2017 (10) TMI 1152 - AT - Income Tax

Maintainability of appeal - monetary limit - Held that - If the tax effect excluding surcharge education cess etc. is below 10 lakhs the Revenue is not authorised to file an appeal and if it is filed they should withdraw the appeal. 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.

Summary

Issues:
1. Tax effect calculation for appeal eligibility.
2. Estimation of profit in IMFL business.

Issue 1: Tax effect calculation for appeal eligibility

The judgment revolves around the calculation of the tax effect for determining the eligibility of an appeal. The appeal in question was against the order of the Commissioner of Income Tax for the Assessment Year 2011-12. The key contention was whether the tax effect should include surcharge and education cess. The Tribunal referred to previous decisions and circulars, emphasizing that tax effect should exclude surcharge and cess. It was held that since the tax effect, without considering surcharge and education cess, was below the prescribed limit of ?10 lakhs, the appeal filed by the Revenue was not maintainable. The Tribunal dismissed the appeal based on this calculation and interpretation of the law.

Issue 2: Estimation of profit in IMFL business

The second issue pertains to the estimation of profit in the business of Indian made Foreign Liquor (IMFL). The assessee, an individual in this case, was engaged in the purchase and sale of IMFL. The Assessing Officer had estimated the net profit at 20% of the stock put to sale. However, on appeal, the CIT(A) reduced this percentage to 10%. The Tribunal, in its analysis, referred to a previous case where a 5% profit margin was considered reasonable for the IMFL business. Relying on this precedent, the Tribunal directed the Assessing Officer to re-compute the profit at 5% of the purchase price. The Tribunal found the initial estimation of profit by the Assessing Officer to be high, considering the nature of the business and the prevailing market conditions. Therefore, the appeal filed by the assessee was partly allowed, and the A.O. was instructed to calculate the profit at 5% of the purchase price.

In conclusion, the judgment addressed two main issues: the calculation of tax effect for appeal eligibility and the estimation of profit in the IMFL business. The Tribunal provided detailed reasoning based on legal interpretations, precedents, and relevant circulars to arrive at its decisions. The judgment emphasized the importance of accurate calculations and proper application of legal principles in tax matters and business assessments.