2016 (7) TMI 379 - AT - Income Tax

Rejection of books of accounts - estimation of net profit of 20% on total stock put for sale - Held that - We are of the view that the net profit estimated by the A.O. by relying upon the decision of Hon ble A.P. High Court in the case of CIT Vs. R. Narayana Rao(2012 (6) TMI 402 - Andhra Pradesh High Court ), which was rendered under different facts is quite high. On the other hand, the assessee relied upon the decision of in the case of T. Appalaswamy Vs. ACIT 2014 (3) TMI 1056 - ITAT VISAKHAPATNAM wherein the coordinate bench under similar circumstances estimated the net profit of 5% on total purchases net of all deductions. No contrary decision is placed on record by the revenue to take any other view of the matter than the view so taken by the coordinate bench. Therefore, we direct the A.O. to estimate the net profit of 5% on total purchases net of all deductions. Ordered accordingly.

Summary

Issues:
Appeals against CIT(A) orders for assessment year 2011-12 - Estimation of net profit based on books of accounts - Comparison of declared profit with nature of business - Maintenance of stock register and sales bills - Applicability of State Government regulations on IMFL trade - Judicial precedents on profit estimation.

Analysis:
The six appeals before the ITAT Visakhapatnam challenged CIT(A) orders related to the assessment year 2011-12. The appeals were consolidated due to identical issues. The assessee, a HUF engaged in IMFL business, declared a total income of ?6,53,240 for the year. During scrutiny, the Assessing Officer (A.O.) found the declared profit low compared to turnover and issued a show cause notice. The A.O. raised concerns about the lack of stock register and detailed sales bills. Subsequently, the A.O. proposed estimating profit at 20% of total purchases due to unverifiable accounts.

In response, the assessee argued the proposed profit was excessive for the business nature and cited State Government regulations controlling IMFL prices. The CIT(A) reduced the profit estimate to 10% after noting insufficient evidence and referencing higher retail prices observed in liquor trade. The assessee then appealed this decision, advocating for a 5% profit estimation based on ITAT precedents. The ITAT analyzed the case, distinguishing it from the A.P. High Court judgment, and supported the 5% profit estimation based on the ITAT Visakhapatnam bench's consistent rulings.

Ultimately, the ITAT allowed all appeals, directing the A.O. to estimate profit at 5% of total purchases net of deductions. The decision emphasized the relevance of specific business contexts and judicial precedents in determining reasonable profit margins. The judgment highlighted the importance of maintaining accurate records and complying with regulatory frameworks in profit estimation disputes related to business operations.