VATADI KRISHNARAO,PALAKOLE vs. ITO, WARD - 1,, PALAKOLE

Succinctly stated, the A.O., based on the information gathered by him under the Risk Management Strategy formulated by the Board in the insight portal of the Income Tax Department, observed that though a perusal of the current bank account of the assessee revealed substantial business transactions, but he had not filed his return of income for the year under consideration, thus initiated proceedings under section 147 of the Act. The AO, based on the aforesaid facts, issued a show-cause notice under section 148A(b) of the Act, dated 07.02.2024. As the assessee had failed to come forth with any reply, therefore, the AO, with the approval of the competent authority passed an order under section 148A(d) of the Act, dated 12.03.2024. Notice under section 148 of the Act, dated 26.03.2024, was thereafter issued by the A.O., but the assessee failed to file his return of income in compliance thereto.

During the course of the assessment proceedings, the A.O. observed that a perusal of the Current Account no. 50200013716503 held by the assessee with HDFC Bank Limited revealed that he during the subject year was engaged in a business activity. Although the A.O. had called upon the assessee to explain the sources of the cash deposits as well as the cash withdrawals made by him from his aforementioned bank Account, but the assessee failed to furnish the requisite

As the assessee had failed to furnish the requisite details, therefore, the A.O. issued to the assessee a show-cause notice under section 144 of the Act dated 12.10.2024, but the same was also not replied by him. Apart from that, the notice issued to the assessee under section 142(1) of the Act through the Verification Unit (“VU”) was also not responded by him.

The A.O., on a perusal of the bank account of the assessee, observed that he had, during the subject year, made cash withdrawals of Rs. 3,10,73,200/- and cash deposits of Rs. 68,000/- in his aforesaid bank account. On a perusal of the record, the A.O. observed that there were credits of Rs. 3,87,49,501/- (including cash deposits of Rs. 68,000/-) in the subject bank account of the assessee. As the assessee had neither filed his return of income nor come forth with any reply to the specific queries that were raised by the A.O., therefore, the latter proceeded to frame the assessment to the best of his judgment under section 144 of the Act.

The A.O. based on his observation that during the subject year, there were substantial credits (including cash deposits) in the assessee’s bank account no. 50200013716503 with HDFC Bank Ltd., against which amounts were withdrawn through cash and other modes, concluded that though the assessee was engaged

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

Ostensibly, the CIT(A) observed that it was an undisputed fact that the amount of Rs. 3,87,49,501/- (supra) credited in the subject bank account of the assessee was his business turnover. The CIT(A) observed that as the assessee had against the total credits (including cash deposits) of Rs. 3,87,49,501/- carried out withdrawals of Rs. 3,10,73,200/- from his aforementioned bank account, therefore, he was left with a surplus of Rs. 76,76,301/-. The CIT(A) backed up his aforesaid observation, held a firm conviction that as the surplus available with the assessee of Rs.76,76,301- (supra) was substantially more than the addition of Rs. 38,74,950/- that was estimated by the AO as the profit derived by the assessee from his business activity, thus, there was no reason to dislodge the view taken by him. Accordingly, the CIT(A) finding no substance in the appeal filed by the

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

Mrs. K. Hema Latha, CA, Learned Authorised Representative (for short, “Ld. AR”) for the assessee, at the threshold of the hearing of the appeal, submitted that the controversy involved in the present appeal lies in a narrow compass. Elaborating on her contention, the Ld.AR submitted that both of the authorities below had admitted that the amount of Rs. 3,87,49,501/- (including cash deposits) made during the subject year in the aforementioned bank account of the assessee was sourced out of his business receipts. The Ld. AR submitted that the assessee

The Ld. AR on specifically being queried as to on what basis it was being claimed that the assessee during the subject year was engaged in the business of a commission agent/facilitator in prawn culture, had drawn our attention to the bank statement of the assessee wherein the subject credits/deposits of Rs.3,87,49,501/- (supra) were made during the year under consideration (Page No. 19 to 26 of the APB). The Ld. AR submitted that a single glance over the bank statement revealed that the substantial amounts credited in the said bank account through NEFT/RTGS etc., were received from certain parties which were engaged in the business of marine food. Apart from that, the Ld.AR had drawn our attention to the fact that the amounts credited in the bank account of the assessee in the normal course of his business of a commission agent in prawn culture were either directly transferred to the supplier parties or withdrawn for making payments to the said parties. The Ld. AR submitted that the estimation of the profit/income made by the A.O. was highly exorbitant and devoid and bereft of any basis or logical reasoning. The Ld. AR to buttress her contention had pressed into the service the order of the ITAT, Visakhapatnam Bench in the case

