2012 (5) TMI 699 - AT - Income Tax

N.P. estimation - Held that - Estimation of net profit above 5% of the purchases made by the assessee is to be adopted we direct the AO to estimate net profit at 5% of the purchases or stock put for sale during the year subject to the assessed income not less than returned income. The order of the CIT(A) to this extent is modified accordingly.

Summary

Issues:
- Appeal against orders passed by CIT(A) for assessment years 2007-08 & 2008-09 regarding estimation of turnover in liquor trade.
- Dispute over the estimation of net profit margin for the assessee.
- Comparison of past business history and profit margins in similar cases.
- Application of estimation principles in rejecting books of accounts and assessing undisclosed income.

Analysis:
The judgment by the Appellate Tribunal ITAT Hyderabad involved appeals by the Revenue against orders passed by the CIT(A) for assessment years 2007-08 & 2008-09. The appeals were related to the estimation of turnover in the liquor trade. The Tribunal noted that identical issues were involved in these appeals and decided to club, hear, and dispose of them together for convenience. The primary issue revolved around the estimation of turnover based on the profit margin for different liquor items as per government regulations.

The facts of the case revealed that the assessee was engaged in the retail trade of liquor, sourcing all purchases from the Andhra Pradesh Beverages Corporation Ltd. The Assessing Officer (AO) computed the turnover by adopting a profit margin of 27% due to the inability of the assessee to produce evidence in the form of sale bills. This computation led to the addition of the difference to the assessee's income. The CIT(A) directed the AO to estimate the net profit at 3% based on a decision of the ITAT in a similar case.

The grounds of appeal raised by the Revenue included contentions regarding the rejection of books of accounts, estimation of sales, comparison with past cases, and the applicability of profit margins. The Revenue argued for an estimation of net profit above 5% of purchases made by the assessee, considering the prevailing business practices in the liquor trade where sale prices often exceed the government-fixed rates.

The Tribunal considered the submissions of both parties and referred to past decisions regarding the estimation of income after rejecting books of accounts. It was noted that the best guide for such estimation is either the past history of the assessee or comparable cases. The Tribunal acknowledged the past net profit margins of the assessee and directed the AO to estimate the net profit at 5% of purchases or stock put for sale during the year, ensuring the assessed income is not less than the returned income.

In conclusion, the Tribunal partly allowed the appeals of the Revenue, modifying the order of the CIT(A) to estimate the net profit at 5% of purchases or stock put for sale during the year. This judgment provided clarity on the principles to be applied in estimating income in cases involving liquor trade and upheld the importance of considering past business history and comparable cases for accurate assessments.