Liquor Trader Gets Relief: ITAT Cuts GP Rate from 4% to 3.13%, Deletes Separate Expense Disallowance

Navjeet Singh Bhatia Vs ITO (ITAT Raipur)

Liquor Trader Gets Relief: ITAT Cuts GP Rate from 4% to 3.13%, Deletes Separate Expense Disallowance

The Raipur ITAT granted substantial relief to a liquor trader by reducing the gross profit (GP) rate from 4% to 3.13% and deleting a separate ₹1 lakh ad hoc expense disallowance, holding that the Revenue cannot adopt a higher GP rate without justification when a comparable case in the same line of business has been accepted at a lower rate.

The Assessing Officer had rejected the books of account under Section 145(3) on the grounds that the assessee had not maintained quantitative records, sale bills and supporting vouchers, and thereafter estimated sales and applied a 4% GP rate, resulting in an addition of ₹35.12 lakh. The NFAC upheld the assessment.

Before the Tribunal, the assessee produced a comparable assessment order of another liquor trader, Gaurav Kumar Singh, for the same assessment year and under the jurisdiction of the very same Assessing Officer, wherein the Department had accepted a GP rate of 3.13%. The Tribunal noted that the Revenue failed to point out any distinguishing feature between the two cases or justify adoption of a higher GP rate in the assessee’s case.

Accordingly, the ITAT directed the Assessing Officer to recompute income by adopting a GP rate of 3.13% instead of 4%, thereby substantially reducing the addition.

The Tribunal also deleted the separate ₹1 lakh ad hoc disallowance of expenses, observing that once books of account are rejected and profits are estimated, it is not permissible to make further additions based on entries in the same rejected books. Reliance was placed on the Calcutta High Court decision in Skyscraper Projects (P.) Ltd. v. Addl. CIT.

FULL TEXT OF THE ORDER OF ITAT RAIPUR

The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 21.10.2025 for the assessment year 2016-17 as per the grounds of appeal on record.

2. That as per grounds of appeal, the assessee is aggrieved on the addition of Rs.35,12,804/- on account of excess profit determined by the A.O after rejecting books of account and secondly, by action of the A.O on further disallowance of Rs.1 lakh on account of expenses as per profit & loss account.

3. The relevant facts are that the assessee is engaged in the liquor business as per liquor license for sale of foreign liquor and country liquor at Tilda. That during the assessment proceedings, various statutory notices were issued to the assessee asking the assessee to explain the genuineness of the sales recorded as per profit and loss account at Rs.233260689/- and showing gross profit of Rs.59,55,196/- @2.55% and net profit of Rs.13,06,961/- @ 0.56%. In reply, the assessee had filed requisite details. The A.O had rejected the gross profit shown @2.55% and had adopted gross profit @4% on the sales by observing as follows:

“The reply of the assessee is not acceptable for the following reasons:-

1. The discount is related to purchases but the commission shown in the reconciliation is shown only Rs.557629/-. The reconciliation is given in respect of purchase from CSBCL only but not given in respect of United Spirits Ltd.

2. The assessee has not filed the copy of accounts of purchases shown Rs.30170457/-

3. The assessee has not filed the copy of account of Chhattisgarh Distilleries, Chhattisgarh State Beverages Corporation Ltd and United Spirit Ltd.

As Such the reply of the assessee is not accepted for want of supporting documentary evidences. Therefore the commission income of Rs.40300/- from Chhattisgarh Distilleries and Rs.844117/- from United Sprites Ltd. are added to the total income of the assessee. Total Rs.884417/-is added to total income.

3.1 In the reply to query No. 2 it is stated that the assessee has not maintained quantitative details. Only the figures of monthly purchases and sales are given. In the reply to query No. 3 the assessee has stated as producing the record but actually the same was not produced. The assessee was asked to furnish the copy of the record and documents regarding sales but the same are not filed by the assessee. In the reply to query No. 4 & 5 it is stated that no sale bills are issued and sales are accounted for on cash basis. The books of account are not actually/not produced for verification.

