Case Law Details
Rajesh Trading Company Vs CIT(A)/NFAC (ITAT Pune)
Gross Profit Addition Reduced to 2% Considering Past Scrutiny Records and Comparable Cases: ITAT Pune
The assessee, a partnership firm engaged in wholesale trading of tobacco and non-tobacco products of ITC Ltd., appealed against the order of the National Faceless Appeal Centre dated 24.09.2025 for Assessment Year 2017-18. The return declaring income of Rs.6,00,390 was selected for complete scrutiny. During assessment under Section 143(3), the Assessing Officer found shortcomings including non-maintenance of quantitative records, non-production of sale bills, and certain expenses not being accounted for in the regular books. The books of account were rejected, and Gross Profit was estimated at 4.5% on turnover of approximately Rs.38.49 crore, resulting in an addition of Rs.1,23,89,791. A further addition of Rs.1,00,38,987 for suppressed business income was also made.
In appeal, the CIT(A) deleted the addition for suppressed business income but sustained the rejection of books of account. On the issue of Gross Profit estimation, the CIT(A) reduced the Gross Profit rate from 4.5% to 3%, sustaining an addition of Rs.66,16,838. The assessee challenged the rejection of books and the Gross Profit rate before the Tribunal.
The assessee submitted that the books were regularly maintained following the customary practice in the trade and argued that the Gross Profit rate should be determined considering the results of the assessee and sister concerns, where the Gross Profit had consistently remained below 2%. The Revenue supported the order of the CIT(A), contending that quantitative details were not maintained and the books were properly rejected.
The Tribunal held that the Assessing Officer had rightly rejected the books of account, noting shortcomings in maintenance of books, absence of quantitative details, and unaccounted expenses. Accordingly, it found no reason to interfere with the CIT(A)’s finding on rejection of books.
On the Gross Profit issue, the Tribunal observed that the Assessing Officer had not cited comparable cases for applying a 4.5% rate. It considered the Gross Profit and Net Profit chart of the assessee and sister concerns, including Bombay Stores, Bombay Cigarette Centre and Poona Cigarette Centre, where Gross Profit ranged from 1% to 1.96%. The Tribunal also noted that the assessee had been in the same business for many years and that Gross Profit and Net Profit declared in earlier scrutiny assessments had generally been accepted. Considering these factors, it held that a Gross Profit rate of 2% was appropriate instead of 3% sustained by the CIT(A). The Gross Profit was estimated at Rs.76,97,271, and after reducing the Gross Profit declared by the assessee at Rs.49,29,069, the addition was restricted to Rs.27,68,202. The appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT PUNE
The captioned appeal at the instance of assessee pertaining to A.Y. 2017-18 is directed against the order dated 24.09.2025 of National Faceless Appeal Centre, Delhi passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of Assessment Order dated 30.12.2019 passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. Brief facts of the case are that the assessee is a partnership firm engaged in the business of wholesale trading in Tobacco and Non tobacco products exclusively of ITC Ltd. Income of Rs.6,00,390/- declared in the return of income for A.Y. 2017-18 e-filed on 31.10.2017. Case selected for Complete scrutiny under CASS for “Large increase in unsecured loans during the year and large value cash deposit during demonetization period”. Valid statutory notices issued. During the course of assessment proceedings, ld. Assessing Officer examined the books of account and found certain shortcomings mainly for non-maintenance of quantitative record, copies of sale bills not provided, certain expenses were not accounted for in the regular books of account based on which ld. Assessing Officer rejected the book results and calculated Gross Profit of Rs.1,73,18,860/- @4.5% on the total turnover of the assessee at Rs.38.49 crore (approx.) and after reducing the gross profit declared by the assessee at Rs.49,44,575/- the remaining amount of Rs.1,23,89,791/- has been added in the hands of assessee. Ld. Assessing Officer also made addition for supressed business income at Rs.1,00,38,987/- and assessed the income at Rs.2,30,29,170/-.
