Ad-Hoc Estimation of Income Without Rejecting Books of Account Not Permissible: ITAT Kolkata

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) on 17 February 2026 held that income cannot be estimated on an ad-hoc basis without first rejecting the books of account, and set aside an addition made on that basis while quashing the reassessment proceedings.

The Bench comprising Accountant Member Rajesh Kumar and Judicial Member Pradip Kumar Choubey allowed the appeal filed by Rakhi Mondal for Assessment Year 2017-18. It held:

“the said reopening has been done without meeting the specific requirement as provided u/s 149(1)(b) of the Act. Therefore, we quash reopening of assessment.”

The Assessing Officer (AO) initiated reassessment proceedings based on information regarding financial transactions of approximately Rs. 1.85 crore. It treated Rs. 1.86 crore as unexplained money under Section 69A of the Income Tax Act, which covers assets or money not recorded in the books of account.

The Tribunal first examined the validity of the reassessment. It observed that the AO did not satisfy the statutory conditions under Section 149. According to the provision, to reopen cases beyond three years, the AO to demonstrate that income of Rs. 50 lakh or more represented in specified forms escaped assessment. The Tribunal therefore held the reassessment to be invalid.

On the merits, the Tribunal noted that the AO estimated income at 15% of turnover without discarding the books of account. It emphasised that the estimation lacked legal foundation because the Tribunal did not find the books unreliable or incorrect.

The Bench recorded that the estimation occurred “without rejecting the books of account,” and therefore could not be sustained. It further observed that the taxpayer conducted agricultural trading and maintained proper books of account. In such circumstances, ad-hoc estimation of income without rejecting the books was impermissible.

Accordingly, the ITAT set aside both the reassessment and the addition and allowed the appeal.