SANJAY HARISHCHANDRA WARANG,MUMBAI vs. INCOME TAX OFFICER - WARD 42(3)(3), MUMBAI

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ITA 3978/MUM/2026Status: DisposedITAT Mumbai19 June 2026AY 2016-1713 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal found the 8% profit estimation to be excessive and arbitrary, lacking rational basis. Considering comparable cases and the assessee's lack of complete records, the Tribunal directed the AO to estimate profit at 2% of the aggregate bank credits.

What were the facts?

The assessee, engaged in tyre trading, failed to file his return of income for AY 2016-17. Based on bank deposits, the AO initiated reassessment proceedings and, due to non-furnishing of records, estimated profit at 8% of aggregate bank credits. The CIT(A) upheld this.

What were the issues?

Whether the profit estimation of 8% on aggregate bank credits by the AO and sustained by the CIT(A) was justified, and if not, what would be a reasonable profit rate.

Which sections of the Income-tax Act were involved?

Section 147,Section 144,Section 148,Section 234A,Section 234B,Section 234C,Section 234D

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH MUMBAI

For Appellant: Shri Akshay J. Shah, Ld. AR
Hearing: 16.06.2026Pronounced: 19.06.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH MUMBAI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER & SHRI MAKARAND VASANT MAHADEOKAR, ACCOUNTANT MEMBER ITA No. 3978/Mum/2026 (Assessment Year: 2016-17) Sanjay Harischandra ITO Ward 42(3)(3) Warang Kautilya Bhavan, B-303, Aishwarya Vs. Bandra Kurla Galaxy, Chandansar Complex, Bandra Road, Virar (West), (East), Mumbai- Thane, Maharashtra - 400 051 401303 PAN/GIR No. ABFPW1993G (Applicant) (Respondent) Assessee by Shri Akshay J. Shah, Ld. AR Revenue by Shree Kumar C., Ld. DR Date of Hearing 16.06.2026 Date of Pronouncement 19.06.2026 आदेश / ORDER PER MAKARAND VASANT MAHADEOKAR, AM: This appeal is directed against the order dated 29.12.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [hereinafter referred to as "the CIT(A)"] for Assessment Year 2016-17, arising out of the assessment order dated 10.02.2025 passed by the Income Tax

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Officer, Ward-42(3)(3), Mumbai under section 147 read with sections 144 and 144B of the Income-tax Act, 1961 [hereinafter referred to as "the Act"]. Condonation of Delay 2. At the outset, it was noticed by the Registry that the present appeal was filed with a delay of 34 days. The assessee filed a petition seeking condonation of delay supported by an affidavit explaining the reasons for the delay. 3. In the affidavit, the assessee explained that the notices issued during the appellate proceedings as well as the communications from the National Faceless Appeal Centre were served on an old e-mail address of his wife, namely sushila.mahadik@yahoo.co.in, which was not being accessed regularly. Consequently, the notices issued during the appellate proceedings and the appellate order escaped attention and the assessee remained unaware of the developments in the appeal proceedings. The assessee further stated that being not well- versed with faceless assessment and appellate procedures and being an unqualified person engaged in the business of trading in old and second-hand truck and tractor tyres, he was not regularly accessing the income-tax portal and the registered e- mail account. Upon subsequently coming to know of the impugned appellate order, he immediately consulted his tax advisor and took steps for filing the present appeal. It has been

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asserted that the delay was neither intentional nor deliberate but had occurred due to bona fide reasons beyond his control. 4. The learned Departmental Representative did not raise any objection to the condonation petition. Having considered the explanation furnished by the assessee and being satisfied that sufficient cause prevented the assessee from filing the appeal within the prescribed period, the delay of 34 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits. 5. Briefly stated, the assessee, engaged in the business of trading in old and second-hand truck and tractor tyres through his proprietary concern, M/s. Jai Maa Kali Trading Company, had not filed his return of income for Assessment Year 2016-17. Based on information received through the Insight Portal regarding cash deposits of Rs.4,09,89,700/- in the assessee's bank account, the Assessing Officer initiated proceedings under section 148A and thereafter issued notice under section 148 of the Act. Pursuant thereto, the assessee filed a return declaring income of Rs.1,08,752/-, which was treated by the Assessing Officer as invalid on the ground that it had been filed beyond the time stipulated in the notice issued under section 148. 6. During the reassessment proceedings, the assessee explained that the bank deposits represented business receipts from sale of old and second-hand tyres and that the corresponding withdrawals were utilized towards purchases and

