2018 (10) TMI 1944 - AT - Income Tax

Estimation of income - CIT (A) confirming the estimation of income from wine shop at 5% of stock put to sale as against 3% being approved by the Tribunal - HELD THAT - We find that this issue is covered in favour of the assessee by various decisions of the Tribunal wherein we have upheld the estimation of income at 3% of the cost of goods put to sale. Addition u/s 68 - unexplained investment credit - Assessee was required to pay License fee and the assessee has paid the same but with no explanation to source - HELD THAT - AO has verified the evidence filed by the assessee such as Bank statement of the partner, loan a/c, etc., and has accepted that the sources for ₹ 32,50,000 are explained. Even with regard to the balance of ₹ 2,16,000, the AO has held that considering the fact that the assessee is into business since long, the statement of the assessee alongwith the evidences may be accepted. We find that the CIT (A) has however, has not accepted on the ground that the assessee has not produced the evidence. Since admittedly the assessee is in this business for long and the AO has accepted the assessee s contention of the availability of funds of ₹ 2,16,000 from the earlier years after verification, we are of the opinion that the CIT (A) ought to have deleted even the addition of ₹ 2,16,000. Therefore, grounds 3 4 are allowed.

Summary

Issues:
Estimation of income from a wine shop at 5% instead of 3% approved by the Tribunal, addition of unexplained investment of ?2,16,700, failure to produce books of account, confirmation of income estimation at 5%, confirmation of unexplained investment addition, failure to appreciate partner's business experience in confirming the addition, failure to delete the addition of ?2,16,000 despite evidence provided.

Estimation of Income:
The assessee's appeal challenged the CIT (A)'s order confirming the estimation of income from a wine shop at 5% of the stock put to sale, contrary to the 3% approved by the Tribunal. The Tribunal referred to previous decisions supporting the estimation of income at 3% and directed the AO to estimate the net profit at 3% of the cost of goods sold, allowing the assessee's appeal on this ground.

Unexplained Investment Addition:
Regarding the addition of ?2,16,700 as unexplained investment, the AO treated the amount as unexplained under section 68 of the Act due to the failure of the assessee to produce evidence. The CIT (A) accepted part of the explanation but confirmed the addition of ?2,16,000. The Tribunal, after considering the AO's verification and the partner's business history, held that the CIT (A) should have deleted the entire addition of ?2,16,000. Therefore, the Tribunal allowed the appeal on this ground as well.

Failure to Produce Books of Account:
The assessee, engaged in running a retail wine shop, failed to produce books of account during the assessment proceedings under section 143(3) of the Act. Consequently, the AO estimated the income at 5% of the cost of goods put to sale. Despite the failure to produce books of account, the Tribunal ruled in favor of the assessee, directing the AO to estimate the income at 3% and allowing the appeal on this issue.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to estimate the income at 3% of the cost of goods sold instead of 5%. Additionally, the Tribunal held that the entire addition of ?2,16,000 as unexplained investment should be deleted, considering the partner's business history and the evidence provided. The decision highlighted the importance of factual considerations in determining income estimation and the treatment of unexplained investments, ultimately ruling in favor of the assessee on all grounds raised in the appeal.