Sharayu Synthetics Processors Vs DCIT (ITAT Mumbai)
ITAT Mumbai rejects 8% estimation for non-audit u/s 44AB; adopts 2.5% profit based on assessee’s offer
In this case, the Mumbai ITAT dealt with estimation of income where the assessee had not complied with audit requirements u/s 44AB. The AO estimated income at 8% of turnover by applying analogy of section 44AD, which was upheld by the CIT(A).
The Tribunal first condoned delay of 341 days in filing the appeal, accepting reasons such as communication issues (email sent to former auditor/retired partner) and personal hardship due to death in family.
On merits, the ITAT held that:
- Non-compliance with section 44AB does not justify estimation of income
- The Act provides separate consequences (penalty), not arbitrary income estimation
- Books of account were not rejected u/s 145(3) and no defects were pointed out
- Section 44AD cannot be applied, as turnover (~₹28.78 crore) exceeded the prescribed limit
However, considering that the assessee had voluntarily offered income at 2.5% of turnover during assessment, the Tribunal adopted a balanced approach.
Accordingly, the ITAT directed the AO to estimate income at 2.5% of turnover instead of 8%, granting partial relief to the assessee.
5 FAQs on ITAT Mumbai Ruling: Estimation of Income for Non-Audit under Section 44AB
