2018 (12) TMI 38 - AT - Income Tax

Rejection of books of account - estimating the income at 3% - unexplained investment - Held that - Income from the sale of liquor has been estimated at 3% of the cost of the goods put to sale and therefore, assessee has no grievance against the assessment order to this extent is confirmed For unexplained investment his is the first year of operation of the assessee and the assessee could start the business only after obtaining license from the Govt. and by making payment of the license fee. The assessee has made the payment of ₹ 18.00 lakhs towards the first instalment of the license fee and therefore, such an amount cannot be treated as unexplained income from the business of the assessee. This is the capital introduced by him and if at all, it can only be the income from the earlier years and not from the relevant previous year. Therefore, respectfully following the judgment of the Hon ble Supreme Court in BHARAT ENGINEERING AND CONSTRUCTION CO. 1971 (9) TMI 14 - SUPREME COURT , we delete the addition of ₹ 18.00 lakhs. - Decided partly in favour of assessee.

Summary

Issues:
1. Estimation of income by rejecting books of account and levying interest under section 234B of the Income Tax Act.
2. Treatment of investment as income without considering sources.
3. Appeal against the order of the CIT (A) for the AY 2009-10.

Analysis:
1. The appellant challenged the CIT (A)'s order, claiming it to be erroneous and prejudicial. The CIT (A) had estimated the income at 3% by rejecting the books of account. The appellant argued that the estimation was excessive given the circumstances. Additionally, the CIT (A) confirmed the treatment of an investment of ?18,00,000 as income without considering its sources and levied interest under section 234B of the Income Tax Act. The appellant contended that these actions were unjustified.

2. The appellant, an individual running a wine shop, declared an income of ?3,05,150 for the AY 2009-10. During assessment, the AO noted that it was the first year of business for the appellant. A survey revealed that the appellant had introduced a capital of ?21,05,152, citing ?18,00,000 as the initial investment for license fee and stock lifting from the Beverage Corporation, sourced from family agricultural operations. Despite requests, the appellant initially failed to provide relevant details but later submitted books of account, land holdings, and cash flow statements. The AO estimated the net profit at 3% due to the nature of the business and treated the ?18,00,000 as unexplained investment, leading to tax implications.

3. The appellant's counsel argued that the income estimation was in line with Tribunal decisions and cited a Supreme Court judgment regarding unexplained cash credit entries in the first year of business. The DR supported the AO's decision, referencing a Coordinate Bench ruling on proving the genuineness of cash credits. The Tribunal noted that it was the appellant's first year of operation, emphasizing that the ?18,00,000 was capital for obtaining the license and not unexplained income. Relying on the Supreme Court judgment, the Tribunal deleted the ?18,00,000 addition, partially allowing the appeal against the CIT (A)'s order for the AY 2009-10.