2011 (6) TMI 952 - AT - Income Tax

Summary

Issues involved: Appeal against CIT(A) order u/s 143(3)/147 for assessment year 2002-03 regarding estimation of sales and profit by lower authorities.

Estimation of sales and profit:
The appellant, a country liquor contractor, filed return at income of Rs. 1,19,147. The AO estimated sales at 2.5 times license fee and profit at 5%, making an addition of Rs. 8,01,916. The appellant contended that the liquor contract system had changed significantly post-1999, affecting the estimation method. However, CIT(A) upheld the AO's decision. The ITAT found that the appellant maintained proper books of account, duly audited u/s 44AB, with no defects noted during scrutiny. As per legal provisions, when books are correct, AO cannot estimate profit arbitrarily. Since books were not rejected, the ITAT reversed lower authorities' decision, directing deletion of the addition.

Conclusion:
The ITAT allowed the appeal, emphasizing that when books of account are accurate and no defects are found, AO cannot arbitrarily estimate profit. The decision of the lower authorities was reversed, and the AO was directed to delete the addition made based on estimated sales and profit.