Shivalingaiah Gangadhar Vs PCIT (ITAT Bangalore)
Revision Survives, Cash Addition Doesn’t: ITAT Orders a Clean Recount u/s 144 Read With 263
Summary:
In Shivalingaiah Gangadhar v. PCIT, the Bangalore ITAT decided two appeals for AY 2015–16. The assessee, a cement trader, returned income of ₹3,08,854. An ex parte assessment u/s 144 estimated profit at 8% on deposits of ₹1,90,61,760, added ₹5,02,426 as unexplained investment & disallowed Chapter VI-A deduction of ₹1,21,500, determining income at ₹20.27 lakh.
The PCIT found that cash deposits of ₹1,01,38,052 & cheque deposits of ₹34,74,750 in other accounts remained unexamined. Although the assessee produced three bank statements besides the ledger & confirmation of Maruti Traders, necessary enquiry was missing. Invoking section 263, the PCIT directed fresh assessment.
In the consequential proceedings, the assessee did not respond to notices. Maruti Traders also failed to reply to a notice u/s 133(6). The AO treated the deposits as unexplained, made an addition of ₹1,36,82,372 u/s 68 after reducing disclosed income, then added this to income already assessed. The CIT(A), proceeding ex parte after three unanswered notices, largely confirmed the assessment but removed a duplicate addition of ₹10,94,588. The assessee challenged both the section 263 order & consequential assessment.
Issues Before the Tribunal
The first issue was whether unexamined bank accounts justified revision. The second was whether the consequential AO could treat deposits as unexplained despite earlier recognising them as business turnover, without considering existing evidence or granting effective hearing.
Assessee’s Submissions
The assessee argued that all deposits arose from his cement-trading business. Cash deposits represented proceeds from cement-bag sales, while purchases were made from Maruti Traders. Bank statements, ledger account & supplier confirmation had already been furnished before the PCIT & were specifically recorded in the revision order. The AO nevertheless ignored this evidence merely because the supplier did not independently respond u/s 133(6).
It was submitted that cement trading ordinarily earns only 1% to 2% net margin; even 8% was excessive. More importantly, the original AO regarded deposits as turnover, whereas the consequential AO treated the deposits themselves as income, without any such PCIT direction.
On natural justice, the assessee said notices from the CIT(A) went to an old consultant’s email address & were never received. Had an effective opportunity been given, the business source, bank accounts & Maruti Traders records could have been explained. Therefore, the ex parte orders deserved to be set aside.
Revenue’s Contentions
Revenue supported both orders. Unexamined accounts made the assessment erroneous & prejudicial to Revenue. Four AO notices & three appellate notices remained unanswered. CIT(A) notices went to the email stated in Form 35; compliance was the assessee’s responsibility. The authorities therefore decided from available material.
ITAT’s Findings on Revision u/s 263
The Tribunal found no infirmity in the PCIT’s jurisdiction. The original AO had failed to examine material cash & cheque deposits appearing in multiple accounts. Such non-verification directly affected determination of taxable income & satisfied both statutory conditions of error plus prejudice. The direction to conduct fresh assessment after considering the assessee’s reply & relevant accounts was justified. Consequently, the appeal against section 263 was dismissed.
Findings on Consequential Assessment
The ITAT reached a different conclusion regarding the second assessment. The AO had neither granted an effective hearing nor considered documents already furnished during revision. The PCIT had expressly recorded production of Maruti Traders’ account, yet the AO ignored it because the supplier failed to answer u/s 133(6). A third party’s silence could not, by itself, justify treating deposits as unexplained without examining the assessee’s cement business.
The original assessment treated deposits as business turnover & estimated profit; the consequential assessment treated substantially the entire deposits as income. These diametrically opposite approaches rested on the same facts. Further, the PCIT had directed the AO to redo the assessment, not mechanically add deposits over income previously assessed. The later assessment & CIT(A)’s confirmation were therefore unsustainable.
However, because the assessee had repeatedly remained unrepresented, the ITAT did not delete the addition outright. It restored the entire assessment to the AO for de novo determination. The AO must consider existing records & fresh evidence, grant reasonable opportunity & recompute income in its entirety, including matters arising from the original assessment. The assessee may raise all issues but bears the burden of proving that deposits came from cement trading rather than undisclosed sources. The second appeal was allowed for statistical purposes.
