2017 (6) TMI 915 - AT - Income Tax

Estimation of profit in respect of IMFL business carried by the assessee - Held that - 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. Thus 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 investment - Held that - Assessee has filed the confirmation letters from four creditors amount to ₹ 7,99,000/-. The assessee has not given proper details during the course of assessment proceedings. However, before the ld. CIT(A), he filed details and confirmation letters, hence, ld. CIT(A) has called remand report. In the remand report, the Assessing Officer has doubted the transaction on the ground that assessee paid the impugned amounts by way of DDs, but those DDs were taken by the third parties and not by the assessee. As find that AO without calling the assessee and without making any enquiry, simply doubted the transaction, in my opinion, the action of the Assessing Officer is not justified. CIT(A) is also not justified in confirming the order of the Assessing Officer. It is a fit case to remit the matter back to the file of the Assessing Officer to decide the issue in afresh in respect of unexplained investment

Summary

Issues involved:
1. Estimation of profit in IMFL business
2. Unexplained investment of ?7,99,000

Estimation of profit in IMFL business:
The appeal was against the order of the Commissioner of Income Tax (Appeals) regarding the assessment year 2011-12. The assessee, an individual in the business of purchasing and selling IMFL, initially declared a total income of ?2,20,210. The assessment was completed under section 143(3) of the Income Tax Act, estimating income at 20% of stock put to sale. The CIT(A) granted partial relief by reducing the percentage to 10% and directed the Assessing Officer (A.O.) to re-compute income at 8% of the purchase price. The Tribunal heard arguments from both parties, with the assessee citing a previous decision where a 5% profit margin was deemed reasonable in a similar case. The Tribunal agreed with the assessee, directing the A.O. to estimate the profit at 5% of total purchases net of all deductions, based on the precedent set by the coordinate bench.

Unexplained investment of ?7,99,000:
Regarding the unexplained investment, the assessee provided confirmation letters from creditors but failed to explain the purchase of demand drafts (DDs) by third parties. The CIT(A) upheld the addition of ?7,99,000 as unexplained investment since the source was not adequately proven. The Tribunal considered the confirmation letters and the lack of proper details during assessment proceedings. It noted that the Assessing Officer doubted the transaction without proper enquiry and remanded the issue back to the A.O. for re-examination. The Tribunal found the actions of both the Assessing Officer and the CIT(A) unjustified and partially allowed the appeal, remitting the matter back to the A.O. for fresh consideration.

In conclusion, the Tribunal allowed the appeal in part, directing the A.O. to re-compute the income based on a 5% profit margin for the IMFL business and remitting the issue of unexplained investment back for further examination.