Shivaramakrishna Oils & General Merchants Vs ITO (ITAT Hyderabad)
The Hyderabad Bench of the ITAT has condoned substantial delays at different appellate stages and restored an addition of ₹4,70,25,560, representing the entire bank deposits of a discontinued edible-oil business, to the AO for fresh examination. The connected penalty was also restored because its fate depended upon the final outcome of the quantum proceedings.
The assessee, Shivaramakrishna Oils & General Merchants, was a partnership firm engaged in the purchase and sale of edible oils. It did not file its return for AY 2017-18. The AO subsequently initiated reassessment proceedings u/s 147 and issued notice u/s 148 on 23.03.2021.
The assessee did not file a return in response to the notice and initially failed to comply with the reassessment proceedings. The AO treated the entire deposits appearing in its bank accounts, aggregating to ₹4,70,25,560, as unexplained income. An ex parte assessment was completed u/s 147 r.w.s. 144 & 144B, determining the total income at the same amount.
The assessee maintained that the deposits represented business receipts from its edible-oil trading operations and were supported by VAT returns, bank statements and other records. The AO, however, did not accept or fully examine that explanation.
The assessee filed an appeal before the CIT(A) with a delay of 340 days. The CIT(A) refused to condone the delay and dismissed the appeal in limine without deciding whether the bank deposits were business turnover or unexplained income.
There was a further delay of 421 days in filing the quantum appeal before the Tribunal.
The assessee explained that it had suffered continuous business losses from AY 2015-16 onwards. Serious disputes arose amongst the partners, and business operations were ultimately discontinued in September 2018. Because of these losses and disputes, the firm also failed to file returns for AYs 2016-17 and 2017-18.
The services of the firm’s earlier Chartered Accountant had been discontinued, but his email address continued to remain registered on the Income-tax portal. Departmental communications were therefore sent to that email address and did not come to the partners’ attention.
The assessee claimed that it became aware of the reassessment proceedings only after receiving a notice through Speed Post on 27.01.2022. It then engaged another consultant and filed certain submissions. However, despite seeking further opportunity, the assessment was completed without adequate time to produce the complete records.
The partners became aware of the assessment order only in February 2023, after their internal disputes were resolved. A further difficulty arose because the books and supporting records were with the firm’s former accountant, who had left the firm and moved out of the city. Time was consumed in locating him and collecting the records. The former accountant also filed an affidavit supporting this explanation.
The Tribunal found the explanation plausible and bona fide. There was no material showing that the delay was deliberate or motivated by mala fides. Following the Supreme Court’s decision in Vidya Shankar Jaiswal v. CIT [2025] 174 taxmann.com 21 (SC), the Tribunal adopted a liberal and justice-oriented approach and condoned the delay.
However, considering the assessee’s history of non-compliance, the condonation of the 421-day delay before the Tribunal was made subject to payment of costs of ₹10,000 to the Prime Minister’s National Relief Fund within 30 days.
The Tribunal also condoned the delay of 340 days before the CIT(A). It then examined the assessee’s request that the matter be restored directly to the AO.
The Tribunal noted that the assessment had been completed ex parte and that the entire bank deposits had been treated as unexplained income without adequately examining the assessee’s claim that they were business receipts. The assessee stated that it possessed books, VAT returns, bank statements and supporting evidence which could not earlier be produced.
Accordingly, the orders of the AO and CIT(A) were set aside, and the entire matter was restored to the AO for fresh adjudication. The assessee was permitted to furnish its books, confirmations and other evidence. The AO was directed to grant an adequate opportunity and pass a speaking order.
The assessee was simultaneously directed to fully cooperate and avoid unnecessary adjournments. In case of further default, the AO was given liberty to proceed on the available material.
The second appeal related to the consequential penalty. It involved a delay of 163 days before the CIT(A) and 421 days before the Tribunal. Those delays were also condoned on payment of costs of ₹10,000 to the PM National Relief Fund.
Since the underlying quantum addition had been restored, the connected penalty could not be conclusively adjudicated. The penalty order was therefore set aside and restored to the AO for reconsideration after finalisation of the fresh assessment.
