2017 (11) TMI 1365 - AT - Income Tax

Estimation of income at 10% of the purchase price - 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 investment - Held that - During the appeal hearing, the Ld. A.R. did not bring any evidence to show the source of the payment of ₹ 4,16,667/-. Though the Ld. A.R. argued that once the income is estimated no further addition required to be made, the payment was the initial payment made in the beginning of the year, hence it cannot be held that the assessee has generated income out of business in the beginning of the day, therefore, the argument of the assessee is untenable, accordingly, rejected. Since the assessee failed to explain the sources of the initial investment, we hold that the A.O. has rightly made the addition, which was confirmed by the Ld. CIT(A). Addition u/s 69 - Held that - CIT(A) examined the transaction of each creditor and given finding that the transactions are not genuine and in some cases the identity of the creditor was also doubtful. None of the creditors are having credit worthiness to make the advances. The ld. CIT(A) also verified the transactions with respect to the DDs purchased and found that there was no evidence to show that the creditors have taken the DDs and the DDs were taken out of the bank withdrawals. The serial No. of DDs and the manner in which DDs were taken to pay the license fee also held to be doubtful and the transactions cannot be held as genuine. During the appeal hearing, the Ld. A.R. did not bring any evidence to controvert the finding of the Ld. CIT(A). Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the same is upheld and the appeal of the assessee on this ground is dismissed.

Summary

Issues Involved:
1. Estimation of income at 10% of the purchase price.
2. Addition of unexplained investment of ?4,16,667.
3. Addition of unsecured loans of ?12,50,000.

Detailed Analysis:

1. Estimation of Income at 10% of the Purchase Price:

The assessee, involved in the business of Indian Made Foreign Liquor (IMFL), declared a total income of ?6,88,720. The Assessing Officer (A.O.) did not accept this and estimated the profit at 20% of the stock put to sale, resulting in a computed business income of ?38,11,715. On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] reduced the profit estimation to 10% of the purchase price. The assessee further appealed to the Tribunal, arguing that the issue is covered by the decision in the case of Tangudu Jogisetty, where the profit estimation was reduced to 5%. The Tribunal agreed, noting that the A.O.'s reliance on a judgment involving a different business (arrack) was misplaced. The Tribunal directed the A.O. to estimate the net profit at 5% of the total purchases, net of all deductions.

2. Addition of Unexplained Investment of ?4,16,667:

During the assessment, the A.O. found an unexplained investment of ?4,16,667 in the initial payment of the license fee. The assessee failed to explain the source of this amount. The CIT(A) upheld this addition, and during the appeal, the Tribunal also upheld the CIT(A)'s decision. The Tribunal rejected the argument that no further addition should be made once income is estimated, noting that the unexplained investment was made at the beginning of the year and could not be attributed to business income generated later.

3. Addition of Unsecured Loans of ?12,50,000:

The A.O. found that the assessee claimed unsecured loans totaling ?19,00,000 but failed to provide evidence. The CIT(A) admitted additional evidence and called for a remand report. The A.O. accepted the genuineness of loans from certain creditors, but the CIT(A) verified the facts and found the transactions in respect of loans totaling ?12,50,000 were not genuine. The Tribunal reviewed the CIT(A)'s detailed examination of each creditor and upheld the decision, noting discrepancies in signatures, lack of creditworthiness, and doubts about the genuineness of the transactions.

Conclusion:

The Tribunal directed the A.O. to re-compute the income of the assessee at 5% of the purchase price, upheld the addition of ?4,16,667 as unexplained investment, and confirmed the addition of ?12,50,000 in unsecured loans. The appeal was partly allowed, with the estimation of income being reduced but other additions being upheld.