SIDDHARTH KISHORE RAHEJA,MUMBAI vs. INCOME TAX OFFICER WARD 31(2)(1), MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order dated 13.10.2025 passed by the learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC)-Delhi [in short, ‘the ld. CIT(A)’] for Assessment Year 2020-21, raising following grounds;

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“1. In the facts and circumstances of the case and law, the learned Commissioner “1. In the facts and circumstances of the case and law, the learned Commissioner “1. In the facts and circumstances of the case and law, the learned Commissioner of Income Tax (Appeals) (hereinafter also referred to as 'the CIT(A)'] has erred in of Income Tax (Appeals) (hereinafter also referred to as 'the CIT(A)'] has erred in of Income Tax (Appeals) (hereinafter also referred to as 'the CIT(A)'] has erred in upholding the action of Ld. Assessing Officer in reopening the assessment u/s upholding the action of Ld. Assessing Officer in reopening the assessment u/s upholding the action of Ld. Assessing Officer in reopening the assessment u/s 147 without any tangible material and without forming a valid belief. 147 without any tangible material and without forming a valid belief. 147 without any tangible material and without forming a valid belief. 2. In the facts and circumstances of the case and law, the learned CIT(A) failed to 2. In the facts and circumstances of the case and law, the learned CIT(A) failed to 2. In the facts and circumstances of the case and law, the learned CIT(A) failed to appreciate that proceedi appreciate that proceedings u/s 148A did not provide adequate opportunity and ngs u/s 148A did not provide adequate opportunity and submissions made by the appellant were ignored by the Ld. Assessing Officer. submissions made by the appellant were ignored by the Ld. Assessing Officer. submissions made by the appellant were ignored by the Ld. Assessing Officer. 3. In the facts and circumstances of the case and law, the Ld. CIT(A) has erred in 3. In the facts and circumstances of the case and law, the Ld. CIT(A) has erred in 3. In the facts and circumstances of the case and law, the Ld. CIT(A) has erred in upholding the action of Ld. Assessing Offi upholding the action of Ld. Assessing Officer of rejection of books of accounts cer of rejection of books of accounts which is arbitrary as no defects were pointed out in primary records. which is arbitrary as no defects were pointed out in primary records. which is arbitrary as no defects were pointed out in primary records. 4. In the facts and circumstances of the case and law, the estimation of income @ 4. In the facts and circumstances of the case and law, the estimation of income @ 4. In the facts and circumstances of the case and law, the estimation of income @ 6% sustained by CIT(A) is arbitrary and based on suspicion, surmises and 6% sustained by CIT(A) is arbitrary and based on suspicion, surmis 6% sustained by CIT(A) is arbitrary and based on suspicion, surmis conjecture, disregarding the factual legal matrix of the case. conjecture, disregarding the factual legal matrix of the case. 5. In the facts and circumstances of the case and law, the assessment suffers 5. In the facts and circumstances of the case and law, the assessment suffers 5. In the facts and circumstances of the case and law, the assessment suffers from violation of natural justice as extensive submissions were ignored. from violation of natural justice as extensive submissions were ignored. from violation of natural justice as extensive submissions were ignored. 6. The appellant craves leave to 6. The appellant craves leave to add, alter, delete or modify all or any of the add, alter, delete or modify all or any of the above grounds of appeal. All the above grounds are without prejudice to each above grounds of appeal. All the above grounds are without prejudice to each above grounds of appeal. All the above grounds are without prejudice to each other.” 2. Before us, the learned counsel for the assessee submitted that Before us, the learned counsel for the assessee submitted that Before us, the learned counsel for the assessee submitted that assessee does not wish to press the grounds other than Ground No. assessee does not wish to press the grounds other than Gro assessee does not wish to press the grounds other than Gro 4. Accordingly, the remaining grounds are dismissed as not 4. Accordingly, the remaining grounds are dismissed as 4. Accordingly, the remaining grounds are dismissed as pressed.

