ONEWORLD DESIGN STUDIO PRIVATE LIMITED ,MUMBAI V. ACIT, CENTRAL CIRCLE 8(2), MUMBAI

ITA 8736/MUM/2025

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The case involves Oneworld Design Studio Private Limited, which appealed against the order of the Commissioner of Income Tax (Appeals)-48, Mumbai. The appeal was against the assessment framed under section 153A read with section 144 of the Income Tax Act, 1961 for the assessment year 2019-20. The primary contention was the determination of business income at Rs.8,62,000 by applying an estimated rate on the alleged turnover and the ex parte nature of the assessment. The Tribunal found that the Assessing Officer's method of applying a flat rate of 5% on both sales and purchases was incorrect as it led to double taxation of the same business stream.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 848418 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Mumbai
• Assessment Year: 2019-2020
• Appeal Filed On: 18-12-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R.A. DHYANI
• Keywords: Business income; Search and seizure; Accommodation entries
• Section: 144; 132; 153A; 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI ARUN KHODPIA, ACCOUNTANT MEMBER ITA No. 8736/Mum/2025 (Assessment Year: 2019-20) Oneworld Design Studio Private Limited 8th Floor, Ceejay Plaza, Apsara Cinema Building, Lamington Road, Grand Road, East, Mumbai – 400007. Vs. Assistant Commissioner of Income Tax (ACIT)- Central Circle (8)(2), Mumbai PAN/GIR No. AACCO4175D (Appellant) .. (Respondent) Assessee by None Revenue by Shri R. A. Dhyani (CIT-DR) Date of Hearing 11/03/2026 Date of Pronouncement 25/03/2026 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been preferred by the assessee against the impugned order dated 13.10.2025 passed by the learned Commissioner of Income Tax (Appeals)-48, Mumbai, arising out of the assessment framed under section 153A read Printed from counselvise.com ITA No. 8736/Mum/2025, AY: 2019-20 Oneworld Design Studio Private Limited 2 with section 144 of the Income Tax Act, 1961 for the assessment year 2019-20. 2. Through the grounds so raised, the assessee has, in sum and substance, challenged the determination of business income at Rs.8,62,000/- by applying an estimated rate on the alleged turnover, and has also assailed the action of the Assessing Officer in framing the assessment ex parte under section 144, which action has thereafter been confirmed by the learned CIT(A) also ex parte and without any effective adjudication on the merits of the controversy involved. 3. The brief facts are that the assessee company is engaged in the business of manufacturing and trading of textiles, handlooms and power looms. Pursuant to a search and seizure action under section 132 in the group cases, proceedings under section 153A were initiated against the assessee. The assessment in the present case has been framed primarily on the basis of certain information stated to have been received from the GST authorities alleging accommodation entry transactions and inflated turnover, coupled with the statements of certain persons recorded in such proceedings. Since there was non- compliance to the statutory notices issued during the course of Printed from counselvise.com ITA No. 8736/Mum/2025, AY: 2019-20 Oneworld Design Studio Private Limited 3 assessment proceedings, the Assessing Officer proceeded to complete the assessment under section 144 on best judgment basis. 4. In the said best judgment assessment, the Assessing Officer treated the entire turnover as representing accommodation entries and proceeded to apply a flat rate of 5% on both the sales as well as the purchases. The figures noted by the Assessing Officer were sales of Rs.92,24,000/- and purchases of Rs.80,16,000/-, aggregating to Rs.1,72,40,000/-, and by applying 5% on the said aggregate figure, the income of the assessee was determined at Rs.8,62,000/-. 5. The learned CIT(A), in the absence of any representation on behalf of the assessee, confirmed the action of the Assessing Officer ex parte. 6. Before us also, none appeared on behalf of the assessee. However, since the controversy involved lies in a narrow compass and pertains essentially to the manner and basis of estimation of income, we have proceeded to adjudicate the issue on merits after hearing the learned Departmental Representative and after carefully perusing the material available on record. Printed from counselvise.com ITA No. 8736/Mum/2025, AY: 2019-20 Oneworld Design Studio Private Limited 4 7. Upon a careful, considered and holistic appreciation of the entire conspectus of facts, we find that the sole controversy requiring our adjudication lies in the manner in which the income has been estimated by the Assessing Officer, that is, whether the Assessing Officer was justified in applying a flat rate of 5% on the aggregate of purchases and