Per contra, the Learned Senior Departmental Representative (for short, “Ld. DR”) vehemently objected to the seeking of the scaling down of the income /profit element from 10% as determined by the A.O. to 0.4% as was canvased by the Ld. AR. Elaborating on his contention, the Ld. DR submitted that a perusal of the bank statement of the assessee not only revealed transfer of amounts to the suppliers of marine products but also witnessed a substantial amount of cash withdrawal on a number of occasions. Apart from that, the Ld. DR supported the order of the CIT(A), who, considering the fact that a substantial surplus of Rs. 76,76,301/- was left with the assessee on a conjoint perusal of the deposits/ withdrawals made from the subject bank account, had supported the estimation of the profit/income by the AO at an amount of Rs. 38,74,950/-. The Ld. DR

I have given thoughtful consideration to the contentions advanced by both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to prove her contention.

Admittedly, it is a matter of fact discernible from the record and accepted both by the AO and the CIT(A) that the amount of Rs. 3,87,49,501/- (supra) credited in the bank account of the assessee during the subject year was sourced from his business activities. In fact, the estimation of the profit/income by the A.O., which, thereafter, had been approved by the Ld. CIT(A) are both founded on the very basis that the amounts credited in the subject bank account of the assessee are his business receipts. However, I find that though both the authorities below had observed that the amounts credited in the assessee’s bank account are sourced from his business receipts but there is no whisper in either of the orders as to what business was being carried out by the assessee during the year under consideration. I find that the assessee in the statement of facts filed before the CIT(A) had specifically stated that he was, during the subject year, engaged in

Be that as it may, I find that my indulgence has been sought to adjudicate as to what would be the fair estimation of the income of the assessee in the backdrop of the totality of the facts involved in the present case. However, before adverting to the core issue regarding the quantification of the income of the assessee, it is required to be adjudicated that on what basis it can be conclusively held that the assessee during the subject year was solely engaged in the business of a commission agent in prawn culture. I cannot remain oblivion of the fact that the receipts in the bank account of the assessee might find their source in the multi-facet streams of business activities which the assessee might have carried out during the year under consideration, wherein the business of a commission agent/facilitator of prawn culture business could be one of such sources of his income. However, a perusal of the bank account of the assessee does not inspire much confidence that the assessee, during the subject year, was in receipt of amounts from entities other than those engaged in the marine food business. At the same time, I cannot remain oblivion of the fact that on multiple occasions,

In my view, the matter in all fairness requires to be revisited by the A.O, but for a limited purpose. The AO is directed to verify the veracity of the claim of the assessee that the debit/credits in his subject bank account, i.e., HDFC Bank Account No. 50200013716503, during the subject year were solely comprised of the transactions pertaining to his business of a commission agent/facilitator in prawn culture business. At the same time, I am conscious of the fact that as more than eight years have elapsed from the end of the subject year under consideration, therefore, each and every debit/credit entry evidencing the aforesaid transactions cannot be conclusively established by the assessee, who as observed by us hereinabove, had not even maintained any books of accounts for the subject year. But still, the fact that the assessee during the subject year was actually carrying out business transactions as a commission agent/facilitator of marine food items can safely be gathered. I say so, for the reason that the credits in the bank accounts of the assessee are from limited number of parties who are stated to have made the payments through the assessee, i.e., a commission agent/facilitator for the purchase of the marine products/sea food through him. If that be so, the assessee would not be confronted with any problem in getting the confirmation letters from the aforementioned parties to support his claim that he,

I, thus, in terms of my aforesaid deliberations set-aside the matter to the file of the AO, but for the limited purpose of verifying the assessee’s claim that the transactions in his bank account during the subject year only pertained to the aforesaid stream of business and not otherwise. In case, the assessee is able to substantiate his aforesaid claim by placing on record confirmation letters of the parties from whom the amounts were received and credited in his bank account stating that the amounts so transferred/remitted by them to the bank account of the assessee was only in his status as that of a commission agent of prawn culture business for making onward payments to the suppliers, then the A.O is directed to compute the income of the assessee on the total credits amounting to Rs. 3,87,49,501/- @ 0.4% as had been adopted by the Tribunal in the case of ITO v. M/s. MHM Fish Packers & Ors. (supra).

Before parting, we deem it apposite to observe that the view taken by the CIT(A) that the fact that there was an excess of the credits over the withdrawals of Rs.76,76,301/- (supra) in the bank account of the assessee justified the addition of Rs.38,74,950/- made by the AO i.e., about one-half of the surplus of the income over expenditure, I am unable to concur with the same. As stated by the Ld.AR,

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