ITAT Limits Addition To 8% Presumptive Profit In Rural Cattle Feed Trader’s Case, Rejects Full Cash Purchase Disallowance
Pranav B Prem
The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has granted substantial relief to a small rural trader by restricting the income addition to 8% presumptive profit instead of sustaining the entire addition of cash purchases as unexplained expenditure under Section 69C of the Income Tax Act, 1961. The Tribunal held that where the assessee is engaged in genuine trading activity, only the profit element embedded in the turnover can be brought to tax, and not the entire purchase value. The Bench comprising Vinay Bhamore, Judicial Member, and Dr. Manish Borad, Accountant Member, delivered the ruling while partly allowing the appeal filed by the assessee for the Assessment Year 2019–20.
The assessee, an individual residing in a small village in South Solapur district, Maharashtra, was engaged in retail trading of cattle feed. During the relevant assessment year, he had made cash purchases amounting to ₹12,06,959 from Hindustan Eco Tech Private Limited. Based on this information, the Assessing Officer reopened the assessment under Section 147 of the Act and, due to alleged non-compliance by the assessee, completed a best judgment assessment under Sections 144 and 144B. The entire purchase amount was treated as unexplained expenditure under Section 69C and added to the assessee’s income. The reassessment order was upheld by the National Faceless Appeal Centre, prompting the assessee to approach the ITAT.
Before the Tribunal, the assessee initially raised jurisdictional challenges to the reassessment proceedings, including alleged defects in the order passed under Section 148A(d), the notice issued under Section 148, and the approval granted under Section 151. However, during the course of hearing, the assessee’s counsel chose not to press these legal grounds, and they were dismissed as not pressed.
On merits, the assessee submitted that he was a small retail trader dealing in cattle feed in a rural village with a population of less than 6,000. He explained that the goods were sold in small quantities to villagers owning cows and buffaloes, with daily sales ranging between ₹4,000 and ₹6,000. An affidavit was placed on record stating that the business commenced in October 2017 and was closed in March 2020, and that the annual income from the business was around ₹1.50 lakh.
It was further submitted that the purchases were made in cash due to the realities of rural trade and that the case was covered by the exceptions provided under Rule 6DD of the Income Tax Rules, 1962, making Section 40A(3) inapplicable. The assessee also pointed out that Hindustan Eco Tech Private Limited had since closed down, making it impossible to obtain further confirmations.
The Department, on the other hand, supported the orders of the lower authorities and argued that the assessee had failed to comply with notices and had not produced documentary evidence before the Assessing Officer to substantiate the business activity.
After examining the record, the Tribunal noted that the assessee was a resident of a small village and that there was no material on record to disprove the existence of retail trading activity. It observed that although the assessee did not appear before the Assessing Officer, detailed submissions and an affidavit had been filed during the appellate proceedings, which remained uncontroverted by the Revenue.
The Tribunal found that the Assessing Officer had added the entire purchase amount merely on account of non-compliance, without disproving the trading activity or bringing any material to show that the purchases were fictitious. It held that in cases of trading activity, the entire purchase value cannot be treated as unexplained expenditure.
Observing that only the profit element embedded in the turnover can be taxed, the Tribunal proceeded to estimate the assessee’s income. In the absence of precise turnover details, it estimated the annual turnover at approximately ₹20 lakh, taking into account the purchase figures and the daily sales disclosed in the affidavit. Applying the presumptive taxation provisions under Section 44AD of the Act, the Tribunal adopted a net profit rate of 8%.
Accordingly, the Tribunal estimated the income of the assessee at ₹1.60 lakh, being 8% of the estimated turnover, and restricted the addition to this amount. The balance addition was deleted. In the result, the appeal filed by the assessee was partly allowed, and the Tribunal reiterated that in genuine trading cases, additions cannot be made on a gross basis without examining the real profit element involved.
Cause Title: Sachin Ganpat Vadane Versus ITO
Case No: ITA No.2073/PUN/2025
Coram: Vinay Bhamore (Judicial Member) and Dr. Manish Borad (Accountant Member)
