2017 (8) TMI 448 - AT - Income Tax

Estimation of profit in respect of IMFL business - 10% OR 5% - Held that - The coordinate bench of the Tribunal in the case of Tangudu Jogisetty (2016 (7) TMI 379 - 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. Unexplained cash credits - additional evidence to substantiate the claim - Held that - Assessee filed an additional evidence on 15/02/2017 and submitted that he is in the process of collecting the evidence and ultimately he succeeded in collecting the evidence and therefore, same may be considered and admitted and remitted matter back to the Assessing Officer for fresh consideration. As find that all the confirmation letters filed by the assessee were obtained from the creditors, who belongs to the assessee s village and the amount is below ₹ 20,000/-. When the assessee has borrowed funds from friends and relatives, who are belonging to the same village, as to why he has taken near about five years to collect the confirmation letters. The assessee has not given any explanation for that. Also find that the additional evidence filed by the assessee in the form of confirmation letters is only an afterthought. It is not a fit case to admit the additional evidence, hence, reject the same. Assessee has not filed any details to substantiate his case - Decided against assessee.

Summary

Issues:
1. Estimation of profit in IMFL business.
2. Treatment of unexplained cash credits.

Estimation of profit in IMFL business:
The appeal pertains to the estimation of profit in the business of purchase and sale of Indian Made Foreign Liquor (IMFL) by the assessee for the Assessment Year 2011-12. Initially, the assessing officer estimated the net profit at 20% of the stock put to sale under section 143(3) of the Income Tax Act, 1961. However, the Commissioner of Income Tax (Appeals) scaled down the percentage to 10%. The assessee then appealed to the Tribunal, arguing that a similar case before the Tribunal had resulted in the profit estimation being reduced to 5%. The Tribunal, after considering the arguments, held that 5% of the purchase price was a reasonable profit margin in the IMFL business. The Tribunal directed the assessing officer to re-compute the profit at 5% of the total purchases net of all deductions, following the decision of the coordinate bench. The Tribunal emphasized that no contrary decision was presented by the revenue, and therefore, upheld the assessee's appeal.

Treatment of unexplained cash credits:
Regarding unexplained cash credits, the assessing officer noted discrepancies in the explanations provided by the assessee for certain transactions, including the payment of license fees and other credits to the trading account. The assessing officer treated an amount as unexplained cash credits and added it to the total income of the assessee. The Commissioner of Income Tax (Appeals) affirmed the assessing officer's decision due to the lack of evidence supporting the explanations provided by the assessee. The assessee then appealed to the Tribunal, submitting additional evidence in the form of confirmations from friends and relatives regarding borrowed funds. However, the Tribunal rejected the additional evidence, considering it an afterthought and not a fit case for admission. Ultimately, the Tribunal found no infirmity in the Commissioner's decision and partly allowed the appeal of the assessee.

In conclusion, the Tribunal's judgment focused on the estimation of profit in the IMFL business and the treatment of unexplained cash credits, emphasizing the need for proper documentation and evidence to support claims made during assessment proceedings.