SRI VELUCHAMY FILLING STATION,SIVAGANGAI V. ITO, WARD-1., KARAIKUDI

ITA 1730/CHNY/2025

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The case involves Sri Veluchamy Filling Station, a dealer of Indian Oil Corporation engaged in the business of a petrol filling station, which appealed against the order of the Commissioner of Income Tax (Appeals) confirming an addition of Rs.5,39,104 to its income for the assessment year 2017-18. The addition was initially made by the Assessing Officer based on an estimated profit margin of 0.56% on a total turnover of Rs.9,62,68,731, despite the appellant's books of accounts being accepted. The Tribunal found that the addition was made without proper legal and factual basis, as the books of accounts were not rejected and no specific provision of the Income Tax Act was cited to justify the addition. The Tribunal noted that the profit before partner remuneration was consistent with other years and directed a modest upward adjustment of 0.10% over the declared results.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 791082 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 16-06-2025
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: T.VASUDEVAN
• Keywords: Reasonable cause; Rejection of books of accounts; Principle of natural justice
• Section: 40(b)

Judgement Text

" आयकर अपील य अ धकरण, ‘बी’ \u000eयायपीठ, चे\u000eनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI \u0015ी जॉज\u0018 जॉज\u0018 क े, उपा\u001aय\u001b एवं \u0015ी एस.आर.रघुनाथा, लेखा सद%य क े सम\u001b BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:1730/Chny/2025 'नधा\u0018रण वष\u0018 / Assessment Year: 2017-18 Sri Veluchamy Filling Station, 145, Thondi Road, Sivagangai, Tamilnadu – 630 561. vs. ITO, Ward -3, Karaikudi. [PAN: AADFS-3559-F] (अपीलाथ)/Appellant) (*+यथ)/Respondent) अपीलाथ) क, ओर से/Appellant by : Shri. T. Vasudevan, Advocate *+यथ) क, ओर से/Respondent by : Ms. Gouthami Manivasagam, JCIT सुनवाई क, तार ख/Date of Hearing : 25.09.2025 घोषणा क, तार ख/Date of Pronouncement : 09.12.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [herein after “ld.CIT(A)”] dated 23.12.2024 and pertains to assessment year 2017-18 against the order of the Assessing Officer passed u/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’) dated 26.12.2019. 2. At the outset, we find that there is a delay of 108 days in appeal filed by the assessee for which an affidavit and a petition for condonation of delay, setting out the reasons for such delay, has been filed. After considering the Printed from counselvise.com :-2-: ITA. No:1730 /Chny/2025 affidavit and the petition filed by the assessee and also hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit appeal filed by the assessee for adjudication. 3. The assessee has raised the following grounds of appeal: 1. “Arbitrary Additions without rejection of Books of Accounts: The Learned Assessing Officer (Ld.AO”) and the learned Commissioner of Income Tax (Appeals) [“ld. CIT(A)”] have erred in law and on facts in making an arbitrary addition to the total income of the appellant despite having accepted the books of accounts. It is a settled principle under the Income Tax Act, 1961 that unless the books of accounts are rejected under Section 145, any modification to the declared income lacks a legal foundation and is, therefore, unsustainable in law. 2. Reliance on Industry Profit Margins without justification: The addition to the total income has been made primarily on the basis of industry profit margins, without due consideration of the specific facts, nature, and peculiarities of the appellant’s business. Industry norms, which are subject to variation due to multiple factors, cannot serve as the sole criterion for determining taxable income, particularly when no defect have been identified in the books of accounts. Consequently, the basis for the additions remains unsubstantiated and merits reconsideration. 3. Non-consideration of Appellant’s Explanation: The appellant’s explanation for the low net profit margin, primarily arising from the legitimate deduction of partner’s remuneration and interest on capital as permitted under section 40(b) of the Income Tax Act, 1961 has not been duly considered. The absence of a specific rational for disregarding this explanation raised concerns regarding adherence to the principles of natural justice, affecting the robustness of the assessment order. 4. Absence of Specific Legal Basis for Addition: The Ld. AO and the Ld. CIT(A) have failed to cite any specific provision of the Income Tax Act, 1961, under which the impugned addition has been made. Instead, the addition has been made merely based on an assumed industry norm, without establishing any factual or legal basis for the same. It is a settled principle that nay addition must be supported by a clear and unambiguous provision of law, failing which such an addition is liable to be struck down. 5. Disregard fo Judical Precedents submitted by the Appellant: The Ld. AO and the Ld. CIT(A) have failed to take into consideration the binding judicial precedents submitted by the appellant during the assessment and first appellate proceedings. It is well-established principle of law that low profit margins per se do not warrant an addition unless the revenue authorities demonstrate a specific suppression of income or inflation of expenses. The Printed from counselvise.com :-3-: ITA. No:1730 /Chny/2025 failure to consider these precedents vitiates the assessment order and renders it unsustainable in law. 6. Violation of Principles of Natural Justice: The impugned assessment order is vitiated by a gross violation of the principles of natural justice, as the Ld. AO and the Ld. CIT(A) have failed to provide any cogent reasoning for rejecting the appellant’s submissions and documentary evidence. The mere dismissal of the appellant’s explanations without proper justification amounts to an arbitrary exercise of power and warrants the deletion of the impugned addition. 