Loading judgment…
Facts
The assessee, engaged in wholesale supply of poultry feed ingredients, declared an income of Rs. 15,89,860 for AY 2017-18. The Assessing Officer (AO) observed large cash deposits of Rs. 5.19 crores in the assessee's bank account. The assessee claimed these were from sales to poultry farmers, but the AO found the explanation and supporting details insufficient.
Held
The Tribunal observed that the assessee's audited profit of 2.2% on sales of Rs. 7.56 crores could not be summarily discarded. However, the AO's rejection of books of account was also not entirely without merit. The Tribunal found substance in the assessee's contention that cash deposits were from regular business transactions.
Key Issues
Whether the AO was justified in treating cash deposits as suppressed turnover and estimating profit thereon, and whether the CIT(A) erred in confirming the AO's additions without considering the assessee's explanations and supporting documents.
Sections Cited
143(3), 145, 143(2), Chapter VIA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: Shri Manjunatha G. & Shri Ravish Sood
ORDER PER. RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 26/06/2025, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 143(3) of the Income Tax Act, 1961 (for short, “the Act”), dated 24/12/2019 for the Assessment Year (AY) 2017-18. The assessee has assailed the impugned order of the CIT(A) on the following grounds of appeal:
1. 1. 1. 1. 1. 1. Raghu Ram Reddy Padoori vs. ITO “1) The order of the learned CIT (A) is erroneous both on facts and in law. 2) The learned CIT (A) ought to have considered the fact that the Assessing Officer did not provide proper opportunity and completed the assessment without considering the explanations. 3) The learned CIT (A) is not justified in confirming the action of the Assessing Officer in rejecting the books of account and in applying the provisions of Sec. 145 of the 1.T.Act. 4) The learned CIT (A) ought to have considered the fact that the purchases and sales are all verifiable and the accounts are properly maintained by the appellant and the Assessing Officer is not justified in rejecting the books of account. 5) As an alternative the learned CIT (A) ought to have considered the fact that in the nature of business the profit cannot be 8% as estimated by the Assessing Officer and should have accepted the income as admitted by the appellant in the books of account particularly when the books of account are audited and are supported by the vouchers and invoices. 6) the learned CIT (A) is not justified in confirming the action of the Assessing Officer in treating the cash deposits made into the bank account of Rs. 5,19,00,000/- as a separate turnover without considering the fact that the said amount is included in the total turnover of Rs.7,56,46,060/-. 7) the learned CIT (A) ought to have seen that the cash deposited is from out of the total turnover of Rs.7,56,46,060/- and the amount of cash deposited of Rs.5.19 crores cannot separately be considered. 8) The learned CIT (A) ought to have accepted the fact that the amount of cash deposited of Rs.5.19 crores is already included in the total turnover of Rs.7,39,06,201/- and, therefore, the learned CIT (A) ought to have deleted the addition of Rs.41,52,000/- made by the Assessing Officer; 9) The learned CIT (A) ought to have seen that the addition made of Rs.41,52,000/- would amount to double taxation of the same income arising from the same turnover and that the Assessing Officer is not justified in assessing the income of Rs.41,52,000/-separately. 10) The learned CIT (A) erred in confirming the action of the Assessing Officer in estimating the total income at Rs.1,02,03,685/- without considering the detailed explanation submitted by the appellant. 11) Any other ground/grounds that may be urged at the time of hearing.”
Raghu Ram Reddy Padoori vs. ITO 2. Succinctly stated, the assessee filed his return of income for the AY 2017-18 on 13/12/2017 declaring an income of Rs.15,89,860/-. Subsequently, the case of the assessee was selected for “limited scrutiny” under CASS to verify “large cash deposits in bank account(s) during the year”. Thereafter, a notice under section 143(2) of the Act, dated 13/08/2018 was issued and served upon the assessee.
