DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(1), AHMEDABD, AHMEDABAD, GUJARAT vs. HEMANTKUMAR RAJENDRAKUMAR SHAH, AHMEDABAD, GUJARAT

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ITA 1371/AHD/2025Status: DisposedITAT Ahmedabad10 March 2026AY 2018-19Bench: the final hearing of the appeal.5 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal confirmed the CIT(A)'s decision, holding that the assessee's audited books of account should not have been rejected, and the 12% profit estimation on F&O transactions was arbitrary and without reasonable basis. Consequently, the addition made by the AO on estimated business income was rightly deleted. The Revenue's appeal was dismissed, and the assessee's cross-objection was also dismissed as infructuous as it supported the CIT(A)'s order.

What were the facts?

The Revenue challenged the CIT(A)'s order which partially allowed the assessee's appeal for AY 2018-19. The AO had made additions for unexplained cash credits u/s 68 and estimated business income by rejecting books of account. The CIT(A) reduced the u/s 68 addition and deleted the estimated business income, finding the rejection of audited books and arbitrary profit estimation unjustified.

What were the issues?

1. Whether the CIT(A) erred in reducing the addition under section 68. 2. Whether the rejection of audited books of account and arbitrary estimation of business income (12% of turnover) for F&O transactions by the AO was justified.

Which sections of the Income-tax Act were involved?

Section 68,Section 145(3),Section 143(2),Section 142(1),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD

Before: DR. B.R.R. KUMAR, VICE-Ms SUCHITRA KAMBLE

For Appellant: Shri Akhilendra Pratap Yadaw, CIT. DR
For Respondent: Ms Urvashi Shodhan, AR
Hearing: 02.03.2026Pronounced: 10.03.2026

Heard together (2 matters)

I.T.A. No.1371/Ahd/2025
C.O No.75/Ahd/2025

Read from the judgment's own cause title. This page is filed under one of them.

O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT:-

1.

The captioned appeal has been filed by the Revenue against the order passed by the Ld. Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre, Delhi, vide order dated 09.04.2025 relevant to the Assessment Year 2018-19. The assessee

2.

The Revenue has raised the following grounds of appeal:

(a) The Ld.CIT(A) has erred in law and on facts by partly declaring the AO’s addition of Rs.4,00,39.425/- u/s.68, reducing it to Rs.22,96,800/- without appreciating the facts that the assessee failed to prove the identity, creditworthiness, and genuineness of unsecured loans, as no complete documentary evidence like lenders bank statements or confirmation was furnished during the course of assessment proceedings. Further, the Ld.CIT(A) erred in law and on facts by violating Rule 46A of the IT Rules by admitting additional evidence ( confirmations, PANs, repayment details) during appellate proceedings without allowing the AO an opportunity to examine the same.

(b) The Ld.CIT(A) has erred in law and on facts by deleting the AO’s addition of Rs.4,87,63,080/- as estimated business income, holding that rejection of books u/s.145(3) was unjustified and the 12% profit estimation arbitrary, despite clear deficiencies recorded in the assessment order. Further, Ld.CIT(A) erred in law and on facts in classifying the income thereby granting undue relief to the assessee. Also in light of the fact that despite repeated opportunities given to the assessee, the assessee failed to furnish quantitative details of stock, provide proper reconciliation of trading statements with Form 10DB, or justifying the discrepancies between reported sales and purchased vis-à-vis broker data.

(c) The appellant craves leave to add alter and/or to amend all or any the ground before the final hearing of the appeal.

3.

The brief facts of the case are that the assessee filed his return of income for the AY 2018-19 declaring total income at Nil. The case was selected for complete scrutiny under CASS to verify the issue that the assessee has not furnished (i) quantitative details of stock withheld (ii) Securities (Derivative) Transaction (iii) details of unsecured loans (iv) Securities Transaction. Accordingly, notices u/s.143(2) and 142(1) of the Act were issued from time to time, in response to which the assessee had not response with proper and sufficient evidence. Since C.O No.75/Ahd/2025 Asst. Year : 2018-19 - 3– there was no proper sufficient response from the assessee to the notices of hearing issued calling for information, the Assessing officer completed the assessment u/s.143(3) r.w.s 144B of the Act by making total addition of Rs.4,00,39,425/- as unexplained cash credits u/s.68 and Rs.7,87,63,080/- as income from business.

4.

Aggrieved against the Assessment Order, the assessee filed appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee by observing as follows:

“…9. I have carefully considered the submissions made by the appellant. The appellant has contended that the appellant has submitted Transactions details, Ledger accounts and Profit and Loss statements from the Broker GOLDMINE STOCKS PVT. LTD Regarding the Valuation of Closing Stock, the appellant has contended that it was already submitted before the AO that by inadvertent error, the same was valued at the price as on last date of the year instead of valuing the same at cost. The Closing stock was over valued by approx. Rs. 1.30 crores. However, as a result, the Loss was under stated by the said amount. Regarding difference in Demat share holding value at the end of the year and value as per Balance Sheet, it was already explained in the submissions made by appellant post the video conference during assessment proceedings that there were certain shares lying in the pool account of the Broker as a Margin to do the F & O transactions and hence the same are not held in Demat account. Thus, when all the details as requested were provided and specifically, when the Books were already Audited by a Qualified Chartered Accountant, there is no reason to Reject Books of Account. The Ld. A.O. should have accepted the Books and should have passed the Assessment Order accordingly. I have carefully gone through the assessment order and the submission of the appellant. The main contention of the AO is that there are certain discrepancies in the valuation of closing stock and quantity details have not been reported in the audit report. Against the same, the appellant has C.O No.75/Ahd/2025 Asst. Year : 2018-19 - 4– submitted that the value as on the last day has been considered for the purpose of computation of closing stock instead of at cost In this regard, it is pertinent here to note that the appellant is engaged in the business of trading in shares and options and futures. Unlike the other businesses of trading. the full details of income and expense in trading in shares are readily available in the trading statement. When the details are available, the AO should not straight away reject the books and estimate the income at the rate of 12% arbitrarily especially when the appellant has submitted the audited trading account. Accordingly, the estimation of 12% by the AO is not valid. Hence, the adjustment made by the AO is hereby deleted as unsustainable.

10.

Conclusion: In view of the foregoing, the appeal is partly allowed…”

5.

Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.

6.

We have gone through the records and and find that books of account were duly audited, the Ld. CIT(A) held that rejection of books by the Assessing Officer was not justified. It was also held that estimation of profit at 12% of turnover in the case of F&O transactions was purely arbitrary and without any reasonable basis. Accordingly, the Ld. CIT(A) deleted the addition made on account of estimated business income. After examining the findings of the Ld. CIT(A), we find no infirmity in the order. The Assessing Officer has not brought any material on record to justify rejection of books or to support estimation of profit at such a rate. In the business of derivative trading, profit estimation based on turnover at a fixed percentage cannot be applied in an arbitrary manner. Therefore, we confirm the order of the Ld. CIT(A) on this issue.

7.

In the result, the appeal file by the Revenue is dismissed.

8.

Since the Cross Objection filed by the assessee is merely in support of the order passed by the Ld. CIT(A), no separate adjudication is required. Accordingly, the Cross Objection filed by the assessee is dismissed as infructuous.

9.

In the combined result, both the appeal of the Revenue and the Cross Objection of the assessee are hereby dismissed.

The order is pronounced in the open Court on 10.03.2026. (SUCHITRA KAMBLE) VICE-PRESIDENT () () Ahmedabad; Dated 10.03.2026 MV

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