2017 (2) TMI 218 - AT - Income Tax

Estimation of Gross Profit on sale of Food - Held that - The average gross profit on food sale is only 6.32% as per the impounded documents. The Assessing Officer on the other hand had estimated the G.P. at 13.68% to 12% for various AY s. The CIT(Appeals) has not gone into the facts and has estimated gross profit rate of 12% on sale of food. The CIT(Appeals) compared with other group concerns on identical business but has not considered the place where these concerns are doing business. The place of business have major role in the food sales and cannot be compared with concerns in different places. Moreover as mentioned earlier the impounded material clearly points out only G.P. of 6.32% on sale of food. It is also to be noted that liquor sales are the main sales and the food sales is only a secondary sale in all the AY s. Therefore the percentage adopted at 12% for food sales is erroneous and addition on this count is deleted. Disallowances of expenses - assessee could not produce external evidences for the expenses disallowed - Held that - Admittedly the Assessing Officer has stated that the expenses are genuine and supported by vouchers. In such a case the Assessing Officer could not have disallowed the expenses. It is also noticed that the CIT(A) has also not correctly appreciated the facts of the present case. Considering the entire facts and circumstances of the present case it is of the view that there was no justification in making the disallowance of expenses. Therefore delete the disallowance of expenses made by the Assessing Officer and confirmed by the CIT(A).

Summary

Issues involved:
Estimation of gross profit on sale of food, Disallowance of expenses, Wrong disallowance of expenses for AY 2008-09

Estimation of Gross Profit on sale of Food:
The Assessing Officer estimated the sale of food based on liquor sales, but the assessee argued that food sales were minimal due to the location. The impounded documents showed a lower gross profit on food sales. The CIT(A) estimated the gross profit rate at 12% without considering the location-specific factors. The Tribunal found the 12% estimate erroneous and deleted the addition, considering the impounded material and the secondary nature of food sales compared to liquor sales.

Disallowance of Expenses:
The Assessing Officer disallowed certain expenses, stating they were supported only by internal vouchers. However, the books of accounts were rejected only for profits, not expenses. The CIT(A) accepted the expenses but noted they were supported by internal vouchers. The Tribunal observed that the Assessing Officer wrongly disallowed expenses supported by impounded statements. It ruled in favor of the assessee, deleting the disallowance of expenses, as the expenses were genuine and supported by vouchers, and the CIT(A) had not correctly appreciated the facts.

Wrong Disallowance of Expenses for AY 2008-09:
The Assessing Officer incorrectly deducted total expenses as per the original return, not the revised return, resulting in an increase in income. The assessee contended that the disallowance was made from the revised profit and loss account. The Tribunal noted that the CIT(A) did not address this issue, so it restored the matter to the CIT(A) for a decision. The additional ground raised by the assessee was allowed for statistical purposes. The appeals for the assessment years 2009-10 and 2010-11 were allowed, while for AY 2008-09, it was partly allowed for statistical purposes.

This judgment addressed the issues of estimation of gross profit on food sales, disallowance of expenses, and wrong disallowance of expenses for AY 2008-09. The Tribunal found errors in the estimation process, supported the genuineness of expenses, and directed a review of the incorrect expense deduction.