KURRI NARASIMHA RAO,HYDERABAD vs. INCOME TAX OFFICER, WARD-1, KOTHAGUDEM

Succinctly stated, the A.O., based on information gathered from the AIMS module from ITBA that though the assessee had, 3 Kurri Narasimha Rao during the subject year, made substantial cash deposits of Rs. 1,15,57,500/- in his bank account, but had not filed his return of income for the year in question, initiated proceedings under Section 147 of the Act. Notice under Section 148 of the Act, dated 31.03.2021, was issued to the assessee. In compliance, the assessee filed his return of income, declaring an income of Rs. 3,36,930/-.

During the course of assessment proceedings, the assessee, on being queried about the source of investment of Rs. 1,15,57,500/- made in his bank account during the year under consideration, submitted that there were only cash deposits of Rs. 38,52,500/- made in his bank account which were sourced out of the commission income earned by him during the year. However, the A.O. partly accepted the explanation of the assessee and observed that, as he had earned commission income, therefore, there was no justification for him to have computed his income under Section 44AD of the Act. Accordingly, the A.O., in the absence of any explanation forthcoming regarding the source of cash deposits of Rs. 1,15,57,500/-, treated the same as his unexplained investment under Section 69 of the Act. As such, the 4 Kurri Narasimha Rao A.O. vide his order under Section 147 r.w.s. 144 r.w.s. 144B of the Act, dated 23.03.2022, determined the income of the assessee at Rs. 41,89,430/-.

The assessee, being aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

We have heard the Ld. Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as the judicial 6 Kurri Narasimha Rao pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

Shri K.A. Sai Prasad, C.A. the learned Authorized Representative (for short “Ld.AR”) for the assessee, at the threshold of hearing of the appeal, submitted that the A.O. had grossly erred in law and on facts of the case in assuming jurisdiction for initiating proceedings under Section 147 of the Act. Elaborating on his contention, the Ld. AR submitted that though the A.O. had initiated the reassessment proceedings on the ground that there were cash deposits of Rs. 1,15,57,500/- in the assessee's bank account during the subject year, but, the fact was that the total cash deposits in the said bank account during the year under consideration aggregated to Rs. 38,52,500/-. The Ld. AR submitted that, in the absence of any valid assumption of jurisdiction, the impugned assessment framed by the A.O. vide his order under Section 147, dated 23.03.2022, could not be sustained and is liable to be struck down on the said count itself.

The Ld. AR, in support of his contention, had relied upon the order passed by the ITAT Hyderabad in the case of Somnath Konduru Vs. ITO, International Taxation-1, Hyderabad in ITA 7 Kurri Narasimha Rao No.179/Hyd/2024 dated 21.04.2025 and ITAT, Camp Bench, Jalandhar in the case of Sh. Gaurav Joshi Vs. ITO, Ward – 1(5), Jalandhar in dated 16.01.2019.

On merits, the Ld. AR submitted that the assessee, who is a resident of Manuguru, i.e., a remote area, was working as an agent/mediator for various automobile shops, wherein he would procure orders from the customers, who wanted to purchase vehicles and would deposit the purchase consideration in his bank account, which thereafter would be remitted/transferred by him to the concerned Automobile Agency, and, in lieu thereof, he would receive commission income from both the parties.

The Ld. AR, to buttress his claim, had taken us through the copy of the bank account of the assessee (culled out by the CIT(A) in his order) and also the respective amounts that were remitted/transferred from the bank account of the assessee to certain automobile dealers, viz. (i). M/s.Sai Anjana Motors; and (ii). M/s. Varun Motors. Accordingly, the Ld. AR submitted that now when the source of the subject cash deposits of Rs. 38.52 lac (supra) appearing in the assessee's bank account during the year under consideration was sourced out of the cash collections made 8 Kurri Narasimha Rao by the assessee from the customers, who had purchased the vehicles through him, there was no justification for the A.O. to have drawn any adverse inference, much less held the subject cash deposits, as the assessee's unexplained investment under Section 69 of the Act.

Per contra, Ms. P. Sumitha, the learned Senior Departmental Representative (for short “Ld. DR”) relied upon the orders of the lower authorities.

