2018 (4) TMI 1611 - AT - Income Tax

Rejection of books of accounts - Estimation of income at 5% on the liquor put to sale - Held that - As relying on BADRI SRINIVAS, BAKKASHETTY LAXMAN, NARALA SATYANARAYANA, RAJENDRA PRASAD SALLA, VERSUS ITO, 2018 (2) TMI 1775 - ITAT HYDERABAD we are of the opinion that estimation of income @ 3% would be reasonable on the facts of the case. However, AO is directed to keep in mind that the estimated income does not fall less than the profit declared by assessee, in which case the profit declared by assessee should be accepted. Subject to above direction, AO is directed to estimate the profit @ 3% of the cost of stock put to sale and re-determine the total income, accordingly. - Decided partly in favour of assessee.

Summary

Issues:
Estimation of income at 5% on liquor sales by the Commissioner of Income Tax (Appeals) and the challenge by the assessee. Discrepancy between the assessee's declared profit and the profit estimated by the Assessing Officer. Comparison of profit estimation percentages in various Tribunal cases.

Analysis:
The appeal in this case revolves around the estimation of income at 5% on the liquor put to sale by the Commissioner of Income Tax (Appeals), which the assessee contested. The Assessing Officer arrived at a stock value of ?8.90 Crores and estimated the profit at 5%, resulting in a profit of ?44,50,847 from the liquor business. The assessee argued that a previous Tribunal case suggested a profit estimation of 2.5%, but the Commissioner relied on other Tribunal cases to uphold the 5% estimation, leading to the current appeal.

During the arguments, the assessee's counsel referred to Tribunal cases directing income estimation at 3%, while the Departmental Representative cited cases where income was confirmed at 5%. The Tribunal noted that a uniform profit estimation may not be suitable for all cases and should be based on individual circumstances. Considering the varying profit estimations in different cases, the Tribunal referenced a recent case directing income estimation at 3% and decided that 3% would be a reasonable estimation in this case. The Assessing Officer was instructed to ensure the estimated income does not fall below the declared profit, in which case the declared profit should be accepted. Consequently, the appeal was partially allowed, and the Assessing Officer was directed to estimate the profit at 3% of the stock value for redetermination of total income.

In conclusion, the Tribunal's decision highlighted the importance of considering individual case facts for profit estimation, referencing previous Tribunal cases to determine a reasonable profit percentage. The judgment emphasized the need for a balanced approach in estimating income, ensuring fairness to the assessee while maintaining compliance with tax regulations.