RAKESH KUMAR,SAMASTIPUR vs. ITO, SAMASTIPUR

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ITA 241/PAT/2026Status: DisposedITAT Patna06 October 2026AY 2017-186 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal condoned the 613-day delay in filing the appeal, finding that the assessee had a "reasonable cause" due to lack of proper legal guidance, difficulties in arranging professional assistance and relevant records, and a bona fide belief that compliance was completed at the appellate stage. On the merits, the Tribunal upheld the order of the CIT(A). The assessee's counsel could not controvert the CIT(A)'s finding that the net profit should be estimated at 5% of the turnover. The Tribunal noted that the assessee had deposited cash during demonetization, did not file a return, and although they later submitted documents proving business activities, no evidentiary documents for claimed expenditures were furnished. The CIT(A) had rightly estimated the income at 5% on the turnover achieved by the assessee, considering the nature of FMCG trading. Therefore, the appeal of the assessee was dismissed.

What were the facts?

The assessee, Rakesh Kumar, is an individual engaged in the wholesale trading of FMCG products. For Assessment Year 2017-18, the Assessing Officer (AO) observed cash deposits of ₹45,63,000 during the demonetization period and, after the assessee failed to comply with notices, completed the assessment under Section 144 of the Income Tax Act, 1961. The AO treated the entire cash deposit as income under Section 69A and made an addition of ₹45,88,000. The assessee appealed to the National Faceless Appeal Centre (NFAC), Delhi. The NFAC accepted that the cash deposits represented genuine sales proceeds but directed the AO to estimate the income at 5% of the total turnover of ₹3,65,32,894, deleting the addition under Section 69A. The assessee then filed an appeal before the ITAT with a significant delay.

What were the issues?

1. Whether the learned CIT(A) erred in estimating the Net Profit at an arbitrary rate of 5% of total turnover, considering the assessee's business as a wholesale trader of FMCG products with generally lower industry margins (1-2%), and without rejecting books of account as required under Section 145(3)? (Question of law and mixed fact and law, relying on Section 145(3) and Section 69A). Assessee's Contentions: The assessee argued that the 5% net profit estimation by the CIT(A) was arbitrary and too high for FMCG wholesale trade, where margins are typically 1-2%. They contended that the CIT(A) failed to appreciate substantial documentary evidence like bank statements and ledger accounts proving cash deposits were genuine sales. The estimation without rejecting books under Section 145(3) was contrary to law. The CIT(A) erred in not considering actual expenses and in substituting the AO's addition with an estimated profit rate without detailed examination or comparable cases. The correct legal position is to tax only the actual profit element when sales are accepted as genuine. Revenue's Contentions: The Revenue relied on the order of the CIT(A), submitting that the assessee did not furnish any documentary evidence to support their claim. They further argued that the assessee had not provided any agreement with the companies (M/s Godrej Consumer Products Ltd. and M/s Colgate Palmolive India Ltd.), justifying the CIT(A)'s estimation at 5% of turnover.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 69A,Section 144,Section 139(1),Section 133(6),Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “DB” BENCH, PATNA

Before: SHRI DUVVURU RL REDDY, VP & SHRI LAXMI PRASAD SAHU, AM

For Appellant: Shri Pankaj Jyoti, AR
For Respondent: Shri Ravi Kant Chowdhary, DR
Hearing: 27.07.2026Pronounced: 06.10.2026

Per Laxmi Prasad Sahu, AM:

This appeal is filed by the assessee against the orders passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the NFAC, Delhi [hereinafter referred to as “the Ld. CIT(A)] dated 29.05.2024, ITBA/NFAC/S/250/2024-25/1065212803(1). The assessee has raised following grounds of appeal:

“That the learned CIT(A) erred both in law and on facts in estimating the Net Profit at an arbitrary rate of 5% of total turnover of ₹3,65,32,894, without appreciating the specific nature of the Appellant’s business as a wholesale trader of FMCG products, where industry margins are generally much lower, typically in the range of 1% to 2%.

3.

