2017 (1) TMI 765 - AT - Income Tax

Estimation of profit in respect of IMFL business carried by the assessee -Determination of income - Held that - We direct the A.O. to re-compute the income of the assessee at 5% of purchase price. Accordingly, this ground of appeal raised by the assessee is allowed. Unexplained credits - Held that - The assessee has proved identify of the party and also creditworthiness of the creditor and genuineness of the transaction. In our opinion, the assessee has discharged burden casted upon him to prove that the transaction is genuine. The Assessing Officer without examining the creditor, simply disbelieved the explanation given by the assessee and added the disputed amount in the hands of the assessee which is contrary to law. In appeal, Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer without considering the submissions made by the assessee. In view of the above, the order passed by the Commissioner of Income Tax (Appeals) is deserves to be reversed. - Decided in favour of assessee

Summary

Issues:
1. Estimation of profit in IMFL business.
2. Treatment of unexplained credits in the capital account.

Estimation of profit in IMFL business:
The appeal pertains to the estimation of profit in the IMFL business of the assessee for the Assessment Year 2011-12. The assessee, a proprietor of a business dealing with Indian made Foreign Liquor (IMFL), had declared a total income of ?3,83,310, which was scrutinized by the authorities. Initially, the income was estimated at 20% of the stock put to sale, but on appeal, the CIT(A) reduced it to 10% of the purchase price. The Tribunal, considering previous decisions, held that 5% of the purchase price is a reasonable profit margin in the IMFL business. The Tribunal directed the Assessing Officer (A.O.) to re-compute the profit at 5% of the purchase price, citing precedents where similar profit margins were upheld. The Tribunal emphasized that the A.O.'s reliance on a judgment concerning a different type of liquor business was unjustified, as the nature of the IMFL trade, being controlled by the State Government, warranted a lower profit estimation.

Treatment of unexplained credits in the capital account:
The second issue revolved around unexplained credits of ?3,50,000 in the assessee's capital account. The Assessing Officer disbelieved the explanation provided by the assessee regarding the source of the credits, attributing it to the belated income tax return filing of the creditor and the nature of the business being a proprietorship. However, the Tribunal found that the assessee had sufficiently proven the genuineness of the transaction by providing a confirmation letter and the creditor's income tax return. The Tribunal held that the burden of proof had been discharged by the assessee, and the Assessing Officer's decision to add the amount to the assessee's income was unfounded. The Commissioner of Income Tax (Appeals) had upheld the Assessing Officer's decision without proper consideration, leading the Tribunal to reverse the Commissioner's order and partly allow the appeal filed by the assessee.

In conclusion, the judgment by the Appellate Tribunal ITAT Visakhapatnam addressed the issues of profit estimation in the IMFL business and the treatment of unexplained credits in the capital account. The Tribunal emphasized the need for a reasonable profit margin in line with the nature of the business and upheld the assessee's contentions regarding the genuineness of the transaction in question.