Abhiram Enterprises Vs DCIT (ITAT Bangalore)
Mere Difference Between Bank Deposits & GST Turnover Cannot Be Added Entirely U/s 69A; Arbitrary Profit Estimation Without Comparable Data Unsustainable: Bangalore ITAT
The assessee-firm, engaged in trading old newspapers and magazines, did not file its return or participate in the reassessment proceedings. Based on the bank statement and GST data, the AO estimated profit at 10% of GST turnover of ₹11.43 crore and made a further addition of ₹8.51 crore under section 69A, representing the difference between total bank deposits of ₹19.94 crore and GST sales. The CIT(A) dismissed the appeal without examining the merits due to a delay of 402 days.
The Bangalore ITAT condoned the delay, considering the closure of business, serious financial difficulties, limited education of the partners and lack of access to digital facilities. It admitted additional evidence comprising VAT and GST returns, details of three bank accounts, transaction summaries and the profit and loss account.
The Tribunal held that aggregate bank deposits could not be compared merely with GST turnover because GST was introduced only from 1 July 2017 and covered nine months of the financial year. The assessee claimed total turnover of approximately ₹15.81 crore after including VAT sales. Further, bank deposits included sales receipts, inter-bank transfers, capital introductions, loans, reversals and other business transactions. The entire difference could not be treated as unexplained money without examining each material credit.
It also held that the AO’s estimation of profit at 10% for one year and 12.5% for another, without considering the nature of the business, past results or comparable cases, was arbitrary and inconsistent. The matter was restored to the AO to reconcile all bank accounts, exclude contra entries and explained transactions, prevent double taxation of sales receipts and restrict any section 69A addition only to specifically unexplained credits. Any profit estimation must be based on relevant material and a reasonable rate.
For AY 2019-20, the Tribunal further observed that a ₹27.31 lakh entry in Form 26AS reflecting TCS under section 206C(1F) prima facie indicated the purchase of a motor vehicle and not its sale. The AO was directed to delete the alleged short-term capital-gains addition if the purchase was established. The connected penalty proceedings were also set aside pending fresh assessment.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These four appeals are filed by the assessee against the order of the Ld. CIT(A) passed u/s 250 of the Act. For the sake of convenience, all the appeals were heard together and are being disposed off by this common order.
First, we take up ITA No. 2601/Bang/2025 relevant to AY 2018-19
2. In the memo of appeal, the assessee has raised as many as 10 grounds of appeal which we for the sake of brevity and convenience are not inclined to reproduce here.
3. The grounds raised by the assessee are interconnected and pertains to the addition made by the AO and confirmed by the ld. CIT-A under section 69A of the Act during the respective proceedings.
4. The brief facts of the case on hand are that the assessee, a partnership firm, is engaged in the business of trading in old newspapers and magazines, which failed to file its ROI for the captioned AY. The case was reopened u/s 147 of the Act on the basis of information that the assessee had deposited cash of Rs. 12,74,500 in its bank account.
4.1 During the reassessment proceedings, the assessee did not respond to the notices issued by the AO. The AO, therefore, issued a notice u/s 133(6) of the Act to ICICI Bank and obtained the bank statement of the assessee. On examination of the bank statement, the AO observed that total credits of Rs. 19,93,60,572 and total withdrawals of Rs. 19,92,75,902 were recorded in the account.
4.2 The AO further observed from the Insight Portal that the assessee had reported sales of Rs. 11,43,00,879 in its GST returns. The AO estimated net profit from such sales at 10%, amounting to Rs. 1,14,30,088/- and treated the same as business income.
4.3 Further, the difference of Rs. 8,50,59,693 between the total bank deposits of Rs. 19,93,60,572 and the GST sales of Rs. 11,43,00,879 was treated as unexplained money u/s 69A of the Act and added to the income of the assessee.
5. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A).
6. Before the Ld. CIT(A), the assessee submitted that the appeal was filed with a delay of 402 days. It was explained that the business had been closed before the Covid-19 pandemic, within about 3 years of its formation. The partners were not well educated and were also facing serious financial difficulties and debts. Due to these circumstances, the assessee could neither file the return of income nor respond to the notices issued by the AO. The assessee, therefore, requested that the delay be condoned.
6.1 On merits, the assessee submitted that the AO had estimated the net profit at 10% of the sales reported in the GST returns without considering the nature of the business. It was contended that the profit margin in the assessee’s line of business was very low and, therefore, the estimation of income at 10% was excessive and unjustified.
6.2 The Ld. CIT(A) observed that the assessee had not furnished any documentary evidence to support the reasons stated for the delay of 402 days in filing the appeal. Accordingly, the explanation offered by the assessee was not accepted and the delay was not condoned. The appeal was, therefore, dismissed as barred by limitation without adjudicating the issues on merits.
