Atul Mohan Bhandari Vs DCIT (ITAT Pune)
Case Summary: The present case arose from an assessment order passed under Section 143(3) read with Section 144B of the Income-tax Act, 1961 for Assessment Year 2023-24, wherein the assessee, engaged in the business of manufacturing automotive tubular components, CNC machining, steel tube cutting and trading of steel tubes, had declared a total income of Rs. 4.74 crore.
The case was selected for complete scrutiny primarily on account of an alleged mismatch between the turnover reported in the Income Tax Return and the turnover disclosed in GSTR-9C. During the assessment proceedings, the Assessing Officer issued notices under Section 133(6) to various sundry creditors. Based on the replies received from certain parties and non-response from others, the AO observed discrepancies in creditors’ balances and rejected the books of account. Thereafter, without disproving the correctness of the books through any independent inquiry, the AO estimated the assessee’s net profit at 7.5% by relying upon general market information and made an addition of Rs. 3.61 crore as additional business income.
Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) confirmed the addition. Thereafter, the assessee filed a further appeal before the Income Tax Appellate Tribunal, Pune Bench.
Advocate Sachin P. Kumar, appearing on behalf of the assessee, contended that the Assessing Officer had relied upon replies received under Section 133(6) without furnishing copies of the same to the assessee despite a specific request. It was further argued that adverse conclusions were drawn solely on the basis of third-party information without providing an opportunity to rebut or verify the material, thereby violating the principles of natural justice. It was also submitted that the estimation of profit at 7.5% was arbitrary, unsupported by any comparable cases or documentary material, and merely based on vague market information which was never shared with the assessee.
Upon considering the facts and the legal position, the Tribunal observed that although the Assessing Officer had relied upon replies received under Section 133(6), copies of such replies were admittedly not supplied to the assessee. The Tribunal held that when any third-party material is proposed to be used against an assessee, the same must necessarily be furnished so as to enable an effective rebuttal. The Tribunal further observed that the AO had merely referred to prevailing industry profit margins while estimating profit at 7.5%, but failed to place on record or provide the supporting material relied upon for such estimation.
Final Judgement/ Outcome:
The Hon’ble ITAT, Pune held that the failure of the Assessing Officer to furnish the replies received under Section 133(6) and the documents relied upon for estimating profit constituted a clear violation of the principles of natural justice. Accordingly, the Tribunal set aside the assessment order and restored the matter to the file of the Assessing Officer with directions to furnish all relied-upon material, provide adequate opportunity of hearing to the assessee, and thereafter pass a fresh order in accordance with law. While the Tribunal upheld the finding that the CIT(A) had granted adequate opportunity of hearing, it refrained from examining the merits of the addition in view of the remand.
This decision reiterates the settled principle that no adverse inference can be drawn on the basis of third-party information without first supplying the material to the assessee and affording a meaningful opportunity to explain or rebut the same. It also underscores that estimation of profits must rest on objective material rather than generalized assumptions or undisclosed market information.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This is an appeal filed by theassessee against the order of the Learned Commissioner of Income Tax (Appeals), (NFAC) [Ld.CIT(A)], passed u/s. 250 of the Income Tax Act, 1961 (‘the Act’) for AY 2023-24 on 16.08.2025, emanating from the Assessment Order u/s 143(3)r.w.s. 144B of the Act, dated26.03.2025.
2. The assessee has raised the following grounds of appeal :
“1. That, on the facts and circumstances of the case, the order of the Ld. CIT (A), NFAC is arbitrary, erroneous, contrary to law and is opposed to the principles of natural justice, equity and fair play.
2. That, on the facts and in the circumstances of the case, the Ld. CIT (A), NFAC has passed the order u/s 250 without granting sufficient opportunity of being heard and thus violating the principles of “audi alteram partem.”
3. That, on the facts and in the circumstances of the case, the Ld. CIT (A), NFAC has passed the order u/s 250 without application of mind and without observing the principles of natural justice.
4. That, having regards to the facts and circumstances of the case and in law, the Ld. CIT (A), NFAC has erred in law and on facts in not appreciating the submissions made and documentary evidences submitted against the additions made by the Ld. AO.
