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Facts
The assessee, a commission agent for fruit sales, did not file an income tax return for AY 2018-19. The AO initiated reassessment proceedings under Section 147, noting significant withdrawals from the assessee's bank account. The AO estimated the income at 8% of the turnover and completed the assessment.
Held
The Tribunal held that the notice issued under Section 148 was valid as the time for approval was extended due to time granted for the assessee's reply. However, regarding the addition, the Tribunal found that the estimation was made without proper documentary support and due to the assessee's non-cooperation.
Key Issues
1. Validity of notice issued under Section 148 of the Act. 2. Addition of Rs. 26,25,166/- made by the AO.
Sections Cited
139, 147, 148, 148A, 151, 144, 149
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
(निर्धारण वर्ा/Assessment Year:2018-19) Shri Rakesh Palepu, Income Tax Officer, Vs. Ward-1, Nalgonda. Devarakonda. PAN:BOFPP3061J (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri B. Sri Harsha, C.A. रधजस् व द्वधरध/Revenue by: Ms. P. Sumitha, SR-DR सुिवधई की तधरीख/Date of hearing: 22/07/2025 घोर्णध की तधरीख/Pronouncement: 25/07/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by Shri Rakesh Palepu (“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 20.01.2025 for the Assessment Year 2018-19.
The grounds of appeal raised by the assessee are as under :
3. The brief facts of the case are that, the assessee is an individual engaged in the business of acting as a mediator between farmers and purchasers of fruits on commission basis. The purchasers make payments to the assessee by cheque, and the assessee thereafter withdraws cash from his bank account and, after deducting commission, pays the balance to the farmers. For the year under consideration, the assessee had not filed any return of income under Section 139 of the Income Tax Act, 1961 (“the Act”). Based on information gathered, the Learned Assessing Officer (“ Ld. AO ”) found that the assessee had withdrawn Rs.2,01,90,000/- from his bank account. Consequently, proceedings were initiated under Section 147 of the Act, and notice under Section 148 of the Act was issued to the assessee. During the reassessment proceedings, the Ld. AO noted total credits of Rs.3,28,14,586/- in the assessee’s bank account, for which the assessee failed to submit proper documentary evidence. Accordingly, the Ld. AO estimated the income of the assessee at 8% of the said turnover and completed the assessment under Section 147 read with Section 144 of the Act on 16.03.2024, determining total income at Rs.26,25,166/-.
4. Aggrieved with the order of Ld. AO, the assessee filed an appeal before the Ld. CIT(A), but did not comply with the notices issued in the appellate proceedings. Consequently, the Ld. CIT(A) dismissed the appeal in limine.
5. Aggrieved with the order of Ld. CIT(A), the assessee is now in appeal before the Tribunal. At the outset, the learned Authorised Representative (“Ld. AR”) submitted that the appeal involves two issues i.e. (i) Validity of notice issued under Section 148 of the Act and (ii) addition of Rs.26,25,166/- made by Ld. AO.
As far as the validity of issue of notice under section 148 is concerned, the Ld. AR invited our attention to the said notice issued on 20.04.2022, wherein it was recorded that the same was issued with the approval of the Principal Commissioner of Income Tax (“PCIT”).
It was submitted that as the notice was issued beyond the period of three years from the end of the relevant assessment year, in view of the provision contained under Section 151(ii) of the Act, the approval of the Principal Chief Commissioner or Chief Commissioner of Income Tax was required. Since such approval was obtained from PCIT instead of the Principal Chief Commissioner or Chief Commissioner of Income Tax, the Ld. AR contended that the notice issued under Section 148 of the Act was invalid and without jurisdiction.