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business expenses. According to the assessee, the deposits represented sales duly recorded in the books of account and reflected in the Profit and Loss Account. 7. The Assessing Officer, however, observed that despite repeated opportunities, the assessee failed to furnish complete books of account, supporting bills, confirmations and reconciliation of bank credits with the disclosed turnover. On verification of the bank accounts, aggregate credits of Rs.10,28,88,875/- were noticed. Since the assessee failed to substantiate the source and nature of the credits through supporting evidence, the Assessing Officer completed the assessment under section 144 read with section 147 of the Act and, treating the aggregate bank credits as turnover, estimated profit thereon at 8%, resulting in an addition of Rs.82,31,110/-. Consequently, the total income of the assessee was assessed at Rs.83,39,862/-. 8. Aggrieved, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee challenged the validity of the reassessment proceedings, the action of the Assessing Officer in treating the return filed pursuant to notice under section 148 as invalid, the ex parte assessment framed under section 144, and the estimation of profit at 8% of the aggregate bank credits. It was contended that the bank deposits represented business receipts of the proprietary concern and that the estimation of profit at 8% was excessive having regard to the

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nature of the assessee's wholesale tyre trading business, wherein the normal profit margin was substantially lower. The assessee also contended that he could not effectively participate in the appellate proceedings as the notices issued by the National Faceless Appeal Centre were not noticed by him. 9. The learned CIT(A), however, observed that sufficient opportunities had been granted during the assessment proceedings and that the assessee had failed to furnish the details and evidence called for by the Assessing Officer. The learned CIT(A) noted that despite repeated notices, the assessee had not substantiated the explanation regarding the deposits appearing in the bank accounts. The learned CIT(A) further observed that the Assessing Officer had already granted relief by treating the bank credits as turnover and estimating income at 8% thereof instead of treating the entire credits as unexplained income. Accordingly, the learned CIT(A) upheld the action of the Assessing Officer in estimating profit at 8% of the aggregate bank credits of Rs.10,28,88,875/- and sustained the addition of Rs.82,31,110/-. The action of the Assessing Officer in treating the return filed pursuant to notice under section 148 as invalid was also upheld. Consequently, the appeal of the assessee was dismissed. 10. Aggrieved by the aforesaid order of the learned CIT(A), the assessee is in further appeal before the Tribunal and has raised the following grounds of appeal:

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1.

On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, erred in passing the order dated 29.12.2025 without properly appreciating the facts and circumstances of the case and in confirming the assessment framed by the Assessing Officer. 2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in disposing of the appeal ex-parte without granting the appellant a proper and effective opportunity of being heard, thereby violating the principles of natural justice. 3. On the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the appellant had not received the notices issued during the appellate proceedings, and therefore the appellant could not furnish submissions or supporting documents. 4. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the Assessing Officer in completing the assessment u/s 147 r.w.s. 144 of the Income-tax Act without properly examining the facts of the case. 5. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the estimation of profit at 8 percent on the alleged turnover, ignoring the nature of the appellant's business and the actual profit margins prevailing in the wholesale trading of tyres which are substantially lower. 6. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs.82,31,110/- made by the Assessing Officer merely on estimation basis. 7. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the action of the Assessing Officer in treating the return of income filed by the appellant as invalid, without appreciating that the same was filed in compliance with the notice issued. 8. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the levy of interest under sections 234A, 234B, 234C and 234D, which is incorrect and unjustified.

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9.

