AO must give reason for rejecting books & estimating income by applying higher GP Ratio

Brief about the case

The appellant was running liquor, wine and beer shop and was authorized to operate the liquor shop for the period of one year from April, 2007 to March 2008. The assessee purchased wine from different suppliers and the same is sold in cash. In the return of income, the assessee had shown income under the head “salary” only. During the year under consideration, the assessee was engaged in the business of wine, liquor and incurred a loss of Rs.1,07,746/-.This business loss was not claimed in the return. After examining the books of account of the assessee, the Assessing Officer has noticed certain discrepancies in the books of account of the assessee viz ; non-maintenance of stock register , non-maintenance of sales records, non-maintenance of bills and vouchers of expenses and that the purchases and freight ledger were not in concurrence. The Assessing Officer invoked the provisions of section 145(3) of the Income Tax Act , 1961and as a consequence of which, he rejected the books of account of the assessee and thereby applied the net profit rate of 8% on the sales using his best judgment as per the prevalent conditions in liquor business. Further, the CIT(A) upheld the order of the AO.

The assessee knocked the ITAT’s door to seek justice against such high rate of profit being applied. The ITAT relied upon the view in the case of Luxmi Narian Ramswaroop Shivhare (supra), wherein it was held that as regards the sale, the nature of the assessee’s business was such that it cannot maintain proper sale bills. In this case also, the nature of assessee’s business is such that it cannot maintain proper sale bills. The ITAT pronounced that the declared results are to be accepted and estimation of income by applying the net profit rate of 8% was not proper. Accordingly, it deleted the addition of Rs.12,81,872/- made by the Assessing Officer and confirmed by the learned CIT (Appeals).

Detail

Facts of the case:

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