Kolluri Indu Sekhar Vs DCIT (ITAT Bangalore)
Calling ₹1 Crore a “Customer Advance” Is Only the Opening Entry: Identity, Creditworthiness & Genuineness Still Matter u/s 68-Bangalore ITAT Orders Fresh Verification
Summary: The Bangalore ITAT restored to the AO an addition of ₹1 crore u/s 68, claimed to represent an advance received for supplying palm oil. Since no goods were ultimately supplied, the amount was repaid after nearly three years with interest & adequate evidence regarding the creditor’s creditworthiness & genuineness of the transaction had not been furnished, the true nature of the credit required fresh examination. The connected addition arising from estimation of profit at 1% of turnover was also restored for verification of quantitative records.
Unsecured Loans of ₹2.23 Crore Added u/s 68
The assessee was an individual carrying on palm-oil trading business as proprietor of Sidhi Oil Traders. He filed his return for AY 2017-18 declaring total income of ₹14,58,870.
The return was selected for scrutiny to examine cash deposits made during the demonetisation period & unsecured loans. The AO noticed an increase of approximately ₹2.22 crore in unsecured loans.
The assessee furnished confirmations from various parties containing their names, addresses, PANs, amounts advanced & assessment particulars. However, the AO was not satisfied about the creditworthiness of 11 creditors or the genuineness of the transactions. He accordingly made an addition of ₹2,23,50,000 u/s 68.
The assessee had also deposited cash aggregating to ₹3,18,40,500 in its IDBI Bank & Punjab National Bank accounts, representing about 13.87% of turnover. Since the trading results were separately estimated, the AO did not make an independent addition for these cash deposits.
Profit Estimated Without Quantitative Details
The AO observed that despite being a trader, the assessee had not furnished quantitative details of purchases, sales & stock. He therefore estimated net profit at 1% of gross sales, arriving at ₹22,96,439 against the disclosed profit of ₹14,45,573. The difference of ₹8,50,867 was added.
Before the CIT(A), the assessee argued that his books were audited & had not been rejected by identifying any specific defect. Mere non-maintenance or non-production of quantitative details, according to him, could not justify an arbitrary profit estimate.
The CIT(A) called for a remand report & issued reminders, but no report was received from the AO. He thereafter issued a detailed questionnaire directly to the assessee.
₹1 Crore Allegedly Received for 250 MT of Palm Oil
Of the credits examined, ₹1 crore was received from Shakthi International Private Limited. The assessee produced a letter dated 30.04.2016 on the company’s letterhead stating that the amount had been remitted through Axis Bank as an advance for purchasing 250 metric tonnes of palm oil.
The CIT(A), however, found that no confirmation of an unsecured loan had been furnished. The letter was unsupported by sale bills, vouchers, weighment slips, transport receipts or evidence demonstrating an actual supply of goods. Admittedly, no palm oil was ultimately supplied to the company.
Accordingly, the CIT(A) questioned the authenticity & true character of the transaction. He confirmed the addition of ₹1 crore, while deleting the balance of the addition made by the AO u/s 68. He also confirmed the profit addition of ₹8.51 lakh because the assessee failed to produce its books & supporting material despite being specifically called upon to do so.
Repayment & TDS Did Not End the Enquiry
Before the Tribunal, the assessee produced repayment details & Form 16A evidencing TDS on interest paid u/s 194A. The ledger showed that ₹1 crore had been credited on 30.04.2016 & repaid in six instalments between 27.12.2018 & 24.02.2021. The aggregate amount eventually paid to the party was approximately ₹2.05 crore, including a payment of ₹1 crore through Axis Bank on 24.02.2021.
However, these details had not been furnished before the lower authorities. More importantly, the assessee had alternately described the amount as a customer advance, whereas repayment after three years together with interest suggested that its actual character required closer scrutiny.
The Tribunal rejected the broad proposition that s.68 could never apply merely because a credit was labelled as a customer advance. The description in the books or a letter from the payer does not conclusively establish the transaction.
Since goods were never supplied & interest was paid, the assessee was required to establish the identity & creditworthiness of Shakthi International Private Limited, as well as the genuineness of the ₹1-crore credit. The issue was accordingly restored to the AO for fresh adjudication.
Quantitative Records Get One More Chance
Regarding estimation of net profit, the Tribunal observed that the assessee failed to provide quantitative details before the AO & refused to reproduce them before the CIT(A), merely stating that they had already been filed earlier.
For a trader in palm oil, absence of quantitative records of purchases, sales & stock constituted a valid reason for questioning the book results. Nevertheless, the Tribunal granted one more opportunity & restored the issue to the AO.
The assessee was directed to furnish complete quantitative details. If the book results are supported by those records & no other defect is found, the AO must delete the estimated profit addition.
The appeal was consequently partly allowed for statistical purposes.
Author’s Comments
The order emphasises that repayment through banking channels & deduction of TDS on interest are relevant evidence, but they do not automatically establish a credit’s genuineness. A transaction initially described as an advance for goods, followed by no delivery, delayed repayment & payment of interest, naturally invites examination of whether it was actually a loan.
