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Facts
The assessee, engaged in the business of Ayurvedic products, filed a return of income. The Assessing Officer (AO) completed the assessment by estimating gross profit at 30% of turnover, rejecting the books of account. The CIT(A) directed the AO to estimate profit at 17% of turnover. The assessee appealed this estimation.
Held
The Tribunal held that the CIT(A)'s estimation of profit at 17% was arbitrary, lacking basis in past history. The Tribunal remitted the matter back to the AO to adopt the average of the preceding three years' GP rate for de novo assessment.
Key Issues
Whether the CIT(A) was justified in estimating the profit at 17% of the turnover, and if not, what is the correct method for estimation.
Sections Cited
143(3), 44AD
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM
O R D E R These appeals filed by the assessees are directed against the order of the Commissioner of Income Tax (Appeals)-3, Kochi [CIT(A)] dated 30.06.2025 for Assessment Year (AY) 2018-19.
Since identical issues and facts are involved in these appeals, they are heard together and disposed of by this common order. For AY 2018-19 are stated herein.
The appellant is an individual engaged in the business of dealing with Ayurvedic products. The return of income for AY 2018-19 was filed on 25.03.2019 disclosing income of Rs. 4,97,860/-. Against the said return of income, the assessment was completed by the ACIT, Central Circle-2, Kozhikode (hereinafter called "the AO") vide order dated 29.09.2021 passed u/s. 143(3) of the Income Tax Act, 1961 (the Act) at a total income of Rs. 39,37,620/-. While doing so, the AO estimated the gross profit at 30% of the turnover by rejecting the books of account.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order directed the AO to estimate the profit at 17% of the turnover. Thus the appeal filed by the assessee stands partly allowed.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
When the appeal was called on nobody appeared on behalf of the assessee despite due service of notice of hearing. The appellant filed written submission stating that the CIT(A) ought not have arbitrarily estimated the profit at 17% and he ought to have estimated the net profit at 8% taking guidance from the provisions of section 44AD of the Act.
& 612/Coch/2025 Chatta Kunkatty Sreehari & Sree Sadan 7. On the other hand, the learned Sr. DR submits that the order passed by the CIT(A) is reasonable and no interference is called for.
I heard the learned Sr. DR and perused the material on record. The only issue that arises for my consideration is whether the CIT(A) was justified in estimating the profit at 17% of the turnover. It is trite law that when the AO was estimating the business profit, the rate of GP to be estimated should be based on the past history and should not be excessive or arbitrary. I do not find any basis for the CIT(A) to estimate the profit at 17% of the turnover. In the circumstances I remit the matter back to the file of the AO to adopt the average of GP of preceding three years as GP rate. Accordingly, the matter is set aside on the above lines for de novo assessment. The appeal filed by the assessee stands partly allowed for statistical purposes.
In the result, the appeals filed by the assessees stand partly allowed for statistical purposes.
Order pronounced in the open court on 29th October, 2025.