2024 (10) TMI 858 - AT - Income Tax

Estimation of business income - Treatment to cash deposit in bank account - Assessee explained that the deposits made in the said bank account belong to his owner and proprietor who requested the assessee to use his account for certain months as the owner s bank account has become inoperative and all the cash deposits were used for purchase of liquor - AO rejected contention of the assessee as the assessee failed to furnish confirmation letter from his owner, thus treated the entire cash deposit as business receipt of the assessee and made addition @8% of the total business turnover HELD THAT - As observed by the Hon'ble High Court, the profit percentage to be adopted differs from case to case. Apart from that fact, subsequently the privilege fee is introduced and according to the learned AR it reduced the profit margin. Coordinate Bench of the Tribunal in the case of Venkateshwar Nemuri 2024 (6) TMI 1409 - ITAT HYDERABAD after considering the facts and circumstances held that the estimate of net profit of the assessee at 3% of the turnover would meet the ends of justice. Thus, we direct AO to recompute the income of the assessee at 3% of the turnover. Appeal of the assessee is allowed in part.

Summary

Issues:
Estimation of business income at 8% of total turnover without confirmation letter, variation in net profit estimation in liquor trade, applicability of privileged fee on profit margin.

Analysis:
The judgment pertains to an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2016-17. The primary issue was the addition of Rs. 7,51,200/- to the assessee's income by the Assessing Officer based on cash deposits of Rs. 93,90,000/- in the assessee's bank account. The Assessing Officer treated the entire cash deposit as business receipts of the assessee due to the lack of a confirmation letter from the owner, despite the assessee's explanation that the deposits belonged to the owner for liquor purchase. The CIT(A) upheld this addition, emphasizing the absence of evidence to prove the deposits were not business receipts. The assessee contended that he did not conduct any business, and the owner made the deposits, offering them for taxation in his return. Additionally, the assessee argued that the net profit estimation in liquor trade varies, suggesting a 3% estimation based on Tribunal judgments and the impact of privileged fee introduction in reducing profit margins.

The Tribunal, in its analysis, acknowledged the varying nature of profit percentage adoption in different cases and the influence of privilege fee on profit margins. Citing a previous case, the Tribunal determined that estimating the net profit at 3% of the turnover would align with justice. By following the precedent set by the Coordinate Bench of the Tribunal in a similar case, the Tribunal directed the Assessing Officer to recalculate the assessee's income at 3% of the turnover. Consequently, the appeal of the assessee was partially allowed, reflecting a favorable outcome in part based on the recalculated income.

In conclusion, the judgment addressed the critical aspects of estimating business income, variations in net profit estimation in specific trades like liquor, and the impact of regulatory changes like the introduction of privileged fees on profit margins. By considering precedents and justifications presented by both parties, the Tribunal provided a reasoned decision that balanced the interests of the assessee and the tax authorities, ultimately resulting in a partial allowance of the appeal.