SRI SRINIVASA TRADERS,NALGONDA V. INCOME TAX OFFICER, WARD-1, NALGONDA

ITA 2105/HYD/2025

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Sri Srinivasa Traders, a partnership firm engaged in trading pesticides and fertilizers, appealed against the order of the Commissioner of Income Tax (Appeals), which had confirmed the assessment made by the Assessing Officer. The Assessing Officer had estimated the firm's income at 15% of its turnover due to non-compliance and absence of proper books of account, rejecting the books under section 145 of the Income Tax Act. The Tribunal found merit in the assessee's argument that the profit rate should be 8% as per section 44AD, given the turnover was below Rs.2,00,00,000. However, the Tribunal upheld the separate addition of Rs.6,64,242 as income from other sources.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 848385 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2026
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Hyderabad
• Assessment Year: 2017-2018
• Appeal Filed On: 29-11-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M.V. ANIL KUMAR
• Keywords: Business income; Corroborative evidences; Rejection of books of accounts
• Section: 147; 148; 144; 44AD; 139; 145

Judgement Text

" ITA No 2105 of 2025 Sri Srinivasa Traders Page 1 of 6 आयकर अपीलȣय अͬधकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ SMC ‘ Bench, Hyderabad ŵी रिवश सूद,Ɋाियक सद˟ एवं ŵी मधुसूदन साविड़या लेखा सद˟ समƗ | Before Shri Ravish Sood, Judicial Member A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No.2105/Hyd/2025 (िनधाŊरण वषŊ/Assessment Year: 2017-18) Sri Srinivasa Traders NALGONDA PAN: AAZFS1785K Vs. Income Tax Officer Ward 1 Nalgonda (Appellant) (Respondent) िनधाŊįरती Ȫारा/Assessee by: Shri M.V.Anil Kumar, Advocate राज̾ व Ȫारा/Revenue by:: Shri A. Suresh, Sr. AR सुनवाई की तारीख/Date of hearing: 18/03/2026 घोषणा की तारीख/Pronouncement: 25/03/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.: This appeal is filed by Sri Srinivasa Traders (“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 04.11.2025 for the A.Y.2017-18. 2. The assessee has raised the following grounds of appeal: “1. Your Appellant submits that the CIT(A) ought to have given another opportunity of hearing before disposing of the appeal. Printed from counselvise.com ITA No 2105 of 2025 Sri Srinivasa Traders Page 2 of 6 2. Your Appellant submits that the CIT(A) as well as the Assessing Officer erred in law and facts of the case in estimating the income at 15 percent without considering the provisions of the section 44AD of the Income Tax Act, 1961. 3. Your Appellant submits that the CIT(A) ought to have estimated the income as per section 44AD of the Income Tax Act, 1961, being eligible as per the said section, instead of confirming the assessment order passed under section 144 of the Income Tax Act, 1961 which is bad in law. 4. Your Appellant submits that the estimation of income at 15 percent is very high in this line of business where the margins are very nominal, at best the income may be estimated as per section 44AD of the Income Tax Act, 1961. 5. For these and such other grounds that may be urged at the time of hearing your appellant prays that the estimation of income at 15 percent is on higher side and the same may be estimated as per section 44AD of the Income Tax Act, 1961.” 3. The brief facts of the case are that the assessee is a partnership firm engaged in the business of trading in pesticides and fertilizers. The assessee had not filed its return of income under section 139 of the Income Tax Act, 1961 (“the Act”) for the Assessment Year 2017–18. Based on the information available on record, the Learned Assessing Officer (“Ld. AO”) observed that during the year under consideration, the assessee had deposited cash of Rs.1,00,23,000/- and made cash withdrawals of Rs.1,34,000/- in its current bank account. Further, the Ld. AO noticed that the assessee had earned interest income of Rs.1,55,284/- during the year. In the absence of return of income, the case of the assessee was reopened under section 147 of the Act and notice under section 148 of the Act was issued on 23.03.2021. In response, the assessee filed its return of income on 09.03.2022 declaring total income of Rs.32,470/- along with audited financial statements. During the course of assessment Printed from counselvise.com ITA No 2105 of 2025 Sri Srinivasa Traders Page 3 of 6 proceedings, the assessee failed to comply with most of the notices issued by the Ld. AO and furnished a response only at the final opportunity on 10.03.2022. Considering the non-compliance and deficiencies, the Ld. AO treated the return of income of the assessee as non-est, rejected the books of accounts and completed the assessment under section 147 read with sections 144 and 144B of the Act vide order dated 31.03.2022. The Ld. AO adopted the turnover at Rs.1,55,52,668/- as per the audited financial statements and estimated the profit at 15% of the turnover, thereby computing business income of the assessee at Rs.23,32,900/-. Further, the Ld. AO treated other income of Rs.6,64,242/- shown in the profit and loss account of the assessee separately as income from other sources. Accordingly, the total income of the assessee was assessed at Rs.29,97,140/-. 4. