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Facts
The assessee, engaged in telecom distribution and earning salary/commission, had total receipts of ₹1,45,14,005 and a cash deposit of ₹43,50,000. The AO initiated proceedings under Section 147/148 for non-filing of return and made additions for unexplained income and cash deposit.
Held
The Tribunal held that treating gross receipts as unexplained income is contrary to settled jurisprudence and that outright rejection of agricultural income claim without inquiry is unwarranted. It found merit in the assessee's request for a fresh opportunity.
Key Issues
Whether the AO was justified in treating gross receipts as unexplained income and rejecting the agricultural income claim without proper inquiry and opportunity. Whether the disallowance of expenses was arbitrary.
Sections Cited
147, 148, 69A, 145
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Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 30/05/2024 in DIN No. ITBA/NFAC/S/250/ 2024-25/1065248374(1) for the assessment year 2017-18.
2. The core interconnected grievance of the assessee is that the ld. CIT(A) erred in confirming the additions made by the AO without granting a fair and reasonable opportunity of being heard and without considering the nature and documents submitted by the assessee.
The assessee is an individual and engaged in the business of distribution of telecom-related services and also earns salary income and commission from Touchpoint Tele Services Pvt. Ltd. and Bharti Airtel Ltd. The Revenue, based on information received from third-party sources, found that the assessee had received income aggregating to ₹1,45,14,005 during the relevant previous year. Additionally, there was a cash deposit of ₹43,50,000 in the assessee’s bank account with the State Bank of Hyderabad.
The AO initiated proceedings under section 147/148 of the Income Tax Act, noting that no return had been filed for the relevant year. Upon issuance of notices and further inquiry, there was reportedly no satisfactory response from the assessee. Consequently, the AO made two additions: 1. ₹1,45,14,005 – being the total gross receipts (assumed as unexplained income),
₹43,50,000 – being the cash deposit, added u/s 69A as unexplained as unexplained money.
In appellate proceedings, the ld. CIT(A) partially allowed relief to the assessee by: • Deleting ₹8,25,000 identified as salary income,
• Sustaining the balance additions by disallowing 70% of the expenses claimed in the absence of supporting evidence,
• Confirming the addition of ₹43,19,900 as unexplained cash deposit due to insufficient justification about its source and regarding agricultural income.
Being aggrieved by the order of Ld. CIT-A, the assessee in is in appeal before us.
The learned AR before us submitted that:
• The assessee had declared a net profit of 19% on turnover, which aligns with industry benchmarks in the telecom distribution sector.
• Detailed ledgers and vouchers supporting the salary and indirect expenses were available and could be submitted if the matter is restored.
• The cash deposit was primarily sourced from business turnover and agricultural income, and supporting documents would be produced if the matter is restored.
On the other hand, the learned DR, while expressing doubts on the genuineness of the agricultural income claim, did not object to the matter being remanded to the AO for a fresh and comprehensive verification.
We have duly considered the rival submissions and examined the material available on record. From the preceding discussion, we note that the assessee operates in the telecom distribution business, where commissions and related technical service receipts are the norm. Declaring a net profit rate of 19% is not unusual for such businesses and, prima facie, cannot be brushed aside without a comparative analysis or rejection of books of accounts under section 145 of the Act.
9.1 However, the AO treated the gross receipts as unexplained income, which is contrary to settled jurisprudence. Gross receipts, especially from known parties like Bharti Airtel and Touchpoint Tele Services Pvt. Ltd., cannot be taxed in totality without considering the associated expenses and the nature of the income.
9.2 Similarly, while the assessee’s claim of ₹10 lakhs from agricultural income may require verification, outright rejection without inquiry is unwarranted. At the very least, an inquiry into land ownership, cultivation details, and bank flow statements should be made.
9.3 Though the expenses were disallowed by ld. CIT(A), it is clear that some evidence (such as month-wise wage statements) was available. A blanket disallowance of 70% is arbitrary in the absence of a detailed rebuttal or verification exercise.
9.4 In light of the above discussion, we find merit in the assessee’s request for a fresh opportunity. Accordingly, we are of the considered view that the interest of justice would be served by restoring the matter to the file of the AO. The assessee is directed to fully cooperate in the proceedings and furnish all necessary evidence within the time allowed. Accordingly, the impugned order of the ld. CIT(A) is set aside, and the matter is restored to the file of the Assessing Officer for fresh adjudication as per the provisions of law. Hence, the ground of appeal of the assessee is allowed for statistical purposes.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in court on 26th day of May, 2025