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Income Tax

Income Estimation in Circular Trading Fails Without Incriminating Evidence

Case Law Details

TaxGuru Citation
2026 taxguru.in 402
Case Name
Subhkaran & Sons Vs DCIT (ITAT Mumbai)
Date of Judgement/Order
Only available for paid members
Related Assessment Year
2017-18
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Subhkaran & Sons Vs DCIT (ITAT Mumbai)

ITAT Mumbai: Estimation of Income in Alleged Circular Trading—Additions Deleted for Lack of Evidence

The Mumbai ITAT (C Bench) dealt with cross-appeals by Subhkaran & Sons and the Revenue for AYs 2013-14 to 2017-18 arising from search assessments under section 153A. The Assessing Officer alleged accommodation/circular trading using LC facilities and, after rejecting books under section 145(3), estimated additional income at 7% of turnover. The CIT(A) partly allowed relief by restricting the addition to 0.5% of sales, holding that regular trading profits were already accounted for and that any further income, if at all, could only be modest.

On further appeal, the Tribunal deleted even the 0.5% estimation, relying heavily on a coordinate bench decision in Duli Trade Commodities Pvt. Ltd. arising from the same search. The ITAT held that:

  • There was no incriminating material or evidence of cash receipts found during search.
  • Statements recorded did not establish any extra-book cash consideration.
  • The alleged commission was already embedded in the profits disclosed in audited books.
  • Conjectural estimation without identifying the payer or cash trail is unsustainable.
  • Industry margins are thin; a higher presumptive commission is commercially illogical.

Accordingly, the Tribunal allowed all appeals of the assessee and dismissed all Revenue appeals, deleting additions across all years; jurisdictional grounds were left open as academic.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

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Author Info

CA Vijayakumar Shetty
Qualification: CA in Practice
Company: Shetty & Co, Chartered Accountants, Mangalore
Location: Mangalore, Karnataka
Articles Published: 6,879

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