TaxTMI 
TaxTMI 
2018 (5) TMI 1315
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....ndian made foreign liquor (IMFL) and Beer. The AO observed that "in view of the glaring defects of the sales, totally unsupported by any day today shop wise register of stock and sales, the true profits cannot be deducted from the books of account maintained by the assessee and accordingly books of accounts are rejected under section 145(3) of the Act." Thereafter, he has collected information from the excise department and estimated the sales turnover on the basis of the information so collected and estimated the sales turnover as against the sales declared by the assessee and added the amount of the difference between the total sales turnover estimated by the AO and the sales turnover declared by the assessee on account of suppressed sales of Rs. 2,98,60,025/- and Rs. 1,88,17,217/- in respect of assessment years 2010-11 and 2011-12 respectively, as income of the assessee. The ld. CIT(A) has confirmed the action of the AO as regards to estimating the turnover on the basis of information received from the excise department, however, he has rejected the AO's view of assessing the suppressed sales as taxable income of the assessee by holding that the entire suppressed sale cannot be ....
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.... am of the considered opinion that the entire suppressed/undisclosed sale estimated by A.O cannot be taxed as 'Income' of the appellant. Only the net profit part can be taxed. 3.6 On the facts similar to the facts of the appellant, the ITAT, Coordinate Bench of Hyderabad, ITAT (ITA No.391/Hyd/2009) in the case of Manjeet Singh Bagga Vs. ITO has held that estimation of profit @3% of the purchases made by the appellant(Liquor Contractor) would meet end of justice. In the case of Kanak Durga Wines Hyderabad Vs ITO Hyderabad bench-B of the ITAT (ITA No.591/Hyd./2011) has estimated the net profit of the assessee(Liquor Contractor) @3% of the purchases or stock put for sale during the year under consideration. In the case of G.Sudarshan Hyderabad Vs ITO (ITA No.l26/Hyd./2012) Hyderabad bench-A of the ITAT directed the Assessing Officer to estimate the net profit of the assessee at 3% of the purchases or stock put for sale during the year, subject to the condition that the income shall not go below the returned income. 3.7 After going through the various decisions of jurisdictional High Court and ITAT discussed above, I am of the considered opinion that the entire suppressed/undisclos....
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....essme nt Year Sales (Rs.) Gross profit Net Profit Rema rks Rs. % Rs. % after deducting interest and salary % without deducting interest and salary 2006-07 2464568 904581 37.16 35798 1.47 - Accep ted 2007-08 Nil Nil Nil - Nil - - 2008-09 103159162 7420887 7.19 2002427 1.94 2.9 57600 0 2009-10 100095112 8486895 8.48 1090815 1.09 2.1 50100 0 *2010-11 154743908 12633589 8.16 1441940 0.93 1.9 Under appea l *2011-12 246560430 18018328 7.31 2341328 0.95 1.43 7. The ld. DR relied on the order of the Assessing Officer. The ld. DR submitted that the ld. CIT(A) has erred in applying the net profit rate of 3% on the total estimated turnover, instead of difference in sales as estimated by the AO and as shown in the P&L account by the assessee, despite the fact that the assessee had already claimed all the expenses in the P&L account and no additional expenses were incurred to effect the suppressed sales. 8. As such, in such cases, a just, fair and reasonable net profit rate is to be applied on the basis of past history of the trading result of the assessee or the comparable case of the same l....
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....ts of the appellant, the ITAT, Coordinate Bench of Hyderabad, ITAT (ITA No.391/Hyd/2009) in the case of Manjeet Singh Bagga Vs. ITO has held that estimation of profit @ 3% of the purchases made by the appellant (Liquor Contractor) would meet end of justice. In the case of Kanak Durga Wines Hyderabad Vs ITO Hyderabad bench-B of the ITAT (ITA No.591/Hyd./2011) has estimated the net profit of the assessee(Liquor Contractor) @3% of the purchases or stock put for sale during the year under consideration. In the case of G.Sudarshan Hyderabad Vs ITO (ITA No.l26/Hyd./2012) Hyderabad bench-A of the ITAT directed the Assessing Officer to estimate the net profit of the assessee at 3% of the purchases or stock put for sale during the year, subject to the condition that the income shall not go below the returned income." 10. The ld. Counsel has raised objection to the addition sustained by ld. CIT (Appeals), by applying the NP rate of 3% on the sales as estimated by the AO, contending that while applying the rate of 3%, the CIT (A) has completely ignored the facts of the assessee's line of business, where the net profit rate varies from 1.5 to 2.5% depending on multiple factors such as geogra....
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....hortfall". As per the Excise Rules, the liquor contractor has to maintain complete stock register and record of all its employees as per "Nokarnama" approved by the District Excise Officer. No other person can be recruited as an employee, unless the details of the employees are provided to the District Excise Officer. The liquor contractor has to submit monthly account of receipt of liquor and sale thereof and report the stock balance at the end of the month to the Excise Inspector by the 5th of the following month. In the case of country liquor, the purchases are made from the Excise Department through permits. Accordingly, purchases of IMCL as also purchases of IMFL and Beer can be made from wholesale licensees of IMFL distilleries respectively, after seeking permission of the Excise Department and while the purchases are proved but it is an admitted fact that the sale price is not fixed and the assessees have neither issued sale vouchers to the purchasers, nor maintained the same. Therefore, the finding of the ld. CIT(A), concurring with the observation of the AO regarding rejection of books of account u/s 145(3) and thereby, estimation of the turnover on the basis of info....
