Ankit Goyal Vs ITO (ITAT Chandigarh)
GST Turnover Is Not Automatically Your Turnover: ₹1.98 Crore Addition to Commission Agent Deleted
Agency Sales Cannot Be Taxed as the Agent’s Own Sales
The Chandigarh Bench of the Income Tax Appellate Tribunal deleted an addition of ₹1,97,95,032 arising from rejection of books and estimation of income at 8% of turnover appearing in GSTR-9C.
The assessee carried on both trading on his own account and commission agency business as a Kachha Arhatia. The Tribunal held that sales made on behalf of principals could not automatically be treated as his own turnover merely because they appeared in the GST reconciliation statement.
Since the turnover difference had been explained, no specific defects in the books were identified, and the 8% estimate lacked supporting material, the AO was directed to accept the returned income.
GST Figures Triggered a Substantial Addition
The assessee was engaged in commission agency relating to agricultural produce and also undertook independent trading. He filed his return declaring income of ₹7,82,530.
The case was selected for scrutiny, among other reasons, because of a difference between turnover reported in the income-tax return and GSTR-9C, as well as high-value cash withdrawals.
The AO noted turnover of approximately ₹6.64 crore in the return, compared with ₹25,72,19,520 in GSTR-9C. He was dissatisfied with the correctness and completeness of the books and invoked Section 145(3).
Treating the entire GST figure as the assessee’s turnover, the AO estimated income at 8%, arriving at ₹2,05,77,562. After deducting the income already declared, he made the disputed addition of ₹1,97,95,032.
The CIT(A) upheld the rejection of books and the estimation.
Two Activities Required Two Different Treatments
Before the Tribunal, the assessee explained that he was a licensed Kachha Arhatia, earning commission or “dami” on agricultural produce sold on behalf of principals.
His business therefore involved two distinct activities: sales undertaken on his own account and sales effected as a commission agent.
According to his explanation, the agency sales appeared in the GST returns, but they did not represent his own trading turnover for income-tax purposes. His earnings from those transactions were the commission received, rather than the gross value of the principals’ produce sold.
The Tribunal held that the discrepancy had to be examined in light of this business structure. A comparison of headline figures, without examining the underlying transactions, was insufficient.
Detailed Reconciliation Explained the Difference
The assessee furnished a reconciliation showing that, out of GST turnover of approximately ₹25.72 crore, about ₹18.89 crore represented sales effected on behalf of principals.
The remaining approximately ₹6.83 crore was reconciled with his own trading sales of about ₹6.63 crore, commission income of ₹18.78 lakh, and intraday trading profit of approximately ₹0.58 lakh.
The Tribunal specifically noted that this was not merely a general explanation. It separately identified agency sales and reconciled the balance with the audited financial records.
The complete reconciliation had already been furnished before the lower authorities. Supporting records identified in the paper book included the Kachha Arhatia licence, GSTR-9C, GSTR-3B, month-wise GSTR-1 reconciliation, commission ledger and agency-sales ledger.
CBDT Circular Supported the Agency Distinction
The assessee relied upon CBDT Circular No. 452 dated 17 March 1986, which explains the distinction between a Kachha Arhatia and a Pucca Arhatia.
The Tribunal accepted that, in the case of a Kachha Arhatia, sales effected on behalf of principals do not form part of the agent’s turnover; the relevant agency receipt is the gross commission.
Consequently, the assessee’s explanation could not be rejected merely by comparing the gross GSTR-9C figure with turnover reported in the income-tax return.
The character of the transactions mattered. The presence of agency sales in GST reporting did not convert them into sales undertaken by the assessee on his own account.
No Specific Defect, No Sustainable Rejection
The Tribunal held that rejection under Section 145(3) required identification of a defect affecting the correctness or completeness of the books.
Here, no specific defect had been pointed out in purchases, sales, stock, expenses or other accounting entries. The principal basis for rejection was the turnover difference, which the assessee had explained through reconciliation and supporting records.
The Tribunal therefore found the rejection of books unsustainable.
It also held that the AO’s 8% estimate had no sound basis. No comparable case, past history of the assessee or other supporting material had been brought on record.
Both the rejection of books and consequential estimation were set aside, and the appeal was allowed.
Author’s Comments
The decision provides a useful answer to assessments built around GST turnover mismatches without examining the business model. A commission agent may report transaction values that include sales belonging to principals. Those figures require reconciliation before they can support an income-tax addition.
However, the ruling does not establish that GST turnover is irrelevant or that every difference must be accepted. The assessee succeeded because the agency relationship, separate transaction records and detailed reconciliation supported his explanation.
Equally, his independent trading sales remained part of his own turnover. The agency exclusion applied to sales made on behalf of principals.
The other practical message is clear: 8% cannot become a default estimate merely because the AO rejects the books. In this case, neither the rejection nor the chosen percentage had an adequate factual foundation.
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
1. Aforesaid appeal by assessee for Assessment Year (AY) 2023-24 arises out of an order of Commissioner of Income Tax (Appeals), NFAC [CIT(A)] dated 13.01.2026 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s 143(3) r.w.s 144B of the Income Tax Act on 09.03.2025. In the assessment order, Ld. AO rejected books of account u/s 145(3) and estimated profit of 8% on sales reported to GST in Form GSTR-9C.
