Case Law Details
Bushra Saif Shaikh Vs DCIT (ITAT Ahmedabad)
Summary: The Ahmedabad ITAT allowed the assessee’s appeal for statistical purposes by setting aside the impugned order and restoring the matter to the Assessing Officer for fresh examination. The assessee, engaged in branding, marketing and advertising, had claimed business promotion expenses of ₹7,32,37,692. During scrutiny, the Assessing Officer rejected the books of account under Section 145(3), estimated profit by applying an 8% net profit rate, and noted that TDS evidence under Section 194C was furnished only for part of the expenditure, though no separate disallowance under Section 40(a)(ia) was made since the income had been estimated. The Tribunal observed that the Assessing Officer had examined only the business promotion expenses and had not identified any defect in the disclosed sales or purchases or any other discrepancy in the books. It held that inability to substantiate one expenditure claim did not justify rejection of the entire books of account and estimation of profit. As complete supporting evidence for the business promotion expenses had not been produced, the Tribunal restored the issue to the Assessing Officer to verify the books, vouchers, bills, agreements, confirmations and other relevant evidence, conduct necessary enquiries, and decide the matter afresh after providing adequate opportunity of hearing.
The Ahmedabad ITAT set aside the rejection of books of account and the estimation of income at 8% of turnover, holding that the Assessing Officer had erred in rejecting the entire books merely because the assessee could not fully substantiate business promotion expenses of ₹7.32 crore. The assessee, engaged in the business of branding, marketing and advertising, had challenged the rejection of books, estimation of profits, and adverse findings relating to business promotion and event expenses.
The Tribunal observed that the scrutiny was primarily focused on the claim of business promotion expenses. While the AO expressed doubts regarding supporting documents, confirmations and TDS compliance relating to those expenses, no defects whatsoever were pointed out in the sales of ₹33.60 crore, purchases of ₹25.30 crore or any other part of the books of account. It held that if the assessee failed to substantiate a particular expenditure, the AO ought to have confined the disallowance to that claim instead of rejecting the entire books and estimating profits.
At the same time, the Tribunal noted that the assessee had admittedly failed to furnish complete supporting evidence before the AO but submitted that the necessary bills, vouchers, confirmations and TDS records could now be produced. In the interest of justice, it restored the matter to the AO for fresh examination with a direction to afford one more opportunity to the assessee to produce all relevant books of account, vouchers, bills, agreements, confirmations and other supporting evidence relating to the business promotion expenses. The AO was directed to verify the material, conduct necessary enquiries and decide the issue afresh by passing a reasoned order after granting adequate opportunity of hearing. The appeal was accordingly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] dated 12.02.2026 for the Assessment Year (A.Y.) 2023-24 in the proceeding u/s 143(3) r.w.s. 144B of the Income Tax Act [hereinafter referred as “the Act”].
2. The brief facts of the case are that the assessee had filed return of income for A.Y. 2023-24 on 25.09.2023 declaring income of Rs.62,27,180/-. The case was selected for scrutiny under CASS to examine business expense and high liabilities as compared to low income. The assessee is engaged in business of branding, marketing and advertising and during the year had claimed business promotion expense of Rs. 7,32,37,692/-. In the course of assessment, the AO had required the assessee to furnish copy of bills, confirmed copy of accounts of the parties along with their PAN, bank statement etc. Since the complete details were not furnished by the assessee, the AO was not satisfied about the correctness and completeness of the books of accounts. He, therefore, rejected the books of accounts of the assessee and estimated profit by applying net profit rate of 8%. The AO had also noticed that out of total business promotion expense of Rs. 7,32,37,692/-, the evidence for deduction of TDS u/s. 194C of the Act was furnished in respect of expense of Rs. 2,86,61,400/- only. Therefore, 30% of the balance amount was liable for disallowance u/s. 40(a)(ia) of the Act. However, considering the fact that the income was worked out by rejecting the book results; no separate disallowance u/s. 40(a)(ia) of the Act was made by the AO. The assessment was completed u/s. 143(3) r.w.s 144B of the Act on 20.03.2025 at total income of Rs. 2,68,82,161/-.
3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed.
4. Now the assessee is in second appeal before us. The following grounds have been taken in this appeal:
1. The learned Commissioner of Income tax Appeals erred in law and on facts in confirming the rejection of the appellants duly maintained and audited books of account under section 145 3 of the Income tax Act 1961 without recording any specific defect affecting the correctness OR completeness thereof and the rejection of books is therefore unsustainable in law.
2. Without prejudice to Ground No 1 the learned Commissioner of Income tax Appeals erred in law and on facts in sustaining the application of a net profit rate of 8 percent on the gross turnover of Rs 336027007 resulting in an addition of Rs 20286908 though such estimation is arbitrary excessive and unsupported by any cogent material past history OR comparable basis.
