Yermal Vasu Shetty Satish Shetty Vs DCIT (ITAT Bangalore)
Books Missing, But Past Results Guide- No Arbitrary Profit Loading – 20% Profit Too Harsh- Past Profit Trend Wins – ITAT Restricts Estimation to 8% in Absence of Books
Bangalore ITAT settled the dispute on income estimation where books were not maintained. Assessee, an individual, was engaged in trading of surgical items under the name Shastra Surgicals & also acted as C&F agent for Karnataka Antibiotics & Pharmaceuticals Ltd. under Shivam Logistics. For AY 2018-19, turnover of ₹8.90 crore was declared with net income of ₹1.31 crore (approx. 8%). However, no books were maintained nor audit u/s 44AB conducted.
AO, rejecting expenses of ₹7.52 crore, treated the entire amount as disallowable & added back to income. On appeal, CIT(A) granted partial relief by accepting purchases in surgical segment but estimated 20% profit on C&F receipts, instead of disallowing all expenses. Both Assessee & Revenue filed cross appeals – Assessee challenging the high profit estimation & Revenue opposing relief granted.
Tribunal observed that turnover was accepted as genuine, but in absence of books, income estimation had to be made. It was noted that the Assessee had consistently disclosed profit ranging from 4.93% to 10.8% in past years, which had been accepted by Revenue. Tribunal held that these historical results were the best guide for estimation. It relied on the Gujarat High Court judgment in CIT v. Kiran Industries Pvt. Ltd. where it was held that past average profit rates should guide estimation when books are rejected. Tribunal found 20% estimation arbitrary & unsupported by evidence. Since the Assessee had declared profit at 8.04% for the year under consideration, which was within past accepted range, it held that 8% on turnover was fair, sufficient to protect Revenue, & consistent with earlier years. Accordingly, Tribunal directed that income be estimated at 8% of gross turnover. Thus, the appeal of the Assessee was allowed & Revenue’s appeal dismissed.
