2022 (9) TMI 1629 - AT - Income Tax

Unexplained sales - non establish the true sales figures and not submitted sales bills and vouchers and quantitative details - AO submitted that in absence of proper sales invoices and quantitative details, financial results of assessee do not have authenticity, necessitating to invoke section 145(3) and thereby reject the books of accounts and estimate taxable income of assessee - AR submitted that the decision of Badri Prasad Bhagwandas 1994 (10) TMI 268 - MADRAS HIGH COURT is plainly distinguishable and hence not applicable to the assessee at all as such decision was given in relation to AY 1976-77 when the facts were entirely different. Ld. AR submitted that at that time, the excise policy of Govt. was totally different. There was no control of the Government over the sales price and the Licensee was free to sale liquor to customers at the price as per his will, but now the situation has totally changed. Now, State Government has issued excise policy for sale of liquor, according to which there is a price band of fixed MSP (Minimum selling price) and MRP (Maximum retail price). This policy is effective since 15.01.2008 / 15.01.2009 and the assessee has filed a copy of Gazette to Ld. CIT(A), which is very clear from appeal-order passed by Ld. CIT(A) itself. Now as per new policy, a retailer cannot charge more than MRP from customer. HELD THAT - As assessee has duly filed a copy of the gazette to demonstrate the new excise policy to Ld. CIT(A). On a careful reading of the order of Ld. CIT(A), we find that the Ld. CIT(A) has considered the submissions of assessee at length and after a careful consideration, came to accept that the decision in Badri Prasad Bhagwandas (supra) is not applicable to assessee. We further observe that the Ld. DR representing the revenue could not rebut the findings of Ld. CIT(A) with respect to non-applicability of the decision. Decided against revenue. Estimation of sales and profits - It is an admitted fact by assessee that the sales-invoices and quantitative details are not maintained. Hence, suffice it to say, this is a significant lapse by assessee which makes the books of account incomplete, warranting rejection of books u/s 145(3). Therefore, we do not find any infirmity in the action of Ld. AO. Having said so, we now have to confine ourselves to the computation of profit of the business carried on by assessee. In this regard, we find weightage in the submission of assessee that the maximum possible sales of the year can be computed by using MRP. Thus, we find that the sales of assessee is acceptable and there is no serious problem in the expenditure side too. Hence, we do not find any infirmity in the order of Ld. CIT(A) whereby Ld. CIT(A) has accepted the book-results of assessee and deleted the addition made by Ld. AO. Being so, we are persuaded to uphold the action of Ld. CIT(A) and inclined to dismiss Ground No. 1 raised by revenue.

Summary

Issues Involved:
1. Justification of the deletion of addition by the CIT(A) based on the assessee's inability to establish true sales figures and lack of sales bills, vouchers, and quantitative details.
2. Justification of the CIT(A) in holding that the estimation of sales and profit made by the AO based on a previous High Court decision is unjustified.

Detailed Analysis:

Issue 1: Justification of the deletion of addition by the CIT(A) based on the assessee's inability to establish true sales figures and lack of sales bills, vouchers, and quantitative details.

The assessee-company, engaged in the retail sale of country liquor and foreign liquor, declared a loss of Rs. 3,93,04,468/- for AY 2016-17. The AO rejected the books of account under section 145(3) of the Income-tax Act, 1961, due to perceived incompleteness and unreliability, particularly in verifying sales without proper bills. The AO estimated sales at Rs. 45,75,27,240/- and net profit at Rs. 2,28,76,362/- based on a previous High Court decision.

On appeal, the CIT(A) deleted the addition, noting that no specific item indicated incorrectness in the books. All purchases were from the State Excise Department, and no bogus expenses were found. The CIT(A) observed that the AO did not consider the new excise policy, which fixed the Maximum Retail Price (MRP) and Minimum Selling Price (MSP), making the AO's estimation based on an old policy unjustified. The CIT(A) highlighted that the AO failed to compare the financial results with similar trades or historical data and did not account for the government-regulated pricing structure.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's reliance on an outdated policy was inappropriate. The Tribunal found the sales declared by the assessee (Rs. 20,75,00,239/-) to be reasonable and slightly higher than the maximum possible sales calculated using MRP (Rs. 19,95,07,456/-). The Tribunal also noted that the AO did not find any specific defects in the expenditure side, further supporting the CIT(A)'s deletion of the addition.

Issue 2: Justification of the CIT(A) in holding that the estimation of sales and profit made by the AO based on a previous High Court decision is unjustified.

The AO's estimation of sales and profit was based on the decision in Badri Prasad Bhagwan Das & Co. (MCC No. 202 of 1985, dated 11.10.1994). The CIT(A) found this reliance unjustified, noting significant changes in the excise policy since the decision. The new policy, effective since 2008/2009, introduced government control over sales prices, fixing MSP and MRP, unlike the previous era where licensees had more pricing freedom.

The Tribunal agreed with the CIT(A), noting that the AO's estimation formula was outdated and did not reflect the current regulated pricing environment. The Tribunal observed that the AO did not provide comparable cases or historical data to justify the estimation. The Tribunal found the CIT(A)'s conclusion that the old policy was inapplicable to the current scenario to be well-founded, dismissing the revenue's ground of appeal.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s deletion of the addition and rejection of the AO's estimation based on an outdated policy. The Tribunal found the sales declared by the assessee to be reasonable and supported by the new excise policy, with no specific defects in the expenditure side. The Tribunal emphasized the need for current and relevant data in estimating sales and profits, aligning with the regulated pricing environment.