ORDER
Anikesh Banerjee, Judicial Member.- The instant appeal of the revenue filed against the order of the NFAC, Delhi [for brevity ‘the Ld. CIT(A)], order passed under section 250 of the Income Tax Act 1961 (for brevity ‘the Act’) for Assessment Year 2022-23, date of order 11.09.2025. The impugned order emanated from the order of the Ld. Assessment Unit Income Tax Department (for brevity the ‘Ld. AO’) order passed under section 143(3) r.w.s. 144B of the Act date of order 28.03.2024.
2. The brief facts of the case are that the assessee is a Private limited company and engaged in business of logistics and freight forwarding since 2005. The assessee filed the return by declaring total income of Rs.9,31,33,090/-. The assessee’s case was taken for scrutiny and during the scrutiny assessment the assessee was asked the details of creditors which is reflected in his books of accounts. Out of the 100 creditors 26 creditor’s confirmation was duly received which was duly asked by the Ld. AO. On enquiry on basis of partial information submitted on behalf of the assessee the vendors CMA CGM SA, MSC Mediterranean Shipping G Company SA and Zim Integrated Shipping Services Limited the Ld. AO observed the discrepancies related to these vendors either the no information for filing of ITR, either not to declare any business income. Accordingly, the Ld. AO rejected the books of accounts of the assessee and estimated the net profit at the rate of 8% to the total turn over. The assessee declared the turnover during impugned financial year amount of Rs.353,68,00,000/-. The addition was confirmed at the rate of 8% of the total turnover which comes out to Rs.28,29,44,000/-. After deduction the declared profit amount to Rs.9,20,00,000/- and the quantum adjustment was made Rs.19,09,44,000/- which was added back with the total income of the assessee. The aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) called the remand report from the Ld. AO related to the appeal. But in the remand report the Ld. AO had not accepted the assessee’s plea and the remand report was duly submitted before the Ld. CIT(A). Further the Ld. CIT(A) made his own verification u/sec. 133(6) of the Act. Finally the addition amount of Rs.19,09,44,000/- was deleted. Being aggrieved revenue filed an appeal before us.
3. The Ld. AR advanced his arguments and filed a paper book comprising pages 1 to 192, which has been taken on record. A detailed written submission in support of his contentions was also duly furnished. The relevant extracts of the said written submission are reproduced here in below:-
“1. The assessee also submitted a comparative analysis of net profit ratios for the current year and preceding two assessment years to demonstrate consistency in business results:
| Particulars | FY 2021-22 | FY 2020-21 | FY 2019-20 |
| Sales/Turnover (in lakhs) | 35,371 | 19,267 | 17,702 |
| Net Profit after Tax (lakhs) | 693 | 236 | 218 |
| Net Profit Ratio (%) | 1.96% | 1.22% | 1.23% |
2. The above data clearly establishes that the assessee has never earned abnormal profit margins, and the results are in line with past years. Since incorporation, which is duly supported by audited books of accounts, tax audit report, and supporting evidences submitted during assessment proceedings.
3. Confirmations from 26 vendors amounting to 18.18 crores were furnished, representing more than 70% of total trade creditors as on 31.03.2022.
4. Party-wise ledger accounts, expense details, and bank statements were submitted to establish the genuineness of transactions and payments made during the year.
5. The AO raised objections that certain suppliers were non-filers or had filed non-business returns. In this regard, the assessee categorically explained that:
• The major operational vendors are foreign shipping lines,
• Such entities may have nil or insignificant taxable income in India, and
• Many of them operate under Section 44B of the Income Tax Act read with applicable DTAA provisions, wherein income from international shipping operations is exempt or taxed on presumptive basis.
6. Hence, non-filing or non-business ITRs of such vendors cannot be a ground to doubt the genuineness of purchases or expenses, especially whenpayments are made through banking channels and duly recorded in books of accounts.
7. The Ld. CIT(A) has correctly adjudicated the issue relying the remand report.
8. The DIT relief certificate are Dept record and have been verified by AO. Without prejudice the CIT(A) called for remand report and complied with the requirement of law.
9. The CIT(A) got notice issued u/s. 133(6) para 5.3.7 pg 18-21
10. The AO relied on assessment order AY 2018-19, the Ld. AO had arbitrarily estimated profit @ 8% of turnover, which the CIT (Appeals) deleted vide order dated 7/10/2024 pg no. 125-15.