Author’s Comments
The most important issue in the case is that gross bank deposits cannot be mechanically equated with taxable income. In a trading business, the same funds may circulate through purchases, sales, withdrawals, redeposits and payments to suppliers. The bank account records movement of money; it does not by itself identify the profit embedded in that movement.
Where sales are established through books, VAT returns, invoices and stock records, the appropriate enquiry is whether the turnover is genuine and what profit arises from it. Treating every deposit as unexplained income may result in taxing gross business receipts without allowing the corresponding purchases and expenditure.
That does not mean the assessee succeeds merely by describing deposits as turnover. The firm must now reconcile every material deposit with sales invoices, VAT returns, cash book, stock register and bank statements. Cash withdrawals subsequently redeposited should be established through a properly sequenced cash-flow statement. Unsupported narration will not be sufficient in the second round.
The decision also shows the danger of leaving an old professional’s email address on the portal. Changes in representation, closure of business or disputes amongst partners do not stop electronic notices. Updating the registered email, mobile number and authorised representative should form part of every professional handover.
The costs imposed by the Tribunal are also meaningful. The delay was condoned to protect substantive justice, but the assessee’s repeated defaults were not ignored. Condonation grants access to justice; costs recognise the procedural burden caused by the delay.
Finally, restoration of the penalty does not amount to its confirmation. It merely keeps the issue open. If the ₹4.70-crore addition is deleted or substantially reduced after examining the business records, the penalty must necessarily be reconsidered in that light.
Cases Discussed
Vidya Shankar Jaiswal Vs ITO (Supreme Court of India) – The Supreme Court decision concerning a 166-day delay and the requirement for a justice-oriented and liberal approach while considering condonation of delay.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
These two appeals are filed by SHIVARAMAKRISHNA OILS & GENERAL MERCHANTS (“the assessee”), feeling aggrieved by the separate orders passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) (“Ld. CIT(A)”) both dated 27.08.2024 for the A.Y. 2017-18. Since the assessee is same and the issues raised by the assessee in these two appeals are inter-related, for the sake of convenience, these were heard together and are being disposed of by this common and consolidated order.
ITA No 2386/Hyd/2025
2. At the outset, it is noticed that there is a delay of 421 days in filing the present appeal before the Tribunal. The assessee has filed a petition seeking condonation of delay supported by an affidavit explaining the reasons for such delay. The Learned Authorized Representative (“Ld. AR”) submitted that the assessee had entrusted the work of filing and pursuing the appeal before the Ld. CIT(A) to a tax consultant, namely Shri Nippani Satyanarayana. While filing the appeal before the Ld. CIT(A), a fresh e-mail ID, namely [[email protected]](mailto:[email protected]), was created and mentioned in Form No. 35 for the purpose of communication from the Income-tax Department. It was submitted that the order passed by the Ld. CIT(A) was communicated to the said e-mail ID. However, the said communication escaped the attention of the tax consultant and, therefore, neither the consultant nor the assessee became aware of the passing of the appellate order. In support of their contention, the assessee has filed the affidavit of the Tax Consultant also. It was only subsequently, when the accountant of the assessee-firm logged into the Income-tax Portal to ascertain the status of the appellate proceedings, that it came to light that the appeal had already been disposed of by the Ld. CIT(A). Immediately thereafter, the assessee took steps for obtaining the appellate order and for filing the present appeal before the Tribunal. It was thus submitted that the delay was neither deliberate nor intentional but occurred due to the aforesaid bona fide circumstances.
3. The Ld. AR further submitted that the assessee has a strong case on merits. It was contended that the Assessing Officer treated the entire deposits appearing in the bank account of the assessee as unexplained income. The assessee was engaged in the business of purchase and sale of edible oils and, according to the assessee, the bank deposits represented business receipts arising from such business activity. It was further submitted that due to continuous losses and disputes amongst the partners, the business operations of the assessee- firm were discontinued from September, 2018. Therefore, if the appeal is dismissed merely on technical grounds, the assessee would be subjected to grave hardship without an opportunity to contest the additions on merits. Accordingly, a prayer was made for condonation of delay and admission of the appeal for adjudication on merits.