5. That, in regard to the facts and circumstances of the case and in law, the Ld. CIT (A), NFAC has erred in simply upholding the impugned assessment order on the ground of the appellant’s failure to produce supporting documentary evidences during the assessment proceedings and the same may kindly be treated as void ab initio.
6. That, having regards to the facts and circumstances of the case and in law, the Ld. CIT (A), NFAC has erred in not appreciating the contention of the appellant that while passing the impugned assessment order, the Ld. AO has failed to highlight any defect in the submissions like purchase and sales register, bank statements, stock turnover, etc., in the books of accounts of the appellant and merely rejected the books of accounts on the basis of variations in third-party data, without disproving the correctness of the books.
7. That, having regard to the facts and circumstances of the case and in law, the Ld. CIT (A), NFAC has failed to appreciate the judicial precedents cited by various Honourable Courts and Tribunals which states that mere variations in third party data, without disproving the correctness of the books, cannot form the sole basis for rejection u/s 145(2) of the IT Act.
8. That, on the facts and circumstances of the case and in law, the Ld. CIT (A), while passing the impugned appellate order has failed to appreciate the contention of the appellant that adverse inferences could not be drawn solely on the basis of non-response from third parties to notices u/s 133(6) of the IT Act, without confronting the appellant, with such material and without granting the appellant an opportunity to cross verify the same and submit the documentary evidences in this regard.
9. That, the Ld. CIT (A), NFAC has erred in passing the impugned appellate order, thereby upholding the impugned assessment order and confirming the addition of Rs. 3,61,80,370 as business income which was made on the basis of figment of imagination and in absence of any cogent material.
10. That, the Ld. CIT(A), NFAC has erred in confirming the arbitrary act of the AO in estimating 7.5% profit without any basis and adding the difference amount as additional business income.
11. That, the Ld. CIT(A), NFAC has erred in passing the impugned order in a mechanical way highlighting the assessment order and submissions of the assesse without bringing any reasoning to the same and has grossly erred in passing a non-speaking order.
12. That, the Ld. CIT (A), NFAC, has erred in passing the impugned appellate order without verifying the facts and without calling for a remand report from the Ld. AO in respect of the addition so made.
13. That, the appellant may kindly be allowed to add, alter or modify any other points to the grounds of appeal at any time before or at the time of hearing.
14. That, the aforesaid grounds of appeal are without prejudice to each other.
15. Any other order in the interest of justice may kindly be passed.”
3. The brief facts as emanating from the submission of the assessee are as under :
“1. The assessee, Atul Mohan Bhandari bearing PAN: ABNPB2341K is an individual and is engaged into the business of manufacturing automotive of tubular components, job work and CNC machining and steel tube cutting and also trading of steel tubes.
2. The assessee had filed his return of income for AY 2023-24 pertaining to FY 2022-23 on 31.10.2023 declaring total income of Rs. 4,74,06,090/-.
3. The case of the assessee was selected for complete scrutiny for the alleged ground that the assessee has shown substantially lower turnover in ITR in comparison to turnover shown in GSTR 9C return filed by the assessee and the assessee has filed certain specific new business codes including Other Services (21000 series) and have shown very low profit in comparison to total revenue from operations.
4. During the course of the impugned assessment proceedings, the assessee was in receipt of various notices to which the assessee had made detailed submissions and had reproduced all the relevant documentary evidences.
5. In this regard, the assessee was in receipt of notice u/s 142(1) of the IT Act dated 01.10.2024 wherein the Ld. AO had sought various documents from the assessee. In response to the said notice, the assessee had submitted a response on 15.10.2024 and various documents were attached with the said submission such as Axis Bank Statement for the period 01.04.2022 to 30.06.2022, Capital Ledger of Shubham Industries for the period 01.04.2022 to 31.03.2023, GST Returns, Form GSTR 9C (Reconciliation Statement), Party Ledger Detailed Report, from 01.04.2022 to 31.03.2023, a copy of ITR for AY 2021-22, details of unsecured loans and interest paid for the year 2022-23 and the details of all the bank accounts for FY 2022-23.