At the threshold of hearing, we may herein observe, that, as the A.O. had before him information received from the AIMS module of the ITBA portal, that the assessee had, during the subject year, made cash deposits of Rs.1,15,57,500/- in his bank account, therefore, based on the said information, he had validly formed a bona fide belief that, as the assessee had not filed his return of income for the year under consideration, therefore, his income to the said extent chargeable to tax had escaped assessment.

We are unable to concur with the Ld. AR that, now when the actual cash deposits in the bank account of the assessee during 9 Kurri Narasimha Rao the subject year aggregated to Rs. 38,52,500/-, therefore, the very assumption of jurisdiction by the A.O. for initiating the impugned reassessment proceedings was found to be based on misconceived and wrong facts. As at the stage of initiating the reassessment proceedings, the A.O. had before him information gathered from the AIMS module of ITBA that the assessee had made cash deposits of Rs.1,15,57,500/-, therefore, we are of a firm conviction that he had based on the material available before him arrived at a bona fide belief that the income of the assessee chargeable to tax had escaped assessment. We, thus, are of firm conviction that as the bona fide belief arrived at by the AO that the income of the assessee chargeable to tax had escaped assessment, based on which he had initiated the reassessment proceedings, has a clear nexus with the material available before him. At this stage, we may observe that what is required at the stage of reopening of an assessment is the existence of a nexus between the material available with the AO, based on which he had arrived at a bona fide belief that the income of the assessee chargeable to tax has escaped assessment. Our conviction is fortified by the judgment of Hon'ble Supreme Court in the case of 10 Kurri Narasimha Rao Raymond Wollen Mills Ltd. Vs. ITO & Ors. (1999) 236 ITR 34 (SC), wherein it has been held that what is required for validly initiating proceedings u/s 147 of the Act is the availability of some material on the basis of which the department could reopen the case, and the sufficiency and correctness of the material is not a thing to be considered at that stage. For the sake of clarity, the observations of the Hon’ble Apex Court are culled out as under:

We thus, in terms of our aforesaid deliberations, are unable to persuade ourselves to subscribe to the contention of the Ld. AR that the A.O. has wrongly assumed jurisdiction for initiating 11 Kurri Narasimha Rao proceedings under Section 147 of the Act in the hands of the assessee.

On merits, we find substance in the Ld. AR's claim that the assessee had, during the subject year, acted as an agent/ mediator for the automobile shops and the customers, who wanted to purchase vehicles and, in lieu thereof, was in receipt of commission income from them. Rathe, we find that the A.O., while framing the assessment at Page 2 - Para 5 of his order, had himself admitted that the assessee, during the subject year, had earned commission income.

Be that as it may, we find, on a perusal of the assessee's bank account No. 085310021002701 that there is an aggregate of Rs. 24.75 lacs that had been transferred/remitted by the assessee to the aforementioned automobile dealers, i.e., M/s. Sai Anjana Motors and M/s. Varun Motors, as under:

We thus, in terms of the aforesaid facts are of a firm conviction that to the extent of an amount of Rs. 24.75 lacs (supra), that have been transferred by the assessee to the above- mentioned automobile dealers, it can safely be inferred that the amount to the said extent was collected by the assessee, as an agent/mediator from the customers and thereafter remitted/ transferred through the banking channels to the said vehicle dealers viz. (i). M/s. Sai Anjana Motors and (ii). M/s. Varun Motors. Our aforesaid conviction is all the more fortified by the fact that the transfer/remittance of the aforementioned amount to the vehicle dealers is immediately preceded by the cash deposits in the bank account of the assessee. Accordingly, we partly accept the assessee's claim that the cash deposits to the extent of Rs. 24.75 lacs (supra) was sourced out of the collections by the assessee, as an agent/mediator from the customers, which thereafter were transferred/remitted to the respective dealers.

We thus, in terms of our aforesaid deliberations, modify the order passed by the CIT(A) and direct the A.O. to sustain the addition in the hands of the assessee under Section 69 of the Act to the extent of Rs. 13,77,500/-.

Resultantly, the appeal filed by the assessee is partly allowed in terms of our aforesaid observations.