2018 (10) TMI 1436 - AT - Income Tax

Estimation of income - Rejection of books of accounts - assessee failed to produce the stock register sale bills with the quantity of sales item wise and the quantitative details of valuation of closing stock etc. - AO estimated the net profit at 20% of the purchases put to sale - Held that - Neither the AO nor the CIT(A) has analyzed the books of accounts and brought on record the specific defects found during the course of assessment proceedings to resort for higher estimation. The AO rejected the books of accounts because of non production of stock register sale bills quantitative details of stocks sold and the valuation of closing stock with the details. AR submitted that the defects pointed out by the AO are common in all the IMFL cases and argued that the assessee s case cannot be given a separate treatment for resorting to higher estimation of income as held by the CIT(A). The above submission was not controverted by the Revenue hence we do not find any reason to resort for higher rate of profit. We are of the view that the assessee s case is squarely covered by the decision of this Tribunal in Tangudu Jogisetty cited 2016 (7) TMI 379 - ITAT VISAKHAPATNAM hence we set aside the order of the Ld.CIT(A) and direct the AO to estimate the income @5% of the goods sold. Addition u/s 68 - revision u/s 263 - reopening of assessment - Held that - In the instant case the AO has examined the issue satisfied with the correctness with regard to the identity genuineness and credit worthiness of the capital introduction unsecured loans and the sources of investments and accepted the same as genuine. By enhancement notice the CIT(A) intended to redo the assessment and reexamine the issue which was already examined by the AO. It is not the case of non causing enquiries by the AO as evident from assessment order in para No.2.1. AO has called for the details and examined the issue in detail. CIT(A) is not empowered to enhance the assessment by discovering the new source of income. For escapement of income there are remedial measures provided u/s 147 and 148 of the Act. If the order passed by the AO is erroneous and prejudicial to the interest of the revenue the alternative remedy is provided u/s 263 of the Act. Similarly if a mistake is committed by the AO which is apparent form the record remedial measures are provided u/s 154 of the Act. If the Ld.CIT(A) is allowed to make the enhancement on a new source of income which was not considered by the AO the provisions of section 147 148 and 263 would become redundant. Therefore we are of the considered opinion that the Ld.CIT(A) is not permitted to make the enhancement on completely new source of income which was not considered by the AO.

Summary

Issues Involved:
1. Estimation of Income
2. Separate Addition under Section 68

Detailed Analysis:

1. Estimation of Income:
The assessee, engaged in the business of Indian Made Foreign Liquor (IMFL), filed a return declaring a total income of ?5,77,646 for the assessment year 2011-12. The Assessing Officer (AO) rejected the books of accounts due to the non-production of the stock register, sale bills with the quantity of sales item-wise, and the quantitative details of the valuation of closing stock. Consequently, the AO estimated the net profit at 20% of the purchases put to sale.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], requesting acceptance of the book results or an estimation of income at 5% as per a previous ITAT decision. The CIT(A) directed the AO to recompute the income estimating the net profit at 10% of the purchase price, citing government affidavits about violations in the liquor trade.

Upon further appeal, the Tribunal found that neither the AO nor the CIT(A) pinpointed specific discrepancies justifying a higher estimation rate. The Tribunal concluded that the assessee’s case was similar to the precedent cited and directed the AO to estimate the income at 5% of the goods sold, partly allowing the assessee’s appeal.

2. Separate Addition under Section 68:
The CIT(A) enhanced the income by ?37,83,000 under Section 68 during the appeal proceedings, identifying unexplained investments towards advance license fees and other expenses. The assessee initially claimed the investments were from personal sources and regular sales but later stated that 16 individuals pooled the funds. The CIT(A) found inconsistencies and doubted the creditworthiness of the contributors, leading to the addition of the entire amount as unexplained cash credits.

The assessee argued that the AO had already examined and accepted the sources of capital during the assessment, and the CIT(A) overstepped by re-examining the same issue. The Tribunal noted that the CIT(A) is not empowered to enhance the assessment by discovering a new source of income not considered by the AO, as established by precedents from the Hon’ble Delhi High Court and Hon’ble Kerala High Court. The Tribunal set aside the CIT(A)’s order regarding the enhancement and deleted the addition, allowing the assessee’s appeal on this ground.

Conclusion:
The Tribunal partly allowed the assessee’s appeal by directing the AO to estimate the income at 5% of the goods sold and deleting the enhancement made by the CIT(A) under Section 68. The Tribunal emphasized that the CIT(A) cannot enhance the assessment by discovering new sources of income not considered by the AO.