ITAT Grants Major Relief to Small Trader, Limits Tax Liability Using 8% Presumptive Income Rule

ITAT Grants Major Relief to Small Trader, Limits Tax Liability Using 8% Presumptive Income Rule

The ITAT Ahmedabad has announced its final decision on an appeal filed by Rajesh Ramkishan Gupta against the Income Tax Department, challenging an order dated August 08, 2025, passed by the CIT(A), NFAC Delhi. The case belongs to the Assessment Year 2020-21. The impugned order had upheld the additions made by the Assessing Officer (AO) on the grounds of insufficient explanation.

In the present case, the Assessing Officer (AO) had reopened the case of the assessee on the ground that certain documents and materials confiscated during the search conducted in the case of Ambica Fireworks Group of Ashish Jayantilal Khajanji under Section 132 were found linked to the assessee. The AO noted that the assessee was a purchaser from Ambica and had made a cash transaction amounting to Rs 426,100 during the year in consideration.

Considering the same, the AO treated the amount as unexplained income and made an addition of the same under Section 69A. The assessee argued that, being a small retainer operating a seasonal business of firecrackers and kites, he had filed his income tax return (ITR) under Section 44AD and had also furnished all relevant documents during the proceedings. The assessee further claimed that he just could not respond to one of the notices due to a lack of technical knowledge and awareness of online communication. Considering the only non-compliance of not responding to the show cause notice (SCN), the AO made the impugned addition.

When the tribunal analysed the facts of the case, it noted that the assessee was a small trader with a total turnover of Rs 1,120,000. Considering fairness, legal principles, and practical realities, the Tribunal held that instead of treating the entire amount as unexplained income, it would be reasonable to estimate profit. The Tribunal directed the tax authorities to apply an 8% net profit rate on the total turnover, in line with presumptive taxation principles. Consequently, the tribunal partly allowed the appeal by reducing the tax burden.