ITO Vs Singhal Securities Private Limited (ITAT Delhi)
Summary: ITO and Singhal Securities Private Limited filed cross appeals against the NFAC order dated 20.02.2026 for AY 2017-18 arising from the assessment order dated 11.12.2019 under section 143(3). The assessee had declared a loss of Rs.33,37,792/- and its case was selected for scrutiny due to high revenue from operations and absence of scrutiny in the preceding five assessment years. The Assessing Officer rejected the books of account, estimated gross profit at 2% of turnover of Rs.205.43 crore and made an addition of Rs.4.10 crore. The CIT(A) upheld rejection of the books but restricted the gross profit rate to 0.5% of turnover. Before the Tribunal, the assessee challenged the applicability of section 144B and the estimation of profit. The Tribunal held that section 144B did not apply to the assessment in question and that mandatory notices under sections 143(2) and 142(1) had been issued. On the profit estimation issue, the Tribunal noted that the assessee relied on a 560-page paper book containing information concerning its share trading activity, accounting and reporting, while the lower orders were silent on substantial evidence. The Tribunal held that expenses and turnover ratio or absence of corresponding credit entries could not, considering the nature of the assessee’s business, form the basis for rejection of books. It further held that the profit estimation lacked methodical reasoning and was unsupported by past accepted trading results or a proper understanding of the business. Relying on State of Kerala v. C. Velukutty, (1966) 60 ITR 239 (SC), the Tribunal held that estimation could not be based on pure guesswork or caprice. The addition was therefore deleted in full. The assessee’s appeal was allowed and the Department’s appeal was dismissed.
