12.5% Profit on Bank Credits Excessive, Restricted to 4%: ITAT Hyderabad

Prabakar Reddy Vs ITO (ITAT Hyderabad)

ITAT Hyderabad: 12.5% Profit Estimation on Bank Credits Excessive; Income Restricted to 4% in Absence of Evidence

In this case, the assessee, engaged in facilitating sale of bananas, faced reassessment where the AO treated entire bank credits of ₹2.52 crore as turnover and estimated profit at 12.5%, making an addition of ₹26.58 lakh over the income already declared. The CIT(A) upheld the addition.

Before the ITAT, the assessee contended that he was merely a commission agent and the bank credits represented pass-through amounts belonging to farmers, not his turnover. However, the Tribunal noted that no supporting evidence such as confirmations, agreements, or documentation was furnished to substantiate this claim.

While rejecting the commission agent argument due to lack of proof, the ITAT held that estimation of profit at 12.5% was arbitrary and excessive, especially without any comparable cases or material on record. Relying on earlier Tribunal decisions in similar fruit/vegetable trade, it held that a reasonable profit rate would be 4%.

Accordingly, the Tribunal directed the AO to estimate income at 4% of total bank credits, granting partial relief to the assessee.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD

This appeal is filed by Shri Prabakar Reddy Yarrabolu (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 06.01.2025 for the A.Y.2017-18.