6. Further, the assessee had submitted a second reply on the same date i.e., 15.10.2024 wherein the assessee had furnished the other relevant documentary evidences such as Form 3CB and Form 3CD, a ledger detailing the block of assets of Shubham Industries, Service Expenses Bills, Plant and Machinery Fixed Assets Bills, Furniture and Fixtures Fixed Assets Bills, Computer Fixed Assets Bills, Rent Bills, details of purchases from Amar Industries, Rent Bills from Sudhanshu Industries, etc. A copy of acknowledgement of the said response is hereby attached with this paper book for your Honour’s kind consideration.
7. Furthermore, the assessee had submitted a third response on 16.10.2024 wherein the assessee had submitted the bank statement of Standard Chartered Bank from 01.04.2022 to 31.03.2023, Profit and Loss Account and Balance Sheet of Shubham Industries as on 31st March 2023, Tax Invoices of Tata Steel, Ledger account of Purchase of Raw Material in the books of Shubham Industries, Ledger account of Loading and Unloading Charges, etc. A copy of the acknowledgement of the said response is hereby attached with this paper book for your Honour’s kind perusal.
8. Subsequently, the Ld. AO had issued a notice u/s 142(1) of the IT Act dated 03.02.2025 wherein the assessee was required to furnish various documents and in response to the said notice u/s 142(1) of the IT Act, the assessee had furnished a reply on 06.02.2025 along with various relevant documents like purchase register for the period 01.04.2022 to 30.09.2022, purchase register for the period 01.10.2022 to 31.03.2023, month-wise closing stock for the FY 2022-23, copies of invoices of consumables for the FY 2022-23 and invoices of labour charged incurred during the year under consideration. A copy of the acknowledgement of the said response is hereby attached with this paper book for your Honour’s kind reference.
13. However, without appreciating the said submissions made by the assessee and without considering the documentary evidences furnished in this regard, the Ld. AO had passed the impugned assessment order on 26.03.2025 u/s 143(3) r.w.s. 144B of the IT Act wherein the Ld. AO had determined the total income of the assessee at Rs. 8,35,86,460/- against the returned income of Rs. 4,74,06,090/- and had made an addition of Rs. 3,61,80,370/- on account of business income by estimating profit margins at 7.5%. Total profit at 7.5% of gross sales of Rs. 1,10,30, 14,277/- was calculated at Rs 8,27,26,070/- From the same, net profit of Rs. 4,65,45,700/- already declared by the assessee was reduced and final addition of Rs 3,61,80,370/- was made, for the year under consideration.
14. Being aggrieved by the so passed impugned assessment order, the assessee had preferred an appeal before the Honourable Commissioner of Income Tax (Appeals) vide appeal dated 05.05.2025 and consequently, the assessee was in receipt of notice u/s 250 of the IT Act wherein the assessee was required to furnish ground-wise written submissions along with the supporting documentary evidences.”
4. In this case, the assessee is in the business of manufacturing of automotive of tubular components, job work and CNC machining and steel tube cutting and also trading of steel tubes. The assessee had filed return of income for AY 2023-24 wherein the gross receipts shown was Rs.1,10,12,94,799/-. During the scrutiny proceedings, the Assessing Officer (AO) noted that the assessee has shown turn over in GST GSTR 9C at Rs.1,10,30,14,277/-. The assessee has declared net profit of Rs.4,65,45,700/-. During the scrutiny proceedings, the AO called for list of sundry creditors. The AO issued letters u/s 133(6) of the Act to various sundry creditors. Out of those following persons submitted reply and the AO noted that there was difference in the amount shown by the assessee and the amount confirmed by those entities. The chart which is reproduced by the AO is as under :
4.1 Similarly, the AO has also mentioned that the following persons have not filed any reply :
4.2 The assessee was asked to explain the difference. However, the AO noted that the assessee was unable to reconcile the difference. The AO made addition of Rs.3,61,80,370/-. The relevant paragraph of the AO is reproduced here as under :
“The contention of the assessee has been considered and found not tenable. The assessee has bifurcated his sales in to two segments and has tried to substantiate the rates of net profit on it. the assessee has claimed GP rate of 2.72% on sale of raw material and GP rate of 9.31% on sale of MFG, Jobwork& Scrap. However, the assessee has failed to substantiate its submission in this regard with supportive evidences. No substantive evidence has been submitted to support the sale of Raw material of Rs. 46,25,13,164/- and Sales of MFG, Jobwork& Scrap at Rs. 64,05,01,112.98. Therefore, the claim of assessee is not tenable.
