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Facts
The assessee's assessment was reopened under Section 148 based on information indicating suppressed purchases and sales from M/s. Shakti Agrochem. The Assessing Officer rejected the books of accounts under Section 145(3) and estimated 2% commission income on these alleged bogus transactions, leading to an addition of Rs.4,13,376/-, which was affirmed by the CIT(A).
Held
The Tribunal noted that the reopening relied on unverified third-party information and that the Assessing Officer failed to provide cross-examination opportunities or point out specific defects in the books. However, acknowledging the assessee's presence on a list of suspicious dealers, the Tribunal reduced the estimated income to 1% of the total alleged transactions (Rs.2,06,68,791/-), directing a net addition of Rs.2,00,892/- after allowing credit for already declared profit.
Key Issues
The key legal issues included the validity of reopening assessment based on unverified third-party information, the justification for rejecting books of accounts, alleged violation of natural justice by denying cross-examination, and the appropriate quantum of estimated commission income.
Sections Cited
250, 143(1), 148, 145(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. B.R.R. KUMAR, VICE-PRESIDENT SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER Late Babulall Manmall Dugar Income Tax Officer, Vs. through his legal representative Ward 1(2)(1), Amrav B. Dugar, Ahmedabad 1, Sanjay Society Part-II, Shahibaug Road, Ahmedabad-04 [PAN :AEAPD 5581 P] (Appellant) .. (Respondent) Appellant by : Ms. Preyashi Tated, AR Respondent by: Shri B.P. Makwana, Sr DR Date of Hearing 15.07.2025 Date of Pronouncement 29.07.2025 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-
The captioned appeal has been filed by the assessee against the order dated 24.12.2025 passed by the Ld. ADDL/JCIT(A)-9, Mumbai (hereinafter referred to as "CIT(A)" for short), passed u/s 250 of the Income-tax Act, 1961, (hereinafter referred to as "the Act" for short) for the Assessment Year 2011-12. 2. The assessee has raised the following grounds of appeal:
“1. The order passed by the Ld. CIT(A) is against the law, equity and principle of natural justice.
The Ld. CIT(A) has erred in law and on facts in upholding estimated commission income by Ld. AO of Rs. 4,07,580/- being 2% of purchase and sales of Rs. 2,06,68,791/-.
3. The Ld. CIT(A) has erred in law in not providing cross examination of commercial tax officer as well as Income Tax Officer inspite of specific request made by appellant.
4. The Ld. CIT(A) has erred in law and on facts in upholding rejections of books of accounts made by the Ld. A.O. without any defects.”
The assessee filed the original return of income electronically on 20.09.2021 declaring income of Rs.5,49,140/-. Subsequently, a revised return was Late Babulall M. Dugar thru Legal Rep. Amrav B. DugarVs. ITO Asst. Year : 2011-12 - 2– filed declaring income of Rs.5,03,910/-. The return was processed under Section 143(1) of the Act. Subsequently, based on information received from the Commercial Tax (Enforcement) Department, Ahmedabad, and the ITO (Investigation), Unit-1, Ahmedabad, it was noted that the assessee had allegedly suppressed purchases and sales in the books of accounts. The Assessing Officer, thereafter, reopened the assessment under Section 148 of the Act. Subsequently, the reasons for re-opening were supplied and also an order rejecting the objection was passed. After considering submissions and examining records, the Assessing Officer rejected the books of accounts under Section 145(3) and estimated income @ 2% of the alleged bogus transactions totaling Rs. 2,06,68,791/-, being sales (Rs.1,04,52,730/-) and purchases (Rs.1,02,16,061/-) of the goods of M/s. Shakti Agrochem, resulting in an addition of Rs.4,13,376/-. The Assessing Officer treated this as commission income. The Assessing Officer has given the credit of profit already declared of Rs.5,796/- earned from M/s. Shakti Agrochem.
Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A), who affirmed the action of the AO determining 2% on the transactions. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
Before us, the Ld. AR contended that the Assessing Officer made an arbitrary and excessive addition without any direct evidence or verification and merely on estimated basis. The Ld. AR submitted that the reopening was bad in law as there was no tangible material justifying such action. No discrepancy was found between the books of accounts and VAT returns. The Ld. AR also submitted that the Commercial Tax Officer had accepted the sales and purchases, and no independent inquiry was conducted by the Assessing Officer. That principles of natural justice were violated since cross-examination of the Commercial Tax Officer and Investigation Wing officer was not allowed, despite specific requests. The Ld. AR argued that the rejection of books of accounts under Section 145(3) of Late Babulall M. Dugar thru Legal Rep. Amrav B. DugarVs. ITO Asst. Year : 2011-12 - 3– the Act was unwarranted as no defect or inconsistency in accounting method was pointed out by the Assessing Officer.
We have considered the rival submissions and perused the material available on record. The core issue is the estimation of income based on alleged bogus transactions without proper inquiry or opportunity of cross-examination. We find from the record that the reopening is solely based on third-party information without any independent verification. It is also a fact on record that the Assessing Officer neither summoned nor cross-examined the officers whose statements formed the basis of reopening. It is also a fact on record that the Assessing Officer has failed to point out specific defects in the books or in the method of accounting consistently followed by the assessee. Having, given that the name of the assessee appeared in the list of suspicious dealers, and a level of estimation is justified. The litigation has to end conclusively. Keeping in view the specific facts of the case, lowest volume of tax implication and in the interest of justice, we consider it fair and reasonable to estimate the income @ 1% of the total alleged purchases and sales of Rs.2,06,68,791/-, which works out to Rs.2,06,688. The Assessing Officer is directed to restrict the addition to Rs.2,06,688/- and allow credit for income of Rs.5,796/- already declared, thus making net addition of Rs.2,00,892/-.
In the result, the appeal of the assessee is partly allowed.