Hajra Trading Company Vs DCIT (ITAT Chennai)
Export Profit Estimated at 10% Without Books; ITAT Admits Reconstructed Records and Sends Case Back
Summary: When books and supporting records were unavailable during assessment, the AO estimated an exporter’s income at 10% of turnover and separately added the duty drawback received. The CIT(A) reduced the estimated rate to 6%, but retained the duty drawback addition. Before the Chennai ITAT, Hajra Trading Company produced reconstructed accounts and export records, explaining that the Chartered Accountant who handled its affairs had become ill, discontinued practice and subsequently died. The Tribunal admitted the records as additional evidence under Rule 29 and sent the matter back to the AO for fresh examination. It did not accept the firm’s declared profit, fix a new profit rate or decide whether the duty drawback had been correctly treated. Those questions must now be examined against the documents produced.
Reassessment Based on Export Transactions
Hajra Trading Company, a partnership firm, had not filed its return for AY 2015-16 within the prescribed time. The Department had information that it had undertaken exports of ₹2,92,91,066 and received duty drawback of ₹13,14,604. The AO reopened the assessment under section 147 by issuing a section 148 notice on 29 March 2021.
In response, the firm filed a return on 30 December 2021 declaring income of only ₹28,600. During reassessment, it furnished partial details and stated that it was an export oriented unit which had received duty drawback. The AO did not accept its trading results. The order records, in particular, that the return had not been filed on time and that the firm had not obtained an audit under section 44AB, although its turnover exceeded ₹1 crore.
The AO completed reassessment on 22 March 2022 under section 147 read with section 144B. He estimated income at 10% of the export turnover, amounting to ₹29,29,814, and added the duty drawback of ₹13,14,604 separately. The total income determined was ₹42,44,418.
CIT(A) Reduced the Estimate but Retained Duty Drawback
The firm appealed. The CIT(A), NFAC, considered an estimate justified because the trading results could not be reliably verified. Apart from the absence of the audit and the failure to file the return on time, the appellate order referred to non-filing of VAT returns and the absence of a return for the preceding year.
The CIT(A) gave partial relief by reducing the estimated gross profit rate from 10% to 6% of the declared turnover. It nevertheless confirmed the separate addition of ₹13,14,604 for duty drawback. Still aggrieved, the firm approached the Tribunal.
By then, the firm said it had recovered and reconstructed material that had not been available to it during the earlier proceedings. It sought to have that material admitted so the trading result could be tested against records rather than decided only through estimation.
Why Were the Records Produced Late?
The firm filed a petition under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. It explained that the CA handling its accounts and tax affairs during the relevant period had been unable to continue because of deteriorating health. He had discontinued his professional practice without informing the firm. The firm said it tried to retrieve its records and later learned from his family that he had passed away. An affidavit was filed in support of these circumstances.
According to the firm, the disruption affected both its timely return filing and its ability to produce books and supporting papers during assessment. After engaging other professionals, it reconstructed records from available sources. The documents placed before the ITAT included Form 3CB and Form 3CD for AY 2015-16, purchase and sales ledgers, export invoices, purchase bills, bills of lading, customs documents, a sales abstract, VAT returns and financial statements. It also produced return and audit related material for subsequent years.
The firm argued that these documents went directly to the question of its actual trading results and asked that the AO be allowed to verify them. The Department supported the CIT(A)’s order.
Tribunal Admits Evidence and Restores the Assessment
The ITAT examined the Rule 29 petition and the documents. It found that the material had a direct bearing on the determination of the trading results. Taking account of the explanation for its earlier non-production, the Tribunal admitted the additional evidence in the interest of justice and equity.
Because these records had not been examined by the AO, the Tribunal considered it appropriate to restore the issue for fresh examination. It directed the AO to review the evidence, provide the firm an adequate opportunity of hearing and decide the matter afresh in accordance with law. The firm was directed to cooperate and avoid unnecessary adjournments. Its appeal was allowed for statistical purposes.
Author’s Comments
The value of this order is the Tribunal’s decision to permit verification of records that go to the core of the assessment. The tax audit report, ledgers, invoices and export documents were relevant to deciding whether the firm’s trading results could be relied upon and, if not, what estimate would be justified. Admitting them did not establish that their contents were correct; it enabled the AO to test them.
