2018 (6) TMI 551 - AT - Income Tax

Income estimation on the liquor put to sale - assessee is an individual deriving income from retain trading in IMFL - Held that - We direct the AO to consider 3% of the income of assessee subject to the above amount not being less than the profit already disclosed by assessee. In that event, the income disclosed by assessee should be accepted. Unexplained cash deposit - addition u/s 68 - Held that - Confirmation by the CIT(A) is not proper whether the account is used for business purposes or not. The deposits in the bank account pertain to assessee. Assessee had substantial income during the year and that too he is doing retain business in IMFL. There is no allegation that these amounts also pertain to the business by the AO. Since the deposits are through-out the year in small amounts and since the corresponding credits in the books of account are not verified by the AO and the books of account having been rejected, we are of the opinion that the deposits can be telescoped to the income estimated on the business - deposits in the bank account need not be separately assessed, when income was estimated more than what assessee has disclosed - direct the AO to delete the addition

Summary

Issues:
1. Estimation of income in the liquor business.
2. Addition of ?1,60,000/- under section 68 of the Income Tax Act.

Estimation of Income in Liquor Business:
The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the estimation of income in the liquor business and the addition of ?1,60,000 under section 68 of the Income Tax Act. The assessee, an individual involved in retail trading in IMFL, contested the rejection of their books of account and the estimation of income at 5% on liquor sales. The CIT(A) determined the net profit at 4.5% of the cost of goods sold after considering submissions and case laws. The ITAT, after considering submissions, held that income could be reasonably estimated at 3% on the cost of goods sold based on a Co-ordinate Bench decision in a similar case. The Tribunal directed the Assessing Officer to adopt 3% of the cost of goods sold as the income of the assessee, ensuring it was not less than the profit disclosed by the assessee.

Addition of ?1,60,000/- under Section 68:
The second issue involved the addition of ?1,60,000 under section 68 of the Income Tax Act. The Assessing Officer found cash deposits of ?1,60,000 in the assessee's bank account and treated it as unexplained cash deposit. The CIT(A) rejected the assessee's contentions that the deposits were from known sources of income and pertained to the business. The ITAT, however, disagreed with the CIT(A) and held that the deposits pertained to the assessee, who had substantial income and was engaged in the retail business of IMFL. Since the deposits were throughout the year in small amounts and the corresponding credits were not verified due to the rejection of books of account, the ITAT concluded that the deposits could be telescoped into the estimated business income. Consequently, the ITAT directed the Assessing Officer to delete the addition of ?1,60,000.

In conclusion, the ITAT partially allowed the appeal of the assessee, addressing both the estimation of income in the liquor business and the addition under section 68 of the Income Tax Act.