Bangalore ITAT Sets Aside 8% Net Profit Estimation on ₹30 Crore Bullion Trading Turnover — Matter Restored to AO
Background and Case Overview
The Bangalore Bench of the Income Tax Appellate Tribunal ("ITAT" or "the Tribunal") recently dealt with a significant question arising in best-judgment assessments: does the rejection of books of account under Section 145(3) of the Income Tax Act, 1961 entitle the Assessing Officer ("AO") to apply any profit rate he deems appropriate, without grounding that rate in commercial reality or comparable industry data?
The case involved Hansa Dinesh, an individual assessee engaged in wholesale and retail trading of gold bullion, who had declared total income of ₹4,11,820 for Assessment Year 2023–24. The AO, after rejecting the assessee's books, applied an 8% net profit rate to a reported turnover of ₹30,01,33,705 and thereby determined business income at ₹2,40,10,696 — a figure nearly sixty times the declared income. The assessment was completed under Section 143(3) read with Section 144B of the Income Tax Act, 1961.
The Tribunal found the 8% profit estimation to be commercially unjustifiable in the context of bullion trading and restored the matter to the AO for a fresh factual inquiry, while simultaneously directing the assessee to produce complete books and supporting records.
The Full Text of the Order of ITAT Bangalore
1. This appeal is filed by Mrs. Hansa Dinesh, the assessee/appellant, against the appellate order dated 22 December 2025 passed by the National Faceless Appeal Centre, Delhi, for assessment year 2023–24. By that order, the learned CIT(A)/NFAC dismissed the assessee's appeal against the assessment order dated 18 March 2025 passed under section 143(3) read with section 144B of the Income-tax Act, 1961, by the Assessment Unit, Income Tax Department.
2. The assessee has raised the following grounds of appeal:
The impugned order passed by the Commissioner of Income Tax (Appeals) ["CIT(A)"] is based on an incorrect appreciation of the facts and an erroneous interpretation of law. It is therefore bad in law and liable to be quashed.
The Assessing Officer ["AO"] and the CIT(A) erred in law and on facts by rejecting the books of account without properly appreciating the facts or verifying the material on record. The rejection was based merely on the alleged delay in filing certain documents/evidence, and the CIT(A) wrongly upheld the AO's order.
The impugned order is self-contradictory and unclear. Although the authority recorded that the Appellant submitted documents after several notices were issued, it also alleged that the documents were incomplete. This finding contradicts the stated basis for rejecting the books of account, namely that the records were not produced for verification.
The order passed by the CIT(A) is not a speaking order and was passed without providing an effective opportunity of hearing.
3. Briefly stated, the assessee is an individual engaged in the business of bullion trading. She filed her return of income for assessment year 2023–24 declaring total income of ₹4,11,820. The return was selected for scrutiny to verify the low net profit disclosed in the business. The return, however, described the assessee's activity as financial intermediation. Notice under section 143(2) was issued on 19 June 2024, and during the assessment proceedings the assessee was repeatedly asked to furnish business information, books of account, stock details, bank statements, purchase register, creditors' details and related records. The assessee did not furnish adequate replies. A final show-cause notice dated 28 February 2025 was then issued, in response to which the assessee filed certain details; however, the learned Assessing Officer found them incomplete and insufficient. The Assessing Officer also issued notices under section 133(6) of the Act to various parties, but only some responded. Consequently, the Assessing Officer rejected the assessee's books of account under section 145(3) of the Act, estimated net profit at 8% of turnover of ₹30,01,33,705, and determined business income at ₹2,40,10,696 by passing an assessment order under section 143(3) read with section 144B of the Act.
4. Aggrieved, the assessee preferred an appeal before the learned CIT(A). She submitted that she was engaged in wholesale and retail trading of gold bullion and that, due to health issues, shifting of residence and business premises, renovation of the business premises, and audit/assessment proceedings under GST, she could not file complete replies before the Assessing Officer. She further stated that on 6 March 2025 she submitted certain details, but the Assessing Officer nevertheless rejected the books of account. Before the learned CIT(A), the assessee filed the bullion purchase register, sales register, copies of GST returns, overdraft and loan statements with Union Bank of India, the trading and profit and loss account, balance sheet, and statement of total income.
5. The learned CIT(A) held that, once the books of account were validly rejected under section 145(3), the Assessing Officer was empowered to make a best judgment assessment. The CIT(A) further held that estimating net profit at 8% of turnover was justified having regard to the magnitude of turnover, the nature of the business, and the documents produced. Accordingly, the appeal of the assessee was dismissed.
6. Aggrieved by the order, the assessee is in appeal before us.