GNANAVELU THILAK,CHENNAI vs. ITO, NCW-3(5), CHENNAI

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ITA 69/CHNY/2026Status: DisposedITAT Chennai22 June 2026AY 2017-186 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the AO's addition under Section 68 was not sustainable as the assessee's books of account were not rejected, and no discrepancy was found in purchase and sales quantities or VAT returns. The Tribunal also noted that making an addition under Section 68 when the amounts were already disclosed in the Profit & Loss Account would amount to a double addition.

What were the facts?

The assessee, involved in selling fuel, filed his return of income. The Assessing Officer (AO) made an addition of Rs. 35,86,531 under Section 68 of the Income Tax Act, citing disproportionately higher sales during November & December 2016 compared to purchases. The CIT(A) dismissed the assessee's appeal.

What were the issues?

Whether an addition under Section 68 is permissible when the assessee's books of account are not rejected and the disclosed income is already reflected in the Profit & Loss account. Whether the AO can make additions based on perceived discrepancies in sales and purchase margins without rejecting the books.

Which sections of the Income-tax Act were involved?

Section 68,Section 115BBE,Section 145

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: HONOURABLE SHRI ABY T. VARKEY & SHRI GAGAN GOYAL

Hearing: 17.06.2026Pronounced: 22.06.2026

आयकर अपीलीय अधिकरण ‘सी’ न्यायपीठ, चेन्नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI माननीय श्री एबी टी. वर्की, न्याययक सदस्य एवं श्री गगन गोयल लेखा सदस्य के समक्ष BEFORE HONOURABLE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 69/Chny/2026 ननिाारण वर्ा /Assessment Years: 2017-18 Gnanavelu Thilak, v. The Income Tax Officer, No.97, Kodambakkam High Road, Non-Corporate Ward-3(5), Nungambakkam, Nungambakkam S.O, Chennai. Chennai-600 034. [PAN: AOWPT4958E] (अपीलार्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलार्थी की ओर से/ Assessee by : Mr. S. Sridhar(Erode), Advocate, Ld. AR प्रत्यर्थी की ओर से /Revenue by : Mr. Chilaka Marthi Vijay Raju, Addl. CIT, Ld. DR सुनवाईकीतारीख/Date of Hearing : 17.06.2026 घोषणाकीतारीख /Date of Pronouncement : 22.06.2026 आदेश / O R D E R PER GAGAN GOYAL, AM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (A) / NFAC (hereinafter referred as the ‘Ld.CIT(A)’) for the assessment year (hereinafter referred as the ‘AY’) 2018-19.

GROUNDS OF APPEAL 1) The Impugned Order is unjust, unreasonable and bad in law. 2) The First Appellate Authority erred in not considering the submissions in proper perspective. 3) The First Appellate Authority erred in not considering the material fact that when the books of account, trade results, etc., are not rejected, thereby erred in sustaining the addition made under section.68.

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ITA No.69/Chny/2026 (2017-18) Gnanavelu Thilak 4) Without prejudice to the above, levy of tax at 60 percent under sec. 115BBE, when the only source of the appellant is from business, is not legally tenable.

5) Without prejudice, levy of tax at 60 percent under sec.115BBE for the Assessment year.2017- 18 is not justified.

And for other grounds and reasons that may be adduced later, the Appellant humbly prays that the present appeal may be admitted, duly considered and justice be rendered.

2.

The brief facts of the case are that the assessee filed his return of income declaring a total income of Rs. 6, 76, 610/- on 13.12.2017. The assessee is involved in the business of selling fuel supplied Hindustan Petroleum. The case of the assessee was selected for complete scrutiny. The year under consideration pertains to the demonetization period and based on certain concerns the AO had he made an addition of Rs. 35, 86, 531/- u/s. 68 of the Act. The assessee being aggrieved with the order of the AO preferred an appeal before the Ld. CIT (A) who in turn dismissed the appeal of the assessee and confirmed the order of the AO. The assessee being further aggrieved with the order of the Ld. CIT (A) preferred the present appeal before us.

3.

We have gone through the order of the AO, order of the Ld. CIT (A) and the submissions of the assessee along with grounds taken before us. It is observed that the AO issued notice u/s. 133(6) of the Act to M/s. Hindustan Petroleum Corporation Limited to gather information relating to the month wise quantity of fuel purchased during the year. The particulars of purchase quantity and sales quantity on a monthly basis matched by the AO and there is no discrepancy found. Moreover, the books result as declared by the assessee were not rejected by the AO. It is a settled position of law that until unless the books results declared by the assessee are disturbed and a GP / NP ratio is being applied, no specific additions u/s. 68 / 69 / 69A of the Act can be done.

4.