Aggrieved from the above order, the assessee filed before the ld. Commissioner of Income-tax (Appeals). During the course of first appellate proceedings, the assessee furnished that assessee is in the business of wholesale trading of FMCG Group and has a dealership of only two companies which are M/s Godrej Consumer Products Ltd. and M/s Colgate Palmolive India Ltd. and assessee furnished the copy of accounting statement of the above- mentioned companies as well as sample invoices from both companies to justify his business activities. The ld. CIT (A) after going through the submissions, observed as under:-

“4.2 In the appellate proceedings, the appellant submitted that he is in the business of wholesale trading FMCG Groups and has dealership of only 2 companies which is M/s Godrej Consumer Products Ltd and M/s Colgate Palmolive India Ltd. The appellant made submitted copy of account statement of the above-mentioned companies as well as sample invoices from both companies to justify his business activities. The appellant claims that the cash deposited in the account was from business receipts only and not unexplained money. This claim of the appellant is accepted, as the documents submitted by the appellant is found to be true. Since the appellant is in the business of whole sale trading in FMCG products, entire cash deposited in the bank account cannot be considered as income of the appellant and only NP to be taxed as income. The NP on this business of whole sale trading of FMCG is normally 4-6%. Thus, the average NP is 5%. From the assessment order, it is also found that the total deposits in the bank account during the FY 2016-17 relevant to the AY 2017-18 is Rs. 3,65,32,894/-. The AO has added the entire sum of Rs.45,88,000/- which was the cash deposited during the demonetization period u/s 69A of the Act, which is not correct. Whereas, the appellant did not file ROI and offer the correct income to tax by his own for the relevant AY. The right way to estimate the income of the appellant for the year is to tax only the NP on the total turnover of the year. In that regard, the AO is directed to estimate the income at

“1. That the present appeal is being filed against the order passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi dated 29.05.2024. 2. That there is a delay of 613 days in filing the present appeal before this Hon’ble Tribunal. 3. That the delay in filing the appeal is neither intentional nor deliberate, but occurred due to bona fide and unavoidable circumstances beyond the control of the appellant. 4. That the appellant is a small trader engaged in FMCG business and is not wellversed with the technicalities and limitation provisions under the Income Tax Act. 5. That the appellant was under the bona fide belief that necessary compliance had been completed at the appellate stage and was also facing difficulties in arranging professional assistance and relevant records. 6. That the delay has occurred due to circumstances such as: o Lack of proper legal guidance at the relevant time o Time taken in understanding the implications of the appellate order o Difficulty in arranging documents and consultation with tax professionals” 7. That the appellant has a strong case on merits, and unless the delay is condoned, the appellant will suffer irreparable loss and hardship. 8. That no prejudice will be caused to the Revenue if the delay is condoned, whereas grave injustice would be caused to the appellant if the appeal is dismissed on technical grounds. 9. That it is a settled principle of law that matters should be decided on merits rather than on technicalities, and liberal view should be taken in condoning delays where sufficient cause is shown. 5. On going through the above condonation petition, we noted that the assessee had “reasonable cause” for not filing the appeal within

6.

The ld. Counsel for the assessee reiterated the submissions made before the ld. CIT (A) and submitted that the ld. CIT (A) has estimated the profit on a very high side without comparing any comparable cases, there is hardly 2% profit on the turnover in this type of business. Therefore, he requests that profit may be reduced to 2% of the turnover.

7.

On the other hands, the ld. DR Relied on the orders of the order of the ld. CIT (A) and submitted that the assessee did not furnish any document/ evidences support of his claim. He further submitted that the assessee has not furnished any agreement with the above- mentioned companies. Accordingly, the ld. CIT (A) is justified to make the estimation at the rate of 5% of the turnover.

8.

Considering the rival submissions and perusing the entire materials available on record and the orders of the authorities below, we noted that the assessee deposited cash during the demonetization period of ₹45,63,000/- and did not file return of income even after ample opportunities was granted by the Assessing Officer. Accordingly, the AO , for want of explanation, made addition u/s 69A of the Act to the total cash deposits. On first appeal it was submitted that there is turnover of ₹3,65,32,894/- and proved the business activities carried out by the assessee but no evidentiary documents in support of any expenditure claimed was furnished except the sample invoices from the companies and assessee is engaged in the trading of FMCG products, where the ld. CIT (A) estimated the income 4-6% and took an average at the rate of 5%. The ld. Counsel for the assessee could not controvert the finding of

9.

In the result, the appeal of the assessee is dismissed.

Order pronounced on 06.10.2026.

Sd/- Sd/- (DUVVURU RL REDDY) (LAXMI PRASAD SAHU) (VICE PRESIDENT) (ACCOUNTANT MEMBER) Kolkata, Dated: 06.10.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// (Manish Bhoi) Dy. Registrar Income Tax Appellate Tribunal

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