2018 (9) TMI 1015 - AT - Income Tax

Estimation of income at 8% of the purchase price - Held that - The issue involved in this appeal is squarely covered in the case of Sri Vysyaraju Satyanarayana Raju, Srikakulam Dist. 2016 (8) TMI 1273 - ITAT VISAKHAPATNAM thus irect 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 expenditure - Held that - AO considered the sum of ₹ 2,96,433/- as first purchase which was incurred without source. As per the ledger account copy placed before us, the first purchase was ₹ 1,44,711/- but not ₹ 2,96,433/-. This fact was not pleaded before the lower authorities, thus, the issue needs further verification at the end of the AO. Therefore, in the interest of justice, we remit the matter back to the file of the AO to verify the correct amount of initial expenditure and the sources thereon and to redo the assessment afresh on merits. Accordingly, this issue is set aside and remitted back to the file of the AO denovo for fresh consideration Addition of unsecured loans - Held that - Before the Ld.CIT(A) also the assessee failed to furnish any evidence to prove the genuineness of the outstanding unsecured loans. Therefore, we do not find infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeal of the assessee on this ground is dismissed. Unsecured trade creditors addition - AR requested for admission of additional evidence in the form of confirmation - Held that - As per para No.12 of this order, we have rejected the admission of additional evidence. In the instant case, the assessee failed to submit the confirmation and the details before both the lower authorities to establish the genuineness and correctness of the unsecured trade creditors. Even the assessee failed to furnish the names of the creditors. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeal of the assessee on this ground is dismissed.

Issues Involved:
1. Estimation of income at 8% of the purchase price.
2. Addition of ?3,86,809/- towards unexplained expenditure.
3. Telescopic benefit for the addition of ?3,86,309/-.
4. Addition of ?4,59,470/- relating to trade creditors.
5. Addition of ?4,48,915/- related to unsecured loans.

Issue 1: Estimation of Income at 8% of the Purchase Price
The assessee, engaged in the business of Indian made foreign liquor (IMFL) and rice, filed a return declaring a total income of ?2,53,590/-. The Assessing Officer (AO) did not accept this declaration and estimated the profit from the liquor business at 20% of the stock put to sale. Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] reduced this estimation to 8% of the purchase price. The Tribunal referenced a prior decision in the case of Tangudu Jogisetty, where a 5% profit margin was deemed reasonable for the IMFL business. Consequently, the Tribunal directed the AO to re-compute the income at 5% of the purchase price, deeming the original 20% estimation excessively high and not applicable to the IMFL business controlled by the state government.

Issue 2: Addition of ?3,86,809/- Towards Unexplained Expenditure
The assessee claimed an expenditure of ?15,99,309/- for the year, explaining sources for ?12,13,000/- but failing to account for the remaining ?3,86,309/-. The AO treated this balance as unexplained expenditure and added it to the income under 'income from other sources'. The Tribunal noted an error in the AO’s adoption of the first purchase figure and remitted the matter back to the AO for verification of the correct initial expenditure and sources, directing a fresh assessment.

Issue 3: Telescopic Benefit for the Addition of ?3,86,309/-
Given that the issue regarding the addition of ?3,86,309/- was remitted back to the AO for fresh consideration, the Tribunal also remitted the matter of telescopic benefit back to the AO for reevaluation.

Issue 4: Addition of ?4,59,470/- Relating to Trade Creditors
The assessee sought to admit additional evidence regarding trade creditors, explaining that confirmations could not be produced earlier due to the parties’ ignorance. However, the Tribunal rejected the admission of additional evidence, emphasizing the assessee’s obligation to comply with statutory requirements. The AO had given ample opportunity to furnish details, which the assessee failed to do. Consequently, the Tribunal upheld the CIT(A)’s decision to treat the amount as unproved and added it under section 68 of the Act.

Issue 5: Addition of ?4,48,915/- Related to Unsecured Loans
Similar to the trade creditors' issue, the assessee failed to provide evidence or confirmation letters for unsecured loans totaling ?4,48,915/-. Despite sufficient opportunities, no valid reason was provided for the non-submission of evidence. The Tribunal upheld the CIT(A)’s decision, rejecting the petition for additional evidence and confirming the addition under section 68 of the Act.

General Issue:
Ground No.1.8 was deemed general in nature and did not require specific adjudication.

Conclusion:
The appeal of the assessee was partly allowed, with specific issues remitted back to the AO for fresh consideration and other issues upheld as per the CIT(A)’s order. The judgment was pronounced on 12th September 2018.

← Previous Next →