4. The solitary issue raised by the assessee in Grounds of appeal pertains to the contention that the ld.CIT(A) erred in facts by upholding the addition of Rs.5,39,104/- being an estimated net-profit addition made by the AO to the returned income. 5. The brief facts of the case are that the assessee is a firm, dealer of Indian Oil Corporation, engaged in the business relating to petrol filling station. For the year under consideration, the assessee filed their return of income on 14.09.2017 declaring a total taxable income of Rs. (-) 2,70,126/-. The return of income was processed u/s.143(1) of the Act by CPC. The case was selected for scrutiny under CASS to examine large value of cash deposit during demonetization period. During the course of assessment proceedings, various statutory notices were issued to the assessee. The assessee responded to the notices from time to time. As per the Statement of Financial Information, assessee has deposited cash into the Tamilnadu Mercantile Bank Account on Rs.7,36,000/- during the demonetization period. Further, notices u/s.133(6) of the Act were issued to various banks calling for statements of bank account. In response, the bank statements were received from various banks for the relevant period which showed a total amount deposited into various bank account amounting to Rs.9,94,48,868/-. Subsequently, the assessee was asked for the source of cash deposits into the bank accounts to which the assessee replied stating that the source for the cash deposit during demonetization is from sale of petrol. Thereafter, a notice u/s.133(6) of the Act was issued to the Branch Manager, Tamilnadu Mercantile Bank, Sivagangai to verify the cash deposit of Rs.7,36,000/- to which the bank branch manager vide Printed from counselvise.com :-4-: ITA. No:1730 /Chny/2025 his reply dated 26.12.2019 has stated that the cash deposit in Tamilnadu Mercantile Bank, Sivagangai does not belong to the assessee. 6. Subsequently, on perusal of the form 3CD filed u/s. 44AB along with the return of income, the AO noticed that the assessee had shown a net loss of 0.28%. It was further stated by the AO that in similar line of business relating to petrol filling station, the net profit admitted ranging from 0.8% to 2.14%. The AO, after examining the facts and circumstances of the case, completed the assessment u/s.143(3) of the Act on 26.12.2019. In doing so, the AO estimated the profit at 0.56% as net profit on the total turnover of Rs.9,62,68,731/- which amounted to Rs.5,39,104/- and thereafter, assessed the total income of the assessee at Rs.2,68,978/-, by making additions to the total income during the year under consideration without mentioning the section under which additions were made, by holding as under: - “Taking into overall circumstance and other facts of the case profit offered should be adopted at minimum average rate of 0.56% to the profit already offered for taxation. Accordingly, the difference is added to the total income which would be reasonable to cover the discrepancy in declaring the net profit. Hence, I estimate 0.56% as net profit on the total turnover of Rs.9,62,68,731/- which work to Rs.5,39,104/- and the same is added to the total income returned.” 7. Aggrieved by the order of the AO, the assessee preferred an appeal before the ld. CIT(A). Before the ld.CIT(A), the assessee challenged the issue of additions of Rs.55,39,104/- made by the AO to the returned income of the assessee. After perusing the documents and details furnished by the assessee, the ld.CIT(A) confirmed the additions made by the AO by holding as under: - “Accordingly, the AO had correctly made addition of the amount of difference of returned income declared to the average of total income (at the rate 0.56% of total turnover of Rs.9,62,68,731/-) which comes to Rs.5,93,104/-. Further, the additions made by the AO is not under surmise as it is duly corroborated by the average rate of profit earlier offered for taxation and considering the aforesaid facts it is held that the assessment order passed by the AO has no infirmity and the same need not to be interfered with. Therefore, ground no 01 to 04 raised by the appellant being devoid of merit and are dismissed herewith. Printed from counselvise.com :-5-: ITA. No:1730 /Chny/2025 8. In the result, the appeal of the appellant for AY 2017-18 stands dismissed”. 8. Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before us. 9. Before us, the ld.AR submitted that the ld.CIT(A) has erred in sustaining the addition of Rs.5,39,104/-. It was contended that the AO accepted the books of account and yet proceeded to make an ad-hoc addition by merely comparing industry profit margins, without identifying any defect in the books of accounts of the assessee or considering the assessee’s explanation that the lower net profit was on account of admissible partner’s remuneration and interest. The ld.AR further argued that no specific provision of the Act has been invoked to justify such an estimation and that low profit, by itself, cannot be a ground for enhancement of income. 10. ld.AR accordingly submitted that the impugned addition is devoid of legal and factual basis and was made without proper appreciation of the assessee’s submissions. The ld.AR, therefore, prayed that the addition sustained by the ld. CIT(A) be deleted in the interest of justice. 11. Per contra, the ld.DR during the course of hearing filed written submissions and submitted that the Ld.CIT(A) had rightly dismissed the assessee’s appeal and that the present appeal of the assessee deserved to be dismissed. 12. We have heard both the parties perused materials available on record and gone through orders of the authorities below. The admitted facts of the case are that the assessee is a dealer of Indian Oil Corporation, engaged in the business of petrol filling station. The case was selected for scrutiny under CASS to examine large value of cash deposit during demonetization period. During the course of assessment proceedings, notices u/s.133(6) of the Act were issued to banks calling for statements of bank account. In response, the bank Printed from counselvise.com :-6-: ITA. No:1730 /Chny/2025 statements were received from various banks for the relevant period which showed a total amount deposited into various bank account amounting to Rs.9,94,48,868/-. Subsequently, the assessee was asked for the source of cash deposits into the bank accounts to which the assessee replied stating that the source for the cash deposit during demonetization is from sale of petrol. Thereafter, a notice u/s.133(6) of the Act was issued to the Branch Manager, Tamilnadu Mercantile Bank, Sivagangai to verify the cash deposit of Rs.7,36,000/- to which the bank branch manager vide their reply dated 26.12.2019 stated that the cash deposit in Tamilnadu Mercantile Bank, Sivagangai does not belong to the assessee. The AO observed from Form 3CD that the assessee had shown a net loss of 0.28% despite having a large turnover. Since petrol pump businesses generally show net profits between 0.8% and 2.14%, the AO considered the assessee’s results to be unusually low. He therefore estimated the profit of the assessee at 0.56% of the turnover of Rs.9,62,68,731/- and made an addition of Rs.5,39,104/-, which subsequently was confirmed by the ld.CIT(A). From the assessment order, it is also evident that the AO has made an addition on estimated basis despite having accepted the books of account and without recording any defect in them. It is a settled position in law that the declared results of an assessee cannot be modified unless the books of accounts are rejected. In such circumstances, any addition made without rejecting the books lacks legal foundation and cannot be sustained. 13. Before us, the assessee produced a comparative profitability chart for earlier, current, and subsequent years. From this, it appears that the profit before allowing partner remuneration was 1.03% during the impugned year, as compared to 0.80% and 0.99% of the earlier and subsequent years, which is reasonable higher than margin disputed by the AO. The fall in net profit to 0.28% is solely due to the partner’s remuneration and interest, which is an allowable deduction under the Act. This cannot be treated as a defect in the books of accounts or a valid reason to doubt the declared results. When the books of Printed from counselvise.com :-7-: ITA. No:1730 /Chny/2025 account show no discrepancies in turnover, a general comparison with industry averages cannot, by itself, justify the adoption of a higher estimated profit. While some estimation may be allowed where profits appear slightly low, such estimation must still be reasonable and based on relevant facts. Here, once the profit before partner remuneration is seen to be consistent with other years, the profit rate adopted by the AO at 0.56% appears excessive. Considering the overall facts and the trend in profitability across the years, we are of the considered view that a modest upward adjustment of 0.10% over the declared results would meet the ends of justice. We therefore direct the AO to estimate the profit at 0.10% of the turnover of Rs.9,62,68,731/- and recompute the addition accordingly. The balance addition sustained by the ld.CIT(A) is hereby deleted by allowing the grounds of appeal of the assessee. 14. In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 09th December, 2025 at Chennai. Sd/- Sd/- (जॉज\u0018 जॉज\u0018 क े) (GEORGE GEORGE K) उपा\u001aय\u001b /VICE PRESIDENT (एस. आर. रघुनाथा) (S. R. RAGHUNATHA) लेखा सद%य/ACCOUNTANT MEMBER चे\u000eनई/Chennai, 0दनांक/Dated, the 09th December, 2025 SP आदेश क, *'त2ल3प अ4े3षत/Copy to: 1. अपीलाथ)/Appellant 2. *+यथ)/Respondent 3.आयकर आयु5त/CIT– Chennai/Coimbatore/Madurai/Salem 4. 3वभागीय *'त'न ध/DR 5. गाड\u0018 फाईल/GF Printed from counselvise.com "