On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the initiation of penalty proceedings under sections 271(1)(c), 271(1)(b), 271B and 271F. 10. The Appellant craves leave to add, amend, alter, withdraw, modify or substitute any or all of the grounds of appeal at the time of the hearing. 11. During the course of hearing before us, the learned Authorised Representative (AR) submitted that the Assessing Officer, while framing the assessment under section 144 read with section 147 of the Act, had estimated the net profit at 8% of the turnover represented by aggregate bank credits and that the said estimation had been mechanically affirmed by the learned CIT(A). It was contended that having regard to the nature of the assessee's business of wholesale trading in old and second-hand truck and tractor tyres, the profit rate of 8% was wholly excessive and divorced from commercial realities. The learned AR submitted that even dealers engaged in wholesale trading of brand-new tyres do not ordinarily earn net profit margins anywhere near 8%.

12.

The learned Departmental Representative relied upon the orders of the lower authorities. He, however, fairly submitted that the profit rate of 8% was estimated by the Assessing Officer on an ad hoc basis by taking guidance from the provisions of section 44AD of the Act and did not object to the comparables furnished by the assessee during the course of hearing.

13.

The Bench enquired from the learned AR as to whether the assessee could furnish details of profit margins disclosed in the

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earlier or subsequent assessment years. In response, the learned Authorised Representative submitted that the proprietary concern, M/s. Jai Maa Kali Trading Company, had discontinued its business operations after 31.03.2016 and, therefore, no subsequent year's financial statements or returns of income were available. The learned AR further submitted that no reliable historical financial data of earlier years was readily available for verification. In these circumstances, to demonstrate the prevailing profitability in the tyre trading industry, the assessee furnished financial particulars of comparable concerns engaged in the business of tyre trading. 14. Referring to the comparative financial statements placed on record, the learned AR submitted that M/s. Pioneer Trading Corporation had disclosed net profit margins ranging between 0.42% and 1.16% during Assessment Years 2016-17 to 2019-20, whereas M/s. Vikas Retail Private Limited had disclosed net profit margins ranging between 0.14% and 1.46% during the corresponding period. Reliance was also placed upon the financial results of M/s. Trans Tyres LLP, which disclosed a net profit margin of 1.90%. It was submitted that the aforesaid concerns were established participants in the tyre trade and their audited financial results demonstrated that even large-scale dealers in brand-new tyres generally operate within a net profit range of approximately 1% to 2%, and in several years even below 1%.

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15.

We have considered the rival submissions and perused the material placed on record. The limited issue requiring adjudication is whether, after treating the aggregate bank credits as turnover/receipts of the assessee, the estimation of net profit at 8% by the Assessing Officer, as confirmed by the learned CIT(A), is justified on the facts of the case. 16. It is not in dispute that the assessee was engaged in the business of trading in old and second-hand truck and tractor tyres through his proprietary concern, M/s. Jai Maa Kali Trading Company. The Assessing Officer noticed aggregate credit entries of Rs.10,28,88,875/- in the assessee's bank accounts. Since the assessee could not furnish complete books of account, purchase bills, sale bills, confirmations and reconciliation to the satisfaction of the Assessing Officer, the Assessing Officer treated the said aggregate credits as turnover/total receipts and estimated profit thereon at 8%, resulting in an addition of Rs.82,31,110/-. The learned CIT(A) affirmed the said estimation. 17. In our considered view, once the Assessing Officer himself treated the aggregate bank credits as turnover or business receipts and did not treat the entire credits as unexplained income, only a reasonable profit element embedded in such turnover could be brought to tax. However, the rate of 8% adopted by the Assessing Officer does not appear to be supported by any comparable case, past history of the assessee, industry material or any other objective basis. The assessment order does