4. Per contra, the Learned Departmental Representative (“Ld. DR”) strongly objected to the condonation of delay. He submitted that the assessee has failed to establish sufficient cause for the inordinate delay of 421 days. The Ld. DR further submitted that the conduct of the assessee demonstrates persistent non-compliance with statutory proceedings. According to him, the assessee did not file the return of income under section 139 of the Income Tax Act, 1961 (“the Act”). Even after issuance of notice under section 148 of the Act, the assessee failed to file the return of income before the Assessing Officer. Further, the assessee did not properly comply with the assessment proceedings. The Ld. DR also pointed out that there was substantial delay in filing the appeal before the Ld. CIT(A). Therefore, according to him, the assessee has been consistently negligent in pursuing the proceedings and the present delay does not deserve to be condoned.
5. We have heard the rival submissions and perused the material available on record. The issue before us at this stage is confined to whether the delay of 421 days in filing the present appeal deserves to be condoned. We find that the assessee has explained the circumstances leading to the delay by filing a condonation petition supported by an affidavit. The explanation furnished by the assessee is that the appellate order passed by the Ld. CIT(A) was communicated to an e-mail ID created and operated by the tax consultant who was handling the appellate proceedings and that the communication escaped his attention. The assessee has also filed the affidavit of the Tax Consultant in this regard. Consequently, the assessee remained unaware of the passing of the appellate order until the accountant of the assessee-firm subsequently checked the status of the proceedings on the Income-tax Portal. The explanation offered by the assessee appears to be plausible and there is nothing on record to suggest that the delay was deliberate or occasioned by any mala fide intention. It is a settled proposition of law that while considering a petition for condonation of delay, a liberal and justice-oriented approach is required to be adopted so as to advance substantial justice. In this regard, we find support from the decision of the Hon’ble Supreme Court in the case of Vidya Shankar Jaiswal Vs. CIT (174 taxmann.com 21), wherein the Hon’ble Apex Court emphasized that a liberal and justice- oriented approach should ordinarily be adopted while considering applications seeking condonation of delay and that technical considerations should not outweigh the cause of substantial justice.
6. We further find merit in the submission of the assessee that it has raised arguable grounds on merits. The assessee has contended that the Assessing Officer treated the entire deposits in the bank account as unexplained income, whereas according to the assessee, such deposits represented business receipts arising from its business of purchase and sale of edible oils. At this stage, we are not expressing any opinion on the merits of the additions. However, the contention of the assessee indicates that the appeal raises issues requiring examination on merits. Therefore, denial of an opportunity to contest the appeal on account of delay alone may result in substantial prejudice to the assessee.
7. We are also mindful of the fact that the assessee has stated that its business operations have already been discontinued due to continuous losses and disputes amongst the partners. In these circumstances, we are of the considered view that the cause of substantial justice would be better served by adjudicating the appeal on merits rather than shutting the doors of justice on technical grounds. As regards the objections raised by the Revenue regarding the past conduct of the assessee, though the same may be relevant while appreciating the overall facts, such considerations alone cannot be determinative when a plausible and bona fide explanation for the delay has been furnished. It is trite law that matters should ordinarily be decided on merits unless the conduct of the litigant demonstrates deliberate disregard of the judicial process. Considering the totality of facts and circumstances of the case, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period of limitation. Accordingly, the delay of 421 days in filing the present appeal is condoned and the appeal is admitted for adjudication on merits subject to levy of cost of Rs.10,000/-(Rupees Ten Thousand only) which shall be deposited by the assessee in the Prime Minister’s National Relief Fund within 30 days from the receipt of this order.
8. The assessee has raised the following grounds of appeal:
“1. The Ld. Commissioner of Income-Tax (Appeals)/NFAC erred in dismissing the appeal in limine, as being barred by limitation, without going into the merits of the case and without properly considering the reasons for delay in filing the appeal.
