2017 (9) TMI 1747 - AT - Income Tax

Estimation of income arising out of sale of stock - assessee is a liquor dealer running wine shops - Held that - It is well settled that while estimating the income, in the absence of complete details, on account of rejection of books of account and non-furnishing of good and sufficient reasons, there is bound to be some amount of guess work on the part of A.O. and unless same is found to be arbitrary and illogical, the appellate authority should avoid substitution of their opinion to that of the Assessing Officer. Thus on a conspectus of the matter the estimate of income at 5% is reasonable. - decided against assessee

Summary

Issues:
Estimation of income arising from the sale of stock.

Analysis:
The appeal before the Tribunal arose from the order passed by the Ld. CIT(A)-5, Hyderabad concerning the assessment year 2013-2014. The primary issue in contention was the correctness of the estimate of income derived from the sale of stock. The assessee, a liquor dealer running wine shops, had not filed a return despite receiving a significant amount from liquor sales. The Assessing Officer noticed discrepancies in the declared income and initiated proceedings under section 148 of the Act. Upon examination, it was found that the purchases and sales figures did not align, leading to a gross profit of 12.31%. Additionally, the assessee was also involved in running a Lodge, declaring a net profit on that business as well.

The Assessing Officer, considering the norms in the liquor business, rejected the book results and estimated the net profit from liquor sales at 5% of goods sold. The Ld. CIT(A) upheld this decision, citing previous ITAT judgments where a 5% profit estimation was deemed reasonable. The Tribunal had consistently applied this percentage in various cases involving liquor businesses. The assessee contended that a 3% estimation was more appropriate based on ITAT precedents, but the Ld. CIT(A) affirmed the 5% estimation.

The assessee, in the appeal before the Tribunal, argued that the A.O. had accepted a lower profit percentage in subsequent years and that the business environment in the area did not support higher profits. However, the Tribunal held that without specific constraints leading to lower profits being demonstrated, the A.O.'s 5% estimation was reasonable. The Tribunal emphasized the importance of the assessee providing sufficient reasons for deviations from standard profit margins.

Ultimately, the Tribunal dismissed the appeal, stating that in the absence of complete details and valid reasons for lower profits, the A.O.'s estimation was deemed reasonable. The Tribunal highlighted that unless the A.O.'s estimation was arbitrary or illogical, the appellate authority should not substitute its opinion. The decision reaffirmed the principle that estimations in tax assessments involve some guesswork, and as long as they are not arbitrary, they should be upheld.

In conclusion, the Tribunal upheld the A.O.'s 5% estimation of income from liquor sales, emphasizing the need for the assessee to provide specific reasons for deviations from standard profit margins and the importance of avoiding arbitrary substitutions of opinions in tax assessments.