2017 (6) TMI 171 - AT - Income Tax

Tribunal revises income computation in IMFL business, upholds unexplained investment treatment

Korada Hareesh (HUF) Versus ITO, Ward-1, Srikakulam

The Tribunal partly allowed the appeal by directing the re-computation of income in the IMFL business at 5% of the purchase price. However, the treatment ... Estimation of profit in respect of IMFL business carried by the assessee - Held that:- The coordinate bench of the Tribunal in the case of Tangudu Jogisetty (2016 (7) TMI 379 - ITAT VISAKHAPATNAM) has considered the profit level in the line of business and decided that 5% of purchase price is reasonable profit margin in the line of IMFL business and directed the A.O. to re-compute the profit of the assessee. In view of the above we direct the A.O. to re-compute the income of the assessee at 5% of purchase price. Accordingly, this ground of appeal raised by the assessee is allowed. Unexplained loan creditors - Held that:- The assessee has not filed evidence because the loan creditors are uneducated people. It appears to me that the explanation given by the assessee cannot be accepted for the reason that if at all assessee borrowed some loans, he has to submit all the details before the Assessing Officer and if Assessing Officer is not satisfied on any details, assessee has to make an appeal for admitting those details. In this case, the assessee has not made any attempt neither before the Assessing Officer nor before the ld.CIT(A). Before me, he simply submits that he has not submitted all the details of loan creditors because loan creditors are illiterates. This is not a ground to admit the additional evidence, therefore, prayer made by the assessee for admission of additional evidence is rejected. As the assessee has not filed any evidence neither before the Assessing Officer nor before the ld.CIT(A), even before the Tribunal thus addition confirmed - Decided against assessee. Issues:1. Estimation of income in the IMFL business.2. Treatment of unexplained investment.Estimation of income in the IMFL business:The appeal involved the estimation of income in the IMFL business. The assessee initially declared an income of Rs. 4,43,755, which was later estimated at 20% of the stock put to sale by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) scaled down the percentage to 10%, directing the Assessing Officer to re-compute the income at 10% of the purchase price. The Tribunal considered a similar case where a 5% profit margin was deemed reasonable in the IMFL business and directed the Assessing Officer to estimate the profit at 5% of total purchases net of all deductions. The Tribunal found the net profit estimated by the Assessing Officer to be high and directed the re-computation at 5% of the purchase price, following the decision of the coordinate bench. The appeal was allowed on this ground.Treatment of unexplained investment:Regarding the unexplained investment, the Assessing Officer observed investments made before the commencement of the business, totaling Rs. 25,38,480. The assessee claimed Rs. 18,01,200 as brought forward capital and explained the balance through unsecured loans. However, the Assessing Officer treated the unexplained amount of Rs. 7,37,200 as income from other sources. The Commissioner of Income Tax (Appeals) upheld this decision. The assessee sought to admit additional evidence before the Tribunal, claiming the loan creditors were uneducated and hence unable to provide timely confirmations. The Tribunal rejected the admission of additional evidence, stating that the explanation provided by the assessee was insufficient. As no evidence was submitted at any stage, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) on this ground, dismissing the appeal.In conclusion, the Tribunal partly allowed the appeal, directing the re-computation of income in the IMFL business at 5% of the purchase price while upholding the treatment of unexplained investment as income from other sources due to lack of evidence provided by the assessee.