2017 (3) TMI 681 - AT - Income Tax

Income estimation at 5% of the stock put to sale - Held that - As seen from the earlier year s statements of account, it is true that the excise rental was at 9.68% of the sales for the year ending 31-03-2007 and at 9.10% for 31-03-2008, whereas for the impugned assessment year, the excise rental comes to 11%. However, as seen from the trading accounts, the gross profit for the year ending 31-03-2007 was at 15.60% for the year ending 31-03-2008, the gross profit was at 14.47%. In the impugned year, the gross profit works out to 18%. This indicates that the factor of excise rental has been compensated by the higher sale price as can be seen from the trading results. Thus, argument on payment of excise rental at higher rate does not stand. As seen from the order of the CIT(A), Ld.CIT(A) followed the decision in the case of M/s. Amaravathi Wine Shop 2012 (8) TMI 706 - ITAT, HYDERABAD and that assessee has not made out any case to differ from the estimation of profit at 5% on cost of stock put to sale, subject to income from the business is not less than the profit earned as per the P&L A/c. Cash deposits in the bank account - Held that - If it is a money deposited earlier and withdrawn and utilised in the business the same would not be available for further deposits. Since the same was not shown in the balance sheet as on 31-03-2008, the credit for the amount of ₹ 8 Lakhs as available on 31-03-2008 cannot be accepted, even though it is a fact that he withdrew the amount on that date. Since assessee has chosen not to show these transactions in the books of account and has not furnished any evidence that the withdrawn cash was available on that day, it is not possible to give credit for the amount. However, since there are deposits and withdrawals during the year, the contention of peak credit can be accepted as there are no other investments or expenditures which are subjected to verification by the AO. In view of that, AO is directed to verify the working provided by assessee and make addition accordingly, considering the transactions only for the year under consideration. If the working provided is acceptable then AO is directed to accept the peak at ₹ 5,81,192/-. Otherwise he is directed to rework the same after giving due opportunity to assessee.

Summary

Issues: Delay in filing appeal, Estimation of income based on bank transactions, Estimation of profit margin, Treatment of cash deposits in bank account

Delay in filing appeal:
The appeal was filed with a delay of three days due to the inability to pay the appeal fee on the designated date and subsequent public holidays. The ITAT Hyderabad condoned the delay considering the circumstances and admitted the appeal.

Estimation of income based on bank transactions:
The Assessing Officer (AO) estimated the income of the assessee by invoking an ITAT order due to non-compliance with the direction for production of books of account. The AO also identified unaccounted deposits in the assessee's bank account and treated the entire amount as 'unaccounted income.' The CIT(A) confirmed this addition, considering the sequence of transactions and lack of disclosure by the assessee.

Estimation of profit margin:
The CIT(A) directed the AO to estimate the net profit at 5% on the cost of stock put to sale, following a Co-ordinate Bench decision. The assessee argued for a lower estimation based on historical data of license fee payments. However, the ITAT upheld the CIT(A)'s decision, considering the gross profit margin and compensation for higher excise rental in the impugned year.

Treatment of cash deposits in bank account:
The ITAT analyzed the cash deposits in the bank account and the peak working submitted by the assessee. While acknowledging the deposits and withdrawals related to the business, the ITAT noted the lack of reflection in the books of account. The ITAT directed the AO to verify the peak credit amount of &8377; 5,81,192, considering only the transactions for the relevant year and providing an opportunity for reassessment if necessary.

In conclusion, the ITAT Hyderabad partially allowed the appeal, emphasizing the importance of accurate record-keeping and verification of financial transactions to determine income and profit margins effectively.