2018 (7) TMI 2270 - AT - Income Tax

Estimation of profit in IMFL business - case of the assessee was selected for scrutiny and assessment was completed u/s 143(3) of the Act by estimating net profit at 20% of the stock put to sale - HELD THAT - In this respect, the coordinate bench of the Tribunal in the case of Tangudu Jogisetty 2016 (6) TMI 1449 - ITAT VISAKHAPATNAM has considered the profit level in the line of business and decided that 5% of purchase price is reasonable profit margin in the line of IMFL business and directed the A.O. to re-compute the profit of the assessee. Thus we direct the A.O. to re-compute the income of the assessee at 5% of purchase price. Accordingly, this ground of appeal raised by the assessee is allowed. Addition in respect of unsecured loans - HELD THAT - Credit in the name of Majji Govinda Rao there is a discrepancy in the date of demand draft taken and the amount and the purchaser of the DD. When this was pointed out by the ld. CIT(A), the ld. counsel for the assessee simply submitted that the transaction is genuine, therefore, the Assessing Officer as well as ld. CIT(A) doubted the entire transaction. The assessee failed to clarify the discrepancies pointed out by the Assessing Officer and failed to produce creditor before him, even failed to prove the creditworthiness. Under these facts and circumstances of the case, we are of the opinion that the onus casted upon the assessee has not been discharged. Therefore, the authorities below have rightly made the addition. Thus, this ground of appeal raised by the assessee is dismissed. Unsecured loan in respect of M. Srinivasa Rao on appeal before us except stating what was stated before the ld. CIT(A), no material was brought to our notice that the transaction is genuine. By considering the facts and circumstances of the case, we are of the opinion that the assessee failed to discharge the burden casted upon him to prove the genuineness of the transaction and also creditworthiness of the creditor. Therefore, the authorities below rightly considered the issue and addition is made. We find no infirmity in the order of the ld.CIT(A). Thus, this ground of appeal raised by the assessee is dismissed. Cash credit in the capital account and the assessee offered the same for taxation - Before us, ld. counsel for the assessee has submitted that the amount of Rs. 3.00 lakhs includes profit earned by the assessee, therefore, no separate addition can be made, it amounts to double addition. The AR of the assessee is not able to substantiate the above arguments with any supportive evidence. That apart, the Assessing Officer has not considered this amount while estimating the business income. Therefore, we find that the authorities below have correctly made the addition. Thus, this ground of appeal raised by the assessee is dismissed.

Summary

Issues Involved:
1. Estimation of profit in IMFL business.
2. Addition in respect of unsecured loan from Sri Majji Govinda Rao.
3. Addition in respect of unsecured loan from Sri Meka Srinivas.
4. Addition of Rs. 3.00 lakhs in the capital account.

Issue-wise Detailed Analysis:

1. Estimation of profit in IMFL business:
The assessee, engaged in the business of purchase and sale of IMFL, declared a total income of Rs. 2,13,918/-. The Assessing Officer (A.O.) estimated the net profit at 20% of the stock put to sale due to the assessee's failure to maintain proper books of accounts and vouchers. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] reduced the profit estimation to 10%. The assessee appealed to the Tribunal, citing a precedent where the Tribunal had scaled down the profit estimation to 5% in a similar case (Tangudu Jogisetty). The Tribunal agreed with the assessee, noting that the A.O.'s reliance on a judgment involving an arrack dealer was misplaced since the assessee dealt in IMFL, a state-controlled trade with fixed prices. Consequently, the Tribunal directed the A.O. to estimate the net profit at 5% of the purchase price, net of all deductions.

2. Addition in respect of unsecured loan from Sri Majji Govinda Rao:
During the assessment, the A.O. noted an unsecured loan of Rs. 4,50,000/- from Sri Majji Govinda Rao but found discrepancies in the details provided. The confirmation letter and bank statement did not match the A.O.'s verification with Indian Bank, revealing a discrepancy in the DD number and amount. The CIT(A) upheld the A.O.'s addition due to the assessee's failure to clarify these discrepancies and prove the creditor's creditworthiness. The Tribunal agreed, emphasizing that the assessee did not discharge the burden of proof regarding the transaction's genuineness and the creditor's creditworthiness.

3. Addition in respect of unsecured loan from Sri Meka Srinivas:
The A.O. also noted an unsecured loan of Rs. 3.75 lakhs from M. Srinivasa Rao but found ambiguities in the creditor's identity and the transaction details. The CIT(A) observed inconsistencies in the confirmation letter and ledger extract regarding the loan amount and repayments, which the assessee failed to clarify. The Tribunal upheld the addition, noting that the assessee did not provide sufficient evidence to prove the transaction's genuineness and the creditor's creditworthiness.

4. Addition of Rs. 3.00 lakhs in the capital account:
The A.O. added Rs. 3.00 lakhs to the assessee's income, noting a cash credit in the capital account for which the assessee did not explain the source. The CIT(A) confirmed the addition, stating that the amount represented a credit in the capital account and was not included in the business income estimation. The Tribunal upheld this addition, as the assessee failed to provide evidence to substantiate the claim that the amount included profit earned, thus avoiding double addition.

Conclusion:
The Tribunal directed the A.O. to re-compute the income at 5% of the purchase price for the IMFL business, while upholding the additions related to the unsecured loans and the capital account credit due to the assessee's failure to provide sufficient evidence. The appeal filed by the assessee was dismissed.