2018 (1) TMI 181 - AT - Income Tax

Tribunal estimates 5% profit for IMFL business, upholds Rs. 27,60,000 cash credits addition as undisclosed income.

The Tribunal partially allowed the appeal by directing the Assessing Officer to estimate the net profit at 5% of the purchase price for the IMFL business. ... Estimation of profit on purchase price - determination of N.P. - assessee is engaged in the business of (IMFL) liquor trade - Held that:- The very same issue of estimation of profit in the trade of IMFL was considered by the coordinate bench of the Tribunal in the case of Tangudu Jogisetty [2016 (7) TMI 379 - ITAT VISAKHAPATNAM] and held that estimation of 5% net profit on purchase is reasonable and directed the A.O. to estimate the net profit of 5% on total purchases net of all deductions Unexplained cash credits - Held that:- It is only submitted before the ld. CIT(A) that an amount of ₹ 27,60,000/- was already offered to tax and adjusted against net loss in the capital account. Even before us, the assessee has not filed any details. The argument advanced before the ld. CIT(A) that the amount of ₹ 27,60,000/- was already offered for taxation has been considered by the ld. CIT(A) and he has observed that the impugned credits as unsecured loans, offered to tax has no nexus to the income from liquor business, and therefore the impugned credits offered to tax is part of income, estimated without merits. Ld. CIT(A) rejected the arguments raised by the assessee and confirmed the addition. We find that even before us the assessee is not able to establish that the nexus between unsecured loans and the liquor business and therefore, we are of the opinion that the ld. CIT(A) has rightly confirmed the order passed by the Assessing Officer. Accordingly, this ground of appeal raised by the assessee is dismissed. Issues Involved:1. Estimation of profit on purchase price.2. Addition of unexplained cash credits.Issue-wise Detailed Analysis:1. Estimation of Profit on Purchase Price:The primary issue pertains to the estimation of profit in the business of purchase and sale of IMFL (Indian Made Foreign Liquor). The assessee filed a return declaring an income of Rs. 6,77,340/-, which was processed under section 143(1) of the Income Tax Act, 1961. The case was selected for scrutiny, and the Assessing Officer (A.O.) estimated the income at 20% of the stock put to sale, citing improper maintenance of books and vouchers by the assessee. The Commissioner of Income Tax (Appeals) [CIT(A)] reduced this estimation to 10%.The assessee appealed to the Tribunal, arguing that the profit estimation should be 5% as decided in a similar case (Tangudu Jogisetty in ITA No.96/Vizag/2016). The Tribunal reviewed the materials and previous judgments, noting that the A.O.'s reliance on the A.P. High Court’s decision in the case of CIT Vs. R. Narayana Rao, which involved arrack trading, was misplaced as the facts differed from the IMFL business.The Tribunal found merit in the assessee's argument, supported by the ITAT Visakhapatnam bench's decision in T. Appalaswamy Vs. ACIT, which held that a 5% profit margin on purchases was reasonable for the IMFL business. Consequently, the Tribunal directed the A.O. to re-compute the income at 5% of the purchase price, allowing this ground of appeal.2. Addition of Unexplained Cash Credits:The second issue involved an addition of Rs. 27,60,000/- as unexplained cash credits. The A.O. noted that the assessee claimed unsecured loans of this amount but failed to provide necessary details or evidence. Consequently, the A.O. added the entire amount to the total income.On appeal, the assessee argued that this amount had already been offered to tax and adjusted against a net loss in the capital account. The CIT(A) rejected this argument, noting that the impugned credits had no connection to the liquor business income, which was estimated separately. The CIT(A) upheld the A.O.'s addition, referencing several judicial precedents, including the decisions of the Allahabad High Court and the Supreme Court, which established that unexplained credits could be treated as income from undisclosed sources even if the business income was estimated.The Tribunal, upon review, found that the assessee failed to establish any nexus between the unsecured loans and the liquor business. The Tribunal agreed with the CIT(A)'s findings and upheld the addition of Rs. 27,60,000/- as unexplained cash credits, dismissing this ground of appeal.Conclusion:The Tribunal partly allowed the appeal, directing the A.O. to estimate the net profit at 5% of the purchase price for the IMFL business while upholding the addition of Rs. 27,60,000/- as unexplained cash credits. The judgment was pronounced in the open court on August 30, 2017.