Raj Kumar & Co. Vs ITO (ITAT Amritsar)
No Books, No 68- ITAT Says Only NP Estimation Valid in Liquor Trade Case- Once Profit is Estimated, AO Cannot Add Loans or Capital
The Assessee, a partnership firm engaged in IMFL & beer trading for only one year (FY 2016-17), neither filed return u/s 139(1) nor maintained books or audit. AO completed best judgment assessment u/s 144 on the basis of a “draft return” showing sales of ₹9.92 crores, estimated net profit @10% & made separate additions of ₹43.50 lakhs (unsecured loans) & ₹5.89 lakhs (partners’ capital) u/s 68. CIT(A) reduced NP rate to 5% but sustained both additions u/s 68.
Before Tribunal, Assessee argued that business existed only for one year, the draft return figures of loans, capital, cash & assets were imaginary, no books existed & only turnover-based estimation was possible. It relied on various High Court rulings holding that once books are rejected or do not exist & profit is estimated, no separate addition u/s 68 can be made. Assessee also cited ITAT Chandigarh decision in similar liquor trade where NP was estimated @2%.
Tribunal held that the only reliable figures were purchases from Form 26AS & excise duty payments totaling ₹9.20 crores against sales of ₹9.92 crores. Since no books existed, a fair NP estimation was required. Considering comparable liquor business, Tribunal applied NP @2.5% on ₹9.92 crores. It further held, following binding precedents, that after estimation of profit, AO cannot rely on hypothetical draft return entries to make additions u/s 68. Therefore, additions of ₹43.50 lakhs & ₹5.89 lakhs were deleted.
