2024 (6) TMI 1409 - AT - Income Tax

Estimation of business income - adoption of profit percentage rate - HELD THAT - As we are of the considered opinion that the estimate of net profit of the assessee at 3% of the turnover would meet the ends of justice. We accordingly direct AO to recompute the income of the assessee. Unexplained deposits in bank in the demonetization period - addition u/s 68 or 69A - HELD THAT - Undisputedly, in the face of the allegations of AO, section 69A of the Act would be attracted. Mere quoting a wrong section of law will not vitiate the addition. We, therefore, confirmed the findings of the CIT(A). While computing the business income by estimating it at 3% on the turnover, AO will consider the quantum of SBN deposited during the demonetization period and added separately. This means the learned Assessing Officer will estimate the business income of the assessee at 3% on the turnover reduced by the quantum of SBN deposited during the demonetization period. Appeal of the assessee is allowed in part.

Summary

Issues:
1. Estimation of net profit in liquor trade.
2. Treatment of unexplained cash credits under section 68 of the Income Tax Act.

Detailed Analysis:

1. Estimation of Net Profit in Liquor Trade:
The case involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) regarding the estimation of income for the assessment year 2017-18. The Assessing Officer estimated the income at 5% of the turnover due to the absence of sales bills. The CIT(A) upheld this estimation citing the jurisdictional ITAT's decision. The assessee contended that the estimation should vary case by case and cited other Tribunal judgments where net profit was estimated at 3%. The ITAT considered the varying profit percentages adopted in different cases and the impact of privilege fees, ultimately directing the Assessing Officer to recompute the income at 3% of the turnover, emphasizing the need for a holistic view.

2. Treatment of Unexplained Cash Credits:
Regarding the unexplained cash credits under section 68 of the Act, the Assessing Officer added a substantial amount to the income, which the assessee disputed. The CIT(A) referred to Supreme Court decisions to reject the assessee's argument that the deposits did not fall under section 68. The ITAT affirmed the CIT(A)'s decision, noting that even if the wrong section was quoted, the addition was valid under section 69A. However, the ITAT directed the Assessing Officer to separately consider the quantum of specified banknotes (SBN) deposited during the demonetization period while estimating the business income at 3% of turnover, thereby partially allowing the assessee's appeal.

In conclusion, the ITAT allowed the assessee's appeal in part, directing the re-computation of income at 3% of turnover for net profit estimation and confirming the treatment of unexplained cash credits under section 69A.