2. The assessee has raised various grounds challenging, in substance, the confirmation of impugned estimation of Rs.1,97,95,032/- as made by the Assessing Officer after rejecting the books of account u/s 145(3). The assessee has also challenged the finding regarding mismatch of turnover. Since the grounds are inter-connected, they are taken up together.
3. The brief facts are that the assessee is engaged in the business of commission agency in agricultural produce and also carries on trading business on his own account. The assessee filed his return of income for the year under consideration declaring income of Rs.7,82,530/-. The case was selected for scrutiny, inter alia, on account of difference between the turnover reported in the income-tax return and the turnover appearing in GSTR-9C and also on account of high-value cash withdrawals.
4. During the assessment proceedings, the Assessing Officer noticed that the assessee had shown turnover of about Rs.6.64 crore in the return whereas the turnover reflected in GSTR-9C was Rs.25,72,19,520/-. The Assessing Officer was not satisfied with the correctness and completeness of the books of account and invoked the provisions of Sec. 145(3). He thereafter adopted the turnover of Rs.25,72,19,520 and estimated profit thereon at 8%, resulting in income of Rs.2,05,77,562. After reducing the income of Rs.7,82,530 already declared by the assessee, an addition of Rs1,97,95,032 was made by Ld. AO.
5. The assessee carried the matter in appeal before the learned CIT(A). As stated in the material placed before us, the learned CIT(A) was not satisfied with the explanation regarding reconciliation of turnover and upheld the action of the Assessing Officer in rejecting the books and estimating income at 8%. The appeal was accordingly dismissed.
6. Before us, the Ld. AR submitted that the basic premise adopted by the lower authorities is factually incorrect. It was submitted that the assessee is a licensed Kachha Aartia and acts as a commission agent in respect of agricultural produce. According to Ld. AR, the sales affected on behalf of the principals are required to be reflected in the GST returns, whereas for income-tax purposes, such sales do not constitute the assessee’s own turnover and the assessee earns only commission / dami there from.
7. The Ld. AR drew our attention to the reconciliation furnished by the assessee. In this reconciliation, turnover as per GSTR-9C was Rs.25.72 Crores out of which Rs.18.89 Crores represent sales affected on commission basis on behalf of the principals. The balance comes to Rs.6.83 Crores. This amount was reconciled with trading sales of Rs.6.63 Crores, Commission income of Rs.18.78 Lacs and intra-day trading profit of Rs..58 Lacs. Thus, according to the assessee, there remained no unreconciled difference.
8. It has further been submitted that the assessee acted as a Kachha Arhatia and its books of accounts were duly audited. No specific defect has been found in the books, vouchers, stock records or ledgers. The assessee also relied upon CBDT Circular No. 452 dated 17.03.1986 to contend that, in the case of a Kachha Arhatia, sales effected on behalf of the principals are not to be treated as his turnover and only the gross commission is relevant. The said circular has been placed in the paper book. The Ld. Sr. DR relied upon the orders of lower authorities.
9. We have heard the rival submissions and perused the material available on record. The short issue for consideration is whether, merely on account of the difference between the turnover reflected in GSTR-9C and the turnover recorded in the assessee’s books, the entire turnover appearing in GSTR-9C could be treated as the assessee’s own turnover and profit thereon estimated at 8%.
10. In our considered view, the matter has to be examined having regard to the nature of the assessee’s business. The assessee’s specific case is that he carries on two types of activities i.e., trading on his own account and commission agency as a Kachha Aartia. The assessee has furnished a reconciliation explaining the difference between the GST turnover and the turnover appearing in the books. The reconciliation furnished before us is not merely a general explanation. It gives the figures of the agency sales separately and seeks to reconcile the balance with the audited books. The reconciliation would show that out of GST turnover of Rs.25.72 Crores, the agency sales are Rs.18.89 Crores leaving a balance of Rs.6.83 Crores. The same matches with the trading sales, commission income and intraday trading profit as reflected in financial books of accounts. The complete reconciliation to that effect was already been filed by the assessee before lower authorities. The written submissions also identify the supporting documents in the paper book which include Kachha Arhatia licence, turnover reconciliation, GSTR-9C, GSTR-3B, month-wise GSTR-1 reconciliation, commission ledger and agency-sales ledger etc.
11. On these facts, we concur that books could not be rejected u/s 145(3). Before rejecting the books, some defect affecting their correctness or completeness has to be established. In the present case, as per the material placed before us, no specific defect has been pointed out in the purchases, sales, stock, expenses or other entries in the books of account. The principal basis for rejection of the books is the difference with the turnover appearing in GSTR-9C. The CBDT Circular No. 452 dated 17.03.1986 also explains the distinction between a Kachha Arhatia and a Pucca Arhatia. In case of Kachha Arhatia, sales affected on behalf of the principals do not form part of assessee’s turnover and only the gross commission is to be considered in the books. The assessee’s explanation, therefore, could not have been rejected merely by comparing the gross figure appearing in GSTR-9C with the turnover in the income-tax return without examining the character of the underlying transactions.
12. There is another important aspect. The Ld. AO has applied GP rate of 8% without bringing on record any comparable case, past history of the assessee or any other material to support this estimation. Even the estimation of Ld. AO does not have any sound basis.
13. Therefore, the rejection of books u/s 145(3) and the consequential estimation of income at 8% could not be sustained. The Ld. AO is directed to accept the returned income of the assessee.
14. The appeal stand allowed.
Order pronounced on 06.10.2026