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT (A) dismissed the appeal of the assessee and confirmed the additions made by the Ld. AO. 5. Aggrieved with the order of the Ld. CIT (A), the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that only two issues arise for consideration out of the grounds of the appeal of the assessee i.e. (a) estimation of income of Rs.23,32,900/- under the head of “income from business” and (b) separate addition of Rs.6,64,242/- under the head of “income from other sources”. 6. As far as the addition of Rs.23,32,900/- under the head of “income from business” is concerned, the Ld. AR Printed from counselvise.com ITA No 2105 of 2025 Sri Srinivasa Traders Page 4 of 6 submitted that the Ld. AO has accepted that the assessee is engaged in the business of trading in pesticides and fertilizers. However, the Ld. AO has adopted 15% profit rate without any basis, which is excessive considering the nature of business and prevailing margins. The Ld. AR further submitted that the turnover of the assessee is below Rs.2,00,00,000/- and therefore the provisions of section 44AD of the Act are applicable in the case of the assessee. It was contended that even in a case where books are rejected, the profit rate should not exceed 8% as prescribed under section 44AD of the Act. Accordingly, the Ld. AR prayed that the estimation of profit may be restricted to 8% of turnover. 7. With regard to addition of Rs.6,64,242/- under the head “income from other sources”, the Ld. AR submitted that the said income is incidental to business and therefore should be treated as business income and no separate addition is warranted. 8. Per contra, the Learned Departmental Representative (“Ld. DR”) relied on the orders of the lower authorities and submitted that the assessee failed to file return within time and also did not cooperate during the assessment proceedings. The Ld. DR further submitted that the assessee declared a very low net profit and failed to produce books of account, bills and vouchers to substantiate its claim. Therefore, the rejection of books under section 145 of the Act and estimation of income at 15% is justified. It was further submitted that the assessee itself has shown the amount of Rs.6,64,242/- as “other income” in the financial statements and therefore the same has rightly been assessed under the head “income from other sources”. Printed from counselvise.com ITA No 2105 of 2025 Sri Srinivasa Traders Page 5 of 6 9. We have heard the rival submissions and perused the material available on record. The first issue of the assessee relates to estimation of profit at 15% of turnover by the Ld. AO. In this regard, we find that the Ld. AO has rejected the books of account due to non-compliance and absence of supporting evidences. The rejection of books under section 145 of the Act has not been seriously controverted before us by the assessee. Therefore, estimation of income is justified in the facts of the case. However, the question arises with regard to the rate of estimation. The Ld. AO has adopted a profit rate of 15% without bringing any comparable cases or basis on record. However, the Ld. AR has contended that the turnover of the assessee is below Rs.2,00,00,000/- and therefore the provisions of section 44AD of the Act provide guidance for estimation. We find merit in the contention of the Ld. AR. Section 44AD of the Act provides for estimation of income at 8% in cases where turnover is below the prescribed limit i.e. Rs.2,00,00,000/- for the year under consideration and books of account are not maintained. In the present case, once the books are rejected, the situation is akin to non-maintenance of proper books. Considering the nature of business of the assessee and the statutory guidance available under section 44AD of the Act, we are of the considered opinion that estimation of profit at 15% is excessive. Accordingly, we direct the Ld. AO to restrict the estimation of profit to 8% of the turnover of Rs.1,55,52,668/-. 10. The second issue of the assessee relates to treatment of Rs.6,64,242/- as income from other sources. The Ld. AR has contended that the said income is incidental to business. However, there is no dispute about the fact that in the audited Printed from counselvise.com ITA No 2105 of 2025 Sri Srinivasa Traders Page 6 of 6 financial statements, the assessee itself has disclosed the said amount as “other income”. Further, no material has been placed before us by the assessee to demonstrate that such income is directly derived from business operations. In the absence of any supporting evidence, we do not find any infirmity in the action of the Ld. AO in treating the same as income from other sources. Accordingly, this contention of the assessee is rejected. 11. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Open Court on 25th March, 2026. Sd/- Sd/- (RAVISH SOOD) JUDICIAL MEMBER (MADHUSUDAN SAWDIA) ACCOUNTANT MEMBER Hyderabad, dated 25th March, 2026. Vinodan/sps Copy to: S.No Addresses 1 SRI SRINIVASA TRADERS 6-222/1 ,MAIN ROAD MUNUGODU DIST NALGONDA 508244 ,Telangana 2 Income Tax Officer Ward-1 Near Rail Under Bridge, Nalgonda 508001 3 Pr. CIT - Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File By Order Printed from counselvise.com KAMALA KUMAR ORUGANTI Digitally signed by KAMALA KUMAR ORUGANTI Date: 2026.03.26 11:50:46 +05'30' "