Md. Babar Ali Vs ITO (ITAT Kolkata)
The Tribunal adjudicated three appeals relating to Assessment Year 2020–21 concerning estimation of business income and penalties imposed under the Income Tax Act. The appeals arose from a common order of the Commissioner of Income Tax (Appeals) passed under Section 250 of the Act.
The first appeal concerned the estimation of income from a wholesale medicine business. The assessee had not filed a return of income initially. Information received from GST authorities indicated business transactions reflected in GST returns. Based on this information, the Assessing Officer reopened the assessment under Section 147 and issued a notice under Section 148. In response, the assessee filed a return declaring turnover of ₹2,35,85,740 and income of ₹4,85,200, representing a net profit rate of 2.05%.
During assessment proceedings, the Assessing Officer required the assessee to produce books of account and supporting documents such as bank statements, purchase and sales details, audit report, profit and loss account, GST returns, and expense vouchers. Since no such documents were furnished, the Assessing Officer treated the books as not maintained and rejected the declared income. The income was then estimated at 20% of the total turnover, resulting in an assessed income of ₹47,17,148.
The assessee challenged the assessment before the Commissioner (Appeals). The appellate authority accepted the assessee’s contention that the Assessing Officer had incorrectly aggregated figures from GSTR-3B and GSTR-1 returns, which resulted in an inflated turnover figure. The Commissioner (Appeals) held that the turnover declared in the return at ₹2,35,85,740 should be accepted. However, since the assessee had not produced books of account or supporting details during assessment, the declared profit rate of 2.05% was considered inadequate. To safeguard revenue interests, the Commissioner (Appeals) estimated income at 5% of turnover, resulting in income of ₹11,79,387 and restricted the addition to that amount while deleting the remaining addition.
Before the Tribunal, the assessee contended that the profit disclosed was based on audited books and was consistent with profit margins of similar years. It was argued that the nature of wholesale medicine trade involves thin margins. The Tribunal observed that neither the Assessing Officer nor the Commissioner (Appeals) had cited comparable cases to justify the profit rates applied. Considering the nature of the business and the submissions of both parties, the Tribunal held that the profit rate of 5% applied by the Commissioner (Appeals) was slightly higher. It therefore directed that income be estimated at 4% of the turnover of ₹2,35,85,740. Accordingly, the appeal relating to estimation of income was partly allowed.
The second appeal related to a penalty imposed under Section 271B for failure to furnish the tax audit report within the prescribed time. The assessee submitted that the audit report had been completed after receiving notice from the department. It was explained that the assessee resided in a rural area, lacked familiarity with the e-filing system, and relied entirely on a tax consultant who failed to inform him about the notices. The audit report was ultimately uploaded on 24 April 2024, though beyond the statutory due date.
The Tribunal considered the explanation and noted that the delay occurred due to reliance on the consultant and lack of awareness of procedural requirements. It also observed that the Assessing Officer had incorrectly taken turnover by adding figures from different GST returns. In view of these circumstances, the Tribunal held that there was reasonable cause for the delay in filing the audit report and cancelled the penalty imposed under Section 271B.
The third appeal concerned penalty for alleged non-compliance with notices issued during assessment proceedings. The Assessing Officer had imposed penalties for multiple defaults. On appeal, the Commissioner (Appeals) deleted penalties for some defaults but sustained penalties for others. However, the order did not specify which instances of non-compliance justified penalty and which were waived.
The Tribunal noted that the reasons cited by the assessee for non-compliance—residing in a remote village, lack of technical knowledge, and reliance on a consultant—were the same for all alleged defaults. Since part of the penalty had already been waived on this basis, the Tribunal held that there was no justification to sustain penalties for the remaining instances. It further noted that the assessment had not ultimately been framed under Section 144 despite the alleged non-compliances, indicating that the defaults were not treated as serious enough to justify penal consequences. Accordingly, the Tribunal cancelled the remaining penalty.
In conclusion, the Tribunal partly allowed the appeal relating to income estimation by reducing the profit rate to 4%, and allowed the other two appeals by cancelling penalties imposed under Sections 271B and 271(1)(b).
Assessee represented by: Himangshu Kumar Ray, Adv., P.K. Roay, adv. and Trideep Nayak, AR.