7. Aggrieved by the order of the Ld. CIT(A), the assessee filed an appeal before us.
8. The Ld. AR before us has filed a paper book containing pages 1 to 407, along with a synopsis of written submissions. The assessee has also filed an application u/r 29 of the ITAT Rules, 1963, seeking admission of additional evidence.
8.1 The assessee reiterated that the delay in filing the appeal before the Ld. CIT(A) occurred due to severe financial hardship and the limited educational and technical knowledge of the partners. It was submitted that both partners did not possess smartphones or internet facilities and were not in a position to properly comply with the statutory notices. Relying upon the decision of the various judicial precedents of courts, the assessee submitted that the delay ought to have been condoned and the appeal should have been decided on merits.
8.2 On merits, the assessee submitted that the addition u/s 69A of the Act was not sustainable since the major portion of the bank deposits represented business receipts from sales. It was explained that GST came into force only from 01.07.2017 and, therefore, the sales reflected in the GST data related only to nine months of the relevant financial year. The actual turnover of the assessee, including both VAT sales and GST sales, was stated to be approximately Rs. 15.81 crores.
8.3 The assessee further submitted that the assessee maintained three bank accounts with SBI, ICICI Bank and Andhra Bank. The details relating to the ICICI Bank account and the other bank accounts were stated to have been furnished before the Ld. CIT(A). Before the Tribunal, the assessee has also filed detailed summaries of the bank transactions at pages 344 to 402 of Paper Book-II to establish the nature and source of the deposits. The same is reproduced below for the sake of reference:
Total of ICICI Bank Withdrawals
| Sl. No. | Particulars | Withdrawals (₹) |
| 1 | Archana – Capital Account | 3,18,86,500.00 |
| 2 | Cash | 7,21,02,992.00 |
| 3 | Inter Bank | 20,35,199.00 |
| 4 | Loan Received and repaid | 8,44,550.00 |
| 5 | N V Ashok – Capital | 2,20,79,500.00 |
| 6 | Payment towards expense | 1,04,59,319.43 |
| 7 | Payment towards Vendor | 5,68,60,298.00 |
| 8 | Transaction Reversal | 30,07,544.40 |
| Grand Total | 19,92,75,902.83 |
Total of ICICI Bank Deposits
| Sl. No. | Particulars | Deposits (₹) |
| 1 | Archana – Capital Account | 2,54,24,984.00 |
| 2 | Cash | 17,93,523.60 |
| 3 | Inter Bank | 19,64,100.00 |
| 4 | Loan Received and repaid | 14,57,000.00 |
| 5 | Misc. Receipts | 1,44,183.69 |
| 6 | N V Ashok – Capital | 1,89,40,000.00 |
| 7 | Sales Revenue | 14,52,70,326.82 |
| 8 | Sri Jayalakshmi Fancy – Loan Received | 13,58,610.00 |
| 9 | Transaction Reversal | 30,07,844.40 |
| 19,93,60,572.51 |
8.4 With regard to the estimation of profit, the assessee submitted that the net profit rate of 10% adopted by the AO was arbitrary and excessive, having regard to the nature of the assessee’s business. It was submitted that the assessee had prepared a profit and loss account showing a net profit margin of about 0.53% on the total turnover i.e. approximately Rs. 15.81 crore. According to the assessee, the normal profit margin in this line of business was only about 0.5% of the turnover.
9. The Ld. DR, on the contrary, vehemently relied upon the orders of the lower authorities and submitted that the assessee had failed to furnish any reliable evidence either during the assessment proceedings or before the Ld. CIT(A). It was further submitted that the additional evidence filed before the Tribunal required verification by the AO. Accordingly, the Ld. DR opposed the relief claimed by the assessee.
10. We have carefully considered the rival submissions of both the parties and perused the materials available on record. The Ld. CIT(A) dismissed the appeal as barred by limitation on the ground that the assessee had not furnished documentary evidence in support of the reasons stated for the delay of 402 days. The assessee has explained that its business had closed within a short period of its formation, the partners were facing severe financial difficulties and, due to their limited education and lack of access to digital facilities, they could neither file the return of income nor properly respond to the statutory notices.
10.1 Considering the overall facts and the substantial additions involved, we are of the view that the assessee should not be denied an opportunity of adjudication on merits merely on account of delay. The expression “sufficient cause” has to be construed liberally so as to advance substantial justice. Accordingly, the delay of 402 days in filing the appeal before the Ld. CIT(A) is condoned.
10.2 We further find that the assessment was completed without effective participation by the assessee. Before us, the assessee has filed additional evidences including details of the bank accounts, summaries of bank transactions, VAT and GST sales and the profit and loss account prepared by the assessee. These documents are relevant for deciding the issues in dispute and were not examined by the AO. We, therefore, admit the additional evidence in the interest of justice.
