SANJAY KUMAR SINHA (HUF),KARNATAKA vs. INCOME TAX OFFICER, KARNATAKA

IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER

ITA No.659/Bang/2026 Assessment Year: 2013-14

Sanjay Kumar Sinha (HUF), The Income Tax Officer, Vs. H No.97, Maruthi Layout, Circle – 4(1)(1), Chinnapanahalli, Bengaluru. Marathahalli Colony, Bengaluru – 560 037. PAN – AAKHS 3182 F APPELLANT RESPONDENT Assessee by : Shri PP Singh, CA Revenue by : Shri Ganesh R Ghale, Standing Counsel for assessee Date of hearing : 27.04.2026 Date of Pronouncement : 08.05.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals) [hereafter the learned CIT(A)] under the provision of section 250 of The Income Tax Act, 1961 (hereafter- the Act) pertaining to Assessment Year 2013-14.

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consultant was handling the income tax matters and the email ID of the said consultant was registered on the income tax portal. Therefore, the notices and order passed by the Ld. CIT(A) were not properly communicated to the assessee. It is further submitted that after coming to know of the appellate order, the assessee changed the consultant and time was consumed in collecting papers and preparing the appeal. It is submitted that the delay was neither intentional nor deliberate.

3.1 The Hon’ble Supreme Court in Collector, Land Acquisition v. Mst. Katiji & Others [1987] 167 ITR 471 (SC) has held that a liberal approach should be adopted in matters of condonation of delay, as refusal to condone delay may result in a meritorious matter being thrown out at the threshold. The Hon’ble Supreme Court has further held that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. Further, in N. Balakrishnan v. M. Krishnamurthy [1998] 7 SCC 123, the Hon’ble Supreme Court held that length of delay is not material, but acceptability of the explanation is the only criterion, and that unless the delay is

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caused deliberately or due to mala fide conduct, the matter should ordinarily be decided on merits.

3.2 Applying the above principles to the facts of the present case, we are of the considered view that the assessee was prevented by sufficient cause from filing the appeal within the prescribed time. The delay has been properly explained, and the explanation does not appear to be an afterthought. Since the right of appeal is a valuable statutory right, the same should not be denied merely on technical grounds when the assessee has shown reasonable cause. Accordingly, in the interest of justice and fair play, the delay of 260 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits.

3.3 The only issue raised by the assessee is that the learned CIT(A) erred in confirming the estimation of profit @ 8% made by the AO on contractual receipt on ad hoc basis.

3.4 The relevant facts are that as per Form 26AS for A.Y. 2013-14, the assessee has contract receipts under section 194C of the Act for the sum of Rs. 1,99,45,807/- and receipt of rental income of Rs. 25,25,000/- only. However, return was not filed for the year. Hence, the case was reopened and notice under section 148 of the Act as on 30-01-2022 was issued.

3.5 The assessee in response to the notice under section 148 of the Act filed return of income as on 04-03-2022 declaring total income at Rs. 12,92,090/- which comprises business income of Rs. 13,71,569/-,

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income from other sources of Rs. 20524/- and deduction under section 80C of the Act for Rs. 1,00,000/- only.

3.6 However, the AO noted that for the year under consideration the assessee has business receipt/turnover of Rs. 2,24,70,807/- (contract + rent). Hence the assessee was liable to maintain books of accounts and get them audited within the time and offer the business receipt to tax within due date. But the assessee failed to do so. Hence, the AO rejected the books of the account of the assessee and estimated the profit of the assessee @ 8% of the turnover. Accordingly, the AO assessed the total income of the assessee at Rs. 17,96,670/- as against the return income of Rs. 12,92,090/- only.

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7.1 The Ld. AR submitted that the Ld. AO has rejected the books of account without pointing out any specific defect in the same and proceeded to estimate income at 8% of the gross receipts on an ad hoc basis. It was argued that such rejection of books is not in accordance with law, as u/s 145(3) of the Act, the AO must first demonstrate that the accounts are incorrect or incomplete or that the method of accounting is not regularly followed. In the present case, no such finding has been recorded by the AO.

7.2 It was further submitted that the assessee has consistently declared net profit ranging from about 4.55% to 5.26% in earlier years (A.Y. 2010-11 to 2012-13) as well as 6.09% in the year under consideration, which is supported by audited books. The turnover and profit details of earlier years clearly show that the results declared by the assessee are in line with past history and there is no abnormal variation warranting estimation.

