2014 (2) TMI 947 - AT - Income Tax

Estimation of income in liquor business Estimation of income on cost of goods sold @5% - Held that - The assessee had already admitted sales and treated the balance sum as undisclosed sales and after reducing the unaccounted investment from it, brought to tax the difference - The decision in Income tax Officer-Ward-2, Hyderabad Versus Amaravathi Wine Shop, Hyderabad 2012 (8) TMI 706 - ITAT, HYDERABAD followed - CIT(A) directed AO to estimate net profit at 5% of the purchases or stock put to sale during the year, subject to net profit being not less than returned profit - there is no reason to interfere in the findings of CIT(A) as he followed Coordinate Bench decision Decided against Revenue. Additions made on rejecting books of account - Taxability u/s 69 and 69C of the Act Examination of payments on behalf of license fee Held that - The issue of payment of license fee and sources require fresh examination by A.O -assessee is in the same business of running wine shop - the statements did not indicate the business from 1.4.2008 to June, 2008 - The opening stock as on 31.03.2008 was shown as NIL - the purchases from 1.4.2008 to 30.04.2008 and corresponding sales are required to be examined on the basis of books/bank statements also, outstanding license fee (rather prepaid fee) of earlier year, if assessee was in business as contended, reconciliation with payments this year and claims in next year also require verification thus, the matter remitted back to the AO for fresh adjudication Decided partly in favour of Assessee.

Summary

Issues:
Estimation of income in liquor business and additions made by A.O. after rejecting books of account.

Estimation of Income in Liquor Business:
The case involved cross-appeals by the Revenue and Assessee against the order of the learned CIT(A)-IV, Hyderabad. The assessee, an individual deriving income from trading in 'Indian made foreign liquor', filed a return of income admitting a total income of Rs.4,25,000/-. The Assessing Officer (A.O.) made several additions to the total income, including unexplained expenditure towards license fee, unexplained investment towards license fee, unaccounted sales, and disallowed deduction under section 80C. The learned CIT(A) confirmed some additions but modified the estimation of unaccounted sales based on ITAT Orders in similar businesses. The Revenue was aggrieved by this modification, while the assessee was unhappy with the confirmed additions.

Revenue Appeal - Estimation of Income:
The Revenue's appeal challenged the direction of the learned CIT(A) to estimate income at 5% of the cost of goods sold. The A.O. had calculated the undisclosed sales based on the retailer's margin specified by the Government of Andhra Pradesh. The learned CIT(A) directed the A.O. to estimate net profit at 5% of purchases or stock sold, following a previous ITAT decision. The Tribunal upheld this direction, dismissing the Revenue's grounds.

Assessee's Appeal - Additions Made by A.O.:
The assessee raised various grounds in their appeal, contesting the rejection of books of account, estimation of net profit at 5%, and specific additions made by the A.O. The A.O. had added amounts under sections 69 and 69C related to license fee payments and excess assets over liabilities. The learned CIT(A) confirmed these additions. The assessee argued that the amounts should not be taxed when incomes are estimated, citing relevant legal precedents. However, the Tribunal rejected this argument. The Tribunal found discrepancies in the assessee's submissions regarding the payment of license fee and sources of income. Consequently, the Tribunal remanded the issues to the A.O. for fresh examination, directing a thorough review of purchases, sales, and license fee payments. The estimation of 5% on purchases or stock sold was affirmed, and the A.O. was instructed to investigate unexplained sources and investments. The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal's judgment addressed the issues of estimating income in a liquor business and additions made by the A.O. after rejecting books of account. The decision provided detailed reasoning for upholding certain additions, modifying estimations, and remanding specific issues for further examination, ensuring a comprehensive review of the financial aspects involved in the case.