While setting aside an assessment order that treated cash deposits of ₹1.28 crore in a scrap trader's bank account as unexplained money, the Pune bench of the income tax appellate tribunal (ITAT) has held that the tax department could not ignore its own approach in earlier and subsequent years where the assessee's scrap business had been accepted and profits were estimated at 8% of turnover.
In
an order last week, the bench of judicial member Vinay Bhamore and accountant member Manish Borad says, "(the) commissioner of income tax (appeals) CIT(A) is not justified since under identical facts and similar circumstances net profit of 8% on gross turnover was accepted as reasonable profit in previous and subsequent assessment years. Considering the totality of the facts of the case and in the interest of justice, we deem it appropriate to set-aside the order passed by CIT(A)/national faceless appeal centre (NFAC) and restore the matter back to the file of the assessing officer with a direction to pass assessment order afresh and as per fact and law and also after keeping in mind previous and subsequent assessment year’s record of the assessee and after providing reasonable opportunity of hearing to the assessee.”
The ruling came in the case of Pathan Wajeed Khan Manzoor, a scrap dealer from Aurangabad, whose appeal against an order of the commissioner of income tax (appeals)/national faceless appeal centre (NFAC) for the assessment year (AY) 2016-17 was heard by ITAT, Pune.
According to the order, Mr Pathan had filed his income-tax return (ITR) on 11 May 2016, declaring an income of ₹300,340. Subsequently, information available on the income tax (I-T) department's insight portal flagged cash deposits of ₹1.28 crore in an account maintained with Shri Renuka Mata Multi State Urban Cooperative Credit Society Ltd.
Based on the information, the assessment was reopened under Section 147 of the Income Tax Act and a notice under Section 148 was issued on 31 March 2021. Mr Pathan did not file a return in response to the notice but later explained that a computer virus had caused a system crash and corrupted the hard disk, resulting in the loss of transaction details stored in the system. Because of this, transactions reflected in the cooperative society account were not considered while filing the original return. Mr Pathan requested the tax department to estimate income by applying an 8% net profit rate on the turnover represented by those transactions.
The explanation, however, did not satisfy the AO, who completed reassessment proceedings in March 2023 and determined Mr Pathan's income at ₹1.31 crore against the returned income of ₹300,340. The assessment included an addition of ₹1.28 crore as unexplained money under Section 69A read with Section 115BBE of the Income Tax Act.
After the CIT(A)/NFAC upheld the addition, Mr Pathan approached ITAT. During the hearing, his counsel argued that he had been engaged in the scrap purchase and sale business for around 12 years and that similar issues in earlier and later years had been resolved by estimating profit at 8% of turnover rather than treating the entire deposits as unexplained income. It was also argued that the assessee had not been given an opportunity before the assessing officer submitted a remand report during appellate proceedings.
The tribunal noted that assessment orders passed under Section 143(3) for AY14-15 and AY17-18 had accepted the scrap business and applied a net profit rate of 8% on turnover determined by the assessing officer. The bench observed that the facts and circumstances in the disputed year appeared similar to those considered in the earlier and subsequent assessments.
Finding merit in Mr Pathan's arguments, ITAT held that the actions of both the assessing officer and the CIT(A) were not justified because, under identical facts and circumstances, the tax department itself had accepted an 8% profit estimation model in other years.
"Considering the totality of the facts of the case and in the interest of justice," the tribunal set aside the appellate order and sent the matter back to the AO for a fresh assessment in accordance with law. The bench directed the officer to take into account records of previous and subsequent assessment years and provide a reasonable opportunity of hearing to the assessee before passing a fresh order.
The tribunal also directed Mr Pathan to cooperate with the proceedings and furnish relevant documents, submissions and evidence in support of his case.
(ITA No.2158/PUN/2025 AY16-17 Date: 1 June 2026)
