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TMI Blog2022 (7) TMI 270X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee for both the assessment years. Estimation of administrative expenses - AO has rejected books of accounts and estimated administrative expenses for whole year at Rs.30 lakhs which includes, remuneration, salaries and wages, depreciation, etc . - As taking into account, the nature of business of the assessee and also the reasons given by the AO to estimate administrative expenses, we are of the considered view that both have failed to justify their case with necessary reasons and thus, we direct the AO to allow 90% of total expenses claimed by the assessee in their financial statement filed for the relevant assessment year and recompute profit from the business taking into account gross profit @8% on total sales and allow 90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Tribunal may deem fit. 3. The brief facts of the case are that M/s.Al Aziz Broilers is a partnership firm which is engaged in supplying chicken to M/s.SS Hyderabad Biriyani Pvt. Ltd., a company which operates Biriyani Outlets in Chennai. A search and seizure operation u/s.132 of the Act, was conducted in the case of M/s.SS Hyderabad Biriyani Pvt. Ltd., and as a corollary, the residential premises of Mr.Abdul Subhan, partner of the assessee s firm was also searched on 24.08.2015. During the course of search, certain incriminating material being note book, etc., pertaining to the firm, M/s.Al Aziz Broilers, was found. Consequent to search, the case has been taken up for assessment and during the course of assessment proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee before the Ld.CIT(A) are that extrapolation of gross profit earned for the period of two months to subsequent 10 months in a financial year is incorrect without considering the nature of business and risk involved in the said business. The Ld.CIT(A) after considering the relevant submissions of the assessee, has affirmed the findings of the AO in determining the profit margin of Rs.11/- per KG on the basis of difference between average purchase rate and average sale rate of two months and extrapolation of said difference to whole year. However, when it comes to estimation of expenses, the Ld.CIT(A) after taking note of relevant facts has directed the AO to estimate total administrative expenses at Rs.35 lakhs as against Rs.30 lakhs. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the reasoning given by the authorities below to estimate gross profit and expenses. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that incriminating material found during the course of search, contains purchase and sales details of April, 2015 May, 2015. As per the said incriminating material, the average purchase rate of chicken for 2 months period was at Rs.70.50 per KG and average sale rate for two months was at Rs.81.50 per KG. Thus, there is a difference of Rs.11/- per KG when you compare purchase and sale rate. In fact, the assessee does not disputed these facts. The only dispute is with regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supply and other geographical reasons like weather conditions, etc. Further, the products sold by the assessee is highly perishable and there is a possibility of pilferage and loss due to various conditions. Therefore, on the basis of two months statistics, there cannot be any estimation of gross profit for the remaining period and subsequent period. In this case, the AO has taken total purchases of the assessee and has allowed 10% on account of weight loss and has applied profit margin of Rs.11/- per KG for whole year and estimated gross profit. In our considered view, the procedure followed by the AO to determine gross profit, is not in accordance with law. 9. Having said so, let us come back to the arguments of the assessee. Althou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO and the Ld.CIT(A) is on lower side when compare to nature of business. Except this, the assessee could not even justified various expenditure debited into P L A/c. At the same time, there is no basis for the AO/the Ld.CIT(A) to determine administrative expenses at Rs.35 lakhs. Therefore, taking into account, the nature of business of the assessee and also the reasons given by the AO to estimate administrative expenses, we are of the considered view that both have failed to justify their case with necessary reasons and thus, we direct the AO to allow 90% of total expenses claimed by the assessee in their financial statement filed for the relevant assessment year and recompute profit from the business taking into account gross pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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