In a recent judgment by the ITAT Panaji, the Tribunal restricted the profit estimation to 5% of the purchase transactions for a petroleum firm facing stock record discrepancies.
A petroleum firm, a partnership company, filed its income tax return on November 28, 2014, showing a total income of ₹3,00,950. However, the case was selected for limited scrutiny, and two disputed issues arose during the assessment.
The assessee made a provision of ₹1,19,750 in current liabilities, but ₹4,500 was disallowed as an excess provision. The assessee also failed to enter details of 15,000 liters of petrol and diesel in the stock register.
The Assessing Officer made an addition of ₹8,85,326 for suppression of sales. The assessee filed an appeal against the order before the Commissioner of Income Tax (Appeals) [CIT(A)], who granted partial relief while sustaining a balance of ₹8,64,744.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The assessee then filed an appeal before the Income Tax Appellate Tribunal (ITAT), Panaji, which was heard by a two-member bench consisting of Pavan Kumar Gadale, (Judicial Member), and GD Padmashali,( Accountant Member).
The assessee argued that the CIT(A) erred in sustaining the disallowance made by the Assessing Officer, as the Assessing Officer did not question the genuineness of the expenditure/purchases, but made additions due to missing stock register entries, which were later rectified and matched with purchase and sales details.
Despite providing legitimate explanations, purchase details, and quantitative data in response to notices, the revenue authorities disallowed the transactions without conducting a thorough investigation. The assessee also submitted evidence, including invoice copies of motor spirit, daily records of stock, and details of the gross profit margin in the motor spirit business.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The Tribunal noted that the revenue authorities overlooked the factual aspects of the purchase transactions substantiated with material evidence. The Tribunal considered the gross profit margin in the motor spirit business, which ranges from 2% to 3%.
The Tribunal restricted the addition to 5% of the purchase transactions. The order of the CIT(A) was set aside, and the Assessing Officer was directed to estimate the income at 5% of the disputed purchase value. The appeal filed by the assessee was partly allowed
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