11. Making additions of Rs. 19,09,44,000/- simply on basis of Vendors filing Nil turnover and based upon the earlier assessment order. Estimating the profit margins @ 8% of total turnover is unjustified.
12. The earlier year assessment order for AY 2018-19 is considered by AO while passing the assessment order for AY 2022-23. However additions made in AY 2018-19 is deleted by CIT(A) vide order dated 7/10/2024. This order of CIT(A) is accepted by dept.
13. It is further brought to notice that AY 2021-22 also assessment is completed u/s. 143(3) dated 23/12/2022 accepting the return after enquiry. (pg 162-166)
14. Thus considering the overall facts, the order of CIT(A) may be upheld the same is passed after considering the remand report, order for earlier years and enquiry conducted u/s 133(6) of the Act.”
4. The Ld. AR further argued and contended that the assessee furnished the documents and explained the issues during the assessment proceeding and also in remand proceeding. But the remand order was passed without taking cognizance of the assessee’s plea. The Ld. AR heavily relied on the order of the Ld. CIT(A). The relevant paragraphs of the impugned appellate order para 5.3.6 to 5.3.8 are reproduced as below:
“5.3.6 On careful perusal of the remand report dated 06.02.2025, submitted by the AO, it is noticed that the AO vide para 9, 10 and 11/ page 6 to 12 of the remand report stated that the appellant has explained the details in respect of the three major vendors namely M/s CMA CGM SA, M/s MSC Mediterranean Shipping G Company SA &Mis ZIM integrated Shipping Services which were not clearly substantiated by the appellant during the course of assessment proceedings The relevant extract is reproduced as under
“On view of the above facts, it is found that the Vendors mentioned in the assessment order as (1) CMA CGM SA () MSC Mediterranean Shipping G Company SA & (m) Zim Integrated Shipping Services Limited are Non-Residents in India and these entities are filing their returns of income based on the provisions of Section 172 of the Act. Therefore, these entities have notreported any turnover in its return.
10. It can be seen from the assessment order as reproduced above that the assessing officer has made addition to the total income of the assessee considering the observations of the AO made in assessee’s own case for A.Y. 2018-19 and due to lack of confirmations. It is to be noted that the nature of the addition in both the years te AY 2018-19 & 2022-23 are same
10.1 In this case, for A.Y. 2018-19, a remand report had been called for by Ld. CIT(A) and in response a remand report had been sent of the Ld. CIT(A) had deleted the ad-hoc addition made being estimated 8% of total turnover for A. Y. 2018-19 in assessee’s own case
11 In view of the discussions made3 and facts mentioned above, undersigned id of the opinion that the assessee made substantial submission which would rebut the observations made while making above addition in assessment order.
5.3.7 In order to verify the claim of the appellant, notices u/s. 133(6) of the Act were issued to three major vendors of the appellant company namely M/s. CMA CGM SA, M/s. MSC Mediterranean Shipping Company SA and M/s. ZIM Integrated Shipping Services Limited to verify and reconfirm the genuineness of business transactions reported by the appellant company. In response, M/s. ZIM Integrated Shipping Services Limited has responded and submitted the details requested therein. The same is reproduced below for reference.”
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Subsequently, M/s. MSC Mediterranean Shipping Company S A has also responded and submitted the details requested therein. The same is reproduced below for reference:
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5.3.8 I have carefully considered the assessment order, remand report, written submissions, and evidence furnished by the appellant as well as the confirmation by two, third parties on the basis of which I find that the AO is wrong in estimating 8% of the total turnover of the appellant as profit. On examination of records, it is seen that the net profit margins of the appellant never had such higher margins since incorporation, and it is found that the main vendors of the appellant are non-residents due to which they have filed nil ITRs in the country. This fact does not in any way help the AO in estimating the income at ad hoc basis of 8% percent on the total turnover. The AO is thus directed to delete the addition made of Rs. 19,09,44,000/-. Thus, the grounds related to this issue stand allowed.”
5. The Ld. DR contended that the assessee had failed to substantiate the genuineness and creditworthiness of the trade creditors. It was submitted that the explanation furnished by the assessee before the Ld. AO was neither adequate nor supported by cogent documentary evidence. The Ld. DR further drew our attention to the remand report and relied heavily upon the findings recorded therein. The relevant extracts of paragraphs 5 and 6 of the remand report are reproduced as under:-
“5. Further, Remand report on the following grounds was sought by the office of the Ld. CIT(A):
“During the course of the appellate proceeding, the appellant has submitted the following documents. The AO is hereby requested to submit a detailed remand report based on the submission filed by the appellant to the undersigned on or before the said date.