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....cal formula for sales by the AO, is entirely based on presumption, surmises and conjunctures and adoption of higher NP rate by CIT(A) has no basis. 15. The ld. CIT(A) has rightly followed the decisions of the Hon'ble Jurisdictional Madhya Pradesh High Court given in the cases of 'Commissioner of Income Tax vs. Balchand Ajit Kumar', 263 ITR 610 and 'Manmohan Sadani vs. Commissioner of Income Tax, 304 ITR 52 while holding that where the books of account are being rejected, the entire sales cannot be charged to tax as income, only the profit rate is to be applied. As such, the finding of CIT(A) on the issue of applying net profit rate on the sales is in conformity with the law. Therefore, the departments ground of appeal that the difference in sales, as estimated by the AO as suppressed sales, be treated as income of the assessee, is hereby rejected. 16. In view of the decision of the Hon'ble Jurisdictional M.P. High Court and the ITAT, Agra in the case of the assessee as above, it is amply clear that where the books of account are rejected under Section 145(2), the net profit rate is to be applied on the basis of the past history of the assessee and the entire sales cannot be add....
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.... the I T Act. Since provisions of section 145(3) of the I T act are not applicable in this case and the books of accounts have not been validly rejected, the Assessing Officer was not justified in estimating the sales at a higher figure and applying a higher net profit that declared by the appellant." 19. The ITAT, Indore Bench, in the case of 'ACIT Vs. Avinash Chawla & Co. Bhopal', in ITA No. 570/Ind./ 2012, for Asstt. Year 2008-09, vide order dated 17.04.2013, held that (APB, 77-83)- "No major defects pointed out by the Assessing Officer other than the defects of not issuing the sale bills, but the fact remains that sales of the assessee as recorded in the books of accounts were not verifiable. Therefore, keeping in view the totality of facts and circumstances of the case , we modify the orders of both lower authorities and direct the Assessing Officer to work out profit of liquor trade by applying net profit rate of 2% in place of net profit rate 1.89% shown by the assessee , which was estimated by the Assessing Officer at 3% . Once the business profit determined by estimating net profit rate on the sales, no further deduction can be allowed on account of any expenditu....
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....s Commissioner of Income Tax', (2008) 304 ITR 52 (APB, 41-44)it is held that the total sales could not be recorded as the profit of the assessee. The net profit rate has to be adopted and once it is adopted, the same can be treated as the income of the assessee. In the present case, the finding of the Ld. Assessing Officer with respect to addition of the entire amount of the sales difference and adoption of higher rate of NPR on these estimated sales as discussed above, on the basis of information received from Excise Department, is contradictory to the observations of the Hon'ble jurisdictional MP High Court. 24. Estimation of profit is purely a question of fact, meaning thereby, that no particular rate of profit has universal application and depending upon the facts and circumstances of each case the rate of profit varies. It therefore implies that the past history of the assessee's own case, or comparable cases on parity of facts is the most relevant guide for estimation of profit. 25. For arriving at the view that past history is the best guide to work out or estimate profit where book profit is, not believable, we derive authority from the Hon'ble jurisdictional M.P High C....
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....tional High Court of MP and the ITAT Jabalpur/Indore Benches, respectively, on parity of facts is a per se unsustainable finding with reference to the facts and circumstances of the case and it also amounts to violation of judicial discipline by not following the decision of the jurisdictional High Court and ITAT Benches on parity of facts, and wrongly following the decision of other ITAT Benches. 29. The ITAT, Agra Bench, in the case of 'Laxami Narain Shivhare, Gwalior Vs. Joint Commissioner of Income Tax III', in ITA No. 419/Agra/2012, for the A.Y. 2009-10 and vice versa, 'Asstt. Commissioner of Income Tax Vs Laxmi NarainShivhare, Gwalior', being ITA No. 442/Agra/2012 for the A. Y. 2009-10, held that- "Thus, it is found that estimation made by the AO is based on mathematical formula and simply on mathematical fomula income cannot be estimated. The AO made the addition of entire/gross sales whereas Hon'ble MP High Court in the case Manmohan Sadva vs. CITR, 304 ITR 52 (MP) following CIT Vs Balchand Ajit Kumar, 263 ITR 610 MP held that entire sale proceeds of the assessee cannot be added to the income only net profit is to be added. Thus, the AO's finding is contrary to finding ....
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.... above, it is amply clear that the ld. CIT(A) has not pointed out any specific deficiency in the purchase invoices, or the expense invoices, nor discussed any comparable case on identical facts, to form the basis for application of a particular net profit rate on gross total receipts, in the case of the assessee. On perusal of the comparative 'Net Profit Chart' of the assesses's past history on profit rate, as above, it is evident that the Net Profit Rate is reasonably declared at 2.62%, as against those of 2.09% and 2.12% of the earlier years. After considering the decisions cited and the history of the case, it is factually clear that the profit rate applied by the Ld. CIT(A) at 3 % is on the higher side and is unreasonable. 33. In view of the above discussion, judicial pronouncements and factual matrix of the cases, we hold that the suppressed sale cannot be taxed as 'income' and only the net profit part can be taxed as income of the assessee. 34. Following the Hon'ble Jurisdictional MP High Court and ITAT orders on parity of facts, in case of retail trader of liquor, as such, we hold that it would be just, fair and reasonable to apply a net profit rate of 2.7% on the sales ....