Loading judgment…
Facts
The assessee, a wholesaler of medicines, failed to file his income tax return for AY 2020-21. The AO reopened the case and, based on GST information, estimated the income at 20% of turnover. The CIT(A) reduced the estimation to 5%. The assessee appealed, arguing for a lower profit rate of 2.05% based on audited books and the nature of the business.
Held
The Tribunal partly allowed the appeal for ITA No. 3173/KOL/2025, adjusting the profit estimation to 4% instead of 5% or 20%. For ITA No. 3174/KOL/2025, the penalty under Section 271B was cancelled due to a reasonable cause for delayed audit report filing and erroneous turnover calculation by the AO. For ITA No. 3175/KOL/2025, the penalty for non-compliance was cancelled, finding reasonable cause in the assessee's circumstances and lack of justification for penal consequences.
Key Issues
Whether the profit estimation for the assessee's business is justified, and whether penalties for delayed audit report filing and non-compliance were rightly imposed.
Sections Cited
147, 148, 250, 44AB, 271B, 273B, 271(1)(b), 272A(1)(d), 144B, 234A, 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH AT KOLKATA
Before: SHRI SONJOY SARMA & SHRI RAKESH MISHRA
PER BENCH: These three appeals filed by the assessee are against the common order of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2020-21 dated 18.11.2025. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: I. ITA No. 3173/KOL/2025:
“1. Order Bad in Law: That the order of the Ld. CIT(A) dated 18.11.2025 is arbitrary and unjustified to the extent it confirms an addition to the returned income.
Unjustified Profit Estimation (5% vs 2.05%): That the Ld. CIT(A) erred in estimating Net Profit at 5% (Rs. 11,79,387/-) purely on conjectures, ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. disregarding the Appellant's declared Net Profit of 2.05% (Rs 4,85,200/-) which is reasonable for the wholesale medicine business.
Disregard of Audit Report: That the Ld. CIT(A) failed to appreciate that the Appellant's books were audited u/s 44AB of the Income Tax Act, 1961. Rejecting the book results without pointing out specific defects in the Audit Report is bad in law.
Ignored Nature of Business: That the Ld. CIT(A) failed to consider that the Wholesale Medicine trade operates on government-regulated thin margins (DPCO), where a 5% net profit rate is excessive and impossible to achieve.
Inconsistent Approach: That the Ld. CIT(A) accepted the turnover of Rs. 2,35,85,740/- as per the Appellant's books but arbitrarily rejected the profit result flowing from the same books.
Opportunity to Produce Books: That the non-production of books earlier was due to reasonable cause (reliance on tax consultant/lack of technical knowledge). The Appellant prays for an opportunity to produce the books of accounts before the Hon'ble Tribunal to substantiate the returned income.
Interest and Penalty: That the levy of interest u/s 234A/234B and initiation of penalties are consequential and liable to be deleted.
General: The Appellant craves leave to add, alter, or amend grounds at the time of the hearing” II. ITA No. 3174/KOL/2025:
“1. Arbitrary Confirmation of Penalty: That on the facts and in the circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) [CIT(A)] erred in law and on facts by confirming the penalty of Rs. 1,17,930/- levied under Section 271B of the Income Tax Act. 1961
Existence of Reasonable Cause (Section 273B): That the Ld. CIT(A) failed to appreciate that the appellant had a "reasonable cause" for the delay in filing the audit report. The appellant is a resident of a remote village, is not technologically proficient, and was entirely dependent on a tax consultant who failed to timely inform him of the portal-based notices.
Audit Report Already Available: That the Ld. Authorities failed to acknowledge that the tax consultant had already uploaded the audit report on the online portal, and the penalty was initiated without a proper inquiry into the e-filing portal's records.
Violation of Principles of Natural Justice: That the orders passed by the Ld. Authorities are in gross violation of the principles of natural justice, as the appellant was not provided with an adequate or effective opportunity to be heard, leading to an ex-party confirmation of the penalty ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali.
