DEPUTY COMMISSIONER OF INCOME TAX, DELHI vs. AZAD COACH PRIVATE LIMITED, DELHI

PER SATBEER SINGH GODARA, JM

This assessee’s appeal for assessment year 2017-18, arises against the Commissioner of Income Tax (Appeals)/National
Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2024-25/1070000401(1), dated
28.10.2024 involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

Heard both the parties. Case file perused.
Assessee by Sh. Salil Kapoor, Adv.
Ms. Ananya Kapoor, Adv.
Sh. Anjul Dalela, Adv.
Department by Sh. Ajay Kumar Arora, Sr. DR
Date of hearing
11.11.2025
Date of pronouncement
11.11.2025
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Ground No. 1: That having regard to facts and circumstance of the case Ld. AO has erred in finalizing an ex parte order without giving opportunity of being heard.

Ground No. 2: The Ld AO has erred in asking for production of books of accounts whereas case was under online scrutiny

Ground No. 3: Any other ground which may arise during the proceedings.

Assessee Company has filed return at NIL after adjusting the carried forward deprecation. Case was selected for scrutiny through CASS.
Learned AO has Issued and ex-parte order without giving reasonable opportunity of being heard

In response the appellant replied the following:

Where the assessing officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub section (1) [has not been regularly followed by the assessee, or income has not been computed in accordance with the standards notified under sub-section (2)], the AO may make an assessment in the manner provided in Section 144. 1.4
The learned A.O has assessed the income by rejecting the books u/s 145(3) but ignored the provision of 145(3) in which it is clearly mentioned that if books of accounts are rejected then assessment should have been done u/s 144 while on the other hand the learned A.O. has passed the assessment u/s 143(3) which is normal scrutiny assessment provision and estimated income can’t be imposed under the normal provisions.
The issue is also covered by the judgment of Hon’ble Apex Court in Kachwala Gems v. Jt. CIT [2007] 288 ITR 10/158 taxman 71 where it was held that rejection of books of accounts under section 145
justified and best judgment u/s 144 of the act needed. In the present case, Ld. AO has invoked the provision the section 145 but has passed the order u/s 143(3), so keeping in view the above judgment of Hon’ble Apex Court assessee’s case is strong and shall be Favor of Assesse Company during the CIT (Appeals) Proceedings.
1.5
In the present case, Ld. AO has erred in making the addition on the basis of pure guess work as he has not made any 4 | P a g e ground/justification/basis for making the addition or deriving the profit @8% of the turnover.
1.6
The issue is also covered by the judgment of Hon’ble HC in CIT v. Paradise Holidays (Del.) (HC) (2010), 325 ITR 13 (Del.) wherein it was held that “The accounts which are regularly maintained in the course of business and are fully audited, free form any qualification by the auditors, should normally be taken as correct unless there are adequate reasons to indicate that they are incorrect or unreliable. The onus is upon the Revenue to show that either the books of account maintained by the assesse were incorrect or incomplete or that the method of accounting adopted by him was such that true profits of the assessee cannot be deducted from there.
The learned A.O couldn’t appreciate that the Company is regularly filing its excise and vat returns and has submitted the statutory and tax audit report duly signed by a Chartered Accountant. It is settled law that where the books of accounts are audited and Vat / Excise returns have been filed, in such case rejection of books is not justified.
1.7
Considering the comparison of profits between the last three financial years it is not justifiable to calculate the taxable profit @8%
of the turnover and reject the books of accounts even when Gross
Profit & Net Profit is either at par and As mentioned in the assessment order that we have not submitted books of accounts as required in the notice issued u/s 142(1). We would like to submit that books of accounts are wider and vague term which includes cash book, bank book, journals, ledgers and all the supporting vouchers etc. He has not pinpointed that which information he requires to assess the income and insisted for complete books of accounts only. The upload limit for uploading the documents on Income Tax Portal is 5MB only therefore, it was not possible for us to submit the complete bulky books of accounts in the online scrutiny assessment. The learned A.O asked for some ledger, details and other information which was already provided to him. So, it is genuine hardship for us to upload all the books of accounts on the IT portal.
However, after so much of constraints mentioned above we have provided all the documents as mentioned in the notice issued u/s 5 | P a g e

142(1) of the Income Tax Act, 1961 by the Ld. AO. On the basis of above contention, we request you to drop the proceedings and oblige us.

In ground Nos. 1 and 2, the Appellant has contested the order u/s 143(3) of the IT Act, 1961 dated 07/11/2019 for the A.Y. 2017-
18 of the AO of passing ex-parte order and making an addition of Rs.
3,36,33,603/-. Both these grounds are taken up together for the sake of convenience.

I have carefully considered the submissions made by the Appellant. It is observed that the Appellant hade filed ROI for the A.Y.
Under consideration on 30-09-2017. The case was selected for complete scrutiny and notice u/s 143(2) was issued on 18-09-2018. Notices u/s 142(1) was issued on 22-02-2019 and on subsequent dates. In response to the notices, the Appellant furnished an incomplete submission dated 24-04-2019. The Appellant was asked to furnish the complete Books of accounts along with supporting documents on 02-08-2019. The Appellant filed adjournment petition and the Case was refixed on 11-09-2019. The Appellant again filed adjournment petition. The AO therefore rejected the books of accounts in terms of section 145(3) and estimated Net profit at 8% of gross receipts and made an addition of Rs. 3,36,33,603/-. As per section 145(3), when the books of accounts are rejected by the AO, the AO is required to make a best judgment assessment in the manner provided in section 144. It is observed that the AO has proceeded to complete the assessment u/s 143(3) which is a normal scrutiny assessment provision and estimated income cannot be imposed under normal provisions. The assessment order is found to be erroneous on this ground. It is further observed that the income estimated by the AO is without any basis, arbitrary and excessive. The Hon’ble Supreme
Court in the case of Kachwala Gems vs. JCIT [2007] 158 Taxmann 71
has held as under:

“It is well-settled that in a best judgement assessment, there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act arbitrarily, but there is necessarily some amount of guess work involved in a best judgement assessment.” It is observed from the table furnished by the Appellant that the Net profit declared by the appellant is a Loss for the A.Y. 2014-15 and 2015-16 and 0.52% for A.Y. 2016-17. In the A.Y. under consideration it is 0.70% which is higher than the Net profits declared during the previous three assessment years and appears to be reasonable. In view of the above,
6 | P a g e the AO was not justified in estimating net profit @ 8% and the addition of Rs. 3,36,33,603/- made by the AO is hereby deleted. These grounds are allowed.
Ground No. 3 is general in nature.
In the result, the appeal is allowed.”

Dated: 18th November, 2025. RK/-
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