sales, or whether such estimation, even assuming the necessity thereof, ought to have been confined only to the sales or turnover declared by the assessee. In our considered opinion, the approach adopted by the Assessing Officer suffers from an inherent and fundamental conceptual infirmity. Purchases and sales are not two independent streams yielding separate taxable profits; they are merely two interlinked and inseparable facets of one and the same trading cycle. Therefore, to apply an estimated profit rate on both sides of the trading account simultaneously is to tax the same business stream twice over, resulting in duplication and an artificial inflation of taxable income. Such an approach is neither in consonance with settled principles of law nor with basic canons of commercial accounting. 8. It is a trite principle that in matters of best judgment assessment, though some amount of estimation is inevitably Printed from counselvise.com ITA No. 8736/Mum/2025, AY: 2019-20 Oneworld Design Studio Private Limited 5 involved, such estimation must nonetheless bear a rational nexus to the material on record and must remain within the bounds of fairness, reasonableness and judicial propriety. The power of best judgment is not an unfettered license to make arbitrary additions; it is an authority circumscribed by the duty to arrive at a fair and honest estimate of income. Even in cases where the Revenue doubts the genuineness of purchases, or alleges that certain transactions are in the nature of accommodation entries, the settled legal position is that the addition cannot be made by mechanically taxing the entirety of both purchases and sales. At the highest, what can be brought to tax is either the profit element embedded in such transactions or a reasonable estimate of net profit on the turnover. What the law permits to be taxed is the real income and not a notional or exaggerated figure artificially worked out by applying the same rate on both the debit and credit sides of the trading results. 9. In the present case, the Assessing Officer appears to have proceeded largely on the basis of generalized information received from the GST authorities and certain third-party statements, but there is nothing brought on record to show that any independent enquiry was conducted by him qua the Printed from counselvise.com ITA No. 8736/Mum/2025, AY: 2019-20 Oneworld Design Studio Private Limited 6 assessee’s own transactions, the movement of goods, the identity and role of the counterparties, or the corresponding banking trail. There is no specific material placed before us to demonstrate that the entire sales declared by the assessee are fictitious or that the purchases are wholly non-genuine in a manner so as to justify taxation of both components together. In absence of such specific and cogent material, the estimation of income by applying 5% on the aggregate of purchases and sales clearly transgresses the permissible limits of a best judgment assessment and results in an overstatement of income which cannot be sustained. 10. In our considered view, a more fair, rational and jurisprudentially sound approach would be to confine the estimation only to the sales declared by the assessee. That would adequately take care of any possible inflation, suppression or accommodation element embedded in the trading results, while at the same time ensuring that the same stream of business transactions is not subjected to double taxation in the guise of estimation. Once this principle is borne in mind, the proper course would be to apply the net profit or commission rate only on the sales and not on the aggregate of Printed from counselvise.com ITA No. 8736/Mum/2025, AY: 2019-20 Oneworld Design Studio Private Limited 7 purchases and sales. Since the Assessing Officer himself has adopted the rate of 5%, and as the assessee has not appeared before us to canvass any lower rate or place any other supporting material on record, we deem it fit, in the facts and circumstances of the present case, to direct that the estimation be restricted by applying the said rate of 5% only on the sales as declared by the assessee. 11. Accordingly, in view of the foregoing discussion, we direct the Assessing Officer to restrict the estimation of income by applying net profit/commission rate of 5% only on the sales as declared by the assessee, instead of applying the same on the aggregate of purchases and sales. 12. In the result, the appeal of the assessee is partly allowed. Order pronounced on 25.03.2026. Sd/- (ARUN KHODPIA) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 25/03/2026 Karishma J. Pawar, SR. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. CIT Printed from counselvise.com ITA No. 8736/Mum/2025, AY: 2019-20 Oneworld Design Studio Private Limited 8 BY ORDER, (Assistant Registrar) ITAT, Mumbai 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "