Yugendra Puppala Vs ACIT (ITAT Hyderabad)
AO can’t pluck 3% profit from thin air: ITAT upholds limited scrutiny scope but remands arbitrary estimation
ITAT Hyderabad partly allowed assessee’s appeal. Tribunal rejected legal challenge to assessment on ground of alleged illegal expansion of limited scrutiny, holding that where one of the CASS parameters was sales turnover mismatch, AO was justified in examining purchases as a necessary corollary & no separate approval for conversion into complete scrutiny was required.
However, on merits, ITAT found that estimation of net profit at 3% of gross receipts was wholly arbitrary, as AO had neither relied on industry data nor past profit history of Assessee, nor recorded any rational basis. Tribunal held that profit estimation cannot be ad-hoc & directed AO to recompute net profit by adopting either industry average rate or average of Assessee’s past three years’ assessed profit rates, excluding taxes collected on sales from gross receipts. Matter was remanded for fresh computation after granting opportunity of hearing, & appeal was allowed for statistical purposes
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Ms. Yugendra Puppala (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 18.06.2025 for the A.Y. 2015-16.
