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Facts
The assessee, a partnership firm, challenged the CIT(A)'s order sustaining a trading addition of Rs. 22,52,778/- made on an estimated basis by the AO. The AO had initially disallowed 20% of indirect expenses due to a low net profit and non-production of all details, which the CIT(A) partially upheld.
Held
The tribunal reduced the sustained trading addition by applying a 2% net profit rate on the total turnover, resulting in an additional net profit of Rs. 8,32,481/- to be taxed. It also held that Section 115BBE would not apply as the addition was estimated without specific concealment or evasion.
Key Issues
The key legal issues were the validity of the estimated trading addition and the applicability of Section 115BBE for tax rates on such an addition.
Sections Cited
Section 115BBE
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Income Tax Appellate Tribunal, JODHPUR BENCH, JODHPUR
JK Construction Company ACIT Circle 1, Bikaner 304, Royal Plaza, Sansar Chandra Road Jaipur (Raj.) PAN No. AAEFJ1676P Assessee by Shri Amit Kothari, CA (Physical) Revenue by Shri P.M. Mirdha, Addl. CIT (Virtual) Date of Hearing 16.02.2026. Date of Pronouncement 26.02.2026. ORDER DR. MITHA LAL MEENA, A.M.: This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [hereinafter referred to as the NFAC/ CIT (A)] dated 17.01.2024 with respect to Assessment Year 2018- 19 challenging therein the order of the CIT (A) sustaining the trading addition amounting to Rs. 22,52,778/- on estimate basis.
The appellant assessee has taken following grounds of appeal:-
Year 2018-19) 1. On the fact and circumstances of the case Ld. CIT(A)has erred in sustaining trading addition Rs. 22,52,778/- out of total estimated addition 1,00,97,457/- made by AO. The sustained estimated trading addition deserve to be deleted as it was bad in law legally as well as factually.
2. The Ld. CIT(A) has erred in sustaining the charging of tax u/s 115BBE of the Act.
The appellant crave liberty to add, amend, alter or modify any of the ground of appeal
on or before its hearing before your honours.
3. At the outset the learned Counsel for the appellant has submitted that appellant assessee is a partnership firm engaged in supply of goods, ballast and transportation of P-way Railway material and also engage labour for construction work.
4. The AO during the course of assessment proceedings observed that the details were submitted by the Assessee. However, the AO was not satisfied and he has made disallowance of 20% of total indirect expenses claim of Rs. 5,04,87,288/- that is amounting to Rs. 1,00,97,457/- because the Assessee had shown a very low net profit of 1.54% and did not produce all the details as sought for by the AO.
The Ld. CIT(A) has considered the contentions of the appellant during the appellate proceeding that the AO did not find any defect and Year 2018-19) discrepancy in the books of account and still he made the disallowance. However, this contention of the appellant could not fully satisfied the Ld. CIT (A) for the reason that appellant had not produce the books and vouchers for verification before the AO as stated in the assessment order so as to provide an occasion for the AO for examination of the same. The Ld. CIT (A) has further observed that how to understand that the gross profit and net profit for both the assessment year has come to the same percentage even though the sales figures for the assessment year 2017- 2018 was 21.16 crores and for assessment year 2016-17 was 12.60 crores, while referring to the trading results as per the GP Chart which is reproduced hereunder:-
A.Y. Sales Gross Profit % Net Profit % 2018-19 154262956 14825095 9.61 2375109 1.54 2017-18 211622367 21104158 9.97 3605187 1.70 2016-17 126037840 12566803 9.97 2147440 1.70 2015-16 68886334 9548070 13.86 485457 0.70
The learned counsel for the appellant submitted that the Assessee maintained audited books of accounts and that neither the AO nor the CIT(A) has pointed out any discrepancy in the books of accounts,
Year 2018-19) purchase, sales, bills, vouchers etc. or rejected the books of accounts. He argued that the Assessee incurred expenses in supplying the loading, unloading, stacking in the side transport sleeper rail materials and that transportation, re-transportation and loading and unloading expenses cost dearly and these expenses are direct and indirect in nature.
The AR argued that the AO without assigning any reason in the assessment order at Page No. 5, made Adhoc Disallowance of 20% out of indirect expenses amounting to Rs. 1,00,97,457/-, which has been restricted by the CIT (A) to Rs. 22,52,778/- on adhoc basis. The counsel has referred to the trading result chart furnished before the Ld. CIT(A) as above.
The Counsel has argued that AO and the CIT(A) has not disputed the regular books of account maintained by the Assessee and there was no specific discrepancy being observed in the trading result which show merits and acceptance and hence, no addition can be made on account of such vague estimates which is not supported by any valid material. The AR has contended that the declared trading results were duly supported by the documentary evidences of contemporary period such as declared trading results, Audited books of accounts, purchase, sales supported
Year 2018-19) with vouchers, comparable profit chart etc. The Ld. DR supported the order of the Ld. CIT (A) by contending that sufficient relief has been granted to the Assessee.
Considering the facts in totality, nature of the business, comparative trading results, audited trading result, past history etc., we are of the considered opinion that it would be fair and justified to apply 2% net profit rate as against 3% estimated by the Ld. CIT(A) on the total turnover to meet the ends of justice in the present case of the Assessee.
Thus, applying net profit rate of 2% on the turnover of Rs. 15,42,62,956/-, the net profit would be computed to Rs. 30,85,259.12 out of which the appellant has already disclosed the profit of Rs. 22,52,778/-, in the return of the income and hence the additional net profit needs to brought to tax is computed at Rs. 8,32,481/- (30,85,259-22,52,778).
Accordingly, the addition of Rs. 8,32,481/- is sustained and the assessee gets further relief of Rs. 14,20,297/-. Thus the ground no. 1 of the appeal is partly allowed.
Ground no. 2 pertains to charging of rates under Section 115BBE of the Act, in our view since the addition has been made on estimate basis
Year 2018-19) without pointing out any concealment of income or deliberate tax evasion on the part of the Assessee and therefore, the provision of Section 115BBE of the Act would not be applicable in the present case. Accordingly, the AO is directed to charge the tax at the normal tax rates in the case of the Assessee.
In the backdrop of the aforesaid discussions, the appeal of the Assessee is partly allowed for statistical purposes.
Order pronounced on 26/02/2026 in the open court.