2013 (6) TMI 473 - AT - Income Tax

Best judgement assessment, Addition towards the income from liquor business - Held that - It is found that estimation made by the A.O. is based on mathematical formula and simply on mathematical formula income cannot be estimated. The A.O. made the addition of entire/gross sale whereas as decided in Manmohan Sadava vs. CITR, (2007 (10) TMI 246 - MADHYA PRADESH HIGH COURT) following CIT vs. Balchand Ajit Kumar (2003 (4) TMI 76 - MADHYA PRADESH High Court) entire sale proceeds of the assessee cannot be added to the income, only net profit is to be added. Thus, the A.O s finding is contrary to finding of judgement of Hon ble M.P. High Court. The CIT(A) on one hand rejected the working of estimation of the A.O. and, on the other hand, he relied upon rejected working of the A.O and addition was sustained. Under the circumstances, both the orders of the A.O. and CIT(A) connote be sustained. As stated while making best judgement one should have reasonable nexus to the available material and circumstances. In the case under consideration, both A.O. and CIT(A) have ignored the past history of the assessee, thus on perusal of comparative chart, it is noticed that in the year under consideration the assessee has shown comparatively better result, as G.P. is 7.34% and not profit 2.13%. Thus it will be fair and just if addition to the extent of ₹ 20,00,000/- is sustained which will cover all deficiencies and lapses noticed by the A.O. and balance addition of ₹ 6,94,40,512/- (7,14,40,512 - 20,00,000) made by the A.O. is deleted. Thus, ground of the assessee s appeal are partly allowed. Estimation of agricultural income - in absence of evidence provided by assessee the A.O. taken 40% of the said amount of which calculation comes to ₹ 4,84,124/- and the same was treated as income from other sources - Held that - Since the A.O. himself has accepted the agricultural income in A.Y. 2008-09 and to maintain consistency the A.O. should follow the same formula in the year under consideration as followed in A.Y. 2008-09 since the land holding and other facts are similar. Therefore, the A,O, is directed to calculate the agricultural income in accordance with the income determined in A.Y. 2008-09. In favour of assessee for statistical purposes Addition u/s 68 - It was submission of the assessee that considering the nature of business of the assessee, some time such loans are necessary and assessee has sufficient material to prove the same - Held that - It will be appropriate to send back this issue to the file of A.O. with the direction to decide the issue afresh as complete facts of the issue has not been brought on record considering the business expediency and nature of business of the assessee. The A.O. may also consider the alternate contention of the AR for set off of addition, if any, against the addition sustained on account of profit as in the case under consideration which has been sustained at ₹ 20,00,000/-. The A.O. may decide the issue after providing reasonable opportunity of hearing to the assessee. In favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Sustaining addition towards income from liquor business.
2. Ignoring facts and submissions made by the appellant regarding trading results.
3. Estimating income from agriculture.
4. Addition under section 68 of the Income Tax Act.
5. Deletion of addition made on account of disallowance for difference of suppressed income.

Detailed Analysis:

1. Sustaining Addition Towards Income from Liquor Business:
The assessee, a liquor contractor, did not produce books of account for verification. The A.O. estimated the income based on available records and calculated suppressed income from liquor sales. The CIT(A) restricted the addition to Rs.1,86,54,659/- and allowed relief of Rs.5,27,85,853/-. The ITAT found that the estimation by the A.O. was based on mathematical formulas and not on actual data. The ITAT confirmed an addition of Rs.20,00,000/- to cover deficiencies and lapses, deleting the balance addition of Rs.6,94,40,512/-.

2. Ignoring Facts and Submissions Made by the Appellant Regarding Trading Results:
The assessee argued that the A.O. ignored past records and profit margins shown by others in the same trade. The ITAT noted that the assessee had shown a better trading result in the current year compared to previous years. The ITAT found that the A.O. and CIT(A) did not consider the past history of the assessee and relied on mathematical estimations. The ITAT partially allowed the appeal by confirming an addition of Rs.20,00,000/-.

3. Estimating Income from Agriculture:
The A.O. estimated agricultural income at Rs.7,26,186/- and treated Rs.4,84,124/- as income from other sources due to lack of evidence. The CIT(A) confirmed this estimation. The ITAT directed the A.O. to calculate agricultural income in accordance with the method used in the previous year (A.Y. 2008-09) to maintain consistency.

4. Addition Under Section 68 of the Income Tax Act:
The A.O. made an addition of Rs.36,21,887/- under section 68 due to the assessee's failure to produce evidence and confirmation for loans taken. The CIT(A) upheld this addition. The ITAT remanded the issue back to the A.O. for fresh consideration, directing the A.O. to decide the issue in accordance with law and consider the assessee's alternate contention for set-off against the sustained addition of Rs.20,00,000/-.

5. Deletion of Addition Made on Account of Disallowance for Difference of Suppressed Income:
The Revenue appealed against the deletion of Rs.5,27,85,853/- by the CIT(A). The ITAT dismissed this ground, noting that the issue was already addressed in the assessee's appeal, where the ITAT had confirmed an addition of Rs.20,00,000/- and deleted the balance addition.

Conclusion:
The ITAT partly allowed the assessee's appeal by confirming an addition of Rs.20,00,000/- and directed the A.O. to reconsider the agricultural income and addition under section 68. The Revenue's appeal was dismissed.