2018 (1) TMI 132 - AT - Income Tax

Estimation of income from 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 credits in the capital account - As per the Trading account there was no opening stock, hence it appears that the impugned assessment year would be the first year of business. For IMFL business the year starts from 1st July and the assessee had introduced the cash on 02.07.2010. The AO has not discussed the issue in the assessment order and the assessee has not established before us that sum of ₹ 18 lakhs was generated out of business income. Therefore, we remit the matter back to the file of the AO to reexamine the issue whether the cash credit made in the books of accounts relating to ₹ 18 lakhs was business income or not and reconsider the issue afresh on merits. Unexplained gifts - Held that - The assesseee is sister-in-law of Sri T.V.Ramana Murthy who is working as APSRTC driver, Gr.I for the last 10 years and as per the salary certificate, his gross salary is around ₹ 25,000/-. To support the business of his brother s wife, Sri T.V.Ramana Murthy has stated to given a gift of ₹ 1.5 lakh. He has filed the confirmations and the source was explained as salary savings. Since the creditor is identified and having salary income of ₹ 25,000/- per month, we are of the view that there is no case for suspecting the gift and making the addition of ₹ 1,50,000/- relating to gift received from Shri T.V.Ramana Murthy. Accordingly addition made by the AO amounting to ₹ 1.5 Lakh out of the total addition of ₹ 20,68,500/- is deleted. With regard to the balance amount of ₹ 19,18,500/-, the assessee did not place any evidence to controvert the finding of the Ld.CIT(A). Therefore, we uphold the order of the CIT(A) and confirm the addition of ₹ 19,18,500/-. The appeal of the assessee on this ground is partly allowed.

Summary

Issues Involved:
1. Estimation of profit percentage on purchases.
2. Addition of unexplained credits in the capital account.
3. Addition of unexplained gifts.
4. Addition of interest income.
5. Separate addition under Section 68 after rejecting the books of account.

Issue-wise Detailed Analysis:

1. Estimation of Profit Percentage on Purchases:
The assessee, engaged in the business of sale of liquor and wine (IMFL), was initially assessed by the AO with an estimated net profit of 20% on stocks put to sale due to the lack of proper stock registers and sale bills. The CIT(A) reduced this estimation to 10% of purchases. The Tribunal, referencing a precedent where a similar business was assessed at a 5% profit margin, directed the AO to re-compute the income at 5% of purchase price, noting that the case relied upon by the AO involved different facts and was not applicable.

2. Addition of Unexplained Credits in the Capital Account:
The assessee introduced ?18 lakhs as capital on 02.07.2010, claiming it as business income. The AO assessed this amount as other income. The Tribunal found that the assessee did not establish that the ?18 lakhs was generated from business income. The matter was remitted back to the AO to re-examine whether the cash credit was business income.

3. Addition of Unexplained Gifts:
The AO and CIT(A) confirmed the addition of ?20,68,500/- as unexplained gifts due to lack of evidence regarding the donors' capacity. The Tribunal upheld the addition except for ?1.5 lakh from Sri T.V. Ramana Murthy, who was identified as a credible donor with sufficient salary savings. The remaining amount of ?19,18,500/- was confirmed as the assessee failed to provide adequate evidence.

4. Addition of Interest Income:
Ground No. 6 related to the addition of interest income was dismissed as it was not argued by the assessee's representative.

5. Separate Addition Under Section 68 After Rejecting the Books of Account:
Ground No. 7, concerning the addition under Section 68 after rejecting the books of account, was also dismissed as it was not argued by the assessee's representative.

Conclusion:
The Tribunal allowed the appeal partly, directing the AO to re-compute the profit at 5% of purchases and remitting the issue of unexplained credits back to the AO for re-examination. The addition of unexplained gifts was partly upheld, with a deletion of ?1.5 lakh. The grounds related to interest income and Section 68 addition were dismissed as not pressed.