did not file any return of income for the Assessment Year 2018–19 and also did not respond to the notices issued during the reassessment proceedings. Consequently, the Ld. AO completed the assessment ex-parte and treated the entire deposits of Rs.5,67,57,068/- in the bank account of the assessee as unexplained money under section 69A of the Act. During the course of hearing before us, the assessee has filed certain additional evidences including bank statements of the assessee as well as bank accounts of M/s Rekha Wines, copies of income tax returns, Form 26AS and financial statements of the proprietors of the said concerns. The assessee has also filed a petition for admission of these documents as additional evidence under Rule 29 of the Income Tax Appellate Tribunal Rules, 1963. On perusal of the said documents, we find that the additional evidences filed by the assessee go to the root of the issue involved in the present appeal as the assessee has taken a specific plea that the Page 6 of Poreddy Sambasiva Reddy vs. ITO deposits in his bank account represented sale proceeds of wine shops belonging to the said proprietors. Therefore, in the interest of justice, we deem it appropriate to admit the additional evidences filed by the assessee. At the same time, we find that as per the documents placed on record, the sale of liquor for the period from 01.04.2017 to 30.06.2017 relates to M/s Rekha Wines and the sale of liquor for the period from 01.07.2017 to 31.03.2018 relates to M/s Chandana Wines. However, it is also noticed that the entire proceeds of the year have been transferred by the assessee to the bank account of M/s Rekha Wines, and no amount appears to have been transferred by the assessee during the year under consideration to the bank account of M/s Chandana Wines. Further, the assessee has submitted that the entire deposits in his bank accounts is related to M/s. Rekha Wines and M/s. Chandana Wines, to which both the concerns have offered the same in their respective returns of income. The addition of the same amount in the hands of the assessee will amount to double taxation. Therefore, in our considered opinion, these aspects require proper verification at the end of the Ld. AO along with examination of the additional evidences filed by the assessee. Accordingly, considering the totality of facts and circumstances of the case and in the interest of justice, we deem it appropriate to set aside the orders of the lower authorities and restore the matter to the file of the Ld. AO for fresh adjudication on merits. The Ld. AO shall examine the additional evidences filed by the assessee and decide the issue afresh in accordance with law after providing proper opportunity of being heard to the assessee. The assessee shall be at liberty to file all supporting evidences Page 7 of Poreddy Sambasiva Reddy vs. ITO before the Ld. AO including the additional evidences filed before this Tribunal. The assessee is also directed to co-operate with the Ld. AO in the set-aside proceedings and shall not seek unnecessary adjournments.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on 13th March, 2026.