Case Law Details
Sumukha Travels Vs ITO (ITAT Bangalore)
Bengaluru ITAT: Books Cannot Be Rejected Merely for Non-Audit; 8% Profit Estimation Set Aside
The Bengaluru ITAT held that non-audit of books of account under section 44AB, by itself, is not a valid ground to reject the book results and estimate income at 8% of turnover. The assessee, engaged in the rent-a-cab business, claimed a business loss of Rs. 39.35 lakh on a turnover of Rs. 4.55 crore, explaining that fixed-rate contracts coupled with a steep rise in diesel prices and the impact of the COVID-19 pandemic had resulted in heavy losses. The Assessing Officer, however, rejected the claim and estimated the business income at 8% of turnover, primarily on the ground that the books were not audited and some expenses were supported by self-made vouchers. The CIT(A) confirmed the addition.
The Tribunal observed that failure to get the accounts audited is a separate statutory default and does not automatically justify rejection of the books or estimation of profits. It held that the Assessing Officer was required to examine whether the expenditure claimed was genuine before discarding the book results. The ITAT also noted that the assessee had not been afforded an adequate opportunity to substantiate its loss, particularly when it had attempted to file a return in response to the notice under section 148 but claimed that technical glitches prevented its acceptance. Observing that important expenses such as diesel costs could not be dismissed merely because some vouchers were self-made, the Tribunal restored the matter to the Assessing Officer with directions to verify the assessee’s claim of loss and decide the issue afresh in accordance with law. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. This appeal for Assessment Year 2020-21 is filed by M/s Sumukha Travels [ the assessee/ appellant] against the appellate order dated 20 January 2026 passed by the National Faceless Appeal Centre, Delhi. By that order, the appeal filed by the assessee against the reassessment order dated 18 March 2025, passed under section 147 read with sections 144 and 144B of the Income-tax Act, 1961, determining the assessee’s total income at ₹3,645,440, was dismissed.
2. The assessee is in appeal before us. Its grievance is that, although its turnover for Assessment Year 2020-21 was ₹4.55 crores, it suffered a loss of ₹3,935,062 due to the impact of COVID-19. Because of these losses, the return could not be filed within time and the audit under section 44AB could not be completed for the year. The Assessing Officer reopened the assessment by issuing notice under section 148 of the Act on 23 February 2024. According to the assessee, because of technical glitches, the assessment was thereafter completed by estimating income at 8% of gross receipts. The assessee contends that the assessment order, as confirmed by the CIT(A), is not sustainable in law.
3. Briefly stated, the assessee is a partnership firm that did not voluntarily file its return of income for the relevant assessment year. The case was therefore reopened by issuing notice under section 148 of the Act on the ground that income of ₹27,439,090 had escaped assessment. This was because tax had been deducted at source by various parties, but the corresponding income was neither reported nor claimed in any return. The assessee did not respond to the notice under section 148 by filing a return. Notices under sections 143(2) and 142(1), along with a show-cause notice, were then issued. The Assessing Officer observed that the assessee had gross receipts of ₹27,439,090 from various sources, exceeding the basic exemption limit, and was required to file its return within the time prescribed under section 139. The assessee’s books showed a loss of ₹3,935,066 against aggregate receipts of ₹45,568,000. Since various expenses were supported by self-made vouchers and the assessee had not got its accounts audited under section 44AB despite substantial receipts, the Assessing Officer held that the loss was unreliable and proposed to estimate income at 8% of total receipts.
4. In reply, the assessee submitted that it is a partnership firm engaged in providing rent-a-cab services. It was constituted on 22 March 2018, and the relevant financial year was its first year of business. The assessee stated that it incurred substantial losses, and that the business was ultimately closed after the onset of the pandemic. It explained that it had entered into fixed-rate contracts with companies for providing transport services to their staff. Diesel prices, which touched an all-time high of ₹69.35 per litre on 29 May 2018, substantially increased its operating costs and resulted in heavy losses. The Assessing Officer, however, noted that no return had been filed in response to the notice under section 148, that the assessee had reported a loss despite substantial receipts, and that its accounts had not been audited. He therefore estimated business income at 8% of gross receipts of ₹45,568,000, resulting in total income of ₹3,645,440, as against the loss claimed by the assessee. The reassessment order was passed on 18 March 2025.
5. Aggrieved by the reassessment order, the assessee preferred an appeal before the CIT(A). The CIT(A) rejected the assessee’s contention that the return in response to the notice under section 148 could not be filed due to technical glitches, observing that the assessee had not filed its original return under section 139(1) within time, well before the alleged glitches in 2024. On the estimation of income at 8%, the CIT(A) noted that ledgers, bills, vouchers, and bank statements had not been furnished before the Assessing Officer to substantiate the claimed loss. He therefore held that the Assessing Officer was justified in estimating profit at 8% of turnover. The assessee’s other claims for deductions were also rejected, and the appeal was dismissed.
6. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. We have heard Shri Dinesh Kumar Joshi, Chartered Accountant, for the assessee, and Shri Ganesh R. Ghale, Standing Counsel for the Department, for the Revenue.
7. We have considered the rival submissions. The assessment order was passed under section 147 of the Act on 18 March 2025. The assessee submitted that it could not furnish the return in response to notice under section 148 because of technical glitches and produced screenshots in support. The lower authorities rejected this explanation on the ground that the assessee ought to have filed its original return within the time prescribed under section 139, and its failure to do so led to the reopening of the assessment. The return sought to be filed in response to notice under section 148 showed a loss of ₹3,935,066 against aggregate receipts of ₹45,568,000. The assessee explained that the loss arose because it had entered into fixed-rate rent-a-cab contracts while diesel prices had risen sharply, increasing operating costs. Although the assessee did not get its books audited, that is a separate matter under the Act. Merely because the books were not audited, the book results could not be rejected and profit estimated at 8% unless the assessee failed to substantiate the expenditure claimed against the income earned. The assessee did not receive an adequate opportunity before the lower authorities to explain its claim, as the original return was not filed and the return attempted under section 148 was not considered. The claim was also rejected on the ground that expenses were supported by self-made vouchers. Even if some vouchers were self-made, the assessee should be given an opportunity to explain its case. In particular, diesel expenditure could not have been incurred merely on self-made vouchers. Since the assessee’s receipts were subject to tax deduction at source by various parties, relevant information was available to the Assessing Officer to estimate income if the assessee failed to support its claim of loss.
8. In view of the above, we restore the matter to the file of the Assessing Officer with a direction to the assessee to substantiate the claimed loss of ₹3,935,066. The Assessing Officer shall examine the claim and decide the issue afresh in accordance with law.
9. In the result, the appeal filed by the assessee is allowed as indicated above.
Order pronounced in the open court on 29th June 2026
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