During the course of the assessment proceedings, the AO observed that the assessee had made cash deposits of Rs.5,19,18,000/- in his bank account during the subject year. On being queried, it was claimed by the assessee that he was engaged in the business of wholesale supply of Poultry Feed Ingredients to the Poultry Farms in and around Hyderabad. Elaborating further, it was the assessee’s claim that he had a clientele of 25 poultry farmers who would purchase poultry feed ingredients and make the payments in cash on the very same evening. The assessee submitted that he would deposit the sale proceeds in his bank account on the next day. It was further stated by him that he could not deny receiving cash sale proceeds from the farmers and had no other option but to accept the payments made by them in cash.
The AO did not find favour with the explanation advanced by the assessee for the reason that the source of the cash deposits was not verifiable. It was observed by him that the assessee had failed to place
Raghu Ram Reddy Padoori vs. ITO on record the complete details of the poultry farmers in and around Hyderabad from whom he was in receipt of the cash sale proceeds and had supplied the poultry feed ingredients. Also, it was observed by him that the assessee had failed to place on record the complete details of the farmers to substantiate his explanation. The AO based on his aforesaid deliberations held a firm conviction that the assessee had failed to discharge the onus that was cast upon him to explain the source of the cash deposits made in his bank account during the subject year. Apart from that, the AO observed that the assessee who was engaged in the business of supply of poultry feed ingredients ought to have produced his books of accounts to explain the cash deposits with reference to the sales disclosed as per his audited financial accounts amounting to Rs.7.56 crores. The AO based on his aforesaid observations was of the view that as the assessee had failed to produce the books of accounts, therefore, it could safely be concluded that the cash deposits made by him in his bank account did not form part of his total turnover of Rs.7.56 crores. Accordingly, the AO based on his aforesaid observations held the cash deposits of Rs.5.19 crores (approx.) made by the assessee in his bank account during the subject year as his suppressed business turnover and determined the profit/income element on the same @ 8%, i.e., at Rs.41,52,000/-.
Raghu Ram Reddy Padoori vs. ITO 5. The AO further observed that the assessee on his sales of Rs.7,56,46,060/- had disclosed a gross income of Rs.17,39,859/-, which after claiming deduction under Chapter VIA of Rs.1,50,000/- was scaled down to an amount of Rs.15,89,860/-. The AO was of the view that as the assessee had failed to produce his books of accounts and proper supporting evidence, therefore, his claim of having earned profit of 2.2% only on the disclosed turnover of Rs.7.56 crores did not merit acceptance. Accordingly, the AO worked out the profit/income element on the disclosed turnover of the assessee of Rs.7.56 crores @ 8% and substituted the income disclosed by the assessee in his return of income by an amount of Rs.60,51,685/-. Accordingly, the AO vide his order passed under section 143(3) of the Act, dated 24/12/2019 determined the income of the assessee at Rs.1,02,03,685/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.
Raghu Ram Reddy Padoori vs. ITO 9. Shri S. Rama Rao, Advocate, Learned Authorized Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal, submitted that both the authorities below had grossly erred in law and facts of the case in making/sustaining the impugned additions, viz., (i) estimation of the profit/income on the disclosed turnover of Rs.7,56,46,040/- @ 8%: Rs.60,51,685/-; and (ii) estimation of profit/income @ 8% of cash deposits of Rs.5.19 crores: Rs.41,52,000/-. The Ld. AR submitted that the assessee who is a wholesaler of poultry feed ingredients had disclosed the profit of Rs.16,24,322/- on its duly accounted sales of poultry feed ingredients of Rs.7.56 crores as per his audited financial statements. The Ld. AR submitted that the profit/income disclosed by the assessee from his aforesaid stream of business of wholesale sale of poultry feed ingredients was in conformity with his trade line and also the profit disclosed by him in the succeeding years. The Ld. AR to buttress his claim had drawn our attention to the Profit & Loss account for the immediately succeeding years, i.e., FY 2017-18 and FY 2018-19, wherein the net profit was disclosed @ 2.2% of sales. Elaborating further on his contention, the Ld. AR submitted that the AO had grossly erred in observing that the cash deposits of Rs.5.19 crores (supra) made in the bank account of the assessee was sourced out of his unaccounted sales, whereas the fact was that the said cash deposits