The only basis, the AO adopted for application of section 68 of the Act was that sales during the months of November & December 2016 were disproportionately higher than the purchases and GP margins touched double digit level, which is not possible in the trade of petrol and diesel. For sake of understanding the arguments

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ITA No.69/Chny/2026 (2017-18) Gnanavelu Thilak taken by the AO, we are reproducing herein below a table of monthly purchases, sales and GP margin as under:-

Month Average purchase Average sale price GP GP Ratio price (in Rs.) (in Rs.) margin April-16 55114/- 57474/- 2361 4 May 57082/- 59296/- 2214 4 June 60304/- 62577/- 2274 4 July 59833/- 60225/- 392 1 August 55884/- 58707/- 2823 5 Sept 57508/- 61045/- 3537 6 October 60196/- 62791/- 2595 4 Novemb 61984/- 72579/- 10594 15 er Decemb 60867/- 69450/- 8582 12 er January 64769/- 64576/- -193 0 -17 Februar 64674/- 67350/- 2676 4 y March 67577/- 56873/- -10704 -19 Total of GP ratio till October 2016 27 Average of GP ratio October 2016 4 5. In the light of above facts we deem it necessary to point out that the entire business of the assessee is codified, the actual sale of petroleum products has to be in consonants with the market rates as codified by the Oil Marketing Companies (OMCs). The outlet of the assessee must be regularly inspected by the state agencies along-with the petroleum authorities also. The purchase, sales (along with opening and closing stock) were duly reflected in the VAT returns of the assessee and nowhere it was pointed out by the AO that there is any discrepancy in the same as reported by the state VAT authorities.

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ITA No.69/Chny/2026 (2017-18) Gnanavelu Thilak 6. Moreover, we have considered the logic adopted by the AO, i.e., average value of sales declared by the assessee during the month of November, December and March was Rs. 74.32, 73.99 and 59.70 respectively is also not found to be tenable for the reasons mentioned below as under:

i) As discussed (supra) the quantity of purchase and sales were never under question and the same were duly accepted by the AO;

ii) For the time being even if it assumed that the assessee inflated the prices for the month of November and December to swell the cash balance then why the same was not done in the month of October, as the same was also included in the demonetization period and relevant in the same context as the month of November and December;

iii) As far as application of deflated prices in the month of March 2017 is concerned, the assessee would have adopted the same practice in the month of January and February 2017 also. Instead of taking risk by deflating the month of March 2017 only;

iv) It is a settled position of law, without applying section 145 of the Act, books results as declared by the assessee can’t be brushed aside, and hence no addition u/s. 68 of the Act can also be made.

7.

To strengthen our view, we further relied upon the decision of the Hon’ble Apex Court on similar issue as under: [2026] 185 taxmann.com 730 (SC) ACIT (Central)-2 v. Mahamaya Steel Industries Ltd., wherein the Hon’ble Court held as under:

“Reverting to the facts of the present case in light of the principles of law relating to section 145(3) and also considering the principles of law laid down by their Lordships of the Supreme Court in Dhakeswari Cotton Mills Ltd. (supra), it is quite vivid that the Commissioner(Appeals) and the ITAT, both, after objectively analysing the factual situation, found complete absence of any adverse material against the assessee which can support the allegation of the Assessing Officer towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. Thus, in complete absence of any adverse material, both the authorities have concurrently reached to the conclusion that the addition made by the AO is baseless and without any evidence, therefore, the rejection of books of account is invalid and addition made by the AO on account of alleged suppression of yield is based upon mere guess work. It was further held by the two authorities that the yield declared by the assessee is neither low nor the books maintained by the assessee could be impeached by some tangible evidence/material on record

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ITA No.69/Chny/2026 (2017-18) Gnanavelu Thilak nor therefore the ITAT has rightly confirmed the order of the Commissioner (Appeals) and proceeded to dismiss the appeal filed by the revenue. It is opined that the concurrent finding recorded by the two authorities holding that the addition made by the Assessing Officer for the assessment year 2013-14 is baseless and without any evidence/material, is a pure and simple finding of fact based on the evidence available on record, which is neither perverse nor contrary to the record. Accordingly, the appeal is dismissed and the substantial question of law is answered in favour of the assessee and against the revenue. [Para 11]” 8. Notwithstanding the above, the action of the AO cannot be sustained for the reason that the assessee has already disclosed the amounts in its Profit & Loss Account, which are intact and no adjustment is being made by the AO, making addition u/s. 68 of the Act will tantamount of double addition and the same is not permissible. Here, without hesitation we hold that there may be some manipulation in the books of the assessee, but the order of the AO confirms double addition in this case. Which we cannot allow from any angle, whether accounting and/or legal point of view. In view of this, ground no.3 raised by the assessee is allowed and the AO is directed to delete the addition made u/s. 68 of the Act amounting to Rs.35, 86, 531/-.

9.

In the result, the appeal of the assessee is allowed with the above observations and directions.

Order pronounced on the 22nd day of June, 2026, in Chennai.

Sd/- Sd/- (एबी टी. वर्की) (गगन गोयल) (ABY T. VARKEY) (GAGAN GOYAL) न्याययक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER चेन्नई/Chennai, ददनाांक/Dated: 22nd June, 2026. KB आदेश की प्रयतललपप अग्रेपषत/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT, Chennai /Madurai/Coimbatore/Salem 4. पवभागीय प्रयतयनधि/DR

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ITA No.69/Chny/2026 (2017-18) Gnanavelu Thilak 5. गार्ड फाईल/GF K Digitally signed by K BABU Date: BABU 2026.06.30 09:15:41 +05'30'

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