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not indicate any reason as to why the net profit rate of 8% was considered appropriate for the assessee's line of business, namely wholesale trading in old and second-hand truck and tractor tyres. The estimation of income under section 144, though necessarily involving an element of guesswork, cannot be arbitrary and must have a reasonable nexus with the material available on record. 18. During the course of hearing, the Bench specifically required the learned AR to furnish the assessee's own profit margins for earlier or subsequent years. The learned Authorised Representative submitted that the proprietary concern, M/s. Jai Maa Kali Trading Company, discontinued its trading operations after 31.03.2016 and, therefore, no subsequent year's financial statements or returns were available. It was further submitted that no reliable earlier year's data of the assessee was readily available for verification. In these circumstances, the assessee placed on record certified financial statements of comparable concerns engaged in tyre trading to demonstrate the prevailing profit margins in the said line of business. 19. The comparable data filed by the assessee shows that M/s. Pioneer Trading Corporation disclosed net profit margins of 1.16%, 1.06%, 1.13% and 0.42% for the relevant years. M/s. Vikas Retail Private Limited disclosed net profit margins of 0.14%, 0.43%, 1.46% and 0.73%. M/s. Trans Tyres LLP disclosed a net profit margin of 1.90%. Thus, on the basis of nine comparable instances, the total of the disclosed net profit

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percentages works out to 8.43%, giving a simple average net profit rate of approximately 0.94%. Further, the average net profit rate of M/s. Pioneer Trading Corporation works out to approximately 0.94%, whereas that of M/s. Vikas Retail Private Limited works out to approximately 0.69%. The highest profit rate reflected in the comparables is 1.90%. 20. The aforesaid financial statements are stated to be certified financial statements of third-party concerns engaged in comparable tyre trading business. Though the assessee's own past or subsequent profit history would ordinarily be the best guide for estimation, the same is not available in the present case. In such circumstances, the certified financial results of comparable concerns can be reasonably considered as corroborative material for arriving at a fair and realistic profit rate. The said comparable data clearly indicates that even established concerns dealing in tyres operate within a net profit range substantially lower than 8%. Therefore, the rate of 8% adopted by the Assessing Officer and sustained by the learned CIT(A) is found to be excessive and without any rational basis. 21. At the same time, it is also relevant that the assessee did not furnish complete books of account, supporting invoices, confirmations and reconciliation during the assessment proceedings. The assessment was therefore completed under section 144 of the Act. In such circumstances, while the adoption of 8% is excessive, the profit rate cannot be accepted merely at

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the simple average of 0.94% shown by the comparables, particularly when the assessee's complete books and supporting evidences were not produced for verification. Some reasonable margin has to be provided to account for the deficiencies in the assessee's evidence, incompleteness of records, cash-intensive nature of the transactions and the fact that the estimation is being made in best judgment assessment proceedings. 22. Considering the totality of facts, the nature of the assessee's business, the comparable certified financial statements placed on record, the average comparable net profit margin of approximately 0.94%, the highest comparable margin of 1.90%, and the absence of any basis for adopting 8%, we are of the considered view that estimation of net profit at 2% of the aggregate turnover/receipts would meet the ends of justice. The rate of 2% is higher than the average disclosed by the comparable cases and marginally higher than the highest comparable rate of 1.90%, thereby adequately taking care of the defects and non- compliance noticed by the Assessing Officer, while at the same time avoiding an arbitrary and excessive estimation. 23. We accordingly direct the Assessing Officer to estimate the assessee's income at 2% of the aggregate bank credits of Rs.10,28,88,875/-. The income so computed would work out to Rs.20,57,778/- as against the addition of Rs.82,31,110/- made by the Assessing Officer. The Assessing Officer is directed to

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restrict the addition accordingly. The grounds raised by the assessee on this issue are partly allowed.

24.

In the result, the appeal of the assessee is partly allowed in the aforesaid terms.

Order pronounced in the open court on 19.06.2026.

Sd/- Sd/- (CHALLA NAGENDRA PRASAD) (MAKARAND VASANT MAHADEOKAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated 19/06/2026 Dhananjay, Sr.PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. संबंधधत आयकर आयुक्त / The CIT(A) आयकर आयुक्त(अपील) / Concerned CIT 4. धिभागीय प्रधतधनधध, आयकर अपीलीय अधधकरण, मुम्बई / DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. 6. आदेशानुसार/ BY ORDER, सत्याधपत प्रधत //True Copy// 1. उि/सहायक िंजीकार ( Asst. Registrar) आयकर अिीिीय अतिकरण, मुम्बई / ITAT, Mumbai

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