Tribunal orders remittance to AO for profit estimation, assessee's appeal allowed.

The Tribunal set aside the CIT(A)'s order and directed the matter to be remitted back to the AO for estimating the profit at 5% of the purchases made net of all deductions. The appeal filed by the assessee was allowed based on the above analysis.

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Issues: Estimation of net profit in the business of IMFL trade for assessment year 2011-12.

Analysis:
1. The appeal was filed against the CIT(A)'s order for the assessment year 2011-12. The assessee, engaged in the IMFL business, declared a total income of Rs. 7,94,000. The assessing officer estimated the income at Rs. 43,73,007 by considering 20% of the stock put for sale after deducting the income declared by the assessee. However, as the assessee failed to produce sale bills and stock register, the AO rejected the books of accounts as unreliable and estimated the net profit at 20% of the stock put for sale.

2. The assessee contended before CIT(A) that the estimation was excessive as the profit margin in the IMFL trade is typically 3 to 5%. CIT(A) agreed partially and restricted the disallowance to 10% of the purchase price, directing the AO to recompute the income. The matter was then appealed before the Tribunal by the assessee.

3. During the Tribunal proceedings, the assessee's counsel referred to a similar case before the Tribunal where the estimation was restricted to 5% of the purchase price. The Departmental Representative supported the lower authorities' order.

4. The Tribunal analyzed the issue of profit estimation in the IMFL trade in a previous case, where it was held that estimating 5% net profit on purchases is reasonable. The Tribunal noted that the A.O. had relied on a judgment related to arrack trading, which was not applicable to the IMFL business. Considering the facts and the precedent set by the coordinate bench, the Tribunal directed the AO to estimate the net profit at 5% of total purchases net of all deductions.

5. Ultimately, the Tribunal set aside the CIT(A)'s order and directed the matter to be remitted back to the AO for estimating the profit at 5% of the purchases made net of all deductions. The appeal filed by the assessee was allowed based on the above analysis.

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