2017 (9) TMI 818 - AT - Income Tax

Estimation of income from IMFL business - 10% OR 5% - 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. 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 - advances received - Held that - It is difficult to accept the explanation given by the assessee that he has received an advance from prospective buyers i.e. who are going to purchase the liquor. So far as admission of additional evidence is concerned, the A.O. passed the assessment on 27.1.2014. The Ld. CIT(A) passed an order on 13.11.2014 and near about 10 months time is available to the assessee to file details before the Ld. CIT(A). Not only that, from the paper book filed by the assessee, it is very clear that all the prospective buyers who advanced the loans to the assessee are from same village of the assessee. When I specifically pointed out the A.R. of the assessee that why you are not able to file confirmation letters from the loan creditors who are belonging to your native village, he has not given any explanation. Under these above facts and circumstances of the case, we are of the opinion that this is not a fit case to admit the additional evidence at this juncture, therefore, additional evidence filed by the assessee is rejected and the order passed by the Ld. CIT(A) is confirmed. Accordingly, this ground of appeal raised by the assessee is dismissed. Unsecured loans - ingenuity of receipt - Held that - In the case of Shri N. Neelakanteswara Rao from whom the assessee has received ₹ 2 lakhs has not filed return of income for assessment year 2011-12. The assessee has not filed bank account of Shri N.Neelakanteswara Rao to prove that the transaction has been taken place through bank. Similarly, in case of B. Bala Murali Krishna also the assessee has not filed the return of income for the A.Y. 2011-12 and bank account of B. Bala Murali Krishna has not been submitted. The assessee claims to have received an amount of ₹ 1 lakh from Smt. Usha Kumari but no details are filed. Therefore, the entire ₹ 5 lakhs treated by A.O. is unexplained and brought to tax under the head income from other sources . On appeal, CIT(A) confirmed the order of the A.O. Even before us assessee has not filed any details and no confirmation letters. Thus, find no infirmity in the order passed by the Ld. CIT(A). This ground of appeal raised by the assessee is dismissed.

Summary

Issues:
1. Estimation of income from IMFL business.
2. Unexplained investment of ?12,17,723.
3. Unsecured loans of ?5 lakhs.

Estimation of income from IMFL business:
The appeal was against the CIT(A)'s order for the assessment year 2011-12. The case involved the estimation of income from the Indian made foreign liquor (IMFL) business. The Assessing Officer (A.O.) had initially estimated the profit at 20% of the stock put for sale, which was later reduced to 10% by the CIT(A). The Tribunal considered similar cases where the profit margin was set at 5% of the purchase price in the IMFL business. The Tribunal found that the A.O.'s estimation was high and not justified, especially since the business was subject to government regulations on pricing. Relying on previous decisions, the Tribunal directed the A.O. to estimate the profit at 5% of the total purchases net of all deductions. The appeal on this ground was allowed based on the Tribunal's decision.

Unexplained investment of ?12,17,723:
The A.O. questioned the source of an investment of ?12,17,723 by the assessee, treating it as unexplained income. The assessee claimed the amount came from advances received from prospective buyers, but failed to provide details or names. Despite the submission of a paper book later, the Tribunal found it difficult to accept the explanation, especially as all the prospective buyers were from the same village, raising doubts about the transactions. The additional evidence filed by the assessee was rejected, and the order confirming the addition of the unexplained investment was upheld. The appeal on this ground was dismissed.

Unsecured loans of ?5 lakhs:
The A.O. questioned unsecured loans of ?5 lakhs, as the amount was not reflected in the assessee's bank account. The assessee claimed the loans were genuine and made through banker's cheques directly for specific purposes. However, the A.O. found discrepancies in the explanations provided, as the lenders had not filed income tax returns for the relevant year, and bank account details were not submitted. The CIT(A) and the Tribunal upheld the A.O.'s decision to treat the entire ?5 lakhs as unexplained income, bringing it under the head "income from other sources." The appeal on this ground was dismissed.

In conclusion, the Tribunal partly allowed the appeal filed by the assessee, specifically in relation to the estimation of income from the IMFL business. However, the unexplained investment of ?12,17,723 and the unsecured loans of ?5 lakhs were upheld as additions to the assessee's income under the respective heads.