With regard to addition of Rs.26,25,166/-, the Ld. AR submitted that the assessee had received funds by cheque from purchasers of fruits and acted merely as a commission agent. The funds were withdrawn and paid to farmers after retaining commission. The assessee had submitted details of persons from whom he received cheques before the Ld. AO, but was unable to submit confirmation letters from the farmers on whose behalf the transactions were carried out. In the absence of confirmations, the Ld. AO treated the entire credit as turnover and estimated income at 8%. The Ld. AR submitted that the assessee may be given one more opportunity to produce the relevant confirmations and supporting documents to substantiate the nature of his business and flow of funds. It was submitted that the matter may be remanded to the Ld. AO with a direction to consider additional evidence and decide the issue afresh.
As far as the legal issue with regard to validity of issue of notice under section 148 of the Act is concerned, the learned Departmental Representative (“Ld.. DR”) strongly opposed the contention of the assessee. He submitted that the Ld. AO had issued a notice under clause (b) of Section 148A on 26.03.2022 and had granted 23 days’ time to the assessee for furnishing a reply. Referring to the first proviso to Section 151 r.w. 5th proviso to section 149(1), the Ld. DR submitted that such time period granted to the assessee for reply under Section 148A(b) of the Act is to be excluded while computing the limitation for taking approval of prescribed authority under Section 151 of the Act. Accordingly, the outer time limit for issuance of notice under Section 148 got extended up to 23.04.2022. Since the notice was issued on 20.04.2022, it was well within the time limit of 3 years. Therefore, as per the provisions of Section 151 read with its first proviso, only approval of the Principal Commissioner or Commissioner of Income Tax was required, which was duly obtained. Therefore, the Ld. DR submitted that the notice under Section 148 of the Act has been issued with the approval of proper authority and is valid.
As far as the addition of Rs.26,25,166/- is concerned, the Ld. DR submitted that despite being given several opportunities, the assessee failed to produce any confirmations or documentary evidence before the Ld. AO or the Ld. CIT(A). Therefore, the estimation made by the Ld. AO was reasonable under the circumstances. He opposed any further opportunity being granted to the assessee at this stage.
We have considered the rival submissions and perused the material available on record. As far as the validity of notice under Section 148 is concerned, as submitted by the Ld. DR, the Ld. AO had issued a notice under clause (b) of Section 148A on 26.03.2022 and granted the assessee 23 days time to respond. The same facts was not disputed by the Ld. AR also. We found that, as per the first proviso to Section 151 r.w. 5th proviso to section 149(1), such time period granted to the assessee for reply under Section 148A(b) of the Act is to be excluded while computing the limitation for taking approval of prescribed authority under Section 151 of the Act. Accordingly, the outer time limit for issuance of notice under Section 148 got extended up to 23.04.2022. Since the notice was issued on 20.04.2022, it was well within the time limit of 3 years. Therefore, as per the provisions of Section 151 read with its first proviso, only approval of the Principal Commissioner or Commissioner of Income Tax was required, which was duly obtained. In view of this, we find no infirmity in the issuance of notice under Section 148. The legal objection raised by the assessee is, therefore, dismissed.
As far as the issue of addition of Rs.26,25,166/- is concerned, it is the consistent case of the assessee that he acted as a commission agent, receiving funds by cheque from fruit purchasers, withdrawing cash from his bank account, retaining commission, and paying the balance to farmers. Though the assessee had submitted names of the payers and amount received from the payer, he failed to furnish confirmation letters from the farmers due to which the Ld. AO treated the entire bank credits of Rs.3,28,14,586/- as turnover and estimated income @ 8%. We find that this estimation was made in the absence of proper documentary support and due to non-cooperation by the assessee. However, before us, the assessee has undertaken to furnish necessary confirmations and supporting documents, if given an opportunity. In the interest of justice, we deem it appropriate to provide one final opportunity to the assessee to furnish such evidence. Accordingly, we set aside the assessment order and remand the matter to the file of the Ld. AO with a direction to allow the assessee reasonable opportunity to file additional evidence and to decide the issue afresh in accordance with law.
In the result, the appeal of the assessee is partly allowed for statistical purposes.