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.