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section 148A(b) dated 19.02.2024 was issued, in response to which section 148A(b) dated 19.02.2024 was issued, in response to which section 148A(b) dated 19.02.2024 was issued, in response to which the assessee furnished only computation of income without the assessee furnished only computation of income without the assessee furnished only computation of income without supporting evidence. The Assessing Officer, not be supporting evidence. The Assessing Officer, not being satisfied with ing satisfied with the response, passed order under section 148A(d) dated 14.03.2024 the response, passed order under section 148A(d) dated 14.03.2024 the response, passed order under section 148A(d) dated 14.03.2024 and thereafter issued notice under section 148 of the Act. The and thereafter issued notice under section 148 of the Act. and thereafter issued notice under section 148 of the Act. assessee filed return declaring income of Rs. 5,22,980/-. assessee filed return declaring income of Rs. 5,22,980/ assessee filed return declaring income of Rs. 5,22,980/ 3.1 During reassessment proceedings, the assessee stated that he During reassessment proceedings, the assessee stated that he During reassessment proceedings, the assessee stated that he was carrying on the business of two medical shops dealing in was carrying on the business of two medical shops dealing in was carrying on the business of two medical shops dealing in medicines and general items. The assessee furnished unaudited medicines and general items. The assessee furnished unaudited medicines and general items. The assessee furnished unaudited and unsigned financial statements, computation of income and and unsigned financial statements, computation of income and and unsigned financial statements, computation of income and details of sundry creditors. The Assessing Officer observed that the sundry creditors. The Assessing Officer observed that the sundry creditors. The Assessing Officer observed that the assessee did not produce the cash book or bank book and that the assessee did not produce the cash book or bank book and that the assessee did not produce the cash book or bank book and that the financial financial financial statements statements statements furnished furnished furnished were were were inconsistent inconsistent inconsistent with with with the the the computation of income. income. The Assessing Officer issued show cause as The Assessing Officer issued show cause as why the books of accounts of the assessee might not be rejected as ooks of accounts of the assessee might not be rejected as ooks of accounts of the assessee might not be rejected as same were not properly maintained. same were not properly maintained. The assessee filed detail of the The assessee filed detail of the turnover, gross profit and net profit from assessment year 2008-09 turnover, gross profit and net profit from assessment year 2008 turnover, gross profit and net profit from assessment year 2008 onward. For ready reference, said detail is reproduced as under: onward. For ready reference, said detail is reproduced as under onward. For ready reference, said detail is reproduced as under The Gross Profit Ratio and Net Profit Ratio during the period 2008-09 to 2014- The Gross Profit Ratio and Net Profit Ratio during the period 2008 The Gross Profit Ratio and Net Profit Ratio during the period 2008 15 as per Audited Books of Accounts is as Under 15 as per Audited Books of Accounts is as Under Financia Turnover Gross GP Ratio Net Net Ratio l Year Profit Profit Profit 2008-09 9,201,245 781,192 8.49 395,399 395,399 4.30 2009-10 10,881,128 966,715 8.88 314,190 314,190 2.89 2010-11 17,038,429 1,215,203 7.13 496,409 496,409 2.91

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2011-12 23,598,662 1,153,094 4.89 531,642 531,642 2.25 2012-13 29,311,525 1,117,098 3.81 698,828 698,828 2.38 2013-14 31,666,230 1,733,880 5.48 705,522 705,522 2.23 2014-15 23,692,921 1,566,304 6.61 929,465 929,465 3.92 2015-16 Salary Income Tax Return 2016-17 Salary Income Tax Return 2017-18 Salary Income Tax Return 2018-19 Salary Income Tax Return 2019-20 57,376,646 5,379,003 9.37 532,977 532,977 0.93 The details in the next financial year The details in the next financial year which have been Audited and filed are which have been Audited and filed are as under 2020-21 20,010,935 6,163,599 12.32 606,168 606,168 1.21

3.2 The Assessing Officer, however, was not convinced with the The Assessing Officer, however, was not convinced with the The Assessing Officer, however, was not convinced with the submission of the assessee and accordingly rejected the books of submission of the assessee and accordingly rejected the books of submission of the assessee and accordingly rejected the books of accounts and applied net accounts and applied net profit rate of 8% on turnover of Rs. profit rate of 8% on turnover of Rs. 5,73,76,646/- which was worked out to Rs.45,90,132 which was worked out to Rs.45,90,132 which was worked out to Rs.45,90,132/-.

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estimated income of estimated income of Rs.34,42,598/-, and thereby granted relief of , and thereby granted relief of Rs.11,47,533/-. The relevant observation of ld CIT(A) are The relevant observation of ld CIT(A) are The relevant observation of ld CIT(A) are reproduced as under: reproduced as under:

