Venkata Subba Reddy Karnati Vs ITO (ITAT Hyderabad)
Once Profit is Estimated, No Second Bite! ITAT Hyderabad Deletes ₹31.55 Lakh Addition After Books Rejected in Liquor Business Case
Assessee, an individual engaged in liquor business, filed his return of income for AY 2010-11 declaring ₹2,00,528/-. AO completed assessment by rejecting the books of account u/s 145 and estimating profit at 5% of turnover, thereby determining income of ₹5,17,842/-. No other addition was made at that stage.
Subsequently, based on information that surfaced in the appellate proceedings of one Mr. S.K. Ramthulla, AO formed a belief that Assessee had allegedly made an unexplained cash investment of ₹31,55,000/- outside the books. On this basis, reassessment proceedings u/s 147 were initiated. The reassessment was completed ex parte on 29.07.2013, wherein AO retained the estimated business income, but also made an independent addition of ₹31,55,000/- as unexplained investment u/s 68/69, resulting in assessed income of ₹36,82,842/-.
Assessee appealed before CIT(A), but the appeal was dismissed. Aggrieved, Assessee approached Tribunal and raised a legal ground that once AO rejects the books of account and estimates income, he cannot thereafter make further additions on the same rejected books. Assessee relied on the binding jurisdictional Andhra Pradesh High Court judgment in Indwell Constructions v. CIT (232 ITR 776) which categorically held that when profit is estimated, it is presumed that all defects in books are taken care of and no further addition can be made. Assessee also relied on several other judicial precedents such as Malpani House of Stone (Raj HC), Gian Chand Lakshmi Contractors (P&H HC), Aggarwal Engg. Co. (P&H HC), Banwarilal Banshidhar (All HC), GK Contractor (Raj HC) and ITAT Chennai ruling in ACIT v. S. Moorthy.
