SIMHACHALAM KARRI,KRISHNA DISTRICT vs. INCOME TAX OFFICER, WARD-1, GUDIVADA

Page No. 2 & 92/Viz/2025 Simhachalam Karri vs. ITO with documentary evidence. In response, the assessee has stated that the deposits are out of sale proceeds of liquor and furnished the copy of the bank account statement. On a perusal of the assessee’s submissions and on verification of the P & L Account, the Ld. AO noticed that the assessee has shown total sales of Rs. 1,57,25,890/- and declared net profit of Rs. 4,54,586/- which is too low compared to the same business activities carried on by the assessees in the same line of business. The assessee has explained that the reason for low profit is due to margin given by the Department of Prohibition and Excise, Govt of Andhra Pradesh and license fee and permit room fees has been paid to the Excise Department. However, the Ld. AO did not accept the submissions and the reasons advanced by the assessee and therefore, the Ld. AO issued a show cause notice dated 02/03/2023 proposing the addition and requested the assessee to furnish the reply on 09/03/2023. Thereafter, the Ld. AO observed that since the assessee has not proved the genuineness of low profit declared with supporting documentary evidence, the net profit has been estimated @ 10% on the sales declared of Rs. 1,57,25,890/- which works out to Rs. 15,72,589/- . Thus, the difference in net profit of Rs.11,18,003/- (Rs. 15,72,589 – Rs. 4,54,586/- already declared in the return of income) is treated as ‘business income’ and brought to tax. Further, the Ld. AO also observed that on verification of the capital account, though the assessee has Page No. 3 & 92/Viz/2025 Simhachalam Karri vs. ITO shown opening capital of Rs. 28,87,407/- in the return of income filed, the assessee has not furnished any documentary evidence in respect of opening capital. Therefore, in the absence of any documentary evidence, the Ld. AO treated the opening capital shown to the extent of Rs. 28,87,409/- as unexplained cash credit and brought to tax U/s. 68 of the Act and taxed U/s. 115BBE of the Act. Further, the Ld. AO also initiated the penalty proceedings U/s. 270A and U/s. 271AAC of the Act. Thus, the Ld. AO completed the assessment U/s. 143(3) r.w.s 144B of the Act and determined the total income at Rs. 44,60,002/- against the returned income of Rs. 4,54,590/-. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A).

“1. The Ld. CIT(A) is erred in facts and law while passing the order. 2. The Ld. CIT(A) is not justified in confirming the addition of Rs. 11,18,003/- representing estimation of total income by the AO at 10% of the gross sales. 3. The Ld. CIT(A) is not justified in confirming the addition made by the AO of Rs. 28,87,409/- representing the cash deposits in the bank account as unexplained cash credit U/s. 68 of the Act.

Page No. 4 & 92/Viz/2025 Simhachalam Karri vs. ITO 4. The Ld. CIT(A) is not justified in adjudicating the appeal on the technical grounds that there was no compliance to the notices issued from time to time. The CIT(A) would have afforded another opportunity of being heard.

7. On the facts and circumstances of the case, the Ld. CIT(A) would have appreciated that when once the income is determined on estimation, no further addition based on same books of account can be made.

8. The appellant craves leave to add, amend, alter, vary and / or withdraw any or all the above grounds of appeal.”

5. At the outset, the Ld. AR submitted before us that the Ld. CIT(A) had passed ex-parte order without providing proper opportunity to the assessee of being heard. Ld. AR further submitted that the Ld. AO erred in estimating the profit without rejecting the books of accounts of the assessee and such assessment made is invalid. The Ld. AR further submitted that once the income of the assessee is determined on estimation, no further addition can be made based on the same books of account. The Ld. AR also submitted the Ld. AO did not consider the submissions / explanation of the assessee with regard to the sources of Page No. 5 & 92/Viz/2025 Simhachalam Karri vs. ITO credits in the capital account which are through banking channels. Further, the Ld. CIT(A) also did not consider the assessee’s petition filed under Rule 46A of the IT Rules, 1962 to substantiate the submissions of the assessee. Therefore, the Ld. AR pleaded that the assessee may be provided with one more opportunity to pursue his case before the Ld. AO.

6. Ld. DR on the other hand objected to the submissions of the Ld. AR and argued that sufficient opportunities had been provided to the assessee, however, on the given dates of hearing, neither the assessee nor his Representative appeared before the Ld. CIT (A). Ld. DR further submitted that even before the Ld. A.O. though the assessee got sufficient opportunity to substantiate his case, the assessee failed to do so. Under these circumstances, the Ld. CIT (A) had no other option but to pass ex-parte order based on the materials available on record. Hence, it was pleaded that the orders passed by the Ld. Revenue Authorities do not call for any interference and appeal of the assessee may be dismissed.

Page No. 6 & 92/Viz/2025 Simhachalam Karri vs. ITO to pass ex-parte order based on the material available on record. In our opinion the Ld. CIT(A) ought to have decided the case on merits instead of dismissing the appeal ex-parte. Further, from the order of the Ld. AO we find that while resorting to estimate the profit of the assessee, the AO did not reject the books of accounts of the assessee U/s. 145 of the Act. Further, the Ld. AO ought to have considered the submissions of the assessee with regard to the sources of credits in the assessee’s capital account and decide the case on merits. In this situation, we find strength in the arguments advanced by the ld. AR. Therefore, considering the prayer and the submissions of the Ld. AR and the issues involved in the appeal, in the interest of justice, we hereby remit the matter back to the file of Ld. AO for de-novo consideration thereby providing one more opportunity to the assessee of being heard. At the same breath, we also hereby caution the assessee to promptly co- operate before the Ld. Revenue Authorities in their proceedings failing which the Ld. Revenue Authorities shall be at liberty to pass appropriate orders in accordance with law and merits based on the materials on the record. It is ordered accordingly.

Page No. 7 & 92/Viz/2025 Simhachalam Karri vs. ITO (AY: 2018-19) 9. This appeal is filed by the assessee is directed against the order of the Ld. CIT(A), NFAC vide DIN & Order No. ITBA/NFAC/S/250/2024- 25/1072118598(1), dated 13/01/2025 arising out of the order passed U/s. 271B of the Act, dated 22/09/2023. 10. The assessee has raised the following grounds of appeal:

1. The Ld. CIT(A) is erred in facts and law while passing the order.

2. The Ld. CIT(A) is not justified in confirming the penalty levied by the AO of Rs. 78,630/- U/s. 271B of the Act.

3. The Ld. CIT(A) is not justified in confirming the penalty levied on technical ground by stating that there was no compliance to the various notices by the appellant. The Ld. CIT(A) ought to have afforded a further opportunity of being heard before dismissing the appeal in view of principles of natural justice.

4. The Ld. CIT(A) would have appreciated that the books of account were in fact duly got audited however such report was not filed within the time which is only a technical breach and therefore, would have allowed the appeal.

5. The appellant craves leave to add, amend, alter, vary and / or withdraw any or al the above grounds of appeal.”

11. In quantum appeal of the assessee in Ld. AO for deciding the issues de-novo. Since, the appeal pertains to the penalty levied by the Ld. AO U/s. 271B of the Act, ensuing our decision on the quantum appeal in (supra), this penalty appeal is also Page No. 8 & 92/Viz/2025 Simhachalam Karri vs. ITO remitted back to the file of the Ld. AO to decide the case in tune with the quantum appeal. Accordingly, grounds raised by the assessee are allowed for statistical purposes.