M/S B KRISHNAKUMAR,MAVELIKARA vs. WARD 1 & TPS, THIRUVALLA, THIRUVALLA

Brief facts of the case are that the appellant is a partnership firm engaged in the business of petroleum products. The return of income for AY 20170-18 was filed on 31.03.2018 disclosing income of Rs. 1,83,110/-. No assessment was made against the said return of income. Subsequently, based on the information that the appellant firm made cash deposits amounting to Rs. 2,55,19,294/- in the bank account maintained with State Bank of India during the previous B. Krishna Kumar year relevant to AY 2017-18, the AO issued a notice u/s. 148 of the Income Tax Act, 1961 (the Act) on 31.03.2021. The appellant neither complied with the notice issued u/s. 148 nor notices issued u/s. 142(1) of the Act calling for information. In the circumstances, the AO made best judgement assessment by estimating the income at 2% of the gross turnover of Rs. 9,36,11,035/- and made addition of Rs. 16,89,110/-.

Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO only on account of the fact that the appellant did not respond to the notices u/s. 148 or 142(1) of the Act issued by the AO nor any additional evidence was filed.

Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.

The learned counsel for the assessee contends before me that the AO ought not have estimated the income without rejecting the books of account as the books of accounts were audited.

On the other hand, the learned Sr. DR submits that since the appellant had failed to respond to the notices issued by the AO, the AO was justified in estimating the income at 2% of the turnover.

I heard the rival contentions and perused the material available on record. The only issue in the present appeal is that arises for my B. Krishna Kumar consideration was whether the AO was justified in estimating the income at 2% of the gross turnover or not. It is undisputed position that the books were audited and submitted to the assessing authority. Without rejecting the books of account, estimation of income is not permissible. Further, estimation of income cannot be subjective but should be based on the material and past history. Therefore, I remand the matter back to the file of the AO for de novo adjudication in accordance with law after affording reasonable opportunity of hearing to the appellant.

In the result, the appeal filed by the assessee stands partly allowed for statistical purposes.