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2018 (11) TMI 428 - AT - Income TaxRejection of books of account - estimation of income - CIT-A estimated the net profit at 4% of the cost of the goods sold as against 5% assessed by AO - assessee in the business of liquor - Held that - As relying on case of SECUNDERABAD WINES, SECUNDERABAD VERSUS THE INCOME TAX OFFICER, WARD-10 (4) , HYDERABAD. 2016 (7) TMI 1449 - ITAT HYDERABAD we direct the AO to adopt 3% of the cost of the goods sold as income of assessee, subject to not being less than the returned income. Since assessee did not press for the grounds about rejection of books of account, the grounds pertaining to that extent are rejected. - Decided partly in favour of assessee
Issues: Appeal against rejection of books of account and estimation of net profit at 4%.
Analysis: 1. Rejection of Books of Account: The Assessing Officer (AO) rejected the books of account of the assessee and estimated the net profit at 5% of the cost of goods sold. The Commissioner of Income Tax (Appeals) confirmed the rejection but reduced the estimated profit to 4%. The assessee challenged this estimation, arguing that 4% was on the higher side, and cited precedents where profit was estimated at 3%. The Tribunal considered various decisions and directed the AO to estimate the profit at 3% of the cost of goods sold, ensuring it does not fall below the profit declared by the assessee. Thus, the rejection of books of account was upheld, and the profit estimation was revised to 3%. 2. Estimation of Net Profit: The dispute revolved around the estimation of net profit by the AO at 5%, which was reduced to 4% by the CIT(A) and further contested by the assessee. The Tribunal referred to previous cases where profit estimations varied from 2.5% to 5%. Relying on recent judgments, the Tribunal directed the AO to adopt 3% of the cost of goods sold as the income of the assessee, ensuring it does not fall below the returned income. The Tribunal emphasized the need for a case-specific approach in profit estimation and upheld the assessee's appeal partially by adjusting the net profit estimation to 3%. 3. Judicial Precedents: The Tribunal cited various Co-ordinate Bench decisions to support the argument for reducing the profit estimation to 3%. Reference was made to cases like Secunderabad Wines Vs. ITO and Suraj Harjani Vs. ITO, where similar issues were addressed, and profit estimations were revised based on the facts of each case. The Tribunal highlighted the importance of consistency in profit estimation and directed the AO to follow the recent trend of estimating profits at 3% of the cost of goods sold. This reliance on judicial precedents played a crucial role in determining the outcome of the appeal. In conclusion, the Appellate Tribunal upheld the rejection of books of account but revised the net profit estimation from 4% to 3% of the cost of goods sold, emphasizing the need for a case-specific approach and consistency in profit estimation based on judicial precedents. The decision provided relief to the assessee by adjusting the profit estimation in line with recent judgments and ensuring fairness in the assessment process.
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