Similarly, audited books do not become untouchable when a trader cannot produce essential quantitative records. Audit lends credibility; it does not replace primary evidence.
The practical lesson is neat: an accounting label may introduce a transaction, but only evidence can complete its identity.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
The assessee/appellant, Shri Kolluri Indu Sekhar, has filed ITA No. 256/Bangalore/2026 for assessment year 2017–18 against the appellate order dated 28 October 2025 passed by the National Faceless Appeal Centre, Delhi (the learned CIT(A)). By that order, the CIT(A) partly allowed the assessee’s appeal against the assessment order dated 25 December 2019 passed under section 143(3) of the Income-tax Act, 1961 (the Act), by the Income Tax Officer, Ward–1(4), Tirupati (the learned Assessing Officer).
2. Aggrieved by the appellate order, the assessee is in appeal before us. Briefly, the assessee is an individual engaged in trading palm oil as proprietor of Sidhi Oil Traders. He filed his return of income on 31 October 2017 declaring total income of ₹ 14,58,870. The return was selected for scrutiny to examine cash deposits made during the demonetisation period and unsecured loans. Notices were issued, and the assessee furnished a computerised cash book for the period 14 November 2016 to 31 December 2016, along with other relevant information. The learned Assessing Officer noted an increase in unsecured loans of ₹ 222 lakhs during the year. The assessee furnished confirmations from various parties containing their names, addresses, PANs, amounts advanced, and assessment particulars. However, in respect of 11 parties, the learned Assessing Officer was not satisfied that the assessee had discharged the burden of proving the creditors’ creditworthiness and the genuineness of the transactions. Accordingly, unsecured loans of ₹ 2,23,50,000 were brought to tax under section 68 of the Income-tax Act. The learned Assessing Officer also observed that, although the assessee was a trader, he did not furnish quantitative details. The Assessing Officer therefore estimated profit at 1% of gross sales, which worked out to ₹ 22,96,439, as against the net profit of ₹ 14,45,573 disclosed by the assessee and added the difference. The Assessing Officer further noted cash deposits of ₹ 3,18,40,500 in the assessee’s IDBI Bank and Punjab National Bank accounts, representing 13.87% of total turnover. Since the assessment was completed by estimating net profit, no separate addition was made for these cash deposits. The assessment order was passed on 25 December 2019.
3. Aggrieved by the appellate order, the assessee preferred an appeal before the learned CIT(A). During the appellate proceedings, the assessee filed written submissions and placed on record the details furnished before the learned Assessing Officer. The assessee contended that the addition towards unsecured loans was made merely by comparing the opening and closing balances. It was further submitted that the addition of 1% of gross profit was made without rejecting the assessee’s books of account. Although the assessee was engaged in trading palm oil, the learned Assessing Officer could not have made an addition to the trading account without pointing out any defect in the books of account; mere non-maintenance of quantitative details did not render the books defective. As regards the unsecured loans, the assessee submitted that he had furnished the creditors’ identities, PANs, amounts advanced, assessment particulars, creditworthiness, and genuineness of the transactions. Accordingly, the assessee claimed that the initial onus under section 68 of the Income-tax Act had been discharged, and the learned Assessing Officer could not have made the addition without first shifting the onus back to the assessee.
4. During the appellate proceedings, the learned CIT(A) directed the Assessing Officer to furnish a remand report and issued reminders; however, no remand report was received. The learned CIT(A) therefore decided the issues based on the material available on record and issued a detailed questionnaire to the assessee regarding the addition made under section 68 of the Act. Although the assessee submitted a reply, the learned CIT(A) noted that, in respect of the credit of ₹ 1 crore from Shakthi International Private Limited, no confirmation for the unsecured loan had been furnished. The assessee produced a letter dated 30 April 2016 on the that company’s letterhead stating that ₹ 1 crore had been remitted as an advance for the purchase of 250 metric tonnes of palm oil. The learned CIT(A), however, questioned the authenticity of the letter because it was not supported by bills, vouchers, weighment slips, transport receipts, or similar evidence. Since no sale was made to that party and the nature and source of the credit remained unexplained, the learned CIT(A) confirmed the addition of ₹ 1 crore while partly deleting the remaining addition under section 68.
5. As regards the addition arising from estimation of profit at 1%, the learned CIT(A) held that the assessee failed to furnish the books of account and supporting documents despite being specifically asked to do so. The assessee merely stated that the documents had already been filed before the jurisdictional Assessing Officer and should be considered from those records. In these circumstances, the learned CIT(A) confirmed the addition of ₹ 8,50,867. Accordingly, the assessee’s appeal was partly allowed.
6. Aggrieved by the appellate order, the assessee is in appeal before us. Shri C. T. Satyanarayana, Advocate and authorised representative for the assessee, filed a paper book of 106 pages containing extracts of the submissions made before the lower authorities. With respect to the addition under section 68 of the Income-tax Act, he submitted that the assessee, a palm oil trader, had received ₹ 1 crore from Shakthi International Private Limited as an advance against the sale of palm oil. The party had confirmed the transaction by way of a letter furnished before the learned CIT(A); therefore, the addition under section 68 in respect of this amount was without merit. He further contended that section 68 does not apply to an advance received from a customer. As regards the addition made by estimating profit, he submitted that the assessee’s books of account were audited, and no defects had been pointed out. Accordingly, the lower authorities were not justified in making the addition.