3. The learned Commissioner of Income tax Appeals further erred in confirming the effective disallowance OR non acceptance of Business Promotion Expenses to the extent of Rs 73237692 3 ignoring that the said expenditure was incurred wholly and exclusively for the purposes of business and was supported by Invoice ledger Bank statement and tax deduction at source compliance
4. Without prejudice to the foregoing grounds the learned Commissioner of Income tax Appeals erred in law and on facts in sustaining the adverse finding in respect of Event Expenses of Rs 1490424 by treating the invoices of Rs 400000 issued by Shri Imtiyaz Abdul Kadar Rahil as fabricated despite the absence of any independent enquiry verification OR other cogent material to justify such finding
5. The learned Commissioner of Income tax Appeals erred in law and on facts in affirming the impugned addition and resultant demand in breach of the principles of natural justice without causing proper independent verification of the material furnished by the appellant without confronting the appellant with the precise basis of the adverse conclusions and without affording an effective and reasonable opportunity of being heard The appellant craves leave to add alter amend vary substitute OR withdraw any of the above grounds of appeal at OR before the time of hearing
5. Shri Nikhil Soni, the Ld. AR of the assessee submitted that the AO was not correct in rejecting the books of account without pointing out any specific defect in the accounts. He explained that the books of account were duly audited and the estimation of profit at the rate of 8% of the turnover was arbitrary, excessive and unsupported by any cogent material. The Ld. AR submitted that the business promotion expense of Rs.7,32,37,692/- was incurred exclusively for the purpose of business and was supported by invoice, ledger account, bank statement and TDS was made thereon wherever applicable. Further, the AO did not conduct any inquiry to establish that the evidences brought on record in respect of event expense were false and fabricated.
6. Per Contra Shri Abhijit, the Ld. SR-DR submitted that the assessee did not submit the complete evidence in respect of the business promotion expenses and the copy of bills, confirmation of the parties and evidence for deduction of TDS thereon was not brought on record. Further, the bill for event expense in respect of Shri Imtiyaz Abdul Kadar Rahil as brought on record was only computer generated and without any seal/stamp of the issuer of the bill. Further, GST No. was also not mentioned therein. These deficiencies certainly casted doubt on the genuineness of the expense. The Ld. SR-DR submitted that in the absence of complete business promotion expense, the AO had rightly rejected the books of accounts and estimated profit by applying net profit rate of 8%. He further, submitted that from the finding given by the AO, TDS u/s. 194C of the Act was made on business promotion expense of Rs. 2,86,61,400/- only. He, therefore, strongly supported the order of the lower authorities.
7. We have considered the rival submissions. The case of the assessee was selected for scrutiny to examine the high business promotion expense and high liabilities vis-à-vis low income. From the assessment order, it transpires that the AO was not satisfied only about the business promotion expense, as claimed by the assessee. As per copy of P&L account brought on record in the paper-book by the assessee, it is found that the assessee had disclosed sales of Rs. 33.60 croes and purchases of Rs. 25.30 crores, which was not at all examined by the AO and no defect therein was brought on record. The only issue examined by the AO was the business promotion expense. If the assessee was unable to substantiate the business promotion expense of Rs. 7,32,37,692/-, the AO should have restricted the disallowance in respect of this claim, rather than rejecting the entire books of accounts. No other discrepancy in the books of accounts has been brought on record except the insufficient evidence in respect of business promotion expense. Therefore, the rejection of books of accounts by the AO and estimation of profit by applying net profit rate of 8% is not found correct.
8. At the same time, the undisputed fact is that the complete evidence in respect of business promotion expense of Rs. 7,32,37,692/- was not brought on record by the assessee before the AO. It is noticed that the AO had rejected the books of accounts primarily for the reason that the assessee had failed to furnish complete supporting evidences viz copy of bills, confirmation of the parties and evidence for deduction of TDS thereon etc. in respect of this claim. Before us also, it was fairly admitted that complete documentary evidence could not be produced before the AO during the course of assessment proceeding. The assessee has now submitted that it had duly deducted TDS on the business promotion expense and can produce the evidence in this regard, if allowed an opportunity. Considering the facts and circumstances of the case, we are of the view that the issue requires fresh examination in the interest of justice. Since the allowability of the expenditure depends upon verification of the supporting documents and other relevant evidences, the matter deserves to be restored to the file of the Assessing Officer. Accordingly, we set aside the impugned order and restore the matter to the file of the AO with a direction to afford the assessee one more opportunity of producing all relevant books of account, vouchers, bills, agreements, confirmations, and such other evidences as may be necessary in support of its claim of business promotion expenditure amounting to Rs.7,32,37,692/-. The assessee is also directed to extend full cooperation and furnish all the requisite details and evidences before the AO. The AO will have liberty to examine the evidences so furnished, make such enquiries as may be considered necessary, and thereafter decide the issue afresh in accordance with law by passing a reasoned order after granting adequate opportunity of being heard to the assessee.
9. In the result, the appeal of the assessee is allowed for statistical purpose.
Order pronounced in the Court on 09/07/2026 at Ahmedabad.
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