Practical Implications
The ruling distinguishes a valid revision from an invalid consequential method. Failure to examine bank accounts may justify section 263, but it does not authorise the AO to automatically treat gross bank credits as income. Business deposits require examination of turnover, purchases, margins, fund rotation & supporting ledgers. Taxpayers must maintain updated portal emails & respond promptly; non-compliance may forfeit immediate relief. Yet even ex parte assessment must respect existing evidence, natural justice & the precise scope of revisionary directions.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
1. These are two appeals filed by Mr. Shivalinghaia Gangadhara (the assessee/appellant) for Assessment Year 2015-16. ITA No. 1324/Bangalore/2025 challenges the revisionary order dated 12 March 2020 passed under section 263 of the Income Tax Act, 1961 (the Act) by the Principal Commissioner of Income Tax-3, Bangalore [the learned CIT]. By that order, the assessment order dated 26 December 2017 passed under section 144 of the Act by the Income Tax Officer, Ward-1, Ramnagar [the learned AO] was held to be erroneous and prejudicial to the interests of the Revenue, and the AO was directed to redo the assessment afresh. ITA No. 1325/Bangalore/2025 is filed against the appellate order dated 25 February 2025 passed by the National Faceless Appeal Centre (NFAC), Delhi [the learned CIT(A)], whereby the assessee’s appeal against the assessment order dated 28 September 2021—passed under section 144 read with sections 263 and 144B of the Act by the National Faceless Assessment Centre—was partly allowed ex parte. The assessee is therefore aggrieved.
2. The Assessee has raised the following grounds of appeal:
ITA No. 1324/Bang/2025:
1. The impugned revision order passed by the learned Principal commissioner of Income Tax, Bengaluru – 3 [“PCIT”], under section 263 of the Income Tax Act 1961 [“the Act”] insofar as it is against the Appellant, is opposed to law, weight of evidence’ natural justice and probabilities on the facts and circumstances of the Appellant’s case.
2. The impugned revision order passed by the learned PCIT under section 263 of the Act is without jurisdiction on facts and circumstances of the case.
3. The learned PCIT is not justified in law and on facts to set aside the assessment order passed under section 144 of the Act dated 26.12.2017, on the facts and circumstance of the case.
4. The learned PCIT is not justified in passing an order under section 263 of the Act, as the assessment order passed under section 144 of the Act, was pursuant to proper enquiry by the learned Assessing officer on the facts and circumstances of the case.
5. The impugned revision order passed by the learned PCIT under section 263 of the Act is on account of change of opinion which is impermissible in law on facts and circumstances of the case.
6. The learned PCIT has grossly erred in revising the order passed by the learned Assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the learned PCIT is ultra vires to the scope of section 263 of the Act and hence, bad in law on the facts and circumstances of the case.
ITA No. 1325/Bang/2025:
1. The order passed by the learned Commissioner of Income Tax (Appeals), NFAC, (“CIT(A)”), under section 250 of the Income Tax Act, 1961(“the Act”) insofar as it is against the Appellant, is opposed to law, weight of evidence, natural justice and probabilities on the facts and circumstances of the Appellant’s case.
2. The learned CIT(A) erred in law in passing the impugned order ex parte without affording sufficient opportunity of hearing and consequently, such order is liable to be quashed on the facts and circumstances of the case.
3. The Appellant denies himself liable to be assessed at a total income of Rs. 1,46,15,148/- as against the returned income of Rs. 3,08,850/- on the facts and circumstances of the case.
4. The authorities below failed to appreciate that the computation of total income in the impugned assessment order passed under section 144 r.w.s. 263 of the Act dated 28.09.2021 ought to have started at the returned income of Rs. 3,08,850/- and not the assessed income of Rs. 20,27,364/- as per the assessment order passed under section 144 of the Act dated 26.12.2017 on the facts and circumstances of the case.
5. The learned CIT(A) is not justified in confirming the addition of Rs. 1,25,87,784/-being cash deposits and non-cash credits in the bank account of the Appellant as unexplained money under section 69A of the Act made by the learned Assessing Officer on the facts and circumstances of the case.
6. The authorities below failed to appreciate that the rigours of section 69A of the Act is not applicable to the present case of the Appellant on facts and circumstances of the case.
7. The learned CIT(A) failed to appreciate that the impugned assessment order under section 144 r.w.s. 263 of the Act dated 28.09.2021, is passed in violation of the directions issued by the Principal Commissioner of Income Tax – 3, Bengaluru in the order passed under section 263 of the Act dated 12.03.2020 and hence, bad in law on the facts and circumstances of the case.
8. The Appellant denies his liability to pay interest under sections 234A and 234C of the Act on the facts and circumstances of the case.
