HARIRAM AGARWALA (HUF),NORTH DINAJPUR vs. I.T.O., WARD - 2(4), RAIGANJ

For that on the facts and circumstances and legal position of the case, the order u/s 250 passed by the Ld. CIT (A), NFAC, Delhi is against the principle of natural justice.

For that on the facts and circumstances and legal position of the case, the Ld. Assessing Officer ought not to have made any addition on other ground when no addition had been made by him on the very issue of reopening of assessment u/s 148 of Income Tax Act, 1961. The Ld. CIT(A)

For that on the facts and circumstances and legal position of the case, the Ld. Assessing Officer ought not to have estimated the profit by applying 6% profit rate without rejecting the audited books of accounts of the appellant. The auditor had uploaded the audited statement of accounts of the appellant u/s 44AB of Income Tax Act, 1961 and had certified in his audit report that the appellant had maintained due books of account. The Ld. CIT(A) ought not to have confirmed the addition made by the Ld. AO.

For that the appellant had earned net profit @ 0.91% as against average net profit rate of 0.87% of last three years. The Ld. AO ought not to have applied the profit rate of 6% in assessing the appellant disregarding the average profit rate earned by the appellant. The Ld. CIT(A) ought not to have confirmed the profit rate of 6% applied by the Ld. AO in assessing the appellant as against the net profit rate of 0.91% earned by the appellant.

For that on the facts and circumstances and legal position of the case, the Ld. Assessing Officer was quite unjustified in alleging that the appellant had sold its goods at a price which was less than its purchase price. The appellant had earned gross profit @1.74% as per its audited statement of accounts lying before the Ld. AO. The Ld. CIT(A) ought to have modified the assessment order of the Ld. AO and ought not to have confirmed the profit rate applied by the Ld. AO.

That the appellant craves permission to add, amend, alter or vary all or any of the grounds of appeal on or before the date of hearing of the appeal."

Brief facts of the case are that the assessee had not filed the return of income for AY 2018-19. On the basis of information available from the Insight portal showing substantial cash deposits in the assessee’s bank accounts, the assessment was reopened u/s 147 of the Act. In response to the notice issued u/s 148 of the Act dated 31.03.2022, the assessee filed the return of income on 29.12.2022 declaring total income at ₹10,50,270/-. The Assessing Officer (hereinafter referred to as Ld. 'AO') observed that the assessee had shown sales at rates lower than the purchase price for purchases and also failed to furnish complete details and primary supporting documents. Therefore, relying on the market trends in the cement dealership business, the Ld. AO estimated the gross profit @ 6% on the total turnover of ₹11,59,14,948/- and made an addition of ₹47,31,094/- to the business income. Furthermore, the Ld. AO made an addition of ₹23,279/- under the head Income from Other Sources due to non-reporting of interest received on an income tax refund and from Ambuja Cements Limited and determined the total income of the assessee at ₹58,04,643/- vide order u/s 147 r.w.s. 144B of the Act dated 27.03.2023. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who held that mere filing of a tax audit report does not restrict the Ld. AO from examining the correctness of the declared profits and noted that the assessee had repeatedly failed to produce primary supporting documents to substantiate the profit as per the books of account. The Ld. CIT(A) found the Ld. AO's reliance on specific, tangible information and industry margins to estimate the gross profit at 6% of the turnover to be justified in the absence of concrete rebuttal evidence. Furthermore, the Ld. CIT(A) dismissed the assessee's additional ground challenging the additions made on an issue outside the initial reasons for reopening, stating that the Ld. AO is empowered to assess or reassess any income escaping assessment that comes to his notice during the proceedings u/s 147 of the Act. Accordingly, the Ld. CIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee.

Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted before the Bench that no addition u/s 68, 69 or 69A of the Act had been made. The Ld. AO had reopened the assessment on the ground of alleged transactions of ₹8,20,92,620/- whereas the turnover of the assessee was ₹11,59,14,948/-. It was submitted that since no addition was made on the issue on which the case was reopened, therefore, no further addition being 6% of the turnover could have been made by the Ld. AO. Our attention was drawn to page 4 of the paper book and it was stated that the Ld. AO had applied the net profit rate which had been confirmed @ 6% by the Ld. CIT(A). It was submitted that the assessee's profit varies from 0.49% to 0.9% and relying upon the decision of the Coordinate Bench in the case of M/s. Dulichand Kundanmal vs. ACIT in ITA No. 05/KOL/2023 for AY 2014-15 order dated 19.06.2023, the Ld. AR stated that the net profit rate of at the most 0.9% may be applied.

The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same being reasonable may be confirmed.

We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The assessee had not filed the return of income u/s 139 of the Act and there was evidence of financial transactions being the deposits in the bank account for which the case was reopened as the assessee was found to have income which was more than the ITA No(s). 314/KOL/2026 Assessment Year(s) 2018-19 maximum amount not chargeable to tax. It is a settled principle of law that at the time of reopening, a prima facie link between the reasons and the income escaping assessment has to be established and the computation of the income is not required to be made at this stage. The Bench was of the view that since the required documents and bills, vouchers were not submitted before the Ld. AO, therefore the book results were liable to be rejected. As regards the past result, the returns of income were accepted in the past as filed by the assessee and no scrutiny was ever undertaken as the same could not be mentioned by the Ld. AR. However, neither the Ld. AO nor the Ld. CIT(A) has given any justification for application of net profit rate of 6%. The bench was of the view that the rates applied was on the higher side considering the business of the assessee. Therefore, on considering the nature of business, the facts of the case, the nonproduction of the supporting evidence etc. and the assessee being a non-filer, the Bench was of the view that the books of account were rightly rejected and the net profit had to be estimated. However, the Bench was of the view that in the interest of justice and fair play, a reasonable net profit rate of 2% may be applied as the assessee had himself shown the net profit varying from 0.49% to 0.9% in the past, to which the Ld. AR was agreeable and the Ld. DR raised no serious objections. Hence, the findings of the Ld. CIT(A) and the Ld. AO relating to the net profit rate applied are modified and the Ld. AO is directed to apply the net profit rate of 2% on the total turnover worked out and delete the rest of the additions made with consequential relief to the assessee. Hence, Ground Nos. 3, 4 and 5 are partly allowed.

As regards Ground No. 2 relating to the addition not being made on the issue on which the assessment was reopened, the same is dismissed as the assessee was found to have carried out financial transaction as per the deposits in the bank account and no return of income was filed. Since income had escaped assessment which has been estimated now @2% of the total turnover as against @ 6% of the turnover as applied by the Ld. AO and confirmed by the Ld. CIT(A), Ground No. 2 is hereby dismissed.

Ground No. 6 is general in nature and does not require any separate adjudication. Ground No. 1 is dismissed as both the Ld. AO as well as the Ld. CIT(A) had provided adequate opportunity of being heard and there was no violation of the principle of natural justice.

In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open Court on 20th July, 2026. [Yogesh Kumar US] [Rakesh Mishra] Judicial Member Accountant Member Dated: 20.07.2026 Bidhan (Sr. P.S.)

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order