INCOME TAX OFFICER WARD-5(3)(1), AHMEDABAD, VEJALPUR vs. ANKITKUMAR PRAVINKUMAR SHAH, PALDI

ITA 542/AHD/2025Status: DisposedITAT Ahmedabad06 October 2026AY 2018-197 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal noted that the assessee declared a gross loss of Rs. 58,61,129/- on a turnover of Rs. 12,00,71,805/-, resulting in a negative GP rate of 4.88%, a substantial variation from the preceding two years' positive GP rates of 19.27% and 15.23%. While a decline in GP alone might not justify rejection of books, the assessee's failure to furnish requisite details for purchases, sales, expenses, and other particulars, despite specific requests, deprived the AO of verification material. The assessee also failed to provide a satisfactory explanation for the loss and the abnormal increase in salary expenses (from Rs. 60,25,312/- to Rs. 1,34,97,657/-) despite a decline in turnover. The CIT(A)'s deletion of additions, based on the premise that the AO had not established suppression of sales or inflation of expenditure without considering the assessee's failure to provide basic details, was not considered appropriate. In the interest of justice, the Tribunal set aside the CIT(A)'s order and restored the matter to the AO for fresh adjudication. The AO is to provide an opportunity to the assessee to substantiate its claims with books of account and supporting documents, including explanations for the loss and increased salary expenses. The AO will then determine the income afresh, considering the implications of rejecting books versus disallowing expenditure to avoid duplication.

What were the facts?

The Revenue has appealed against the order of the CIT(A) for Assessment Year 2018-19. The assessee, Ankitkumar Pravinkumar Shah, a proprietor of Shri Ghantakarna Enterprise engaged in manufacturing BOPP bags, declared Nil income after filing a return on 30.01.2018. The Assessing Officer (AO) noted a gross profit ratio of (-)4.88% on a turnover of Rs. 12,00,71,805/-, a significant decline from the preceding year's 19.27%. The AO also observed an increase in salary and wages expense to Rs. 1,34,97,657/- from Rs. 60,25,312/- in the prior year. The AO rejected the assessee's books of accounts under section 145(3), estimated profit at 17.25% average GP rate, and disallowed excess salary expenses. The assessment was completed under section 144 r.w.s 144B at Nil income after set-off of losses. The CIT(A) allowed the assessee's appeal.

What were the issues?

1. Whether, on the facts and in law, the CIT(A) was justified in deleting the addition of Rs. 2,65,73,515/- made by the AO by rejecting the books of accounts, without appreciating the facts of the case? (Question of law and fact, related to Section 145(3)) 2. Whether, on the facts and in law, the CIT(A) was justified in deleting the addition of Rs. 74,72,345/- made by the AO on account of disallowance of salary expenses, without appreciating the facts of the case? (Question of law and fact, related to Section 145(3) and potentially Section 37) Assessee's contentions: The AO was incorrect in rejecting the books of accounts, estimating income using an average GP rate, and making a separate disallowance for salary expenses simultaneously. Revenue's contentions: The assessee failed to explain the reason for the loss incurred during the year and did not provide details regarding purchases, sales, salary expenses, other expenses, loans, and advances, despite specific requisitions. The AO rightly rejected the books and estimated profit. The sharp increase in salary expenses was also unexplained. The CIT(A) erred in deleting the additions. The assessee did not submit any explanation even before the CIT(A).

Which sections of the Income-tax Act were involved?

Section 145(3),Section 144,Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD

Before: SHRI NARENDRA PRASAD SINHA & SHRI SANJAY KUMAR

For Appellant: Shri M S Chhajed, AR
For Respondent: Shri Amit Pratap Singh, SR-DR
Hearing: 03.09.2026Pronounced: 06.10.2026

PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:

This appeal has been filed by the Revenue against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 30.01.2025 for the Assessment Years (A.Y.) 2018-19 in the proceeding u/s 144 r.w.s 144B of the Income Tax Act [hereinafter referred as “the Act”].

2.

The brief facts of the case are that the assessee had filed his return of income for A.Y. 2018-19 on 30.01.2018 declaring Nil income. The case was selected for scrutiny under CASS. The assessee is proprietor of Shri Ghantakarna Enterprise and carrying on manufacturing activity of BOPP ITO Vs. Ankitkumar Pravinkumar Shah, AY- 2018-19 2 b

The order continues below.

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