3. Briefly, the assessee is an individual engaged in the business of trading in cement. He filed his return of income on 7 October 2026 declaring total income of ₹3,08,854. The case was selected for verification of large cash deposits in his savings bank account. Consequently, an ex parte assessment order was passed under section 144 of the Act on 11 December 2017, determining total income at ₹20,27,364. The assessment included an addition by estimating profit at 8% on ₹1,90,61,760, after giving credit for income already disclosed at ₹10,94,588, a further addition of ₹5,02,426 as unexplained investment, and disallowance of the deduction claimed under Chapter VI-A amounting to ₹1,21,500.
4. Thereafter, the Principal Commissioner of Income Tax, Bangalore passed an order under section 263 of the Act on 12 March 2020, observing that two bank accounts with IndusInd bank, Indian bank had not been verified by the learned Assessing Officer. It was found that the assessee had deposited ₹1,01,38,052 in cash and ₹34,74,750 by cheque, which had been ignored while computing the assessee’s total income. The learned PCIT therefore considered the assessment order to be erroneous and prejudicial to the interests of the Revenue and issued a show-cause notice. In response, the assessee produced bank statements relating to IndusInd bank, Bank of Baroda and Indian Bank. And confirmation of Maruti Traders. However, the learned PCIT noted that the Assessing Officer had treated the balance cash deposits as sales and estimated business income at 8% of such deposits without examining details that had neither been produced nor enquired into during the assessment proceedings. Accordingly, the learned PCIT directed the Assessing Officer to redo the assessment. This revisionary order dated 12 March 2020 is also under challenge before us.
5. Pursuant to the revisionary order, the learned Assessing Officer assumed jurisdiction to reassess the assessee’s income and issued various notices. The assessee did not respond. The Assessing Officer also exercised powers under section 133(6) of the Act by calling for information from Maruti Traders, which had been referred to by the assessee before the Principal Commissioner of Income Tax; however, that party also failed to furnish any information. The Assessing Officer thereafter issued a notice under section 142(1) on 23 August 2021 requiring the assessee to furnish details, but no reply was filed. Consequently, the Assessing Officer proceeded to pass an assessment order under section 144 of the Act. He held that the assessee had failed to establish the source and genuineness of the cash and cheque deposits of ₹1,90,61,760 in the bank accounts. After reducing the income already offered, he made an addition of ₹1,36,82,372 under section 68 of the Act and added it to the income of ₹20,27,360 already assessed under section 144 by order dated 26 December 2017. This resulted in total assessed income of ₹1,57,09,736 by assessment order dated 28 September 2021.
6. Aggrieved by the assessment order, the assessee filed an appeal before the learned CIT(A), challenging the above addition. The learned CIT(A) noted that the appeal was delayed by 61 days and, after condoning the delay, admitted the appeal. The learned CIT(A) issued three notices to the assessee, but no response was received. He therefore proceeded on the basis of the statement of facts and submissions available on record and confirmed the action of the Assessing Officer. However, he granted relief to the extent of the duplicate addition of ₹10,94,588. Accordingly, the assessee’s appeal was effectively partly allowed.
7. Aggrieved by both appeals, the authorized representative of the assessee, Shri Hemant Pai, Advocate, submitted that the learned CIT(A) passed the order without granting the assessee a proper opportunity of hearing in the appeal arising from the assessment order passed pursuant to the revisionary order of the learned PCIT. He submitted that all cash deposits in the assessee’s bank accounts are related to the assessee’s cement business. Referring to the order passed under section 263 of the Act, he pointed out that the assessee had produced all bank accounts and explained that the cash deposits represented sale proceeds from cash sales of cement bags, while purchases were made from Maruti Traders.
The assessee had also furnished the ledger account and confirmation from Maruti Traders, as recorded by the learned PCIT in paragraph 4 of his order. Despite these facts, the Assessing Officer, in the second round of proceedings, again issued a notice under section 133(6) to Maruti Traders. Although Maruti Traders did not respond, the existing records and confirmations before the learned PCIT were not examined, and the Assessing Officer made a routine addition in the case of a small business assessee. He further submitted that the learned CIT(A) failed to appreciate the nature of the assessee’s cement agency business and that estimating profit at 8% was wholly unreasonable, unsustainable, and inconsistent with the realities of cement trading. According to him, in cement trading, purchases are made either from cement companies or other traders, and the net profit normally remains only around 1% to 2% after expenses. He also submitted that the learned CIT(A) stated that three notices were issued by email, but the assessee did not receive any of them. The last notice was issued on 10 February 2025 by email; however, as the notices were sent to the old consultant’s email address and were not received by the assessee, the learned CIT(A) ought to have verified and served notices at the correct or communicable email address. Failure to do so resulted in the appellate order being passed without giving the assessee an effective opportunity of hearing. He further submitted that it is unclear how the notices referred to in paragraphs 3 and 4 of the assessment order were served during the assessment proceedings, as the assessee did not receive them. He therefore contended that, since the assessee had appeared in the revisionary proceedings before the PCIT, it was unreasonable to presume that the assessee would not have explained that the cash deposits were sale consideration from business and that all bank accounts were duly recorded for determining his income.
