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2010 (9) TMI 1138 - AT - Income TaxEstimation of profit - allowed to sell the wine 30% over and above the purchase price - discrepancies in the books of account - HELD THAT:- Admittedly the assessee disclosed the sale at ₹ 5,73,36,805. However, the AO estimated the same at ₹ 6,03,02,927. The difference between the sales declared by the assessee and estimated by the AO was added as income of the assessee. The difference of ₹ 29,66,182 comes to 5% of the purchase cost. For the A.Y. 2001-02, the total purchases was ₹ 2,50,72,224. The total sales was ₹ 2,69,81,342. The assessee declared the profit at 3.48%. The AO estimated the profit at 5%. However, the Tribunal after deletion of ₹ 3,45,000 sustained the profit at 3.68%. For the A.Y. under consideration the total purchases is ₹ 5,44,21,009 after reducing the incentives given by the manufacturer. The sales declared by the assessee was ₹ 5,73,36,805. Admittedly the assessee has not 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 opinion, estimation of profit at 3% of the purchases made by the assessee would meet the ends of justice. Accordingly, we direct the AO to estimate the profit at 3% on the purchases of ₹ 5,44,21,009. deletion of the difference in the licence fee - HELD THAT:- Admittedly, the books of account were rejected and the profit was estimated. Once the books of account were rejected the very same books cannot be a basis for making any addition as held by the jurisdictional High Court in the case of Indwell Constructions vs. CIT [1998 (3) TMI 121 - ANDHRA PRADESH HIGH COURT]. When the profit was estimated after rejecting the books of account, all the expenditure including licence fee are deemed to be allowed. Therefore, once profit was estimated there cannot be any further addition. In our opinion, the CIT(A) has rightly deleted the addition. Exclusion of business income - HELD THAT:- In case the returned income consists of income from other sources other than business income then such income has to be brought to tax in addition to the estimated profit of 3% as discussed earlier. In view of the above we do not find any infirmity in the order of the CIT(A). Accordingly the same is confirmed.
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