2. That the Ld. Commissioner of Income-Tax (Appeals)/NFAC ought to have appreciated that the firm was running in losses which in turn resulted in disputes between the partners and virtually the business was discontinued from 2018 and thus the order passed by the Assessing Officer could not be taken note of in time.
3. That the Ld. Commissioner of Income-Tax (Appeals)/NFAC further arbitrarily dismissed the appeal in limine without properly serving the notice on the appellant as per the e-mail id provided in Form 35.
4. The Ld. Commissioner of Income-Tax (Appeals) ought to have considered the reasons furnished by the Appellant w.r.t. delay in filing Appeal before the First Appellate Authority in Form-35 referable to discontinuance of the business due to disputes between the partners.
5. The Ld. Commissioner of Income-Tax (Appeals) ought to have passed the order on merits considering the submissions and evidences already furnished before the Assessing Officer.
6. The Ld. Commissioner of Income-Tax (Appeals) as well as the Assessing Officer ought to have considered the fact that the amounts deposited were emanating from the sales made during the previous year and are supported by VAT returns filed.
7. The Ld. Commissioner of Income-Tax (Appeals) as well as the Ld. Assessing Officer erred in overlooking the evidence furnished by the Appellant to prove the genuineness of the purchase and sale transactions, more particularly VAT returns & Bank statements, in support of the purchases and sales made during the previous year relevant to assessment year under consideration.
8. The Assessing Officer erred in making arbitrary additions overlooking the principle that even in a Best Judgment Assessment, addition should not be based purely on guess-work.
9. The Assessing Officer erred in invoking the provisions of section 115BBE overlooking the fact that the provisions of section 115BBE of the Act have to be read along with Section 294 of the Act whereby rate of tax applicable is ordinarily the rate prescribed as on the first day of the financial year.
10. For these and other grounds that may be urged at the time of hearing, the appellant submits that the Hon’ble ITAT may be pleased to quash the assessment order as it is bad in law or in the alternative delete the arbitrary additions upheld by the CIT(Appeals)/NFAC.”
9. The brief facts of the case are that the assessee is a partnership firm. The assessee did not file its return of income for the assessment year 2017-18. Subsequently, reassessment proceedings were initiated in the case of the assessee under section 147 of the Act and notice under section 148 of the Act dated 23.03.2021 was issued by the Assessing Officer. However, the assessee did not file any return of income in response to the notice issued under section 148 of the Act. During the reassessment proceedings, the Assessing Officer treated the entire deposits appearing in the bank account of the assessee amounting to ₹4,70,25,560/- as unexplained income in the hands of the assessee. Accordingly, the Assessing Officer completed the assessment under section 147 read with sections 144 and 144B of the Act vide order dated 24.03.2022 determining the total income of the assessee at ₹4,70,25,560/-.
10. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). However, there was a delay of 340 days in filing the appeal before the Ld. CIT(A). The Ld. CIT(A) declined to condone the delay and consequently dismissed the appeal in limine without adjudicating the issues on merits.
11. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. The Ld. AR submitted that from assessment year 2015-16 onwards, the assessee-firm continuously incurred losses. Due to the persistent losses, disputes arose amongst the partners of the firm. Consequently, the partners decided to discontinue the business operations of the firm from September, 2018. It was submitted that because of the continuous losses and disputes amongst the partners, the assessee could not file its returns of income for the assessment years 2016-17 & 2017-18. It was further submitted that the assessee also discontinued the services of its Chartered Accountant. However, the e-mail address of the said Chartered Accountant continued to remain updated on the Income-tax Portal and, therefore, the notices initially issued by the Department were sent to the said e-mail address. According to the Ld. AR, since the notices were sent to the e-mail address of the former Chartered Accountant, the assessee remained unaware of the reassessment proceedings and could not file the return of income or comply with the notices issued by the Assessing Officer. It was submitted that only upon receipt of notice dated 27.01.2022 through Speed Post did the assessee become aware of the proceedings. Immediately thereafter, the assessee engaged a tax consultant and filed submissions before the Assessing Officer. The Ld. AR further submitted that despite the specific request made by the assessee seeking reasonable opportunity to produce the necessary records and explanations, the Assessing Officer completed the assessment without granting adequate opportunity to the assessee. It was further submitted that due to the disputes amongst the partners, the assessee could not come to know about the passing of the assessment order. Only in February, 2023, after settlement of disputes amongst the partners, the partners started attending to the pending affairs of the firm and at that stage came to know that the assessment order had already been passed. The Ld. AR submitted that thereafter immediate steps were taken to file the appeal before the Ld. CIT(A). However, the books of account and records of the firm were in the custody of the accountant who had already left the services of the firm and moved out of the city in search of alternative employment. Considerable time was consumed in locating the said accountant and obtaining the books of account and supporting records necessary for filing the appeal. It was submitted that immediately after obtaining the records, the assessee filed the appeal before the Ld. CIT(A). In support of the aforesaid explanation, the assessee has also filed an affidavit of Shri T. Dhanunjaya Kumar, the former accountant of the firm. The Ld. AR therefore submitted that there was no deliberate or mala fide intention on the part of the assessee in causing the delay of 340 days in filing the appeal before the Ld. CIT(A). He accordingly prayed for condonation of the delay.
12. The Ld. AR further submitted that the assessee could not effectively prosecute its case before the Assessing Officer and that the addition has been made by treating the entire bank deposits as unexplained income without examining the nature of the business transactions. Therefore, considering the facts of the case, he prayed that the matter may be restored directly to the file of the Assessing Officer instead of the Ld. CIT(A) for adjudication of the issues on merits.
13. Per contra, the Ld. DR strongly supported the order of the Ld. CIT(A). He submitted that the assessee has failed to demonstrate sufficient cause for the delay of 340 days in filing the appeal before the Ld. CIT(A). Therefore, according to him, the Ld. CIT(A) was justified in refusing to condone the delay. The Ld. DR further submitted that sufficient opportunities were granted by the Assessing Officer during the reassessment proceedings. However, the assessee failed to comply with the statutory notices issued by the Department. Therefore, according to the Revenue, no further opportunity deserves to be granted to the assessee and the order of the Ld. CIT(A) should be upheld.
14. We have heard the rival submissions and perused the material available on record. The first issue which arises for our consideration is whether the delay of 340 days in filing the appeal before the Ld. CIT(A) deserves to be condoned. We find that the assessee has explained the reasons for the delay by stating that the firm had suffered continuous business losses, resulting in serious disputes amongst the partners and eventual closure of business operations. The assessee has further explained that the earlier Chartered Accountant ceased to represent the firm, but his e-mail address continued to remain on the Income-tax Portal and, consequently, the notices issued by the Department were not brought to the notice of the partners. It has also been explained that after the settlement of disputes amongst the partners, steps were taken to attend to the pending affairs of the firm and at that stage the assessee came to know about the assessment proceedings and the assessment order. The assessee has further explained that the books of account and other records required for filing the appeal were in the custody of the former accountant who had left the employment of the firm and had shifted out of the city. The assessee has also filed the affidavit of the said accountant in support of its explanation. Having considered the totality of facts and circumstances of the case, we find that the explanation furnished by the assessee appears to be bona fide and reasonable. Nothing has been brought on record by the Revenue to demonstrate that the delay was deliberate or occasioned by any mala fide intention. It is a settled proposition of law that while considering a petition for condonation of delay, a liberal and justice-oriented approach should be adopted so as to advance substantial justice. Further, we find that the Hon’ble Supreme Court, in the case of Vidya Shankar Jaiswal Vs. CIT (Supra), has held that a justice-oriented and liberal approach should be adopted while considering applications for condonation of delay. In view of the aforesaid facts and circumstances, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period. Accordingly, we condone the delay of 340 days in filing the appeal before the Ld. CIT(A).