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7.3 The Ld. AR also submitted that even assuming without admitting that books are rejected, estimation of income cannot be arbitrary and must be based on past results or comparable cases. The AO has adopted 8% without any basis or comparable data, which makes the estimation unsustainable. Reliance was placed on the decision of Hon’ble Delhi High Court in the case of CIT vs Poonam Rani (326 ITR 223), wherein it has been held that rejection of books must be supported by proper reasons and estimation cannot be made without pointing out defects. Further reliance was placed on CIT vs Aero Traders Pvt Ltd (322 ITR 316) to submit that ad hoc additions without any basis are not permissible.

7.4 The Ld. AR also relied on the decision of Hon’ble Rajasthan High Court in CIT vs Gupta K.N. Construction Co. (215 CTR 94) to contend that low profit by itself cannot be a ground for estimation and the AO must bring material on record to justify higher profit rate. It was further submitted that in ACIT vs Poonam Gupta (ITA No. 4695/Del/2014) also, estimation at 8% without justification was held to be unsustainable.

7.5 The Ld. AR further submitted that even in best judgment assessment, the estimation must be fair, reasonable and based on some material, as held by the Hon’ble Supreme Court in Brij Bhushan Lal Parduman Kumar vs CIT (115 ITR 524). In the present case, the AO has made an arbitrary estimation ignoring the audited books and past results, which is not permissible.

7.6 It was also submitted that the entire receipts of the assessee are through banking channels from reputed parties like L&T, and therefore the declared income based on audited books represents the correct

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income. The Ld. AR thus prayed that the returned income be accepted, and the addition made by estimating profit at 8% be deleted.

9.1 At the outset, we note that the assessee did not file the return within due date and the books were not audited within the prescribed time. The return was filed only in response to notice issued u/s 148 of the Act and the audit was also completed at a later stage. Therefore, the AO invoked the provisions of section 145(3) of the Act and proceeded for best judgment assessment. However, the issue does not end at rejection of books. Once the books are rejected, the estimation of income must be made on a reasonable, fair and scientific basis and cannot be arbitrary.

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9.2 In the present case, we find that the AO has estimated profit @ 8% of turnover without bringing any comparable cases, industry data, or past history on record. There is no discussion in the assessment order as to why 8% has been adopted. Such estimation, in our considered view, is purely ad hoc. It is a settled principle that even in best judgment assessment, the estimation must have a rational nexus with material on record and should not be based on guesswork.

9.3 On the contrary, the assessee has placed on record its past history, which shows that for A.Ys. 2010-11 to 2012-13, the net profit declared ranges between 4.55% to 5.26%, and in the year under consideration, the assessee has declared net profit @ 6.09%. It is also not in dispute that the returns of earlier years have been accepted by the department and there is no material brought on record by the Revenue to show any significant change in facts or business conditions in the year under consideration.

9.4 In such circumstances, the past results of the assessee provide the most reliable and reasonable basis for estimation. The Hon’ble Courts have consistently held that where past history is available, the same should be preferred over arbitrary estimation. Further, the Hon’ble Supreme Court in the case of Brij Bhushan Lal Parduman Kumar vs CIT (115 ITR 524) has held that best judgment assessment must be fair, honest and reasonable. Similarly, the Hon’ble High Courts in the cases of CIT vs Poonam Rani (326 ITR 223) and CIT vs Aero Traders Pvt Ltd (322 ITR 316) have held that estimation without pointing out defects and without any basis is not sustainable.

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9.5 Applying the above principles, we find that the estimation made by the AO at 8% is not supported by any material, comparable or scientific method and hence cannot be sustained. On the other hand, the profit declared by the assessee at 6.09% is not only higher than the past trend but is also supported by audited accounts, though obtained at a later stage. There is no evidence brought by the Revenue to show that the declared results are incorrect or that any part of receipts has been suppressed.

9.6 Considering the totality of facts, we are of the view that the most reasonable basis for determination of income in the present case is the past history of the assessee, and since the assessee has declared a higher profit rate than earlier years, the same deserves to be accepted. Accordingly, the addition made by estimating profit @ 8% is deleted and the income returned by the assessee is directed to be accepted.