3.2 In trading account sales of Rs.233260689/- has been shown. As stated in the reply the assessee has not maintained sale bills. The assessee has not filed the copy of register or other relevant documents regarding the sales which were asked the assessee to file for the month of April 2015, September 2015 and March 2016. The assessee has also not maintained the quantitative details of his liquor business. On such circumstances the assessee owned liberty to account for the amount of sales at his own convenience. On this point I hold that the account of the assessee did not reflect the actual figures of sales. Whatever sales have been accounted in his books are the figures to which the assessee wanted to reflect in the books and the same are not based on any documentary evidences like daily sale bills, sale register or other documents, hence the sales shown lower that actual sales. Rs.233260689/- is held to be very lower than that actual sales.

3.3 In the trading profit and loss account the assessee has claimed nikasi and freight expenses of Rs.192540/-, transporting expenses of Rs.392510/- are claimed. The assessee has not produced the bills and vouchers for these expenses. The expenses are not verifiable for want of bills and vouchers.

3.4 For the reasons mentioned in para (3.1) to (3.3) I am not satisfied about the correctness or completeness of the accounts of the assessee and according the accounts of the assessee and the trading result declared by the assessee are rejected. The assessee has shown sales of Rs.233260689/-and shown gross profit of Rs.5955196/- which is 2.55% of the sales shown. For the reasons mentioned in para (3.1) to (3.3) the account of assessee is rejected and the amount of sales and gross profit declared are also held to be very low and rejected. I hereby determined the sales of the assessee at Rs.236700000/- and adopt the gross profit @ 4% on the sales of Rs.236700000/- which works out to Rs.9468000/-. The assessee has shown the gross profit of Rs.5955196. The difference amount of Rs.3512804/-(9468000-5955196) is added to the total income of the assessee on account of trading result. Penalty proceeding u/s.271(1)(c) is initiated for concealment of income.”

4. The Ld. CIT(Appeals)/NFAC had upheld the findings of the A.O rejecting the books of account u/s.145(3) of the Act and at the same time, upholding the GP rate as held by the A.O @ 4%.

5. Being further aggrieved, the assessee had preferred this appeal. The Bench had directed the Ld. Counsel for the assessee to submit comparative GP rate in similar line of business and that in the assessments what is the GP percentage accepted by the Department. In this regard, the Ld. Counsel for the assessee had furnished the assessment order for A.Y.2016-17 in the case of Mr. Gaurav Kumar Singh who is also engaged in trading of liquor. The assessment order pertains to A.Y.2016-17 as in the case of the assessee i.e. A.Y.2016-17 and the A.O is also same i.e. Shri Pradeep Kumar Agrawal, ITO, Ward-3(2), Raipur. In the said case of Gaurav Kumar Singh, the A.O has accepted the GP rate @ 3.13%.

6. The Ld. Sr. DR could not bring on record any evidence to refute these facts on record. He could not answer the question why in the case of similar line of business in one case GP rate is held @ 3.13% and for the assessee it is held @4% and what is the justification regarding the same. In absence of any submission placed by the Ld. Sr. DR in this regard and in view of the fact that in the similar line of business as is done by the assessee as placed on record that the Department had accepted GP rate @3.13%. That there are also no distinguishing facts in the case of the assessee with that of the Shri Gaurav Kumar Singh. Therefore, there exists no justification for the Department to calculate the GP @ 4% in the case of the assessee when in similar business GP rate had been held at 3.13%. Thus, the GP rate is reduced to @3.13% and the A.O is directed to calculate the taxes as per such revised GP rate while providing appeal effect of this order. This ground of appeal is allowed for statistical purposes.

7. The other issue pertains to ad-hoc disallowance of Rs.1 lakh over and above the estimation of gross profit after rejecting the books of account of the assessee. That when books of accounts are rejected and the GP is estimated there should not be any further disallowance as per the profit and loss account of the assessee. It is thereafter not open to the A.O to make further additions based on the entries reflected in the profit and loss account once books of account had been rejected and gross profit has been arrived at. Similar view has been taken by the Hon’ble High Court of Calcutta in the case of Skyscraper Projects (P) Ltd. Vs. Addl. CIT (2025) 177 com181 (Cal.). The A.O is directed to delete the ad-hoc disallowance. This ground of appeal is allowed.

8. That as per the above terms, the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in open court on 25^th day of May, 2026.