Case Law Details
Padmanaban Prabaharan Vs ITO (ITAT Chennai)
The appeal before the Income Tax Appellate Tribunal (ITAT), Chennai, arose from the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), for Assessment Year 2016-17.
The assessee challenged the estimation of income at 8% of turnover. There was a delay of 107 days in filing the appeal before the Tribunal. The assessee explained that he had earlier conducted export business at Dindigul and had relied on his previous Chartered Accountant to handle tax matters. Due to communication gaps and fee disputes with the earlier representative, he remained unaware of the appellate proceedings and the dismissal of his appeal. After shifting business operations to Chennai and obtaining the case records in September 2025, the matter was entrusted to a new representative in January 2026. The Tribunal accepted the explanation, held that sufficient cause existed for the delay, condoned it, and proceeded to decide the appeal on merits.
The assessee was engaged in the business of Custom House Clearing Agency services. Based on information relating to customs shipping bills showing turnover/export receipts of ₹1,23,47,366, reassessment proceedings were initiated under section 148 on the ground that income chargeable to tax had escaped assessment. In response, the assessee filed a return declaring total income of ₹2,31,293 as net profit from the disclosed turnover.
During reassessment proceedings, notices seeking details were issued. According to the Assessing Officer (AO), only partial compliance was made. A show-cause notice proposing estimation of income at 8% of turnover was issued, but no further response was received within the prescribed period. Consequently, the AO completed the assessment under sections 147 read with 144B by estimating profit at 8% of turnover, resulting in assessed income of ₹9,87,789. After reducing the income already disclosed, an addition of ₹7,56,290 was made.
The first appellate authority upheld the AO’s action.
Before the Tribunal, the assessee argued that the accounts had been subjected to tax audit under section 44AB and that estimation of income at 8% by adopting the principles of section 44AD was unwarranted, particularly because the turnover exceeded the threshold prescribed for section 44AD. It was also submitted that past financial statements reflected net profit margins ranging between 2.04% and 2.38%.
The Tribunal noted that the assessee had furnished certain documents during assessment proceedings, including bank statements, balance sheet, trading and profit and loss account, Form 3CB audit report, computation of income, licence details, and air way bills. It observed that although an audit report had been furnished, the AO had not acted upon it on the ground that it was not properly certified.
Considering the totality of circumstances, including the nature of business and the assessee’s past profit history, the Tribunal held that estimation of profit at 8% was excessive. It determined that estimation at 4% of turnover would meet the ends of justice. Accordingly, profit was computed at ₹4,93,895, and after reducing the income already returned, the addition was restricted to ₹2,62,602. The appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi dated 26.09.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17.
2. The grounds raised read as follows:-
The learned Commissioner of Income-tax (Appeals) NFAC, ought not to have upheld the order of the Assessment Unit, on the ground that the opportunities given by the Assessing Officer were not responded by the Appellant.
The Appellant submits and states that in his case the turnover returned was more than Rs.1 crore and estimation of income @ 8% of turnover in terms of Sec. 44AD, in the absence of proper response, was incorrect and not in accordance with the law.
The Appellant submits and states that his case was tax audited in terms of Sec.44AB and ought not to have been rejected by the Assessing Officer without assigning reason for the same.
The Appellant submits and states that there was some misunderstanding with his representative on account of which he failed to respond to certain notices consequently affecting the Appellant.
The Appellant, who is now represented by a new Representative, is willing to produce or respond to any clarification that might be sought by the Assessing Unit, NFAC, Delhi and willing to co-operate with the Department.
For these and other reasons that may be adduced at the time of hearing, it is prayed that the order of the CIT(Appeals), NFAC be set aside and the Assessing Unit is directed to peruse, verify and make the assessment de novo.
3. There is a delay of 107 days in filing the present appeal. The assessee has filed an affidavit explaining the reasons for late filing of the appeal and seeking condonation of delay. It is submitted that the assessee was earlier carrying on export business at Dindigul and was represented by a Chartered Accountant there. According to the assessee, he was under the bona fide belief that the return of income had been properly attended to by his Representative and was unaware of the subsequent developments in the assessment and appellate proceedings. It has further been explained that due to communication gap and fee disputes with the earlier Representative, the assessee was not informed about the dismissal of the appeal by the CIT(A). The assessee had in the meantime shifted his business activities to Chennai and only during September 2025, upon receipt of the case records from the earlier Representative, came to know about the status of the proceedings. Thereafter, the papers were handed over to the present Representative in January 2026 for taking necessary steps before the Tribunal. Therefore, it was stated by the assessee that the delay occurred in the process of collecting records, understanding the status of the case, and preparing the appeal papers. On perusal of the reasons stated, we are of the view that no latches can be attributed to the assessee as there is sufficient cause for belated filing of this appeal. Hence, we condone the delay and proceed to dispose off the appeal on merits.
