TaxTMI 
TaxTMI 
TaxTMI 
2016 (12) TMI 1403
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....The assessment was completed u/s 143(3) of the Act, determining total income of Rs. 94,68,940/- by making following additions. 1. Estimation of income at 20% of stock put to sale Rs. 44,69,869/-. 2. Unexplained amount of Rs. 10,25,021/-. 3. Unexplained credit in capital account of Rs. 8,14,500/-. 4. Unexplained unsecured loans of Rs. 31 lakhs 5. Income brought under income from other sources of Rs. 59,550/-. 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has filed written submissions and copies of confirmation letters filed before the A.O. to substantiate loan creditors and credits in capital accounts. The CIT(A) after considering the explanations of the assessee, for the detailed discussion in his order dated 29.12.2014, and scaled down estimation of net profit from 20% to 10% of the purchase price, however, confirmed additions made by the A.O. towards unexplained amount, unexplained creditors, unexplained credit in capital account and income from other sources. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 4. The first issue that came up for our consideration is estimation of n....
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....on'ble A.P. High Court was that the assessee is into the business of trading in arrack, whereas it is in the business of dealing in IMFL. The assessee further contended that IMFL trade was controlled by the State Government through A.P. State Beverages Corporation Ltd. and the prices of the products are fixed by the State Government. The assessee being a license holder of State Government cannot sell the products over and above the MRP fixed by the State Government. We find force in the arguments of the assessee for the reason that the A.O. has estimated the net profit by relying upon the decision of A.P. High Court in the case of CIT Vs. R. Narayana Rao in ITA No.3 of 2003 which is rendered under different facts. The A.P. High Court has considered the case of an arrack dealer, whereas, the assessee is into the business of dealing in IMFL. Therefore, we are of the view that the A.O. was not justified in relying upon the judgement, which was rendered under different facts to estimate the net profit. On the other hand, the Ld. A.R. for the assessee, relied upon the decision of ITAT, Visakhapatnam bench in the case of T. Appalaswamy Vs. ACIT in ITA No.65 & 66/Vizag/2012. We have gone ....
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....upra), we direct the A.O. to estimate net profit of 5% on total stock put for sale net of all deductions. 7. The next issue that came up for our consideration is addition towards unexplained amount, unexplained creditors, unexplained credits in capital account and income from other sources. During the course of assessment proceedings, the A.O. noticed that the assessee has shown unsecured loans of Rs. 31 lakhs, opening capital of Rs. 8,14,500/- and incurred initial expenditure aggregating to Rs. 49,39,521/- towards initial license fees paid for procuring license, bank deposits and bank guarantee commission. The A.O. called upon the assessee to explain the nature and source of creditors and also sources for amount of opening capital brought forward from previous financial years. The A.O. also called upon the assessee to explain the sources for initial expenditure incurred for paying license fees and bank guarantee deposits. In response to show cause notice, the assessee submitted that opening capital was brought forward from earlier year was out of his past savings from his previous employment and other income. In respect of unsecured loans, the assessee has filed confirmation lett....
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....ve the land holding and earning of agricultural income. The A.R. further submitted that in so far as opening capital balance, the assessee has brought forward opening capital of Rs. 8,14,500/- and the source of which was explained to the assessing officer by filing necessary evidences. The assessee was in employment for over 20 years and out of his salary income and other income, the assessee has explained the source, therefore, the A.O. was not correct in making additions towards opening capital. In so far as additions towards unexplained amount being difference between initial expenditure incurred towards license fees and bank guarantee deposit and commission and sources available in the form of unsecured loan and opening capital, the A.R. submitted that when books of accounts are rejected and profit is estimated, the A.O. was erred in making separate additions towards expenditure. When net profit is estimated on gross receipts, it will take care of expenditure incurred in connection with the business and hence, making separate additions towards few expenditures amounts to double addition. The A.R. further submitted that if you take into account the total additions made by the A.....
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....h can accumulate such a huge opening capital balance. Similarly, the A.O. observed that the assessee failed to prove the sources for the expenditure incurred for payment of license fees and bank guarantee deposit and commission. It is the contention of the assessee that it has furnished necessary details before the A.O. to prove the unsecured loans and credits in capital account. The assessee further contended that the sources for the initial expenditure was out of unsecured loans borrowed from friends and relatives and also out of opening capital brought forward from earlier years. The assessee further contended that he had filed necessary details to prove the identity, genuineness of transactions and creditworthiness of the parties, therefore, the A.O. was erred in making additions towards unsecured loans, credits in capital accounts and unexplained amount. 12. Having heard both sides, we do not find any merits in the arguments of the assessee for the reason that the assessee failed to prove genuineness of the transactions and creditworthiness of the parties. Although, the assessee filed confirmation letters from the creditors, all the confirmation letters are in prototype form ....