2014 (11) TMI 1171 - AT - Income Tax

Estimation of net profit rate of 5% - Held that - The accounts of the assessee are undisputedly audited accounts. These were produced before the A.O. The balance-sheet trading and profit & loss account are required to be necessarily furnished along with the return of income. So obviously these were also available before the A.O. Thus even if the books of account were rejected and an estimate was made this estimate as arrived at by the learned CIT(A) on the basis of M/s Bathinda Wine Traders for the assessment year 2009-10 in the absence of any other comparable case supporting the estimate of net profit rate of 5% is squarely applicable and has rightly been applied by the learned CIT(A). - Decided against revenue

Summary

Issues:
Department's appeal against CIT(A)'s order reducing net profit rate from 5% to 0.5% for assessment year 2010-11.

Analysis:
The appellant, a partnership-firm engaged in liquor retail trade, declared a loss but was assessed by the A.O. at a higher income applying a 5% net profit rate. The CIT(A) reduced the rate to 0.5%, leading to the Department's appeal. The Department argued that the appellant failed to maintain bank accounts or provide confirmed copies of accounts, unlike a previous case. The appellant contended that it maintained proper records and complied with Excise Department regulations, justifying the lower net profit rate.

The A.O. based the 5% net profit rate on lack of confirmed seller account copies and cash payments without explanation. The CIT(A) considered the appellant's furnished books and seller accounts, criticizing the A.O. for lack of inquiry or defects in the accounts. The CIT(A) relied on a previous case for the 0.5% rate, emphasizing the need for fair and reasonable income estimates based on available material.

The Department argued the uniqueness of the small town's market, suggesting higher profits, but the CIT(A) highlighted the strict regulations governing liquor trade by the Excise Department. As no evidence supported the Department's profit rate claims, the CIT(A)'s decision was upheld as reasonable and fair. The Tribunal dismissed the Department's appeal, affirming the CIT(A)'s order.

In conclusion, the Tribunal rejected the Department's appeal, upholding the CIT(A)'s decision to reduce the net profit rate from 5% to 0.5% for the appellant's liquor retail trade business for the assessment year 2010-11.