USMAN ALI SHAMSUNISHA,VELLORE vs. ITO, WARD-2,, VELLORE

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ITA 3829/CHNY/2025Status: DisposedITAT Chennai14 October 2026AY 2020-216 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal noted that the assessee did not press the ground regarding the validity of reassessment proceedings, thus dismissing that ground as not pressed. Regarding the estimation of business income, the Tribunal held that while deficiencies in evidence justify scrutiny and potential rejection of books, the estimation must be fair, rational, and consistent with the business nature and available material. The Tribunal found that the AO's adoption of an 8% profit rate lacked specific comparable case details or a demonstrated working for its applicability. It also noted an arithmetic error in the impugned order regarding the assessee's declared profit margin. Considering the turnover, business nature, evidence deficiencies, and lack of a demonstrated comparable basis for 8%, the Tribunal deemed it reasonable to estimate the net business income at 6% of the gross turnover. The Tribunal directed the AO to recompute the income at 6% of the verified gross turnover of Rs. 2,33,11,387, clarifying that this estimated income is inclusive of business expenditures and avoids double taxation. The consequential tax and interest computation was allowed for statistical purposes to the extent of the revised income determination.

What were the facts?

The assessee, Usman Ali Shamsunisha, filed an appeal against the order of the CIT(A) upholding the reassessment order passed under Section 147 of the Income Tax Act, 1961, for Assessment Year 2020-21. The assessee initially declared a total income of Rs. 9,80,080. A notice under Section 148 was issued, leading to a revised return declaring Rs. 11,45,080. The Assessing Officer (AO) questioned substantial expenditure claims, including salary, rent, and vehicle hiring, due to a lack of satisfactory supporting evidence. Consequently, the AO rejected the books of account and estimated business income at 8% of the turnover of Rs. 2,33,11,387, resulting in a total income of Rs. 18,64,910. The CIT(A) affirmed the AO's decision.

What were the issues?

1. Whether the reassessment proceedings are valid (Section 147)? 2. Whether the disallowance of business expenditure and rejection of books of account are justified? 3. Whether the estimation of business income at 8% of turnover is reasonable? Assessee's Contentions: The assessee argued that the books of account were audited under Section 44AB and that the business expenditures were genuine. The assessee also contended that the profit rate adopted by the AO was unreasonable. The assessee did not press the ground challenging the validity of reassessment proceedings. Revenue's Contentions: The revenue, through the AO, pointed out deficiencies in the supporting evidence furnished for substantial expenditure claims, justifying the rejection of books and estimation of income. The AO adopted an 8% net profit rate, referring to average profit margins of similar businesses.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 44AB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI

Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA

Hearing: 13.08.2026

आयकरअपील�यअ�धकरण ’बी’ �यायपीठ,चे�नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: CHENNAI �ी मनुकुमारिग�र, �ाियक सद� एवं �ी एस. आर. रघुनाथा लेखासद� BEFORE SHRI MANU KUMAR GIRI, JUDICIAL MEMBER AND SHRI S.R.RAGHUNATHA, ACCOUNTANT MEMBER

आयकर अपील सं./ITA No. 3829/Chny/2025 �नधा�रण वष�/Assessment Years: 2020-21 Usman Ali Shamsunisha v. The Income Tax Officer, No.60, Bazaar Street North Ward-2, Vellore Extension, Rajeswari Theatre Backside, Ranipet, Vellore, Tamil Nadu, 632401 [PAN: ECFPS 8716 G] (अपीलाथ�\Appellant) (��यथ�\Respondent)

अपीलाथ� क ओर से/ Appellant by : Mr. Abhishek Murali, CA ��यथ� क ओर से /Respondent by : Mr. E. Elango, JCIT सुनवाई क तार�ख/Date of Hearing : 13.08.2026 घोषणा क तार�ख /Date of : 14.10.2026 Pronouncement आदेश / O R D E R PER MANU KUMAR GIRI, JM:

This appeal filed by the assessee is directed against the order dated 15.09.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the learned CIT(A)”], arising out of the assessment order passed under section 147 of the Income Tax Act, 1961 (“the Act”), for the Assessment Year 2020–21.

ITA No. 3829/Chny/2025 (AY 2020-21) Usman Ali Shamsunisha Vs ITO W-2 :: 2 ::

2.

Grounds of appeal: The assessee has challenged the validity of the reassessment proceedings, the disallowance of business expenditure, the rejection of books of account and the estimation of business income at 8% of turnover. The assessee has also challenged the consequential computation of tax and interest. 3. Brief facts of the case: The assessee, an individual, filed the original return of income on 02.09.2020, declaring total income of Rs.9,80,080/-. Subsequently, notice under section 148 of the Act was issued on 31.03.2024, in response to which the assessee filed a return on 06.04.2024 declaring income of Rs.11,45,080/-. The assessee disclosed gross business turnover of Rs.2,33,11,387/-. During the reassessment proceedings, the Assessing Officer called upon the assessee to substantiate the expenditure claimed under various heads, including salary and wages of Rs.1,28,47,600/-, rent of Rs.15,36,000 and vehicle- hiring charges of Rs.9,94,353/-. The Assessing Officer observed that the assessee had not furnished satisfactory supporting evidence, including employee-wise salary details and supporting vouchers, rent agreements and adequate documentary evidence concerning vehicle-hiring expenditure. Holding that the accounts did not enable the correct determination of business income, the Assessing Officer rejected the books of account and estimated business income