The case also leaves an important computation question open. The AO had estimated profit on turnover and added duty drawback separately; the CIT(A) changed the estimated percentage but retained that addition. On remand, the nature and accounting treatment of the duty drawback, and its relationship with any estimated trading profit, require careful examination alongside the reconstructed books. The Tribunal itself expressed no final view on the taxable amount.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 16.01.2026, passed u/s.250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2015-16.
2. Brief facts of the case are as follows: The assessee is a firm. For the assessment year 2015-16, the assessee had not filed its return of income. Based on the information that the assessee had effected export transactions of Rs.2,92,91,066/- and received duty drawback of Rs.13,14,604/-, the assessment was reopened u/s.147 of the Act and notice u/s.148 was issued on 29.03.2021. In response, the assessee filed its return of income on 30.12.2021 declaring total income of Rs.28,600/-. During the course of assessment proceedings, notices u/s.142(1) were issued, in response to which the assessee furnished partial details stating that it was an export-oriented unit and had received duty drawback during the relevant financial year. The AO, however, did not accept the trading results, primarily for the reason that the assessee had failed to file its return within the prescribed time and had not obtained its accounts audited u/s.44AB of the Act, despite the turnover exceeding Rs.1 crore. Accordingly, the AO completed the assessment u/s.147 r.w.s.144B of the Act on 22.03.2022, determining the total income at Rs.42,44,418/- by estimating the income at 10% of the turnover, amounting to Rs.29,29,814/-, and further adding duty drawback of Rs.13,14,604/-.
3. Aggrieved by the reassessment order passed u/s.147 r.w.s.144B of the Act, the assessee preferred an appeal before the First Appellate Authority (FAA). The FAA held that the AO was justified in estimating the income, considering the assessee’s failure to comply with the statutory audit requirements, non-filing of VAT returns and absence of return of income for the preceding year, rendering the trading results unreliable. However, the FAA partly allowed the appeal by estimating the gross profit at 6% of the declared turnover and confirming the addition towards duty drawback of Rs.13,14,604/-.
4. Aggrieved by the order of the FAA, the assessee has preferred the present appeal before the Tribunal. Before us, the assessee has filed a petition under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional evidence, contending that the relevant documents could not be produced before the lower authorities for reasons beyond its control. The Ld.AR submitted that the Chartered Accountant who had been handling the assessee-firm’s accounts and tax matters during the relevant period was unable to attend to the same due to deteriorating health and subsequently discontinued his professional practice without informing the assessee. Despite efforts to retrieve the records, the assessee subsequently came to know from his family members that the Chartered Accountant had passed away. The assessee has also filed an affidavit in support of the above circumstances.
5. It was further submitted that, consequently, the assessee could neither file its return within the prescribed time nor produce the books of account and supporting records during the assessment proceedings. Thereafter, the assessee engaged different professionals and, upon considerable efforts, reconstructed the records from available sources. The books of account, purchase and sales ledgers, export invoices, bills of lading, customs documents, VAT returns, financial statements and tax audit report for AY 2015-16 have accordingly been compiled and furnished as additional evidence. The Ld.AR submitted that these documents have a direct bearing on the determination of the trading results and, therefore, prayed that the additional evidence be admitted in the interest of justice and the issue be restored to the file of the AO for fresh consideration.
6. The Ld.DR strongly relied on the order of the FAA.
7. We have heard the rival submissions and perused the material on record. The assessee has filed a petition under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional evidence comprising Tax Audit Report in Form 3CB & 3CD for AY 2015-16, ITR acknowledgement, financial statements and tax audit reports for AYs 2016-17 & 2017-18, purchase and sales ledgers, export invoices, purchase bills, bills of lading, customs documents, sales abstract and VAT returns. The assessee has explained that the tax consultant handling its accounts and tax matters had discontinued his professional practice due to deteriorating health and subsequently passed away, resulting in the relevant records not being available during the proceedings before the lower authorities. On perusal of the additional evidence, we find that the same has a direct bearing on the determination of the trading results. In the interest of justice and equity, we admit the additional evidence and take the same on record. Since the additional evidences are taken on record, we deem it appropriate to restore the issue to the file of the AO for fresh examination of the evidences and for deciding the issue afresh in accordance with law after providing adequate opportunity of being heard to the assessee. The assessee is directed to cooperate with the Revenue and shall not seek unnecessary adjournment. It is ordered accordingly.
8. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 22nd September, 2026 at Chennai.