Illegal Assessment under Section 147/144B: That the underlying assessment order dated 04.02.2025, passed under Section 147 read with Section 144B, is bad in law as it was based on an excessive estimation of business income at 20% of turnover (totalling Rs. 47,17,148/-) despite the appellant declaring a total income of Rs. 4,85,200/- in response to the notice under Section 148. 6. Estimation Overrides Penalty: That since the Assessing Officer (AO) completed the assessment on an "estimated basis" by treating the books of accounts as "not maintained." the subsequent levy of a penalty under Section 271B for failure to "audit" those very books is legally inconsistent and unsustainable.” ITA No. 3175/KOL/2025:
“1. Reasonable Cause for Non-Compliance: The Appellant was prevented by "reasonable cause" from complying with the notices because they are from a rural area, are not technology-savvy, and were entirely dependent on a tax consultant who failed to inform them of the notices or file timely responses.
Short Notice Period: The Ld. Assessing Officer [AO] allegedly provided very short timeframes to respond to the statutory notices, making compliance difficult.
No Intentional Default The failure to comply was unintentional and occurred due to genuine hardship, rather than a deliberate attempt to frustrate the assessment proceedings.
Error in Upholding Partial Penalty: The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] erred in upholding a penalty of ₹20,000. Having accepted the appellant's explanation for three defaults to delete ₹30,000, the same logic of "reasonable cause" (reliance on an erring consultant and lack of technical knowledge) should apply to all five defaults, warranting a total deletion of the penalty
Ex-parte Assessment Context: The underlying assessment was also ex- parte and is currently under appeal; therefore, the consequential penalty for technical non-compliance should be reconsidered in light of the substantive merits of the main case.”
We shall first take up the appeal in ITA No. 3173/KOL/2025 for adjudication. The other two appeals are also for the same A.Y. and are related to penalties u/s 271B and 272A(1)(d) of the Act, respectively.
Brief facts of the case are that the assessee did not file the return of income for the AY 2020-21. Information was received from the GST ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. Authorities that the assessee had made total transactions of ₹4,47,40,483/-. Since the assessee did not file the return, the Assessing Officer (hereinafter referred to as Ld. 'AO') reopened the case u/s 147 of the Act and notice u/s 148 of the Act was issued, in response to which the assessee filed the return of income showing total turnover of ₹2,35,85,740/- and declared income at the rate of 2.05% amounting to ₹4,85,200/-. The Ld. AO asked to submit the books of accounts but since the assessee did not furnish any relevant details or the books of account, the Ld. AO concluded the assessment u/s 147 r.w.s. 144B of the Act by estimating income @20% of the total turnover which comes to ₹47,17,148/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who considered the statement of facts, the grounds of appeal and partly allowed the appeal of the assessee by holding as under: “I have considered facts and circumstances of the case. I have also considered the assessee's submissions. From the facts of the case it is seen that the assessee has been engaged in the wholesale business of medicines. The AO is in possession of information that the assessee had made transactions as per its GST returns, in GSTR-3B of Rs. 2,27,00,818/- and GSTR1-R of Rs. 2,20,39,665/-. Thus the AO opined that the assessee made total transactions of Rs. 4,47,40,483/- but did not file Rol. Therefore, notice was issued u/s 148 of the IT Act on 21.03.2024. In response to the 148 notice, the assessee filed Rol on 24.04.2024 by declaring income at Rs. 4,85,200/-. In the Rol, the assessee showed total turnover of Rs. 2,35,85,740/-. The assessee contends that the turnover that shown in GSTR-3B return was already included turnover of GSTR1-Return. Thus contends that turnover of 2,20,39,665/- was already included in GSTR-3B turnover of Rs. 2,27,00,818/-. Accordingly submits that the AO erroneously added turnovers of GSTR-3B and GSTR-1 to arrive at the total turnover. I have considered facts and circumstances of the case. I find merits in the arguments of the assessee and the assessee has already showed turnover of Rs. 2,35,85,740/- in the Rol. Thus, the assessee considered the turnover as reflected in the GST returns. However, the assessee's profitability is only at 2.05% of total turnover. Further, the assessee did not file any relevant details/books of accounts before the AO. Therefore, to safe guard the ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. interests of revenue and to meet the ends of justice income of the assessee is estimated at 5% of the turnover as shown by the assessee i.e. 2,35,85,740/-. Thus income comes at Rs. 11,79,387/- and addition to this extent is hereby upheld. Accordingly, addition is hereby restricted to Rs. 11,79,387/- and the balance addition is hereby deleted. In the result, the assessee's appeal is partly allowed.”
Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.
Rival contentions were heard and the submissions made have been examined. It was submitted by the Ld. AR that the assessee is a wholesaler of medicines and the case was reopened by issuing notice u/s 148 of the Act on the basis of details in GSTR1R and GSTR3BR being the sales return for outward sales and details of inward and outward transactions on monthly basis respectively. The Ld. AO noted the higher of the turnover in the two statements and applied gross profit rate of 20% on the total turnover and assessed the business income of the assessee. No compliance was made by the assessee to the show cause notice issued, therefore, the income was assessed at ₹47,17,148/- as against ₹4,85,200/- shown by the assessee. The relevant extract from the assessment order is as under:
“4. As per information, the assessee has done, business and shown turnover of Rs.2,27,00,818/- as per GSTR-3B-R and turnover of Rs.2,20,39,665/- as per GSTR1-R. The assessee has filed return of income by showing total turnover of Rs.2,35,85,740/- and shown income of Rs.4,85,200/-. Since the assessee has shown turnover more than the turnover shown in GSTR-3B-R and GSTR1-R. However, as stated above, the assessee was required to furnish the details of total sales/purchases, copy of bank statements, Audit Report, P&L Account along with connected annexures, copy of GSTR returns filed, bills/vouchers for expenses and purchases. But the assessee has not furnished any documentary evidences/information as called for. In the absence of any reply/explanation/details documentary evidence etc. the income shown by the assessee at Rs.4,85,200/- which is shown @2.05% of the total turnover ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. is not accepted. Since the assessee has not furnished any details/documentary evidence regarding his business income shown by him in the return of income, the books of accounts as claimed by the assessee is treated as not maintained. Therefore, in the absence of any documentary evidence/details/information, the business income of the assessee is required to be estimated @20% of total turnover which comes to Rs.47,17,148/-.
The assessee vide show cause notice dated 22.01.2025, was requested to show cause as to why the business income should not assessed at Rs.47,17,148/- as against shown by the assessee at Rs.4,85,200/-.
The show cause notice issued by this office also remained uncompiled with. Since the assessee has done the business and the income shown by him was not justified with documentary evidences. Therefore, as stated above, in the absence of any documentary evidences/explanation/reply, the business income of the assessee is estimated @20% of total turnover which comes to Rs.47,17,148/- as against shown by the assessee at Rs.4,85,200/-.”
It was argued by the Ld. AR that the same was estimated at the rate of 5% of the total turnover by the Ld. CIT(A) and the appeal was partly allowed but the assessee had shown the profit rate of 2.05% in the audited books of accounts and in the earlier year the same was shown @1.53% and in the subsequent year it was @1.42% but the returns were not scrutinised by the Ld. AO. In the impugned AY 2020- 21, the income declared was ₹4,85,200/-, the assessee had declared turnover of ₹2,35,85,000/- in the audit report. However, no return of income was initially filed but the same was filed in response to the notice u/s 148 of the Act. It was stated that the gross profit rate was higher than what is normally available in this type of business. It was conveyed to the Ld. AR that the assessee is a wholesaler and the margin of profit is reasonable. However, the profit rate applied at 5% was considered to be slightly higher and the Bench was of the view that the net profit rate of 4% may be applied on the turnover shown at ₹2,35,85,740/- before the GST as against the declared income of ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. ₹4,85,200/- to which the Ld. AR was agreeable and the Ld. DR also did not raise any serious objection as neither the Ld. AO nor the Ld. CIT(A) have mentioned any comparable case for application of the profit rate of 20% and 5% respectively. Hence, the grounds of appeal, particularly Ground Nos. 2 and 4 raised by the assessee, are partly allowed.