Further, since the books of the assessee are being rejected in the instant case, and that’s also on the basis of unjustified/non-genuine financial values in respect of purchases/creditors, the GP rate disclosed by the assessee on the basis of values declared by it is not acceptable. Apart from this, after making due research, it is found that prevailing rate of profit in the business of CNC machining is 10-12%. Further, prevailing rate of profit in the business of manufacturing of parts & accessories of motor vehicles lies between 5-10%. Prevailing rate of profit in the business of manufacturing of parts & accessories of engines lies between 8-10%. Prevailing rate of profit in the business of steel cutting & scrap lies between 5-7%. Prevailing rate of profit in the business of trading of steel tubes lies between 3-5%. Since the assessee has not furnished any specific details about the quantum of sales pertaining to different type of business activities, therefore average of net profit margins in all the aforementioned types of business activities is liable to be applied in the instant case, which comes at to 7.5%, which is proposed to be applied in the case of assessee.
Therefore as per discussion made and in the absence of any cogent material or substantiated response from the assessee, average rate of net profit percentage is being applied in the instant matter. During the year under consideration, the assessee has declared gross receipts of Rs. 1,10,12,94,799/- in its ITR for A.Y. 2023-24. Accordingly a sum equal to 7.5% of aforesaid gross sales reported by the assessee which comes to Rs. 8,27,26,070/- is being treated as net profit of the assessee. Accordingly the difference between the assessed value of net profit as above and net profit declared by the assessee In his ITR, which comes to Rs. 3,61,80,370/-(8,27,26,070 – 4,65,45,700) is being added to the total income of the assessee. Further penalty proceeding u/s 270A of the Income Tax Act, 1961 is also proposed to be initiated separately for under reporting of income.
(Addition Rs. 3,61,80,370/-)”
4.3 Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the addition.
4.4 Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal.
5. At ground No. 8, the assessee has raised the ground that the AO had not provided the replies received by the AO in response to notice u/s 133(6) of the Act. In the assessment order, the AO has reproduced the assessee’s reply, date is not clear from the reproduced documents but certainly it is observed that the assessee had requested the AO to provide copies of the replies received u/s 133(6) of the Act. Nowhere, in the order, it is mentioned that the AO had provided copies of replies received u/s 133(6) of the Act.It is observed from the assessment order that apparently it seems that the AO had not provided copies of the replies received by the AO in reply to notices u/s 133(6) of the Act. Therefore, it is violation of principle of natural justice. The AO was required to provide copies of the replies received u/s 133(6) of the Act. It is also observed that there are 10 entities mentioned in the assessment order who have not filed any replies to notice u/s 133(6) of the Act. In these facts, we direct the assessee to file complete latest address of those entities so that the AO can obtain information from those entities u/s 133(6) of the Act. If possible, the assessee may also provide confirmation from those entities.
6. It is also argued by the assessee in ground No. 10 that the profit estimated at 7.5% is without any basis. However, in the assessment order, the AO has vaguely mentioned that as per market information profit in the field of assessee was in the range of 8-10%. In this context, the AO should have provided copies of those documents which the AO has inferred as public documents to the assessee.
7. In these facts and circumstances of the case, we set aside the assessment order to the AO. The AO shall provide copies of the documents to the assessee mentioned in earlier paragraphs. The assessee shall file his replies before the AO. The AO shall provide opportunity of hearing to the assessee. Accordingly, ground Nos. 8 and 10 raised by the assessee are allowed for statistical purposes.
8. Vide ground Nos. 2 and 3, the assessee has pleaded that the Ld. CIT(A) has not provide the opportunity of hearing to the assessee. However, on perusal of the order u/s 250 of the Act and copies of the notices filed by the assessee at page Nos. 65-68 of the paper book, it is observed that the Ld. CIT(A) had provided proper opportunity of hearing to the assessee. Therefore, ground Nos. 2 and 3 raised by the assessee are dismissed.
9. Since, we have set aside the assessment order to the Assessing Officer, we do not intend to comment on the merits of the addition.
9. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 13th July, 2026
