GOVINDHAN SANGARAYYA,THANJAVUR vs. ITO WARD-1 KUMBAKONAM, KUMBAKONAM

ITA 642/CHNY/2026Status: DisposedITAT Chennai29 September 2026AY 2020-218 pages
AI SummaryRemanded

What were the facts?

The assessee, an individual engaged in the wholesale raw silk trade, did not file a regular return of income for Assessment Year 2020-21. Based on GSTR-3B sales of Rs. 2,24,24,043 and GSTR-1 purchases of Rs. 25,23,457, the Assessing Officer (AO) initiated reassessment proceedings under Section 148. The assessee filed a return disclosing an income of Rs. 6,55,033 but failed to comply with Section 142(1) notices. The AO, through the e-Assessment Unit, passed a best judgment assessment order under Section 147 read with Section 144B, determining total income at Rs. 30,31,824 by estimating profit at 12% on sales turnover of Rs. 2,64,97,479. The assessee appealed to the CIT(A), who partly allowed the appeal by directing the AO to adopt 8% profit on gross turnover.

What did the Tribunal hold?

The Tribunal held that the orders of the lower authorities are set aside and the matter is remanded back to the Assessing Officer. The Tribunal acknowledged that the assessee had not maintained any books of accounts, justifying the AO's resort to estimation. However, it was emphasized that even in a best judgment assessment, the AO must not act vindictively or capriciously and the estimation must be based on rational grounds, such as the past history of the assessee or comparable cases, as held by the Supreme Court in Commissioner of Sales Tax vs. Esufal H.M. Abdulali. The Tribunal found that neither the AO nor the CIT(A) provided a basis for adopting 12% and 8% respectively, nor was it based on past history or comparable cases. Therefore, the matter was remanded to the AO with a direction to adopt the net profit based on the assessee's past history or comparables in the same line of business, after providing an opportunity of being heard to the assessee. The issue of consequential tax demand and penalty proceedings under Section 270A was not expressly decided but would be subject to the revised assessment.

What were the issues?

1. Whether the estimation of profit at 8% by the CIT(A) is contrary to law and facts, particularly considering the nature of the wholesale raw silk trade with thin margins? (Mixed law and fact, relying on Section 145). 2. Whether the CIT(A) erred in confirming the estimation of profit without rejecting the books of account under Section 145 of the Income Tax Act, 1961? 3. Whether the estimation of profit at 8% is arbitrary, unreasonable, and excessive, especially when turnover is accepted and purchases are supported by documentary evidence? Assessee's Contentions: The assessee argued that the CIT(A)'s order sustaining the estimation of profit at 8% is contrary to law and facts. They contended that the CIT(A) erred in confirming the estimation without rejecting the books of account under Section 145. The assessee claimed that neither the AO nor the appellate authority pointed out specific defects in purchases, sales, turnover, or business records. They further argued that the 8% estimation is arbitrary and excessive for the raw silk trade, and that low profit margins alone cannot be a ground for estimation when turnover is accepted and purchases are evidenced. The assessee also stated that substantial purchase confirmations and banking evidence were filed, and the remaining confirmations would be produced. Reliance was placed on Malani Ramjivan Jagannath vs. ACIT (Rajasthan High Court) and CIT vs. Nikunj Eximp Enterprises (P) Ltd. (Bombay High Court). Revenue's Contentions: The revenue contended that the assessee had not furnished the details as called for by the AO, leaving the AO with no option but to estimate business profits at 12%.

Which sections of the Income-tax Act were involved?

Section 145,Section 148,Section 148A,Section 142(1),Section 147,Section 144B,Section 270A,Section 263,Section 139

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, CHENNAI BENCHES,

Before: SHRI ABY T VARKEY & SHRI INTURI RAMA RAO

Pronounced: 29.09.2026

PER INTURI RAMA RAO, ACCOUNTANT MEMBER :

This appeal filed by the Assessee directed against the order passed by learned Principal Commissioner of Income Tax(Central), Chennai-1 dated 10.03.2026 passed u/s.263 of the Income Tax Act, 1961 for the Assessment Year 2019-20. 1 GOVINDHAN SANGARAYYA

2.

The Assessee raised the following grounds of appeal :

“1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to law and facts, to the extent it sustains es

The order continues below.

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