2017 (12) TMI 612 - AT - Income Tax

Estimation of income on sale of IMFL - profit estimation - Held that - In IMFL business, few newspapers have no doubt mentioned about considered sale of liquor at a higher price i.e. at a price higher than the rate fixed by the Government, but the fact remains that in the assessee s case, there is nothing on record to suggest that he has flouted the norms and sold liquor at a higher price. The Government of Andhra Pradesh through AP Beverages Corporation Ltd. is the only agency authorised to sell IMFL. Sale rate is fixed by A.P. Beverages Corporation. However, having regard to the huge licence fee payable and other incidental expenditure, the ITAT, Visakhapatnam Bench in the case of Meka Ramamurthy 2017 (12) TMI 589 - ITAT VISAKHAPATNAM consistently held that profit rate at 5% of purchase price, clear of all deductions is reasonable. Consistent with the view taken therein, estimate of profit at 5% of purchase price is reasonable and directed Assessing Officer, accordingly. Addition towards unexplained investment - Held that - Neither before the Assessing Officer nor before the ld.CIT(A), the assessee could prove the source of investment, in fact, no explanation was offered. Thus, additional evidence filed for the first time, cannot be entertained, more particularly on the ground that even the confirmation letters are not sufficient to prove the investment. It is the duty of the assessee to prove the creditworthiness of the parties also, which is absent in the instant case. Having regard to these circumstances, the addition made by the Assessing Officer and confirmed by the ld. CIT(A) under section 69 of the Act is upheld.

Summary

Issues: Estimation of income on sale of IMFL and addition towards unexplained investment

Estimation of Income on Sale of IMFL:
The appeal concerns the assessment year 2011-12 and involves the estimation of income on the sale of Indian Made Foreign Liquor (IMFL) by the assessee. The assessee declared a total income of ?5,94,023, with a net profit rate of 2.3%. However, the Assessing Officer found the declared profit too low and estimated the net profit at 20% on the stock put to sale, considering IMFL to be a seller's market where liquor is often sold above the Maximum Retail Price (MRP). The assessee argued that the profit rate should be lower due to various expenses incurred, such as license fees and administrative costs. The ITAT, Visakhapatnam Bench has consistently held that a profit rate of 5% of the purchase price, clear of all deductions, is reasonable in such cases. Therefore, the Tribunal directed the Assessing Officer to estimate the profit at 5% of the purchase price, which was deemed reasonable.

Addition towards Unexplained Investment:
Regarding the addition of ?7,92,954 as unexplained investment, the Assessing Officer observed that the assessee failed to explain the source of this amount adequately. The assessee claimed that the investment was made from funds sourced from his crusher business, but could not provide sufficient evidence to support this claim. The ld. CIT(A) upheld the addition, stating that the Assessing Officer is not precluded from treating credit entries as income from an undisclosed source if the source of the investment is not proven. The Tribunal agreed with the lower authorities, emphasizing that the burden of proof lies with the assessee, and since no satisfactory explanation was provided for the investment, the addition under section 69 of the Income Tax Act was upheld. The additional evidence filed by the assessee, including confirmation letters from various individuals, was not accepted as it did not sufficiently prove the creditworthiness of the parties involved. Consequently, the Tribunal partly allowed the appeal, upholding the addition of ?7,92,954 as unexplained income.

In conclusion, the Tribunal's judgment addressed the issues of income estimation on IMFL sales and the addition of unexplained investment, providing detailed reasoning and legal interpretations to resolve the disputes raised by the assessee.