Raghu Ram Reddy Padoori vs. ITO formed part of his duly accounted sale transactions. The Ld. AR to support his claim that the aforesaid cash deposits made in the bank accounts during the subject year was sourced out of his poultry business had drawn our attention to the cash book for the year under consideration, Page No.28 to 33 of APB. The Ld. AR to further substantiate his claim that the assessee was engaged in the business of wholesale trading of poultry feed ingredients had drawn our attention to the copy of the ledger account of the assessee as appearing in the books of account of M/s. Sneha Farms Pvt Ltd from whom purchases of poultry feed were made during the year under consideration, Page Nos.34 to 55 of APB. Also, the Ld. AR had taken us through the copy of the bank accounts of the assessee concern, viz., M/s. Sagar Poultry Needs, viz., (i) HDFC Bank account No.50200012341456; and (ii) Canara Bank account No.2818214000011, wherein the purchases/sale transactions of its business stood reflected. The Ld. AR submitted that the cash deposits in the bank accounts of the assessee which in turn were sourced from the accounted sale proceeds of his poultry business were primarily utilized for making payments towards purchase of poultry feed ingredients from M/s. Sneha Farms Pvt Ltd, etc. Further, the Ld. AR had placed before us “charts” which revealed the multiple transactions of the assessee concern, viz., M/s. Sagar Farms Limited spread over the Raghu Ram Reddy Padoori vs. ITO period 02/04/2016 to 30/03/2017. The Ld. AR submitted that as the aforesaid material facts had not been considered by the AO while framing the assessment, the matter in all fairness be set aside to the file of the AO with a direction to re-frame the assessment after affording a reasonable opportunity of being heard to the assessee and taking cognizance of the aforementioned documents/evidence.
Per contra, Ms. Aditi Goyal, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) relied upon the orders of the authorities below. The Ld. Sr-DR submitted that as the assessee had failed to come forth with an explanation regarding the cash deposits in his bank account and also had failed to produce his bank accounts to support the profit disclosed by him in his return of income, therefore, the AO in absence of any material had rightly framed the assessment and made the additions in the hands of the assessee.
We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties. In our view, there is a substance in the Ld. AR’s claim that as the profit of Rs.17,39,859/- disclosed by the assessee on its sales of poultry feed ingredients of Rs.7.56 crores (approx.) was based on its audited books of accounts, therefore, the same could not have been summarily discarded. At the same time, we cannot remain oblivion of the fact that Raghu Ram Reddy Padoori vs. ITO as the assessee had failed to produce his books of accounts in the course of the assessment proceedings, therefore, the AO could not have summarily accepted the book results disclosed by the assessee as per its audited financial statements.
Apart from that, we are of the prima facie view that based on the documents/bank statements, financial statements as have been produced by the assessee before us, there is a substance in the Ld. AR’s contention that the cash deposits of Rs.5.19 crores (supra) made by the assessee in his bank accounts during the subject year were sourced from his regular business transactions and form part of his disclosed turnover.
Be that as it may, we are of the firm conviction that the matter requires to be revisited by the AO and therein a fresh assessment order be passed after considering the aforementioned documents that have been produced by the assessee before us and considering his explanation regarding the additions made in his case, viz., (i) cash deposits of Rs.5.19 crores made in his bank accounts; and (ii) the profit disclosed against the accounted sales of Rs. 7.39 crores. We thus, in terms of our aforesaid observations set aside the matter to the file of the AO with a direction to re-frame the assessment. Needless to say, the AO shall in the course of the set aside proceedings afford a reasonable
Raghu Ram Reddy Padoori vs. ITO opportunity of being heard to the assessee who shall remain at liberty to substantiate his contentions based on fresh documentary evidence, if any.
Resultantly, the appeal filed by the assessee is allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the open court on 20th February, 2026.