2019 (3) TMI 57 - AT - Income Tax

Rejection of books of accounts - Estimation of income on liquor sold - majority of the expenditure claimed under the heads freight and hamali, printing and stationery breakage etc. were not supported by proper vouchers - HELD THAT - The coordinate benches of this Tribunal consistently taking a view that estimation of income at 3% of the cost of the goods sold is reasonable in this line of business. See SRI VENKATESWARA WINES VERSUS THE INCOME TAX OFFICER, WARD 10 (4) HYDERABAD. 2015 (11) TMI 1746 - ITAT HYDERABAD Estimation of income on liquor sales at Bar & Restaurant, the AO estimated the same at 10%, which is reasonable and the same is hereby upheld, which is inline with the precedents. Estimation of on income on food items sold at Bar & Restaurant, AO estimated the same at 25%. The coordinate bench of this Tribunal in the case of M/s V.R. Bar restaurant 2015 (10) TMI 1485 - ITAT HYDERABAD , directed the AO to estimate the same at 10% as against 20% adopted by the AO. Therefore, following the said decision, we direct the AO to estimate the income on food items at 10%.

Summary

Issues:
Estimation of net profit based on deficiencies in the books of account maintained by the assessee. Confirmation of AO's estimation of income from liquor shop and bar/restaurant business. Estimation of income from sale of restaurant food items.

Estimation of Net Profit:
The AO rejected the books of account due to deficiencies and estimated the net profit based on the cost of purchases put for sale. The AO estimated net profit at 5% of the cost of purchases following a previous ITAT decision. The CIT(A) upheld the AO's decision. The assessee argued that the expenditure claimed was supported by proper vouchers and should not have led to the rejection of books. The AR submitted that the AO should have accepted the books of account as the incurred expenditure was only 0.5% of the gross income.

Estimation of Income from Liquor Shop and Bar/Restaurant Business:
The AO estimated income from the liquor shop at 5% and from the bar/restaurant business at 10% of the cost of sales, which the AR contested. The AR referred to various ITAT cases to support a different estimation approach. The Tribunal noted that a 3% estimation of income from the cost of goods sold was reasonable based on previous decisions. The Tribunal directed the AO to adopt 3% of the cost of goods of liquor sold as the income. The estimation of income from the bar/restaurant business at 10% was upheld as reasonable.

Estimation of Income from Sale of Restaurant Food Items:
The AO estimated income from restaurant food items at 25% of the total sales reported, which the AR argued was too high. The Tribunal referenced a previous case and directed the AO to estimate the income from food items at 10% instead of 25%. Consequently, the Tribunal partly allowed the grounds raised by the assessee in this regard.

In conclusion, the appeal of the assessee was partly allowed by the Tribunal, with directions given regarding the estimation of net profit, income from the liquor shop and bar/restaurant business, and income from the sale of restaurant food items.