2012 (8) TMI 150 - AT - Income Tax

Trading addition on account of suppression of sales - assessee, deriving income from the business of country liquor - CIT(A) provided partial relief - assessee contesting estimation made - Held that - It is seen that the CIT(A) has already granted relief on two counts, firstly by estimating the total sales at Rs.1.3 crores against estimation of Rs.1.4 crores estimated by the AO and secondly the net profit was directed to be at 5% on the reduced estimation, especially when no sale vouchers were prepared by the assessee and rejection of books of accounts of the assessee was upheld. We find no infirmity in the conclusion drawn by the CIT(A). It is affirmed - Decided against assessee. Extinguishment of liability - addition u/s 41(1) - Held that - Admittedly, from the AY 2002-03 the assessee had been showing these liabilities in the books of accounts and in spite of laps of mandatory period of three years after which debt cannot be recovered in the absence of part payment or acknowledgement and the assessee has also changed line of business i.e. from India made foreign liquor to country liquor and no payment of any sort was made to any of the parties mentioned in the assessment order, one undisputed fact is emerging that there is no intention on behalf of the assessee to repay the impugned amounts or any part thereof. Hence we find no merit in this ground - Decided against assessee. See CIT vs Karamchand Thapar & Others (1996 (8) TMI 2 - SUPREME COURT) Addition u/s 40A(3) - cash purchases - assessee contended that said purchases were made pursuant to the transfer permit issued by the excise department - Held that - This is an undisputed fact that the payments were made at the directions of the excise authorities as the situation was not within the control of the appellant. Therefore, CIT rightly deleted aforesaid addition - Decided in favor of assessee.

Summary

Issues:
1. Estimation of sales and net profit - Trading addition on account of suppression of sales.
2. Addition of liability under section 41(1) of the Act.
3. Adoption of net profit rate and sales amount by the Revenue.
4. Deletion of addition under section 40A(3) of the Act.

Estimation of sales and net profit - Trading addition on account of suppression of sales:
The appeal involved a dispute regarding the estimation of sales and net profit by the Assessing Officer. The Assessing Officer estimated sales by applying the sale rate at 10% of the minimum selling rates, resulting in an addition of Rs. 22,98,053 as suppression of sales. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to estimate sales at Rs. 1,30,00,000 and net profit at 5%, providing relief to the assessee. The Tribunal found the Commissioner's estimation reasonable, affirming the decision.

Addition of liability under section 41(1) of the Act:
The issue revolved around confirming the addition of Rs. 8,20,628 on account of extinguishment of liability under section 41(1) of the Act. The assessee argued that the liabilities were outstanding in the balance sheet, contending that the limitation period did not apply. However, the Tribunal analyzed the facts and cited legal precedents to support the conclusion that there was no intention on behalf of the assessee to repay the amounts, upholding the decision to add the liability.

Adoption of net profit rate and sales amount by the Revenue:
The Revenue challenged the adoption of a net profit rate of 5% and the restriction of sales at Rs. 1,30,00,000 by the Commissioner of Income Tax (Appeals), as opposed to the 10% rate and higher sales amount estimated by the Assessing Officer. The Tribunal, having affirmed the Commissioner's decision on the appeal of the assessee, found no merit in the Revenue's grounds, considering them of academic interest only.

Deletion of addition under section 40A(3) of the Act:
The final issue concerned the deletion of the addition of Rs. 1,12,000 under section 40A(3) of the Act, where cash payment was made as per the directions of the excise authorities. The Tribunal noted that the purchases were made pursuant to a transfer permit issued by the excise department, and as the payments were made under the authorities' directions, it affirmed the decision to delete the addition.

In conclusion, the Tribunal dismissed both the appeal of the assessee and the Revenue, upholding the decisions made regarding the estimation of sales and net profit, addition of liability under section 41(1) of the Act, and deletion of the addition under section 40A(3) of the Act. The judgment was pronounced in the open court on 5.6.2012.