Hansa Dinesh Vs ITO (ITAT Bangalore Bench)
Bullion May Glitter, but It Does Not Yield 8% by Assumption: Profit Estimation on ₹30-Crore Turnover Set Aside u/ss 145(3) & 144B—Bangalore ITAT
Summary:
Return Selected for Low Net Profit
The assessee was an individual engaged in wholesale & retail trading of gold bullion. She filed her return for AY 2023-24 declaring total income of ₹4,11,820.
The return was selected for scrutiny to verify the low net profit disclosed from the business. Complicating matters, the nature of business mentioned in the return was “financial intermediation,” whereas the assessee subsequently explained that her actual activity was bullion trading.
The AO issued notice u/s 143(2) on 19.06.2024 & repeatedly called upon the assessee to furnish business information, books of account, bank statements, stock particulars, purchase register, details of creditors & related records.
The assessee did not furnish adequate replies. A final show-cause notice dated 28.02.2025 was issued. Certain details were submitted on 06.03.2025, but the AO considered them incomplete & insufficient.
Books Rejected & ₹2.40-Crore Profit Estimated
The AO also issued notices u/s 133(6) to various parties, but only some of them responded. Due to incomplete compliance, absence of satisfactory supporting records & uncertainty regarding the assessee’s actual business activity, the AO rejected the books u/s 145(3).
He applied a net profit rate of 8% to the reported turnover of ₹30,01,33,705 & determined business income at ₹2,40,10,696. The assessment was completed u/s 143(3) r.w.s. 144B on 18.03.2025.
Thus, an assessee who had declared total income of about ₹4.12 lakh faced an estimated business income exceeding ₹2.40 crore.
Documents Filed Before CIT(A)
In appeal, the assessee explained that complete information could not be furnished during assessment proceedings due to health problems, shifting of residence & business premises, renovation of the business premises & simultaneous audit/assessment proceedings under GST law.
Before the CIT(A), she produced the bullion purchase register, sales register, GST returns, overdraft & loan statements from Union Bank of India, old-gold purchase register, bank statements, trading account, profit & loss account, balance sheet & computation of income.
Despite the material produced, the CIT(A) upheld the rejection of books. He held that once the books had been validly rejected u/s 145(3), the AO was empowered to make a best-judgment assessment. The CIT(A) considered the estimation at 8% reasonable.
Eight Per Cent Margin Was Unsupported
Before the Tribunal, the assessee argued that the records filed before both authorities had not been examined properly. She submitted that an 8% net profit margin in bullion trading was unheard of, considering the nature of the trade, high turnover & extremely thin margins.
The Tribunal accepted that concern. It observed that although the assessee had not furnished sufficient details before the AO, the CIT(A)’s order itself recorded that purchase details, sales details, bank statements, old-gold register, trading account & profit and loss account had subsequently been filed.
The CIT(A) ought to have examined those documents or called for a remand report from the AO. Instead, he confirmed the rejection of books & the application of an 8% profit rate without explaining why that particular rate reflected the assessee’s true income.
The lower authorities did not cite any comparable bullion trader earning an 8% net profit. The Tribunal observed that bullion trading did not ordinarily yield such high margins. Therefore, the orders were unsustainable insofar as the estimation of profit was concerned.
Non-Compliance Prevented Direct Relief
Although the 8% estimate was found unjustified, the Tribunal did not accept the book results or substitute a lower profit rate.
The assessee had not produced her complete books before the Tribunal or placed sufficient material from which the correct profit could be independently determined. Her incomplete compliance before the lower authorities also remained a matter of concern.
The Tribunal observed that it should ordinarily decide an appeal on merits instead of repeatedly remanding matters. Nevertheless, the absence of the books & essential supporting information made a fresh factual examination unavoidable.
Accordingly, the entire issue was restored to the AO.
