SINAI MARITIME SERVICES PVT LTD,MUMBAI vs. INCOME TAX OFFICER, WD-8(2)(1), MUMBAI

PER OM PRAKASH KANT, AM

This appeal by the assessee is directed against the order dated 24.11.2025, passed by the learned Commissioner of Income-Tax (Appeals) – National Faceless Appeal Centre, Delhi [in short, ‘the Ld.

Sinai Maritime Service Private Limited 2 ITA No. 759/MUM/2026

CIT(A)’], for Assessment Year (in short ‘A.Y’), 2023-24, raising following grounds:

“1.0 On facts and circumstances of the case and in law, Ld. CIT(A), erred in confirming the addition u/s.28 of suppressed Gross profit of Rs.3,79,19,056/-, on estimating the Gross profit @ 20% as against declared by the appellant @ 10.67% on sales; 2.0 On facts and circumstances of the case and in law, Ld. CIT(A), erred in confirming the addition of suppressed Gross profit of Rs.3,79,19,056/-, though appellant's audited books of accounts had not been rejected u/s.145(3) of the Act; 3.0 The Ld. CIT(A), before confirming the addition u/s.28 of Rs.3,79,19,056, ought to have considered the understated vital facts, being; a) The appellant had properly substantiated, with documentary evidences, the reason for decline in Gross profit margin during the year; b) There does not exist any standard jacket formula of the Gross profit margin required to be earned in appellant's business; c) The Ld. AO and Ld. CIT(A) had not relied on any contrary material/evidence to disbelieve the book results and made/sustained the addition only on the basis of assumption and surmise; d) The Ld. AO and Ld. CIT(A) had not pointed any specific defect in the submissions/documents filed by the appellant and had not conducted any enquiries to disbelieve the bonafide transactions of the appellant; 4.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in deciding the appeal and confirming the addition, without providing an adequate opportunity of being heard and without considering the submissions and documents filed on record.” 2. At the outset, the learned counsel for the assessee submitted that Ground No.4 was not pressed. Accordingly, Ground No.4 is dismissed as not pressed.

Sinai Maritime Service Private Limited 3 ITA No. 759/MUM/2026

various ports in India. For the year under consideration, the assessee filed its return of income on 21.09.2023 declaring total income of Rs.84,59,170/-. The return was selected for scrutiny for verification of the low net profit rate declared by the assessee. The statutory notices under the Income-tax Act, 1961 (in short, "the Act") were issued by the Faceless Assessment Unit (i.e. the Assessing Officer) and duly served upon the assessee. 3.1 During the course of assessment proceedings, the Assessing Officer compared the profit disclosed by the assessee with that of the immediately preceding year. In the preceding year, the assessee had disclosed turnover of Rs.15,54,40,658/- and gross profit of Rs.3,24,96,019/-, yielding a gross profit rate of approximately 20.91%, with a net profit rate of approximately 2.60%. In the year under consideration, the assessee disclosed turnover of Rs.40,63,37,097/-, with a gross profit rate of 10.67% and a net profit rate of 1.54%. 3.2 The Assessing Officer was of the view that the substantial increase in turnover, by itself, did not satisfactorily explain the decline in the gross profit rate. He accordingly expressed the possibility of suppression of purchase value, reduction in sale value or inflation of direct expenses. A show-cause notice dated 07.03.2025 was, therefore, issued proposing adoption of a gross profit rate of 20% on the total turnover.

Sinai Maritime Service Private Limited 4 ITA No. 759/MUM/2026

3.3 In response, the assessee attributed the decline in the overall gross profit rate to two reasons: firstly, expansion of its business and due to business competition the lower margins earned on sales to new customers. The assessee furnished customer-wise gross profit details and submitted that the gross profit margin on sales to new customers was approximately 6.83%, as against approximately 18.40% in respect of existing customers. In its written submission before the Tribunal, the assessee stated that sales to new customers amounted to approximately Rs.27.15 crores, constituting about 66% of the total turnover. Secondly, the assessee submitted that, during the year, it had undertaken a new business activity of providing catering services to M/s Afcons Infrastructure Ltd., Maldives, against which sales of approximately Rs.11.82 crores were made, and that the lower margin on such activity also contributed to the overall decline in the gross profit rate.

