BIPINKUMAR KANIAYALAL SONI,MEHSANA vs. INCOME TAX OFFICER, WARD 1, MEHSANA, MEHSANA

The Assessee has taken the following ground of appeal:-

Further the Ld.AR argued that the Assessing Officer had failed to appreciate the aforesaid documentary evidence and rejected the books of account merely on the ground that certain further details, such as names and PAN of customers/buyers, item-wise stock details, copies of sales invoices and confirmations of parties from whom purchases were made, had not been furnished. It was contended that the Assessing Officer thereafter proceeded to estimate gross profit at 1% of turnover without pointing out any specific discrepancy in the books of account or any particular transaction which could justify such estimation. The Ld. AR further contended that the proposed addition by estimating gross profit at 1% of turnover was never confronted to the assessee during the assessment proceedings. According to the Ld. AR, the assessee was not provided a specific and effective opportunity to explain why the gross profit should not be estimated at 1% of the turnover. It was, therefore, submitted that the addition was made in violation of the principles of natural justice. The Ld. AR also drew our attention to the observations made by the Assessing Officer in the assessment order. In particular, it was submitted that the Assessing Officer himself observed that the estimation of 1% gross profit was made to “cover up the possible leakage of revenue”. According to the Ld. AR, such observation clearly demonstrated that the estimation was not based upon any specific defect, discrepancy or comparable case but was merely an ad hoc estimation. The Ld. AR further submitted that the very - 5– fact that the Assessing Officer did not make any addition in respect of the cash deposits of Rs.9,71,13,000/- demonstrated that the explanation furnished by the assessee regarding the source of such deposits was accepted. It was argued that, once the cash deposits were accepted as being related to the business transactions of the assessee and no specific discrepancy was brought on record, the estimation of gross profit at 1% without any cogent basis was not justified.

We have carefully gone through the order of the Ld. CIT(A). We find that, as recorded by the Ld. CIT(A) at page 15 of his order, the addition made by the Assessing Officer was confirmed primarily on the ground that the assessee had not produced the purchase and sales bills. According to the Ld. CIT(A), in the absence of such primary documents, the correctness of the trading results declared by the assessee could not be properly verified or ascertained. On this basis, the Ld. CIT(A) upheld the rejection of the trading results and consequently confirmed the addition made by the Assessing Officer by estimating the gross profit at 1% of the turnover.

We further find that the Ld. CIT(A) has confirmed the addition primarily on the ground that purchase and sales bills were not produced. However, the Ld. CIT(A) has not undertaken any independent exercise to determine whether the gross profit rate of 1% adopted by the Assessing Officer was reasonable. There is also no discussion regarding the past gross profit rate of the assessee, comparable cases or any other material which could support the particular rate adopted.

In our considered view, the matter requires fresh examination. Since the assessee claims to have furnished various books and supporting documents, and since the precise nature and extent of discrepancies in such documents have not been examined in detail by the lower authorities, it would be in the interest of justice to restore the issue to the file of the Assessing Officer.

Accordingly, the order of the Ld. CIT(A) is set aside on this issue and the matter is restored to the file of the Assessing Officer for fresh adjudication. The Assessing Officer shall examine the books of account and all supporting documents furnished by the assessee, including the cash book, bank book, sales and purchase summaries, VAT returns, stock statements and purchase and sales bills. The Assessing Officer shall identify and confront to the assessee any specific discrepancy noticed in the books or supporting documents.

We also direct that, before making any fresh adjustment, the Assessing Officer shall provide adequate and effective opportunity of being heard to the assessee and confront the assessee with all material proposed to be relied upon. The assessee, in turn, shall furnish all relevant documents and cooperate with the assessment proceedings.

In view of the above discussion, the ground raised by the assessee challenging the trading addition is allowed for statistical purposes.

The issue of estimation of gross profit being identical to that adjudicated in ITA No.1680/Ahd/2025 for A.Y. 2016-17, the same is restored to the file of the Assessing Officer for fresh adjudication in accordance with law, after providing adequate opportunity of being heard to the assessee.

As regards the ground relating to ad-hoc disallowance of expenditure amounting to Rs.85,736/-, we find that the assessee has challenged the disallowance on the ground that the expenditure was legitimate business expenditure and that the disallowance was made without proper appreciation of the material furnished by the assessee. Revenue could not bring any thing on record as to what was the specific expenditure that could be disallowed or treated as non-business expenditure. The appeal of the assessee on this ground is allowed

In the result, the appeal of the assessee in ITA No.1681/Ahd/2025 is partly allowed for statistical purposes. The appeal of the assessee in ITA No.1680/Ahd/2025 is allowed for statistical purposes.

""थ" / The Respondent. 3. संबंिधत आयकर आयु" / Concerned CIT 4. आयकर आयु"(अपील) / The CIT(A)- 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाईल / Guard file. आदेशानुसार/ BY ORDER,सहायक पंजीकार (Dy./Asstt.