Books Must Be Examined Before Profits Are Imagined
The assessee was directed to substantiate the book results of the bullion business by producing all relevant records. The AO must examine the purchase & sales details, stock records, bank transactions, GST data & other supporting documents.
If defects are identified, the AO may determine the correct profit through a reasonable & evidence-based exercise. However, if the books do not suffer from any defect, the AO has been specifically directed to accept the book results.
The appeal was accordingly allowed for statistical purposes.
Author’s Comments
The decision reinforces that rejection of books u/s 145(3) does not give the AO unrestricted freedom to select an arbitrary profit rate. Best judgment must remain an honest estimate grounded in comparable cases, past history, industry margins & available material.
Bullion trading generally involves high turnover with narrow spreads. Importing the familiar 8% figure into such a business without commercial evidence can produce a profit estimate detached from economic reality.
At the same time, the assessee must maintain & produce complete stock, purchase, sales & banking records. Thin margins require thick documentation. Gold may be measured in purity, but taxable profit must be measured in evidence.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal is filed by Mrs. Hansa Dinesh, the assessee/appellant, against the appellate order dated 22 December 2025 passed by the National Faceless Appeal Centre, Delhi, for assessment year 2023–24. By that order, the learned CIT(A)/NFAC dismissed the assessee’s appeal against the assessment order dated 18 March 2025 passed under section 143(3) read with section 144B of the Income-tax Act, 1961, by the Assessment Unit, Income Tax Department.
2. The assessee has raised the following grounds of appeal:
1. The impugned order passed by the Commissioner of Income Tax (Appeals) [“CIT(A)”] is based on an incorrect appreciation of the facts and an erroneous interpretation of law. It is therefore bad in law and liable to be quashed.
2. The Assessing Officer [“AO”] and the CIT(A) erred in law and on facts by rejecting the books of account without properly appreciating the facts or verifying the material on record. The rejection was based merely on the alleged delay in filing certain documents/evidence, and the CIT(A) wrongly upheld the AO’s order.
3. The impugned order is self-contradictory and unclear. Although the authority recorded that the Appellant submitted documents after several notices were issued, it also alleged that the documents were incomplete. This finding contradicts the stated basis for rejecting the books of account, namely that the records were not produced for verification.
4. The order passed by the CIT(A) is not a speaking order and was passed without providing an effective opportunity of hearing.
3. Briefly stated, the assessee is an individual engaged in the business of bullion trading. She filed her return of income for assessment year 2023–24 declaring total income of ₹4,11,820. The return was selected for scrutiny to verify the low net profit disclosed in the business. The return, however, described the assessee’s activity as financial intermediation. Notice under section 143(2) was issued on 19 June 2024, and during the assessment proceedings the assessee was repeatedly asked to furnish business information, books of account, stock details, bank statements, purchase register, creditors’ details and related records. The assessee did not furnish adequate replies. A final show-cause notice dated 28 February 2025 was then issued, in response to which the assessee filed certain details; however, the learned Assessing Officer found them incomplete and insufficient. The Assessing Officer also issued notices under section 133(6) of the Act to various parties, but only some responded. Consequently, the Assessing Officer rejected the assessee’s books of account under section 145(3) of the Act, estimated net profit at 8% of turnover of ₹30,01,33,705, and determined business income at ₹2,40,10,696 by passing an assessment order under section 143(3) read with section 144B of the Act.
4. Aggrieved, the assessee preferred an appeal before the learned CIT(A). She submitted that she was engaged in wholesale and retail trading of gold bullion and that, due to health issues, shifting of residence and business premises, renovation of the business premises, and audit/assessment proceedings under GST, she could not file complete replies before the Assessing Officer. She further stated that on 6 March 2025 she submitted certain details, but the Assessing Officer nevertheless rejected the books of account. Before the learned CIT(A), the assessee filed the bullion purchase register, sales register, copies of GST returns, overdraft and loan statements with Union Bank of India, the trading and profit and loss account, balance sheet, and statement of total income.