3.4 However, the Assessing Officer did not accept the explanation furnished by the assessee and proceeded to adopt a gross profit rate of 20% on the total turnover. On that basis, an addition of Rs.3,79,19,056/- was made. 4. The assessee carried the matter in appeal before the learned CIT(A). The learned CIT(A) sustained the addition, observing, inter alia, that the customer-wise gross profit details furnished by the assessee were self-prepared and were not accompanied by corroborative material such as purchase details, cost sheets,

Sinai Maritime Service Private Limited 5 ITA No. 759/MUM/2026

agreements or confirmations, and that the explanation had not been independently verified.

5.1 The principal legal contention of the learned counsel was that the Assessing Officer had neither rejected the books of account

Sinai Maritime Service Private Limited 6 ITA No. 759/MUM/2026

under section 145(3) nor pointed out any specific defect therein. According to him, the Assessing Officer could not discard the disclosed book results and substitute an estimated gross profit rate merely because the gross profit rate was lower than that of the preceding year. Reliance was placed upon (i) Smt. Poonam Rani vs. CIT 192 Taxman 167 (Del-HC)/ 326 ITR 223 (Delhi),); (ii) Pr. CIT v. IBILT Technologies Ltd., 98 taxmann.com 255 (Delhi); and (iii) Pr. CIT v. Swananda Properties (P.) Ltd., 111 taxmann.com 94 (Bom.).

Sinai Maritime Service Private Limited 7 ITA No. 759/MUM/2026

its customer base and the lower margins earned on sales to new customers. It furnished customer-wise gross profit details and stated that the margin from new customers was approximately 6.83%, whereas the margin from existing customers was approximately 18.40%. The assessee also referred to the new catering activity undertaken for M/s Afcons Infrastructure Ltd., Maldives. These explanations were not accepted by the Assessing Officer and the learned CIT(A). 6.2 We are, however, concerned at this stage not merely with the acceptability of the explanation furnished by the assessee, but with the manner in which the disclosed book results have been displaced. The assessment order, as placed before us, does not record any specific defect or discrepancy in the books of account maintained by the assessee which would render the disclosed results unreliable. The addition proceeds essentially from the decline in the gross profit rate vis-à-vis the preceding year and the Assessing Officer's dissatisfaction with the explanation furnished by the assessee. 6.3 The statutory scheme contained in section 145 of the Act permits the Assessing Officer, where the conditions prescribed therein are satisfied, to proceed in the manner provided under section 144. The judicial position is that a mere fall in the gross profit rate, by itself, does not establish that the accounts are incorrect or incomplete. In CIT v. Smt. Poonam Rani, (supra) the

Sinai Maritime Service Private Limited 8 ITA No. 759/MUM/2026

Hon'ble Delhi High Court held, in the facts of that case, that a fall in the gross profit rate by itself could not justify rejection of the books in the absence of cogent reasons. The Delhi High Court in Pr. CIT v. IBILT Technologies Ltd (supra) similarly recognised that a decline in the gross profit rate may warrant verification but cannot, without more, constitute the basis for rejecting the books. The same principle is reflected in the judgment of the Hon'ble Bombay High Court in Pr. CIT v. Swananda Properties (P.) Ltd., (supra). In that case, the Court observed that rejection of books should precede a best-judgment assessment and that, where the Revenue was unable to point out a defect in the assessee's records warranting rejection of the books, the rejection could not be sustained. 6.4 The legal position emerging from the aforesaid decisions is that a mere fall in the gross profit rate, by itself, does not establish that the accounts are incorrect or incomplete so as to justify rejection of the books under section 145(3). Past results may constitute a reason for undertaking further verification, but cannot, without more, furnish the sole basis for rejecting the book results and making a best-judgment estimation. The Assessing Officer must have cogent material or reasons for disturbing the disclosed financial results. Therefore, is not that every addition affecting the profit disclosed in the accounts necessarily requires a mechanical reference to section 145(3). Rather, where the Assessing Officer seeks to discard the book results and substitute them by a best-

Sinai Maritime Service Private Limited 9 ITA No. 759/MUM/2026

judgment estimate, the statutory conditions for rejecting the accounts must be satisfied, and the basis for treating the accounts as incorrect or incomplete must be discernible from the assessment order. A mere comparison with the profit rate of an earlier year, without identification of a defect rendering the accounts unreliable, does not by itself furnish such a basis.