“In these grounds of appeal, the appellant has challenged the computation of “In these grounds of appeal, the appellant has challenged the computation of “In these grounds of appeal, the appellant has challenged the computation of income u/s 44AD of the Act as his turnover exceeded Rs.2 Crore. I find that the income u/s 44AD of the Act as his turnover exceeded Rs.2 Crore. income u/s 44AD of the Act as his turnover exceeded Rs.2 Crore. AO has applied 8% NP on the turnover of Rs.5,73,76,646/ AO has applied 8% NP on the turnover of Rs.5,73,76,646/- though the provisions though the provisions of section 44AD of the Act are not exactly applicable in this case but the rate of of section 44AD of the Act are not exactly applicable in this case but the rate of of section 44AD of the Act are not exactly applicable in this case but the rate of 8% can be taken for computing the NP rate in the facts and the circumstances of 8% can be taken for computing the NP rate in the facts and the circumstances 8% can be taken for computing the NP rate in the facts and the circumstances this case where the books of accounts though auditable were not got audited and this case where the books of accounts though auditable were not got audited and this case where the books of accounts though auditable were not got audited and different sets of balance sheet and computation sheets were presented before the different sets of balance sheet and computation sheets were presented before the different sets of balance sheet and computation sheets were presented before the AO. Looking to all circumstances and turnover of the case the income is estimated AO. Looking to all circumstances and turnover of the case the income is estimated AO. Looking to all circumstances and turnover of the case the income is estimated @ 6% of the turnover of theRs.5,73,76,646/ e turnover of theRs.5,73,76,646/- which comes to Rs.34,42,598/ which comes to Rs.34,42,598/-. Thus, the appellant gets a relief of Rs.11,47,533/ Thus, the appellant gets a relief of Rs.11,47,533/-. The grounds of appeal are . The grounds of appeal are partly allowed.” 5. Before us, the learned counsel submitted that the rate of 8% Before us, the learned counsel submitted that the rate of 8% Before us, the learned counsel submitted that the rate of 8% prescribed under section 44AD could not be applied since the prescribed under section 44AD could not be applied since the prescribed under section 44AD could not be applied since the assessee's turnover exceeded the statutory threshold. He further assessee's turnover exceeded the statutory threshold. He further assessee's turnover exceeded the statutory threshold. He further submitted that the net profit rate generally declines with increase in submitted that the net profit rate generally declines with increase i submitted that the net profit rate generally declines with increase i turnover. The learned counsel submitted that The learned counsel submitted that estimation of profit estimation of profit should be guided by the past history of net profit declared by the should be guided by the past history of net profit declared by the should be guided by the past history of net profit declared by the assessee. He submitted that in past years average net profit rate of assessee. He submitted that in past years average net profit rate of assessee. He submitted that in past years average net profit rate of 2.71 % has been declared while 2.71 % has been declared while in the immediately su in the immediately succeeding assessment year 2021 assessment year 2021-22, books of accounts are audited and books of accounts are audited and the assessee has declared net profit rate of 1.21% and accordingly assessee has declared net profit rate of 1.21% and accordingly assessee has declared net profit rate of 1.21% and accordingly addition to the extent of net profit rate of 1.21 % might be addition to the extent of net profit rate of 1.21 % might be addition to the extent of net profit rate of 1.21 % might be restricted. Without prejudice, the assessee submitted that l Without prejudice, the assessee submitted that l Without prejudice, the assessee submitted that looking

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past history, net profit might be restricted to 2.00 percentile of past history, net profit might be restricted to 2.00 percentile of past history, net profit might be restricted to 2.00 percentile of turnover. 5.1 The learned Departmental Representative, on the other hand, The learned Departmental Representative, on the other hand, The learned Departmental Representative, on the other hand, submitted that the assessee's past results did not support such a submitted that the assessee's past results did not support such a submitted that the assessee's past results did not support such a low net profit rate. According to him, th low net profit rate. According to him, the net profit in the earlier e net profit in the earlier years was broadly around 50% of the corresponding gross profit years was broadly around 50% of the corresponding gross profit years was broadly around 50% of the corresponding gross profit and, considering the gross profit rate of 9.37% for the year under and, considering the gross profit rate of for the year under consideration, the net profit rate could reasonably be taken at 50% consideration, the net profit rate could reasonably be taken at 50% consideration, the net profit rate could reasonably be taken at 50% thereof. 6. We have considered the rival submissions and perused the We have considered the rival submissions and perused the We have considered the rival submissions and perused the material on record. There is no dispute that the assessee's turnover material on record. There is no dispute that the assessee's turnover material on record. There is no dispute that the assessee's turnover of Rs.5,73,76,646/ Rs.5,73,76,646/- exceeded the prescribed threshold for exceeded the prescribed threshold for application of section 44AD. Therefore, the statutory presumptive application of section 44AD. Therefore, the statutory presumptive application of section 44AD. Therefore, the statutory presumptive rate of 8% cannot, by itself, furnish the basis for estimating the rate of 8% cannot, by itself, furnish the basis for estimating the rate of 8% cannot, by itself, furnish the basis for estimating the assessee's income. The estimation has to be made having regard to assessee's income. The estimation has to be made having regard to assessee's income. The estimation has to be made having regard to the material available on record and the assessee's own past able on record and the assessee's own past able on record and the assessee's own past results.

