ALOK KUMAR SIMHARAJU,HYDERABAD vs. ITO., WARD-3(4), HYDERABAD

Succinctly stated, the assessee, who is engaged in the business of sale of digital cameras under the name and style of M/s. SVR Digital Shopee, had filed its return of income for A.Y. 2017-18 on 10.10.2017, declaring an income of Rs. 6,53,179/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Section 143(2) of the Act, to verify the cash deposits made by him during the demonetization period.

During the course of assessment proceedings, the assessee furnished the requisite details that were called for by the A.O., viz., Form 3CB, Computation of total income, Profit and Loss Account, Balance Sheet, Ledger Accounts, etc. The assessee on being queried about the source of the cash deposits made during the demonetization period in his bank account, submitted that the same were sourced out of the sale proceeds of his business. The A.O., to verify the aforesaid claim of the assessee, called upon him to produce the books of accounts, sales receipts, bills and vouchers, sale invoices, along with sale ledgers, etc. In reply, it was the assessee's claim that as his books of accounts were lying with the Sales Tax Department, therefore, the same could not be produced. However, the assessee filed before the Assessing Officer the “Audit Report” (up to December 2016), along with the debit vouchers of the expenses. 4. The A.O., taking cognizance of the fact that the assessee, despite specific directions, had failed to produce books of accounts, sale bills, sale ledgers, bills and vouchers, etc., called upon him to explain as to why his books of accounts may not be rejected under Section 145(3) of the Act and his income be 4 Alok Kumar Simharaju estimated @ 8% of the total sales. Also, the A.O. called upon the assessee to explain as to why the cash deposits of Rs. 43.40 crores deposited by him during the demonetization period in his bank account may not be treated as unexplained cash credit and brought to tax. 5. In reply, the assessee, vide his reply dated 20.12.2019, submitted that he was maintaining regular books of accounts and that the relevant details of the same had been filed. Also, the assessee, referring to his gross profit/net profit ratio for the last four years, claimed that the same during the year under consideration was well in conformity with those of the preceding years. 6. Apropos the cash deposit of Rs. 18.50 lacs made in the bank account during the demonetization period, the assessee had submitted before the A.O. that the same were sourced out of his business sale proceeds, the bills in support of which were already placed on record. 7. The A.O., on a perusal of the reply filed by the assessee in the backdrop of the material available on record, observed that a 5 Alok Kumar Simharaju perusal of the bank statements revealed that the cash deposits in the assessee’s bank accounts were followed up by immediate regular payments to the suppliers/vendors through NEFT and RTGS. 8. The A.O., in the backdrop of the aforesaid facts, held a firm conviction that as the assessee despite specific direction vide letters dated 16.12.2019 and 19.12.2019, had failed to come forth with the details regarding the sale receipts, bills, and vouchers, etc., thus, held a conviction that the veracity of the income disclosed by the assessee could not be held to be reliable. Accordingly, the A.O. rejected the books of accounts of the assessee under Section 145(3) of the Act and estimated his profit/income from business @ 2% of the total sales of Rs. 9,30,32,829/- i.e., at Rs. 18,60,656/-. 9. The CIT(A), taking cognizance of the fact that the assessee, despite specific directions, had failed to produce complete books of accounts, sales receipts, and invoices to substantiate the declared turnover, thus, did not find any infirmity in the view taken by the A.O. who had after rejecting the books of accounts of the assessee under Section 145(3) of the Act estimated his income

The assessee, being aggrieved by the order of the CIT(A), has carried the matter in appeal before us. 11. Shri B. Koteswara Rao, C.A., the learned Authorized Representative (for short, “Ld.AR”) for the assessee, at the 7 Alok Kumar Simharaju threshold of hearing of the appeal, submitted that the A.O. had grossly erred in law and on facts of the case in estimating the income of the assessee at an high pitched amount of Rs. 18,60,656/-. Elaborating on his contention, the Ld. AR submitted that as the gross profit/net profit ratio of the assessee for the subject year was much in conformity with those of the last three preceding years, therefore, there was no justification for the A.O. to have drawn adverse inference, much less estimated the same @2% of the turnover i.e. at Rs. 18,60,656/-. The Ld. AR submitted that, in the backdrop of the facts involved in the present case, the impugned addition made by the A.O. by determining the income of the assessee at Rs. 18,60,656/- cannot be sustained and is liable to be vacated. 12. Per contra, Shri Pavitran Kumar J, the learned Senior Departmental Representative (for short “Ld. DR”) relied upon the orders of lower authorities. The Ld. DR submitted that as the assessee had failed to substantiate his book results by producing the books of accounts, sale bills, etc., therefore, the A.O. had rightly rejected the books of accounts under Section 145(3) of the 8 Alok Kumar Simharaju

Before parting, we may herein observe that, as we have adjudicated upon the subject issue before us based on the “net profit rates” as had been made available by the assessee in his submissions filed before the CIT(A), therefore, the A.O. is at liberty to check the veracity of the same while giving effect to our aforesaid order. 18. Resultantly, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations. Order pronounced in the Open Court on 06th August, 2025. (श्री मिुसूदन सावधिया) (MADHUSUDAN SAWDIA) लेखा सदस्य/ACCOUNTANT MEMBER (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER

निर्धाररती/The Assessee : Alok Kumar Simharaju, 2-3-763/1, Golnaka, Hyderabad – 500013, Telangana. 2. रधजस्व/ The Revenue : Income Tax Officer, Ward -3(4), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file