6.5 Tested on the aforesaid parameters, we find that in the present case, the Assessing Officer has not recorded any finding that the books of account maintained by the assessee were incorrect or incomplete. There is no reference to any specific defect in the purchase records, sales records, stock records, vouchers or other primary accounting records. The Assessing Officer's reasoning proceeds essentially from the fact that the gross profit rate had declined from 20.91% in the preceding year to 10.67% in the year under consideration. On that basis, he entertained a suspicion that the assessee might have suppressed purchases, reduced sale prices or inflated direct expenses and consequently proposed adoption of a 20% gross profit rate. However, suspicion or possibility of suppression cannot, by itself, substitute for a finding that the books of account are incorrect or incomplete.

6.6 Further, we find that the Assessing Officer has not rejected the assessee's books of account under section 145(3) of the Act. The assessee has filed a copy of the show-cause notice dated 7th March, 2025 issued by the ld AO. However, even in the said notice, the

Sinai Maritime Service Private Limited 10 ITA No. 759/MUM/2026

Assessing Officer has not pointed out any defect in the books of account of the assessee nor invoked Section 145(3) of the Act for rejecting the book results of the assessee. More importantly, no specific defect or discrepancy in the books has been recorded in the assessment order as placed before us. The assessment order proceeds from the lower gross profit rate and the view that the explanation furnished by the assessee did not satisfactorily account for such decline. Such dissatisfaction with the explanation, without a corresponding finding rendering the books of account incorrect or incomplete, cannot by itself justify replacing the disclosed gross profit by an estimated rate of 20%. Further, from the assessment order as reproduced before us, no specific comparable case, industry benchmark or identified transaction forming the basis for adopting the particular rate of 20% has been brought out. The estimation appears to have been made principally with reference to the preceding year's gross profit rate and the Assessing Officer's dissatisfaction with the explanation furnished by the assessee.” 6.7 We are conscious that the learned CIT(A) found the customer- wise gross profit details to be self-prepared and unsupported, in his view, by sufficient corroborative material. However, such observation, even if accepted, does not by itself constitute a finding that the books of account maintained by the assessee were incorrect or incomplete. The learned CIT(A) has also not identified any particular purchase or sale transaction which was found to be

Sinai Maritime Service Private Limited 11 ITA No. 759/MUM/2026

bogus, inflated or suppressed. No specific discrepancy in the books has been brought on record. The question whether the assessee's explanation was satisfactory and the distinct question whether the books could legally be rejected under section 145(3) have to be kept separate. 6.8 The learned counsel also submitted before us that in the subsequent Assessment Year 2024-25, the assessee disclosed similar gross profit rate of 10.91% and a net profit rate of 8.93%, which has been accepted by the Assessing Officer. Therefore, following the rule of the consistency, the gross profit rate shown by the assessee for the year under consideration should not to have been disturbed. But in or opinion, it unnecessary to base our decision upon the results disclosed by the assessee in the subsequent Assessment Year 2024-25 and the sustainability of the impugned addition can be determined on the basis of the assessment record for the year under consideration itself. 6.9 On an overall consideration of the matter, we are of the considered view that the Assessing Officer was not justified in replacing the book result by an estimated gross profit rate of 20% merely on account of the decline in the gross profit rate, without rejecting the books of account under section 145(3) and without recording any specific defect therein. The addition of Rs.3,79,19,056/- is, therefore, not sustainable.

Sinai Maritime Service Private Limited 12 ITA No. 759/MUM/2026

Order pronounced in the open Court on 17/08/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai; Dated: 17/08/2026 M. Ranganath Vittal , Sr. P.S. Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai

Sinai Maritime Service Private Limited 13 ITA No. 759/MUM/2026

Date Initials Original dictation pad is enclosed at Yes the end of file 1. Draft dictated on: 28.07.2026 Sr. PS/PS 2. Draft placed before author: .07.2026 Sr. PS/PS 3. Draft proposed & placed before the JM/AM second member: 4. Draft discussed/approved by Second JM/AM Member: 5. Approved Draft comes to the Sr. Sr. PS/PS PS/PS: 6. Order pronounced on: Sr. PS/PS 7. File sent to the Bench Clerk: 8. Date on which file goes to the Head Sr. PS/PS Clerk: 9. Date on which file goes to AR 10. Date of Dispatch of order