ITA No. 3829/Chny/2025 (AY 2020-21) Usman Ali Shamsunisha Vs ITO W-2 :: 3 :: at 8% of the turnover, determining the total income at Rs.18,64,910/-. The learned CIT(A), by the impugned order, upheld the action of the Assessing Officer. Aggrieved, the assessee is in appeal before this Tribunal. 4. We have heard both the parties, considered the grounds of appeal and the material placed before us. The issue arising for consideration is the reasonableness of the profit rate adopted by the Assessing Officer. 5. During the course of hearing ld.AR for the assessee has not pressed the validity of reassessment proceedings. Hence, this ground is dismissed as not pressed. The principal dispute concerns the estimation of business income at 8% of the turnover of Rs.2,33,11,387. The assessee contends that the books of account were audited under section 44AB of the Act and that the expenditure incurred in the course of business was genuine. The Assessing Officer, on the other hand, has pointed out deficiencies in the supporting evidence furnished in respect of substantial expenditure claims. 6. We are of the view that the fact that the books of account have been audited does not, by itself, preclude the Assessing Officer from examining the correctness of the expenditure claimed. At the same time, where the books are rejected and business income is estimated, the estimation must be fair, rational and consistent with the nature of the business and the material available on record. The profit rate cannot be adopted mechanically without adequate justification.

ITA No. 3829/Chny/2025 (AY 2020-21) Usman Ali Shamsunisha Vs ITO W-2 :: 4 :: 7. In the present case, the Assessing Officer adopted a net- profit rate of 8% principally by referring to the average profit margin of similar businesses. However, from the facts reproduced in the impugned order, no specific comparable case or detailed working demonstrating the applicability of that rate to the assessee's business has been identified. We further note that the assessee disclosed income of Rs.11,45,080/- against turnover of Rs.2,33,11,387, which works out to approximately 4.91% of turnover. The observation in the impugned order that the declared profit margin was approximately 49% is arithmetically incorrect. In these circumstances, although the deficiencies in the supporting evidence justify scrutiny of the expenditure claims and may support rejection of the books, the adoption of 8% of turnover requires a reasoned basis having regard to the facts of the particular case. 8. Considering the turnover, the nature of the business, the deficiencies in the supporting evidence and the absence of a sufficiently demonstrated comparable basis for adopting 8%, we consider it reasonable, on the facts presented, to estimate the assessee's net business income at 6% of the gross turnover. In adopting this rate, we have also considered the principle that, once business income is determined by estimating net profit after rejection of the books, the estimation should ordinarily account for the business expenditure embedded in arriving at the net-profit rate. The

ITA No. 3829/Chny/2025 (AY 2020-21) Usman Ali Shamsunisha Vs ITO W-2 :: 5 :: estimate should not result in an additional disallowance of the very expenditure that has already been taken into account in determining the estimated net profit, unless a separate addition is independently sustainable in law. Accordingly, the Assessing Officer is directed to estimate the net business income at 6% of the verified gross turnover of Rs.2,33,11,387, subject to verification of the turnover from the assessment record. 9. The computation is as follows: Particulars Amount Gross turnover Rs.2,33,11,387/- Net-profit rate 6% Estimated net business income Rs.13,98,683/- The estimated income of Rs.13,98,683/- is inclusive of the business expenditure, including salary and wages, rent and vehicle-hiring charges, for the purpose of this estimation. No separate disallowance of those same expenses shall be made in addition to the estimated net profit, so as to avoid double taxation of the same amount. The Assessing Officer shall recompute the total income after giving effect to the above direction, taking into account the income under other heads, if any, and any applicable deductions or adjustments supported by the record and permissible under law. For clarity, the rate of 6% is adopted here as a reasonable estimate on the facts of this case.

ITA No. 3829/Chny/2025 (AY 2020-21) Usman Ali Shamsunisha Vs ITO W-2 :: 6 :: 10. On the stated turnover, the difference between the 8% estimate and the 6% estimate is approximately Rs.4,66,228/-. The Assessing Officer shall give effect to the relief arising from the revised estimation and recompute the consequential tax liability in accordance with law. The assessee's ground concerning computation of tax and interest is accordingly allowed for statistical purposes to the extent it arises from the revised income determination. 11. In the result, the assessee's appeal is partly allowed.

Order pronounced in the open court on the 14th day of October, 2026 in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (मनु कुमार िग�र) (S.R.RAGHUNATHA) (MANU KUMAR GIRI) लेखा सद*य/ACCOUNTANT MEMBER �या�यक सद*य/JUDICIAL MEMBER चे�नई/Chennai, Digitally signed +दनांक/Dated: 14th October 2026 SANDEE by SANDEEP SNDP, Sr. PS KUMAR P KUMAR Date: 2026.10.16 आदेश क ��त,ल-प अ.े-षत/Copy to: 11:29:17 +05'30' 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

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