3. Aggrieved assessee preferred appeal before ld.CIT(A) and partly succeeded as the addition for supressed business income was deleted. On the issue of estimation of Gross Profit rate, ld.CIT(A) gave part relief by applying Gross Profit @3% as against 4.5% applied by the Assessing Officer thereby sustaining the addition of Rs.66,16,838/-. Now the assessee is in appeal before this Tribunal against the part relief granted by ld.CIT(A) raising following grounds of appeal :
“1. On the facts and in the circumstances of the case and in law the Commissioner of Income-tax (Appeals)’ erred on confirming the rejection of books of account of the appellant without appreciating the age-old customary procedure followed in this line of business. In view of the facts and circumstances of the case, the book results may be accepted at this stage and relief be granted to the appellant.
2. On the facts and in the circumstances of the case and in law the Commissioner of Income-tax (Appeals)’ erred in estimating gross profit percentage at 3% without any cogent evidence and keeping an addition of Rs. 66,16,838/- in the income of the appellant. The Appellant prays that the addition of Rs. 66,16,838/- made in respect of GP be deleted. In view of the facts and circumstances of the case, the addition is uncalled for and be deleted at this stage and relief be granted to the appellant.
3. Relief allowable under the law in addition to the ground of appeal made above may be allowed to the appellant.
4. That the appellant prays, leave to amend, alter, add and/or withdraw any ground of appeal as and when the occasion arises.”
4. So far as ground No.1 is concerned, ld. Counsel for the assessee submitted that books of account are regularly maintained and same procedures are followed and therefore ld.CIT(A) erred in confirming the rejection of books of account. As regards application of Gross Profit @3% is concerned, she made reference to the other sister concerns and the Gross Profit and Net Profit chart for the sister concerns clearly showing that the Gross Profit has never gone above 2% and it has been consistently held that if the same business is carried out then for estimating the profits the Gross Profit rate applied for the preceding years should be taken into consideration.
5. On the other hand, ld. DR supported the order of ld.CIT(A) and submitted that the books of account were not properly maintained. No quantitative details were filed and therefore ld.CIT(A) has rightly given major relief to the assessee adopting Gross Profit @3% which deserves to be sustained on the facts of the instant case.
6. We have heard the rival contentions and perused the record placed before us. So far as rejection of books of account, we have gone through the assessment order as well as the finding of ld.CIT(A) and find that certainly there are certain shortcomings in the maintenance of regular books of account, quantitative details are not maintained and certain expenses are also found unaccounted therefore ld. Assessing Officer has rightly rejected books of account and therefore finding of ld.CIT(A) needs no interference on this aspect.
7. So far as Ground No.2 is concerned which relates to application of Gross Profit rate, we observe that ld. Assessing Officer applied 4.5% which has been scaled down to 3% by ld.CIT(A). Though ld. Assessing Officer has not given any other comparable for applying the Gross Profit @4.5%, before us ld. Counsel for the assessee has given reference to the Gross Profit and Net Profit rates chart of self, other sister concerns namely Bombay Stores, Bombay Cigarette Centre, Poona Cigarette Centre etc. On going through all these details, we notice that the Gross Profit rate is ranging from 1% to 1.96%. Admittedly, the assessee is into this business trade for past many years and the assessee has been subjected to scrutiny proceedings for past many years where majorly Gross Profit and Net Profit rates declared by the assessee have been accepted. Considering the trend of Gross Profit and Net profit rate of the assessee and sister concerns of assessee, we deem it appropriate to apply Gross Profit of 2% on the gross turnover of the assessee as against 3% sustained by ld.CIT(A). Accordingly Gross Profit of the assessee for the year is estimated at Rs.76,97,271/- and after reducing the Gross Profit declared by the assessee at Rs.49,29,069/-, addition is sustained at Rs.27,68,202/-. Assessee get part relief. Ground of appeal No.2 raised by the assessee is partly allowed.
8. Remaining grounds raised by the assessee are general in nature which do not warrant any adjudication.
9. In the result, the appeal of the assessee is partly allowed.
Order pronounced on this 02nd day of July, 2026.
Author Bio
