2017 (6) TMI 18 - AT - Income Tax

Estimation of profit in respect of IMFL business carried by the assessee - Held that - The coordinate bench of the Tribunal in the case of Tangudu Jogisetty (2016 (7) TMI 379 - ITAT VISAKHAPATNAM) has considered the profit level in the line of business and decided that 5% of purchase price is reasonable profit margin in the line of IMFL business and directed the A.O. to re-compute the profit of the assessee. In view of the above 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. Addition of unsecured loans - Held that - On appeal before the CIT(A) no details were filed. Even before the Tribunal also the assessee is not able to explain the genuineness of the transactions and also not filed any evidence in respect of the above impugned unexplained cash credits therefore find no infirmity in the order of the ld. CIT(A). Thus this ground of appeal raised by the assessee is dismissed.

Summary

Issues involved:
1. Estimation of income in the IMFL business.
2. Treatment of unsecured loans as unexplained credits.

Detailed Analysis:
1. Estimation of income in the IMFL business:
The appeal involved a dispute regarding the estimation of income in an IMFL business for the Assessment Year 2011-12. The assessee initially declared a total income of ?4,17,771, which was later estimated at 20% of the stock put to sale by the assessing officer under section 143(3) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) granted partial relief by reducing the percentage to 10% of the purchase price. The Tribunal considered the issue of profit estimation and referred to a previous decision where a 5% profit margin on the purchase price was deemed reasonable for IMFL businesses. The Tribunal found that the assessing officer's estimation of 20% was unjustified, especially as the business was subject to government regulations on pricing. Relying on previous tribunal decisions, the Tribunal directed the assessing officer to recompute the profit at 5% of the purchase price, ultimately allowing the appeal on this ground.

2. Treatment of unsecured loans as unexplained credits:
The second ground of appeal pertained to unsecured loans claimed by the assessee from specific creditors. The assessing officer treated these loans as unexplained credits and added them to the total income due to the lack of evidence regarding the creditworthiness of the creditors. The assessee failed to provide substantial evidence to prove the genuineness and creditworthiness of the transactions both before the CIT(A) and the Tribunal. Consequently, the Tribunal found no fault in the CIT(A)'s decision to dismiss this ground of appeal, resulting in the treatment of the unsecured loans as unexplained credits and their addition to the total income of the assessee.

In conclusion, the Tribunal partially allowed the appeal, primarily focusing on the estimation of income in the IMFL business and the treatment of unsecured loans as unexplained credits. The decision highlighted the importance of providing substantial evidence to support claims and the relevance of previous tribunal decisions in determining reasonable profit margins for specific business types.