MAHALAKSHMI,PUDUCHERRY vs. ITO, WARD-3,, PUDUCHERRY

The Assessee raised these following grounds of appeal : “1. The CIT(A) erred in confirming the addition without affording adequate and meaningful opportunity of being heard, and the impugned order is liable to be set aside for violation of principles of natural justice.

Briefly, the facts of the case are that the appellant is an Individual. No regular Return of Income under the provisions of section 139 of the Act was filed by the appellant for the Assessment Year 2017-18. Based on the information that the appellant made cash deposits of Rs.2,97,00,575/- during the previous year relevant to assessment year 2017-18 in the bank account maintained with Tamilnadu Mercantile Bank, the Assessing Officer formed an opinion that income got escaped assessment from tax. Accordingly, a notice u/s.148 of the Act was issued on 31.03.2024 after complying with the procedure laid down u/s.148A of the Act, calling upon the appellant to file the Return of Income for the A.Y.2017-18. In response to notice u/s.148 of the Act, the appellant filed Return of Income on 20.06.2024 disclosing total income of Rs.3,68,208/-. Against the said Return of Income, the assessment was completed by the Assessment Unit of the Department(hereinafter called ‘AO’) vide order dated 30.12.2024 passed u/s.147 r.w.s 144B of the Act at a total income of Rs.35,74,789/-. While doing so, the Assessing Officer made addition by estimating income at 12% on the excess of credits in the bank account over the declared turnover of Rs.2,62,21,534/-.

Being aggrieved by the above assessment order, the appellant preferred an appeal before ld.CIT(A), contending that the excess credits in the bank account over the declared turnover represents realization of debtors from earlier years and estimation of profit at 12% is excessive and unreasonable. However, the Learned CIT(A) rejected the above contention as the appellant had failed to furnish any debtors wise details, confirmations and other supporting documents to substantiate the above explanation.

Being aggrieved by the order of ld.CIT(A), the appellant is in appeal before us in the present appeal. The Learned Counsel submits that adoption of 12% is excessive and unreasonable on the excess bank credits over the declared turnover.

On the other hand, the Learned Sr.DR supported the orders of Lower Authorities.

We heard rival submissions and perused the material available on record. We had carefully perused the assessment order and find that the Assessing Officer estimated profit on excess credits in the bank account over the declared turnover at 12%. Even, on appeal before the Learned CIT(A), the Learned CIT(A) had confirmed the addition made by the Assessing Officer. The Assessing Officer was justified in resorting to estimation of the business profit as the appellant had failed to substantiate the explanation given in support of the source of credits in the bank account. However, it is settled position of law that even in the case of best judgment assessment, the Assessing Officer must not act vindictively, capriciously and he must make estimation of profit should be based on past history of the assessee and the comparable cases as held by the Hon’ble Supreme Court in the case of Commissioner of Sales Tax vs. Esufal H.M. Abdulali [1973] 90 ITR 271 (SC) wherein it was held as under : “"The assessing authority while making the best judgment assessment, no doubt, should arrive at its conclusion without bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not of anyone else."

In the present case, the Assessing Officer neither referred the basis for adopting estimation of profit at 12%, nor was it based on the past history of the assessee or the comparable cases. Therefore, the orders of the Lower Authorities are hereby set-aside. We remand the matter back to the file of Assessing Officer with a direction to adopt the Net Profit based on the past history of the assessee or the comparables in the same line of business, after giving an opportunity of being heard to the appellant.

In the result, appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 3rd November, 2026.