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TMI Blog2010 (9) TMI 1138X X X X Extracts X X X X X X X X Extracts X X X X ..... ot maintained proper sales bills for sale of wines. Therefore, we cannot blame the AO for rejecting the books of account. The only option available to the AO is to estimate the profit on the basis of material available on record. For the purpose of estimation of profit the AO has to necessarily take into consideration the factors such as competition in the business, availability of stock, demand in the market, availability of labourers, comparative profit of the similarly placed traders in that locality, comparative profit rate of the assessee in respect of other years, turnover, etc. In this case, the AO has not considered any of those factors except to say that the 5% estimated by him for the A.Y. 2001-02 was confirmed by the CIT(A). Profit ratio cannot be a constant figure. The profit ratio would fluctuate depending upon the various factors for every year. the profit ratio will decrease when the turnover increases.By taking into consideration of the competition in the business incentives given by the manufacturers and the profit ratio shown by the assessee from the A.Y. 1997-98 and the profit estimated by this Tribunal in assessee's own case for A.Y. 2001-02, in our op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the same less than 30% margin. According to the learned representative for the assessee the assessee has all discretion to sell the wine at any price even less than the purchase price. Due to stiff competition in the liquor business the manufacturing company gave incentive to the trader to meet the stiff competition. Thus, according to the learned representative for the assessee, the incentives granted by the manufacturer reduced the purchase cost to the trader. Referring to the assessment order the learned representative for the assessee submitted that the Assessing Officer found various discrepancies in the books of account maintained by the assessee. The Assessing Officer estimated the sales at ₹ 6,07,02,987 as against the sales declared by the assessee at ₹ 5,73,36,805. Accordingly, the difference of ₹ 29,66,182 was added by the Assessing Officer as income of the assessee. 3. The learned representative for the assessee further submitted that for the A.Y. 2001-02 an identical addition was made by the Assessing Officer by estimating the sales price at 5% over and above the purchase price and made an addition of ₹ 4,08,332. The matter reached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A). After referring to the CIT(A)'s order and the grounds of appeal raised by the assessee, the learned DR submitted that for the A.Y. 2001-02 profit was estimated at 5%. In the absence of any material, according to the learned DR, estimation of profit at 5% is very reasonable. 6. We have considered the rival submissions on either side and also perused the material on record. Admittedly the assessee disclosed the sale at ₹ 5,73,36,805. However, the Assessing Officer estimated the same at ₹ 6,03,02,927. The difference between the sales declared by the assessee and estimated by the Assessing Officer was added as income of the assessee. The difference of ₹ 29,66,182 comes to 5% of the purchase cost. 7. We have carefully gone through the order of this Tribunal for A.Y. 2001-02 in assessee's own case in ITA. No. 268/Hyd/05 dated 19.4.2006. After comparing the profit ratio for the A.Ys. 1997-98 to 2002-03 this Tribunal has passed the following order: 5. We have heard the learned representatives of the parties and have perused the material on record. After considering the facts of the case, we notice that the assessee has paid excess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business, availability of stock, demand in the market, availability of labourers, comparative profit of the similarly placed traders in that locality, comparative profit rate of the assessee in respect of other years, turnover, etc. In this case, the Assessing Officer has not considered any of those factors except to say that the 5% estimated by him for the A.Y. 2001-02 was confirmed by the CIT(A). Profit ratio cannot be a constant figure. The profit ratio would fluctuate depending upon the various factors for every year. Therefore, the lower authorities are expected to estimate the profit depending upon the factors which are essential for estimating the profit ratio. For the A.Y. 2001-02 when the total sales was ₹ 2,69,81,342 this Tribunal estimated the profit at 3.68%. When the turnover increases it is common knowledge that profit ratio will decrease automatically. In other words, the profit ratio will decrease when the turnover increases. By taking into consideration of the competition in the business incentives given by the manufacturers and the profit ratio shown by the assessee from the A.Y. 1997-98 and the profit estimated by this Tribunal in assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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