6.1 The assessee has not furnished any comparable profit margin The assessee has not furnished any comparable profit margin The assessee has not furnished any comparable profit margin of similarly situated retail medical outlets to substantiate the claim of similarly situated retail medical outlets to substantiate the claim of similarly situated retail medical outlets to substantiate the claim that its net profit should be restricted to 1.21%. that its net profit should be restricted to 1.21%. In the absence of In the absence of reliable comparable material, the assessee's own past history reliable comparable material, the assessee's own past history reliable comparable material, the assessee's own past history provides the more appropriate basis for estimation. provides the more appropriate basis for estimation. T The past history furnished by the assessee shows that, except for the later years, the furnished by the assessee shows that, except for the later years, the furnished by the assessee shows that, except for the later years, the net profit bears a reasonably consistent relationship with the gross net profit bears a reasonably consistent relationship w net profit bears a reasonably consistent relationship w

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profit. In the year under consideration gross profit rate is better as In the year under consideration gross profit rate is better as In the year under consideration gross profit rate is better as compared to earlier years but there is sharp decline in net profit compared to earlier years but there is sharp decline in net profit compared to earlier years but there is sharp decline in net profit rate, which has not been explained. Since gross profit in the year rate, which has not been explained. Since gross profit in the year rate, which has not been explained. Since gross profit in the year under consideration is better, if we under consideration is better, if we take average of net profit rate of take average of net profit rate of earlier years, it would not give correct result. earlier years, it would not give correct result. Therefore, ratio of net Therefore, ratio of net profit ate and gross profit rate of earlier years and average of that profit ate and gross profit rate of earlier years and average of that profit ate and gross profit rate of earlier years and average of that ration gives indicator of expenses incurred/ claimed in profit and ration gives indicator of expenses incurred/ claimed in profit and ration gives indicator of expenses incurred/ claimed in profit and loss account and estimation of net profit rate for the year under t and estimation of net profit rate for the year under t and estimation of net profit rate for the year under consideration. Accordingly, relationship between net profit rate and Accordingly, relationship between net profit rate and Accordingly, relationship between net profit rate and gross profit rate (i.e ratio ) i.e ratio ) of earlier years is worked out as under: of earlier years is worked out as under:

FY Turnover Gross GP Ratio Net Profit Ratio Ratio Profit of Net profit and gross profit 0.50 2008-09 9,201,245 781,192 8.49 395,399 4.30 2009-10 10,881,128 966,715 8.88 314,190 2.89 0.32 2010-11 17,038,429 1,215,203 7.13 496,409 2.91 0.40 2011-12 23,598,662 1,153,094 4.89 531,642 2.25 0.46 0.62 2012-13 29,311,525 1,117,098 3.81 698,828 2.38 0.40 2013-14 31,666,230 1,733,880 5.48 705,522 2.23 0.59 2014-15 23,692,921 1,566,304 6.61 929,465 3.92 0.10 2020-21 20,010,935 6,163,599 12.32 606,168 1.21 Average ratio of NP rate and GP rate ( 3.39/8)= Average ratio of NP rate and GP rate ( 3.39/8)= 0.42

6.2 Considering the gross profit rate of Considering the gross profit rate of 9.37% for the year under for the year under consideration and the relationship between consideration and the relationship between net profit and net profit and gross

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profit computed above computed above from assessee's earlier results, we consider it assessee's earlier results, we consider it reasonable to estimate the net profit at reasonable to estimate the net profit at 42% of the gross profit the gross profit rate, which works out to , which works out to 3.93%, rounded off to %, rounded off to 4.00%. Accordingly, on turnover of n turnover of Rs.5,73,76,646/-, the e , the estimated business income at net profit rate of 4.00 business income at net profit rate of 4.00% works out to % works out to approximately Rs.22,95,066 Rs.22,95,066/-.

6.3 We, therefore, direct the Assessing Officer to We, therefore, direct the Assessing Officer to We, therefore, direct the Assessing Officer to restrict the net profit of the assessee to amount of Rs. Rs.22,95,066 Rs.22,95,066/-. profit of the assessee to amount of Rs.

6.4 Ground No. 4 is accordingly Ground No. 4 is accordingly partly allowed. The remaining . The remaining grounds, having already been dismissed as not pressed, stand grounds, having already been dismissed as not pressed, stand grounds, having already been dismissed as not pressed, stand disposed of accordingly. ccordingly.

In the result, the appeal of the assessee is partly allowed partly allowed. 7. In the result, the appeal of the assessee is

Order pronounced in the open Court on ounced in the open Court on 19/ /08/2026.

Sd/- Sd/- (ANIKESH BANERJEE ANIKESH BANERJEE) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 19/08/2026 /2026 Kunal Kr. P.S.

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Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file.

BY ORDER, BY ORDER, //True Copy// (Assistant Registrar) (Assistant Registrar) ITAT, Mumbai ITAT, Mumbai