15. Having condoned the delay, we find that the assessee has consistently contended that it could not effectively participate in the reassessment proceedings and that the addition has been made by treating the entire bank deposits of ₹4,70,25,560/- as unexplained income without examining the nature and source of the deposits. The assessee has also submitted that the deposits represented business receipts arising from its trading activities. Considering the peculiar facts of the case, particularly the fact that the assessment was ultimately completed under section 147 read with sections 144 and 144B of the Act and that the assessee claims to possess books of account and supporting evidence which could not be produced before the Assessing Officer, we are of the considered view that the ends of justice would be met if the entire matter is restored to the file of the Assessing Officer for fresh adjudication. Accordingly, we set aside the orders of both the authorities below and restore the matter to the file of the Assessing Officer with a direction to examine the claim of the assessee afresh after granting adequate opportunity of being heard. The assessee shall be at liberty to file all books of account, supporting documents, confirmations and other evidences in support of its contentions. The Assessing Officer shall consider the same and pass a speaking order in accordance with law. We also make it clear that the assessee shall fully cooperate with the reassessment proceedings and shall not seek any unnecessary adjournment. In the event of failure on the part of the assessee to avail the opportunities so granted, the Assessing Officer shall be at liberty to proceed in accordance with law on the basis of the material available on record.
16. In the result, the appeal of the assessee in ITA No. 2386/Hyd/2025 is allowed for statistical purposes.
ITA NO. 2387/HYD/2025:
17. At the outset, it is noticed that there is a delay of 421 days in filing the present appeal before the Tribunal and a further delay of 163 days in filing the appeal before the Ld. CIT(A). We find that the reasons assigned by the assessee for the delay in filing the appeal before the Ld. CIT(A) as well as before the Tribunal are identical to those considered by us while adjudicating the connected quantum appeal in ITA No. 2386/Hyd/2025. In the said quantum appeal, after considering the facts and circumstances of the case and the explanation furnished by the assessee, we were satisfied that the assessee was prevented by sufficient cause from filing the appeals within the prescribed period. Accordingly, the delay in filing the appeal before the Ld. CIT(A) as well as before the Tribunal was condoned. Since the facts and circumstances relating to the delay in the present penalty appeal are identical, our observations and findings recorded in ITA No. 2386/Hyd/2025 shall apply mutatis mutandis to the present appeal as well. Accordingly, following our decision in the connected quantum appeal, we condone the delay of 163 days in filing the appeal before the Ld. CIT(A) and the delay of 421 days in filing the present appeal before the Tribunal subject to cost of Rs.10,000/- (Rupees Ten Thousand only), which shall be deposited by the assessee in the Prime Minister’s National Relief Fund within 30 days from the receipt of this order. The appeal is, therefore, admitted for adjudication on merits.
18. The present appeal relates to the levy of penalty, the foundation of which is the quantum addition made by the Assessing Officer. It is an admitted position that the very same quantum addition is the subject matter of appeal before this Tribunal in ITA No. 2386/Hyd/2025. We have set aside the quantum appeal in ITA No. 2386/Hyd/2025 to the file of the Assessing Officer for fresh adjudication after providing adequate opportunity of being heard to the assessee. Since the penalty levied in the present appeal is consequential to and dependent upon the ultimate outcome of the quantum proceedings, the sustainability of the penalty cannot be independently adjudicated at this stage. The fate of the penalty proceedings would necessarily depend upon the findings that may ultimately be recorded in the fresh assessment proceedings pursuant to our directions in the quantum appeal. Therefore, in the interest of justice and to avoid multiplicity of proceedings, we deem it appropriate to set aside the impugned penalty order and restore the matter to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue of levy of penalty afresh after finalization of the quantum proceedings and shall decide the same in accordance with law after providing reasonable opportunity of being heard to the assessee. Accordingly, the penalty appeal is restored to the file of the Assessing Officer for fresh adjudication in the light of the outcome of the quantum proceedings in ITA No. 2386/Hyd/2025.
19. In the result, the appeal of the assessee in ITA No. 2387/Hyd/2025 is allowed for statistical purposes.
20. To sum up, both the appeals filed by the assessee are allowed for statistical purposes.
Order pronounced in the Open Court on 11th September, 2026.
