ITAT directed AO to give telescopic benefit for chit contributions – ITAT

ITAT directed AO to give telescopic benefit for chit contributions as there was no finding that income estimated from business was invested else where

ABCAUS Case Law Citation:
ABCAUS 2995 (2019) (06) ITAT

The only grounds of appeal raised by the assessee in the instant appeal was related to the addition made by the Assessing Officer (AO) u/s 56 of the Income Tax Act, 1961 (the Act) on account of chit contributions made by the assessee.

The assessee was engaged in the business of Indian made Foreign Liquor (IMFL). His assessment was completed u/s 143(3) of the Act by estimated the income @5% on net purchases put to sale and also an addition was made as income from other sources u/s 56 of the Act towards the contribution to chits, since there was no source for the chit contribution from certain period and the AO treated those contributions as unexplained.

Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and requested for telescopic benefit of chit contributions made out of the estimated income.

Not being convinced, the CIT(A) dismissed the appeal of the assessee and confirmed the addition made by the AO.

The Tribunal observed that the AO rejected the books of accounts and estimated the income @5%. Though the AO had estimated the income, there was no finding given by the AO or CIT(A) that the income on estimation was invested in any other modes.

The Tribunal opined that since there was no finding given by the AO that the resulted income out of the estimation was invested in unexplained investments, it was presumed that the resultant income out of the estimation is available to the assessee for investments/drawings.

The Tribunal opined that the assessee’s request for telescopic benefit of chit installments required to be considered favourably, after providing for the personal drawings and expenditure.

Accordingly the Tribunal directed the AO  to give telescopic benefit of 50% of the chit contribution out of the estimated income.

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