5. The learned CIT(A) held that, once the books of account were validly rejected under section 145(3), the Assessing Officer was empowered to make a best judgment assessment. The CIT(A) further held that estimating net profit at 8% of turnover was justified having regard to the magnitude of turnover, the nature of the business, and the documents produced. Accordingly, the appeal of the assessee was dismissed.
6. Aggrieved by the order, the assessee is in appeal before us.
7. Ms. Chetana R. Hegde, learned Advocate for the assessee, vehemently submitted that the assessee had filed various details before both the learned CIT(A) and the learned Assessing Officer, but those details were not considered before rejecting the books of account. She submitted that the details filed before the learned CIT(A), and reproduced in the CIT(A)’s order, ought to have been examined for determining the assessee’s net profit after identifying any defects in the books. Without such examination, the lower authorities estimated net profit at 8%. She further submitted that, considering the assessee’s business of bullion trading, a net profit rate of 8% is unheard of. She therefore contended that the orders of the lower authorities are unsustainable, excessive, and without statutory basis.
8. The learned Departmental Representative strongly supported the orders of the lower authorities. He submitted that the assessee failed to furnish sufficient information before the lower authorities to enable proper determination of her total income. Since the return was selected for scrutiny on account of low net profit, the lower authorities were justified in rejecting the books of account.
9. We have carefully considered the rival contentions and perused the orders of the lower authorities. The assessee is stated to be engaged in bullion trading. Her return was selected for scrutiny to verify the low net profit disclosed. It was also noticed that the business mentioned in the return was financial intermediation; however, on the facts before us, we do not find that the assessee was carrying on that business. It is submitted before us that the assessee is engaged in bullion trading.
10. Admittedly, the assessee did not furnish sufficient details before the learned Assessing Officer, who therefore determined her income by applying a net profit rate of 8% to turnover. However, on reading the order of the learned CIT(A), we find that the assessee had filed purchase details, sales details, bank details, old gold purchase register, bank statements, profit and loss account, and trading account. The learned CIT(A) was also informed of the assessee’s actual business activity. Despite these facts, the CIT(A) confirmed the addition by applying an 8% net profit rate to turnover. We do not find that bullion trading ordinarily yields such high profits, nor have the lower authorities verified any comparable case showing an 8% net profit in bullion trading. In these circumstances, the orders of the lower authorities are unsustainable so far as the estimation of profit is concerned.
11. With respect to the assessee’s claim, she explained before the learned CIT(A) the reasons for not submitting complete details before the Assessing Officer. In these circumstances, the learned CIT(A) ought to have examined the details furnished or called for a remand report from the Assessing Officer. Instead, no such exercise was undertaken. The CIT(A) merely confirmed the rejection of books under section 145(3) without giving reasons as to why 8% was the appropriate profit rate in the assessee’s case. Although we are concerned about the assessee’s non-compliance before the lower authorities, we are equally concerned about the manner in which her profits were estimated without considering the nature of the business.
12. In view of the above facts, and since the assessee did not furnish complete details before the lower authorities, the judicial precedents cited before us do not assist her. The appropriate course is for the assessee to furnish proper details before the lower authorities so that her income may be assessed correctly.
13. It is true that the Tribunal should ordinarily decide the issue on merits rather than restore it to the file of the learned Assessing Officer. However, the assessee has not placed before us any material from which her profits can be determined, nor were her books of account produced for our examination. We are therefore constrained to restore the matter to the file of the learned Assessing Officer.
14. In the interest of justice, we restore the entire issue to the file of the learned Assessing Officer. The assessee is directed to substantiate the book results of her bullion trading business by producing the relevant details. The Assessing Officer shall verify those details and, after examination, determine the correct profit if any defect is found in the books of account. If, however, the Assessing Officer finds that the books of account do not suffer from any defect, he shall accept the book results of the assessee.
15. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 31st August, 2026.
