2017 (12) TMI 589 - AT - Income Tax

Estimation of profit in IMFL business - Held that - Both the parties admitted that under identical circumstances, the ITAT, Visakhapatnam bench consistently adopted profit rate of 5% on purchases, clear of all deductions, as a reasonable profit in IMFL business for the assessment year 2011-12 on account of several factors, such as higher license fees, limitations in selling the liquor at tag price, etc. Facts being identical in this year also, modify the order of the Ld. CIT(A) and direct the A.O. to adopt 5% of purchases as net profit clear of all expenditure.

Summary

Issues:
1. Estimation of profit in IMFL business
2. Addition towards unexplained income
3. Condonation of delay in filing the appeal

Estimation of profit in IMFL business:
The appeal involved the estimation of profit in the business of purchase and sale of IMFL for the assessment year 2011-12. The assessee admitted a net profit of ?5,70,052, which was considered low by the Assessing Officer. The AO proposed to estimate the income at 20% due to the absence of daily stock registers. The CIT(A) opined that the profit margin in this business should be 10% of the purchase price and directed the AO accordingly. The Tribunal, considering similar cases, modified the CIT(A)'s order and directed the AO to adopt 5% of purchases as net profit, taking into account factors like high license fees and selling limitations.

Addition towards unexplained income:
Regarding the unexplained income, the CIT(A) noted that the assessee failed to explain the source of funds and merely raised a technical plea. The CIT(A) observed that even if income is estimated, the AO can invoke sections 68/69 of the Income Tax Act to make a separate addition. The Tribunal found no material to contradict the CIT(A)'s findings and approved the addition towards unexplained expenditure.

Condonation of delay in filing the appeal:
The appeal was initially barred by a 35-day delay, but the assessee filed a petition seeking condonation of the delay. The Tribunal, after considering the reasons provided in the affidavit and the lack of serious objections from the Departmental Representative, admitted the appeal for disposal on merits.

In conclusion, the Tribunal partly allowed the appeal, modifying the profit estimation in the IMFL business and approving the addition towards unexplained expenditure. The delay in filing the appeal was condoned, and the case was disposed of accordingly.