8. The learned Commissioner of Income Tax, Shri N. S. Shashidhara, strongly supported the orders of the lower authorities. He submitted that the Principal Commissioner of Income Tax was justified in revising the assessment order passed under section 144 of the Act, as the Assessing Officer had failed to examine several bank accounts of the assessee. Since the necessary enquiry had not been conducted, the assessment order was rightly held to be erroneous and prejudicial to the interests of the Revenue, and the assessee’s appeal against the revisionary order under section 263 of the Act deserves to be dismissed. As regards the assessee’s other appeal, he submitted that the assessee failed to respond to four notices issued by the Assessing Officer and three notices issued by the learned CIT(A), and therefore the orders were passed in the assessee’s absence. He further submitted that the notices issued by the learned CIT(A) were sent to the email address furnished by the assessee in Form No. 35. It was the assessee’s duty to respond to such notices, and in the absence of any response, the Assessing Officer and the learned CIT(A) were required to decide the assessment and appeal on merits on the basis of the material available on record. He therefore contended that both lower authorities acted in accordance with law and that no fault could be found with their orders.
9. We have carefully considered the rival submissions and perused the orders of the lower authorities. In the first appeal, the learned CIT invoked section 263 of the Act because the Assessing Officer had failed to examine the amounts deposited by the assessee in cash and by cheque. We find no infirmity in the learned CIT’s exercise of revisionary jurisdiction. The assessment order was rightly held to be erroneous and prejudicial to the interests of the Revenue, as several bank accounts of the assessee had not been considered while determining his income. The matter was therefore set aside to the Assessing Officer for fresh assessment after considering the assessee’s reply and the relevant bank accounts. Consequently, the assessee’s appeal challenging the revisionary order under section 263 of the Act does not survive and is dismissed.
10. We now turn to the assessee’s second appeal, arising from the order passed under section 144 read with section 263 of the Income Tax Act. We find that the assessment order was made without affording the assessee an effective opportunity of hearing and without considering the details already furnished before the learned CIT in the revisionary proceedings. The learned CIT had specifically recorded in the revisionary order that the assessee had produced the statement of account of Maruti Traders, but the Assessing Officer did not examine it. Therefore, merely because Maruti Traders did not respond to the notice issued under section 133(6) of the Act, the Assessing Officer could not have made the addition without considering that the assessee was engaged in cement trading. In the earlier assessment order, the Assessing Officer had accepted the deposits as business turnover and estimated profit at 8% thereof. However, in the assessment framed pursuant to the revisionary order, although there was no direction from the learned CIT to treat the entire cash deposits as income, the Assessing Officer proceeded to do so. Thus, the two assessment orders reflect diametrically opposite approaches on the same facts. For this reason, the later assessment order cannot be sustained. The learned CIT(A) also failed to consider these aspects and the material furnished by the assessee before the Principal Commissioner of Income Tax. Since we have held that the assessment order passed pursuant to the revisionary proceedings is unsustainable, the appellate order confirming the same view also cannot be sustained.
11. However, since the assessee remained unrepresented and did not respond to the notices issued by the learned Assessing Officer and the learned CIT(A), we consider it appropriate, in the interest of justice, to restore the matter to the file of the learned Assessing Officer for a fresh assessment. The Assessing Officer shall redo the assessment in its entirety, including the issues arising from the original assessment, and redetermine the assessee’s total income on the basis of the material already available on record as well as the evidence now produced by the assessee. The burden shall remain on the assessee to establish that the deposits in the bank accounts do not represent undisclosed income but arise from the cement trading business carried on by him. The assessee shall be entitled to raise all issues, including those concluded in the original assessment, as the learned Principal Commissioner of Income Tax had directed the Assessing Officer to redo the assessment and not merely to make an addition to the income already assessed. We accordingly direct the learned Assessing Officer to pass a fresh assessment order after considering the assessee’s submissions, granting him reasonable opportunity of hearing, and ensuring that the assessee remains compliant during the proceedings.
12. In the result, ITA No. 1324/Bangalore/2025 filed by the assessee against the revisionary order passed under section 263 of the Act is dismissed, and ITA No. 1325/Bangalore/2025 for Assessment Year 2015-16, filed against the order of the learned CIT(A) dated 25 February 2025, is allowed for statistical purposes in the terms indicated above.
Order pronounced in the open court on 31st August, 2026.