If necessary, the AO can give an opportunity to the assessee.
Also, the AO is required to enquire about the 3 Shipping Liners namely:
1. M/s. CMA CGM SA
2. M/s MSC Mediterranean Shipping G Company S.A.
3. M/s Zim Integrated Shipping Services Limited
With whom the appellant has conducted business transactions during the said Assessment Year and why they have filed Nil turnover. Also, the AO is required to enquire whether the companies mentioned supra are liable to be taxed in India or not for the said Assessment Year.”
5.1 On perusal of the documents submitted during the course of assessment proceeding, it is found that the assessee has submitted evidence on the issue.
6. It is submitted that the exceptions laid down in Rule 46A of the Income tax Rules, 1962 for production of additional evidence before the appellate authorities are not fulfilled by the assessee. The assessee was given opportunity to submit supporting documents and evidence during the course of assessment and the assessee has not claimed any sufficient cause that may have prevented him from filing the evidence during the assessment procedure.
Thus, the assessee does not satisfy any conditions laid down in Rule 46A of the Income Tax Rules, 1962 and thus, the evidence should not be accepted as it is not any additional evidence in the first place.”
6. We have heard the rival submissions and carefully examined the material available on record, including the assessment order, remand report, written submissions of the assessee, and the impugned order of the Ld. CIT(A). It is an undisputed fact that the assessee is engaged in the business of logistics and freight forwarding since 2005 and had declared a total income of Rs.9,31,33,090/-on a turnover of Rs.353.68 crores for the year under consideration. The Ld. AO rejected the books of account primarily on the ground that confirmations from all trade creditors were not furnished and that certain major vendors had filed nil or non-business returns in India. On this basis, the Ld. AO estimated the net profit at 8% of the total turnover and made an addition of Rs.19,09,44,000/-.
However, from the record it is evident that confirmations from 26 vendors aggregating to Rs.18.18 crores (representing a substantial portion of total trade creditors) were furnished. Party-wise ledger accounts, bank statements, and other supporting documents were also placed on record. The three major vendors, M/s CMA CGM SA, M/s MSC Mediterranean Shipping Company SA, and M/s ZIM Integrated Shipping Services Limited were found to be non-resident shipping lines filing returns under the applicable provisions of the Act. The remand report itself acknowledges that these entities are non-residents and file returns in accordance with the statutory framework applicable to international shipping operations. Significantly, the Ld. CIT(A) did not rely merely on the submissions of the assessee but conducted independent verification by issuing notices under section 133(6) of the Act to the major vendors. Two of the parties responded and furnished the requisite details confirming the transactions. The findings recorded in paragraph 5.3.8 of the appellate order clearly demonstrate that the addition was based on an ad hoc estimation without any cogent material to justify application of an 8% net profit rate.
We further note that similar ad hoc estimation made in A.Y. 2018-19 in the assessee’s own case had already been deleted by the Ld. CIT(A), and the same was not shown to have been reversed. Moreover, the net profit ratios declared by the assessee over the years reveal consistent and modest margins, which are typical in the logistics and freight forwarding industry. The Ld.AO has not brought any comparable case or industry data to justify the arbitrary estimation of 8%.
As regards the objection under Rule 46A of the Income Tax Rule, 1962, it is evident from the remand proceedings that the Ld. AO was granted opportunity to examine the documents and submit his report. In fact, the remand report acknowledges that evidence was submitted. Therefore, the contention that the conditions of Rule 46A were not satisfied is without merit, particularly when the Ld. CIT(A) exercised his appellate powers to verify the transactions independently under section 133(6) of the Act.
The rejection of books of account and estimation of profit cannot be sustained merely on the basis that certain vendors filed nil returns in India, especially when they are non-resident shipping companies governed by specific provisions of the Act.
In view of the foregoing discussion, we find that the Ld. CIT(A) has passed a reasoned and speaking order after considering the remand report, documentary evidence, and independent verification. The estimation of profit at 8% of turnover was arbitrary and devoid of proper basis. Accordingly, we find no infirmity in the order of the Ld. CIT(A) directing deletion of the addition of Rs.19,09,44,000/-.
In the result, the appeal filed by the revenue is dismissed.
7. In the result, the appeal of the revenue bearing ITA No.7792/Mum/2025 is dismissed.