10.3 On merits, the AO compared the total deposits of Rs. 19,93,60,572 in the ICICI Bank account with the GST sales of Rs. 11,43,00,879 and treated the difference of Rs. 8,50,59,693 as unexplained money u/s 69A of the Act. The assessee, however, contends that GST was introduced only from 01.07.2017 and the GST turnover represented sales for only nine months. According to the assessee, its total turnover, including VAT and GST sales, was approximately Rs. 15.81 crore. It is also contended that the assessee-maintained accounts with SBI, ICICI Bank and Andhra Bank and that the bank deposits included sales receipts, transfers between bank accounts and other business transactions.
10.4 These factual aspects require detailed verification. The nature of each material credit has to be examined before treating any amount as unexplained money u/s 69A of the Act. Mere difference between the aggregate bank deposits and the turnover reflected in the GST data cannot justify an addition of the entire difference. At the same time, the assessee is required to establish the nature and source of the credits through supporting evidence.
10.5 We also find that the AO estimated the profit at 10% of the GST sales without referring to the nature of the business, the past history of the assessee, comparable cases or any other material. The assessee has now prepared a profit and loss account showing a net profit rate of approximately 0.53% on the turnover of Rs. 15.81 crore. The correctness of the turnover, expenses and profit disclosed in the said profit and loss account also requires verification. We further note that, for AY 2019-20, the AO adopted a net profit rate of 12.5% without any supporting basis. The adoption of different profit rates in different years, without reference to any material, shows that the estimation made by the AO is arbitrary and lacks consistency.
10.6 Considering the above facts, we set aside the orders of the lower authorities and restore the entire matter to the file of the AO for fresh adjudication. The AO is directed to:
(i) Verify the total turnover of the assessee for the entire financial year by considering both VAT and GST returns and other supporting records;
(ii) Examine all the bank accounts maintained by the assessee and reconcile the deposits with the sales, withdrawals and books or records to be produced by the assessee;
(iii) Identify and exclude inter-bank transfers, contra entries, redeposits and other explained business transactions while determining the unexplained credits;
(iv) Verify whether the bank deposits represent sales receipts or other business receipts and ensure that the same amount is not taxed twice.
(v) Restrict any addition u/s 69A of the Act only to those specific credits for which the assessee fails to furnish a satisfactory explanation and supporting evidence;
(vi) Determine the business income on the basis of the books, profit and loss account and supporting evidence produced by the assessee. In case estimation is necessary, the AO shall adopt a reasonable profit rate having regard to the nature of the business, past or subsequent year results, comparable cases and other relevant materials, instead of applying an arbitrary rate of 10%.
10.7 The assessee is also directed to cooperate with proceedings & furnish all the required details. The AO shall thereafter pass a reasoned order in accordance with law. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.
11. In the result, the appeal of assessee is allowed for statistical purposes.
Coming to ITA No. 2602/Bang/2025 and ITA No. 2603/Bang/2025 both relevant for AY 2018-19
12. At the outset, we note that since the quantum assessment for the same AY has been restored to the file of the AO for fresh adjudication, the basis for levy of penalty does not survive at this stage. Accordingly, the penalty orders are also set aside and the matters are restored to the file of the AO, who shall consider the question of levy of penalty, if warranted, after completion of the fresh assessment proceedings and after providing a reasonable opportunity of hearing to the assessee. Delay is Condoned and Matter is set aside to AO for fresh adjudication as per law. Hence, the grounds of appeal of the assessee are allowed for statistical purposes.
13. In the result, these two appeals of assessee are allowed for statistical purposes.
Coming to ITA No. 3043/Bang/2025 relevant for AY 2019-20
14. At the outset, we note that the facts and issues involved in the present appeal are identical to those considered by us in ITA No. 2601/Bang/2025 for AY 2018-19. Therefore, our findings recorded in para 10 above shall apply mutatis mutandis to the present appeal. Accordingly, the delay in filing the appeal is condoned and the matter is restored to the file of the AO for fresh adjudication in terms of the directions contained therein.
14.1 There is, however, one additional issue in the present appeal. The AO made an addition of Rs. 27,31,100 as short-term capital gain on the alleged sale of a motor vehicle. The assessee contends that the said amount represented the purchase of a motor vehicle and not its sale. The entry appearing in Form 26AS was on account of tax collected at source u/s 206C(1F) of the Act at the rate of 1% by the seller of the motor vehicle. Thus, the entry prima facie indicates a purchase transaction and not a sale giving rise to short-term capital gain.
14.2 Since the relevant purchase invoice, registration certificate, bank statement and other supporting documents require verification, this issue is also restored to the file of the AO. The AO shall verify the nature of the transaction and delete the addition if the amount of Rs. 27,31,100 represents the purchase of a motor vehicle. The assessee shall be provided with a reasonable opportunity of hearing. Hence, the grounds of appeal of assessee are allowed for statistical purposes.
15. In the result, the appeal of assessee is allowed for statistical purposes.
16. In the combined result, all the appeals of assessee are allowed for statistical purposes.
Order pronounced in court on 12th day of August, 2026