In the result, the appeal filed by the assessee in ITA No. 3173/KOL/2025 is partly allowed.
Now, we shall take up ITA No. 3174/KOL/2025 for adjudication. It was stated that since the assessee had got the audit done after the receipt of the notice and the assessee was staying in a remote area not conversant with the e-filing procedure and was relying upon the consultant, he could not file the audit report in time. The books of account were audited and submitted on 24.04.2024, which was beyond the due date of filing as per section 44AB of the Act and the Ld. CIT(A) confirmed the penalty imposed u/s 271B of the Act. The assessee states that the total turnover was erroneously taken at ₹4,47,40,483/- whereas the same as per the GSTR was ₹2,35,85,000/-. That being so, the penalty levied on the total turnover of ₹4,47,40,483/- was liable to be dismissed.
We have considered the facts of the case, the submissions made and the documents filed. The assessee has given justification for not getting the audit report uploaded in time as the assessee lives in the village area and is not qualified and was completely unaware of the tax proceedings and the related rules and was also not tech savvy and had a reasonable cause for not suffering the rigours of penal consequences. Therefore, the Bench was of the view that in the peculiar facts of the regarding the show cause notices issued, as proper compliance could ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. not be made within time due to the lapse of the tax consultant and as the assessee was made aware, he got the audit done. Since there was a reasonable cause for not getting the audit done in time and the Ld. AO has also erroneously taken higher turnover being the sum of the amount shown in the two GSTR, therefore, the order of the Ld. AO suffers from lack of application of mind and the penalty u/s 271B of the Act is hereby cancelled as there was a reasonable cause for the failure to file the audit report in time. Thus, the grounds of appeal in ITA No. 3174/KOL/2025 are allowed.
In the result, the appeal filed by the assessee in ITA No. 3174/KOL/2025 is allowed.
Now, we shall take up ITA No. 3175/KOL/2025 for adjudication. It was noted that the Ld. AO imposed the penalty for non-compliance to the notice u/s 271(1)(b) of the Act despite providing multiple opportunities. There were allegedly 5 defaults and the penalty of ₹50,000/- was imposed being ₹10,000/- for each of the defaults. Considering the facts of the case as mentioned above that the assessee was residing in a remote village, is not computer savvy and there was a lack of communication between the tax consultant and the assessee, the Ld. CIT(A) deleted the penalty for non-compliance on two times and upheld the penalty for non-compliance on three occasions. However, a perusal of the order of the Ld. CIT(A) shows that the Ld. CIT(A) has not mentioned as to which of these non-compliances attracted penalty and which of the non-compliances were waived. Since part of the penalty has been waived, therefore, there is no justification for imposition of the penalty for three occasions as the reasonable cause for non-compliance on two occasions was apparently the same as for non-compliance for ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. three occasions. Moreover, since the assessment order is not made u/s 144 of the Act despite these non-compliances, the non-compliances were apparently waived by the Ld. AO and therefore, did not justify any penal consequences upon the assessee. Therefore, the penalty sustained by the Ld. CIT(A) at ₹30,000/- is hereby cancelled. Thus, the grounds of appeal in ITA No. 3175/KOL/2025 are allowed.
In the result, the appeal filed by the assessee in ITA No. 3173/KOL/2025 is partly allowed and the appeals in ITA Nos. 3174 & 3175/KOL/2025 are allowed. Order pronounced in the open Court on 20th March, 2026. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 20.03.2026 Bidhan (Sr. P.S.) ITA No(s). 3173, 3174 & 3175/KOL/2025 Assessment Year(s) 2020-21 Md. Babar Ali. Copy of the order forwarded to:
Md. Babar Ali, Shimultala, Vill & P.O. - Bahadurpur, P.S. - Kaliachak, Malda, West Bengal, 732201. 2. I.T.O., Ward-3(1), Malda.
CIT(A)-NFAC, Delhi.
CIT-
CIT(DR), Kolkata Benches, Kolkata.
Guard File. //// By order