2012 (5) TMI 791 - AT - Income Tax

Summary

Issues involved: Estimation of profit in retail liquor trade, treatment of cash gift as unexplained income u/s 68 of IT Act, disallowance of expenditure on carry bags.

Estimation of profit in retail liquor trade:
The assessee, engaged in the business of running a wine shop, faced an issue regarding the estimation of profit from retail trade in liquor. The assessing officer rejected the book results due to lack of proper evidence and estimated sales, resulting in an addition to the income of the assessee. On appeal, the CIT(A) upheld the addition. The ITAT Hyderabad, considering previous decisions, directed the assessing officer to estimate the net profit at 3% of purchases or stock put for sale, ensuring it does not fall below the returned income. Consequently, the first ground of the assessee's appeal was partly allowed.

Treatment of cash gift as unexplained income u/s 68 of IT Act:
The assessing officer and CIT(A) treated a cash gift received from the assessee's father as unexplained income taxable u/s 68 of the IT Act. The assessee contended that the gift was from a known source and challenged the addition. The ITAT noted that the business income had already been estimated, and the person giving the gift was identifiable with a definite source of income. Despite doubts raised by the Revenue, the ITAT found the explanation plausible and deleted the addition, allowing the ground of the assessee on this issue.

Disallowance of expenditure on carry bags:
The assessing officer disallowed an expenditure incurred in purchasing carry bags, which was confirmed by the CIT(A). However, the ITAT, following legal precedents, held that once the business income is determined by estimation, there is no scope for separate additions. Therefore, the disallowance of the expenditure was unjustified, and the addition was deleted. Consequently, this ground of the assessee was allowed.

In conclusion, the ITAT Hyderabad partially allowed the assessee's appeal, directing the assessing officer to estimate profit in retail liquor trade at 3% of purchases, deleting the addition related to the cash gift, and allowing the disallowance of expenditure on carry bags.