4. Brief facts of the case are as follows: The assessee is an individual. It is stated that during the relevant assessment year, the assessee was engaged in the business of Custom House Clearing Agency services. Based on information available with the Department regarding customs shipping bills reflecting turnover/export receipts of Rs.1,23,47,366/-, notice u/s.148 of the Act was issued on 26.03.2023 on the ground that income chargeable to tax had escaped assessment. In response thereto, the assessee filed return of income declaring total income of Rs.2,31,293/-, being net profit disclosed on the turnover of Rs.1,23,47,366/-. During the reassessment proceedings, the AO issued notice u/s.142(1) of the Act calling for various details. According to the AO, there was only partial compliance by the assessee. Consequently, a show cause notice dated 01.03.2024 was issued proposing estimation of income at 8% of the turnover. Since there was no further response from the assessee within the prescribed time, the AO completed the assessment u/s.147 r.w.s 144B of the Act vide order dated 19.03.2024 by estimating the income at 8% of the turnover amounting to Rs.9,87,789/-. After reducing the income already disclosed by the assessee, an addition of Rs.7,56,290/- was made and brought to tax.
5. Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The FAA confirmed the addition made by the AO.
6. Aggrieved by the order of the FAA, the assessee has filed the present appeal before the Tribunal. The Ld. AR reiterated the submissions made before the lower authorities and contended that the estimation of income at 8% of the total turnover is erroneous, particularly when the assessee’s books of account were duly audited. It was submitted that, due to misunderstanding and communication gap between the assessee and the earlier authorised representative, the clarifications and details sought by the AO during the course of assessment proceedings could not be properly furnished. The Ld. AR further submitted that the assessee’s accounts were subjected to tax audit u/s.44AB of the Act and, therefore, estimation of income at 8% by adopting the principles of section 44AD of the Act is wholly unwarranted, especially when the turnover of the assessee exceeded the threshold limit prescribed for applicability of section 44AD of the Act. Without prejudice to the above submissions, the Ld. AR alternatively contended that, in the preceding assessment years, the trading and profit & loss account along with the balance sheets, reflected net profit ranging only between 2% and 2.38%. Therefore, it was pleaded that, if at all any estimation is to be made, the same may be restricted to a reasonable percentage based on the assessee’s past history of net profit disclosed and accepted by the Department.
7. The Ld.DR supported the orders of the AO and the FAA.
8. We have heard rival submissions and perused the material on record. The AO had estimated the addition at 8% of the total turnover on the ground that the assessee had furnished only partial details in response to the notices and clarifications sought during the course of reassessment proceedings. It is seen from the record that though a show cause notice proposing estimation of income at 8% of the turnover was issued, the assessee failed to furnish a response within the prescribed time. Consequently, the assessment was completed u/s.147 r.w.s.144B of the Act by estimating the income at 8% of the turnover. However, we notice that during the course of assessment proceedings, the assessee had furnished the following information:-
1. Bank statements (Partial and not legible)
2. Balance Sheet and Trading and P&L A/c. (not certified )
3. 3CB report issued on 28.04.2023
4. Computation of total income
5. License date 02.07.2015
6. Air Way Bill
9. It is seen that though the assessee had furnished the audit report during the course of assessment proceedings, the same was not taken cognizance of by the AO on the ground that it was not properly certified. Consequently, the AO proceeded to complete the assessment by estimating the income at 8% of the total turnover. Before us, the Ld.AR, on the basis of the sales tax returns, trading and profit and loss account, and balance sheets for the earlier years, furnished a chart reflecting the percentage of net profit disclosed by the assessee for Assessment Years 2013-14 to 2015-16. From the said details, it is noticed that the net profit declared by the assessee in the preceding years ranged between 2.04% and 2.38% of the turnover. Considering the totality of the facts and circumstances of the case, including the past history of the assessee and the nature of business carried on, we are of the view that estimation of net profit at 8% of the turnover is on the higher side. In our considered opinion, estimation of net profit at 4% of the total turnover would meet the ends of justice. Accordingly, by adopting 4% of the total turnover of Rs.1,23,47,366/-, the net profit works out to Rs.4,93,895/-. After reducing the income already returned by the assessee, the addition liable to be sustained works out to Rs.2,62,602/- (Rs.4,93,895 – Rs.2,31,293). Accordingly, the addition is restricted to Rs.2,62,602/- and the assessee gets part relief. It is ordered accordingly.
10. In the result, the appeal filed by the assessee is partly-allowed.
Order pronounced in the open court on 2nd June,2026 at Chennai.
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