2026 (2) TMI 348 - AT - Income Tax

Unexplained expenditure and presumptive taxation applied to estimate turnover and net profit, resulting in Rs.1.60 lakh taxable income.

Unexplained expenditure was addressed by applying presumptive taxation to estimate taxable income: the assessee's retail cattlefeed business turnover was ... Unexplained expenditure u/s. 69C - presumptive taxation under section 44AD - HELD THAT:- We are satisfied that the assessee is indulged into retail business of purchase of sale of cattle feed and only the net profit on the sales turnover of the assessee during the years needs to be added as income. Though specific details of turnover are not available, however, considering the purchases made from Hindustan Eco Tech Private Limited as well as the daily sales stated by the assessee in the affidavit, the turnover of the assessee is estimated at approximately Rs. 20.00 lakh per annum and by application of section 44AD of the Act (under presumptive taxation) we adopt net profit @8% on the said turnover and estimate the income of the assessee for the year at Rs. 1.60 lakh. We sustain the addition of Rs. 1.60 lakh and partly allow the grounds of appeal raised by the assessee on merit. Issues: Whether the addition of purchases of Rs. 12,06,959/- as unexplained expenditure under Section 69C should be sustained in full or whether only net profit on the assessee's retail cattlefeed business should be assessed by invoking presumptive taxation.Analysis: The appeal concerns reassessment proceedings initiated after information about cash purchases from a supplier. The assessee, a small village retail trader, filed an affidavit and appellate submissions explaining purchase and retail sale of cattle feed, daily turnover estimates, closure of the supplier, and absence of contrary material. The proceedings involved provisions relating to reassessment and assessment (Sections 147, 148, 148A(d), 144, 144B) and additions under Section 69C. The assessee relied on the exception under Rule 6DD and submitted that Section 40A(3) is not applicable. In the absence of complete turnover particulars but having regard to the purchases and the affidavit statements about daily sales, the income is estimated by applying presumptive taxation (Section 44AD) to an approximated turnover of Rs. 20.00 lakh, adopting net profit at 8% to arrive at assessed income of Rs. 1.60 lakh. The record contains no material contradicting the assessee's claim of a small retail business or the stated sales range.Conclusion: The addition under Section 69C is not sustainable in full; the quantum of income is to be determined on a presumptive basis and the appeal is partly allowed in favour of the assessee by sustaining an assessed income of Rs. 1.60 lakh.