7. The learned Departmental Representative strongly supported the orders of the lower authorities. He submitted that the addition of ₹ 1 crore was rightly confirmed under section 68 by the learned CIT(A), as the assessee had not furnished confirmation from the concerned party. Further, even though the assessee produced a letter stating that the amount was received as an advance against the sale of goods, the genuineness of the credit remained doubtful. He therefore submitted that the addition was correctly sustained. As regards the books of account, he contended that, although the assessee had produced some details before the learned Assessing Officer, he remained non-compliant before the learned CIT(A) despite being asked to produce the relevant details. Accordingly, no fault could be found with the order of the learned CIT(A).
8. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also examined the paper book filed by the assessee, which contains correspondence with the lower authorities and additional submissions.
9. The assessee’s first ground of appeal relates to the addition made by the learned Assessing Officer. Since the ground is general in nature and no specific arguments were advanced, it is dismissed.
10. The second ground of appeal alleges that the lower authorities failed to appreciate the assessee’s factual and legal position in the proper perspective and, therefore, that the assessment order should be set aside. As no specific arguments were advanced in support of this ground, it is also dismissed.
11. The third ground alleges violation of the principles of natural justice. However, no specific arguments were advanced by the assessee. We also find no such violation, as the assessee was granted adequate opportunity of hearing by the lower authorities, including the learned CIT(A), and partly complied with the proceedings. Accordingly, ground No. 3 is dismissed.
12. The fourth ground of appeal is also general in nature. It challenges the order as mechanical, hypothetical, arbitrary, and resulting in absurdity, but no specific arguments were advanced in support of these allegations. This ground is therefore dismissed.
13. Ground Nos. 5 and 6 concern the additions confirmed by the learned CIT(A), including the addition of ₹ 1 crore relating to the alleged advance received for the purchase of 250 metric tonnes of palm oil. The assessee submitted that the amount was received as an advance against the sale of palm oil and relied on a letter from Shakthi International Private Limited, repayment details, and Form 16A evidencing tax deducted at source on interest paid. The learned authorised representative referred to Annexure Q of the submissions. On examination, Annexure Q is a letter dated 30 April 2016 issued by Shakthi International Private Limited to the assessee, stating that ₹ 1 crore was paid through Axis Bank as an advance for the purchase of 250 metric tonnes of palm oil. The amount was credited in the assessee’s books on 30 April 2016 to the account of Shakthi International Private Limited and was repaid in six instalments between 27 December 2018 and 24 February 2021. The assessee ultimately paid ₹ 2.05 crore to that party, including ₹ 1 crore through Axis Bank on 24 February 2021. Although the assessee produced the Axis Bank account reflecting repayment and Form 16A for interest paid after deduction of tax under section 194A, these details were not furnished before the lower authorities. Further, no evidence was produced to establish the creditworthiness of the creditor or the genuineness of the credit. The material on record shows that, before the learned CIT(A), the assessee treated the credit as an advance against sale of goods. However, no goods were supplied, and the amount was repaid after about three years along with interest. The nature and genuineness of the credit, including whether it was a loan or an advance against sale, therefore require further verification. The assessee has not produced a proper confirmation and has relied only on a letter stating that the amount represented an advance. Since the goods were never supplied and interest was paid on the amount, the relevant facts require examination. Accordingly, Ground Nos. 5 is restored to the file of the learned Assessing Officer. The assessee shall establish, in terms of section 68 of the Income-tax Act, the identity and creditworthiness of Shakthi International Private Limited and the genuineness of the ₹ 1 crore credit. The learned Assessing Officer shall examine the details furnished by the assessee and decide the issue afresh in accordance with law.
14. As regards the addition made by estimating net profit at 1% of turnover, we find that the assessee did not furnish the required details before the learned CIT(A), despite repeated opportunities. The assessee merely stated that the details had already been filed before the Assessing Officer and need not be furnished again. It is therefore evident that the assessee failed to produce the relevant material before the learned CIT(A). The learned Assessing Officer rejected the book results primarily because the assessee, being a trader in palm oil, did not furnish quantitative details of purchases and sales. In the case of a trader, absence of such quantitative details is a valid reason to reject the book results. Considering that the assessee failed to furnish the details before the learned CIT(A) and did not produce the quantitative records before the learned Assessing Officer, this issue is also restored to the file of the learned Assessing Officer. The assessee shall produce the quantitative details before the learned Assessing Officer. If the book results are supported by such details and no other defect is found in the books of account, the addition shall be deleted. The learned Assessing Officer shall decide the issue afresh in accordance with law.
15. Accordingly, Ground Nos. 5 and 6 are restored to the file of the learned Assessing Officer for fresh adjudication.
16. Ground No. 7 challenges the assessment order as high-pitched. In view of our decision on Ground Nos. 5 and 6, this ground is dismissed.
17. Ground No. 8 is general in nature. As no arguments were advanced in support of this ground, it is dismissed.
18. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 31st August, 2026.
