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2019 (1) TMI 889 - AT - Income TaxEstimation of income - rejecting the books of account and resorting to estimation of income - AO estimated the income at 5% of the cost of goods put to sale also confirmed by CIT-A - Held that - We find that this issue is covered in favour of the assessee by various decisions of the Tribunal wherein we have upheld the estimation of income at 3% of the cost of goods put to sale. As relying on SRI VENKATESWARA WINES VERSUS THE INCOME TAX OFFICER, WARD 10 (4) , HYDERABAD. 2015 (11) TMI 1746 - ITAT HYDERABAD AO is directed to estimate the net profit at 3% of the cost of goods put to sale. The assessee s appeal is accordingly allowed. Seeking deduction of the remuneration and the interest paid to the partners from the interest which is estimated @ 3% of the cost of the goods put to sale - Held that - In all the cases where we have estimated the income @ 3% of the cost of the goods put to sale; the contention of the respective assessee has been considered to hold that the net income of the assessee from business is 3% of the cost of the goods put to sale. Thus, the estimation itself takes care of the expenses such as remuneration and interest paid to the partners of the assessee-firm. Therefore, we find no reason to interfere with the order of the CIT (A) on this issue.
Issues:
1. Estimation of income based on books of account 2. Rejection of books of account and resorting to estimation of income 3. Allowability of deduction for remuneration and interest paid to partners 4. Charging of interest under sections 234B and 234D Estimation of Income Based on Books of Account: The case involved an appeal for the assessment year 2014-15 against the order of the CIT (A)-6, Hyderabad, where the assessee, engaged in a retail wine shop business, declared total income on an estimation basis. The AO estimated income at 5% of the cost of goods sold, leading to an appeal before the CIT (A) and subsequently before the ITAT Hyderabad. The ITAT considered various decisions and directed the AO to estimate the net profit at 3% of the cost of goods put to sale, aligning with previous Tribunal decisions and allowing the assessee's appeal. Rejection of Books of Account and Resorting to Estimation of Income: The assessee's appeal challenged the rejection of books of account and resorting to the estimation of income by the CIT (A). The ITAT, referring to past decisions, upheld the estimation of income at 3% of the cost of goods sold, emphasizing that a uniform net profit rate cannot be adopted for all similar businesses. The ITAT allowed the appeal, directing the AO to estimate the net profit at 3% of the cost of goods put to sale. Allowability of Deduction for Remuneration and Interest Paid to Partners: Regarding the deduction of remuneration and interest paid to partners, the ITAT noted that when income was estimated at 3% of the cost of goods sold, it inherently considered expenses such as remuneration and interest paid to partners. Therefore, the ITAT found no reason to interfere with the CIT (A)'s decision on this issue, leading to the partial allowance of the assessee's appeal. Charging of Interest under Sections 234B and 234D: The ITAT confirmed the charging of interest under sections 234B and 234D, as mentioned in the grounds of appeal. The order was pronounced in the Open Court on 15th November 2018, with Smt. P. Madhavi Devi and Shri S.Rifaur Rahman as the Judicial and Accountant Members, respectively, hearing the case.
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