ITO, Ward-4(2), Hyderabad V. M/s. Bawarchi Restaurant, Hyderabad

CO 88/HYD/2012

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7455 (ITAT-HYDERABAD)
• Duration Of Justice: 1 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K VISWANATHAM
• Assessee Lawyers: M FAKHRUDDIN
• Keywords: Rejection of books of accounts; Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DAY, JUDICIAL MEMBER ITA NO.125/HYD/2011 ASSESSMENT YEAR : 2007-08 INCOME-TAX OFFICER, WARD-4(2), HYDERABAD. .... APPELLANT VS. M/S BAWAARCHI RESTAURANT, HYDERABAD.. RESPONDENT PAN:AAEFB 2303D . CO NO.88/HYD/12 ASSESSMENT YEAR : 2007-08 M/S BAWAARCHI RESTAURANT, HYDERABAD.. .... APPELLANT -VS- INCOME-TAX OFFICER, WARD-4(2), HYDERABAD. RESPON DENT DEPARTMENT BY : SHRI K. VISWANATHAM ASSESSEE BY : SHRI M. FAKHRUDDIN DATE OF HEARING : 30-05-2012 DATE OF PRONOUNCEMENT : 27-07-2012 ORDER PER SAKTIJIT DEY, J.M.: THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 15-11- 2 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. 2010 PASSED IN APPEAL NO.130/ITO-4(2)/CIT(A)-V/2009 - 10 AND IT PERTAINS TO THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE RAISED FOLLOWING EFFECTIVE GROUNDS B EFORE US:- 1. THE CIT (A) ERRED IN FACTS AND IN LAW IN DELETI NG THE ADDITION OF RS.21,84,024/- ON ESTIMATED GP AT 40% BECAUSE THE GP IS MORE OR LESS AROUND 40% IN THIS LINE OF BUSINESS. 2. THE CIT (A) ERRED BY SAYING THAT THE GP ADOPTED BY THE AO IS ABSOLUTE ARBITRARY. IN THE CASE OF HYDERABAD HOUSE, THE GP IS TAKEN OVER 40% WHICH HAS BEEN ADMITTED BY THE ASSESSEE HIMSELF. IN THE CASE OF NEW ASTORIA RESTAURANT, THOUGH THE TURNOVER IS LESS, THE ASSESSEE HAD ADOPTED A REASONABLE GP AT 35.80%. IN THE INSTANT CASE, THE GP ADOPTED IS 40% ON A TURNOVER OVER RS. 2 CRORES, WHICH IS VERY LOW WHEN COMPARED WITH THE OTHER CASES MENTIONED ABOVE WITH SIMILAR LINE OF BUSINESS. 3. BRIEFLY THE FACTS ARE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RUNNING A RESTAURANT. THE ASSESSEE FILE D ITS RETURN FOR THE ASSESSMENT YEAR UNDER DISPUTE DECLARING AN INCOME OF RS.13,65,315. IN THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSEE SUBMITTED ITS BOOKS OF ACCOUNTS WITH VOUCH ERS BANK STATEMENTS ETC., FOR VERIFICATION OF THE AO. THE A O FOUND FROM THE P & L A/C THAT THE ASSESSEE HAS DEBITED AN AMOU NT OF RS.1,64,92,813 TOWARDS PURCHASES AGAINST AN ADMITTE D SALES TURNOVER OF RS.2,45,86,179/-. THE AO WHEN ASKED TH E 3 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. ASSESSEE TO SUBMIT THE BILLS AND VOUCHERS IN SUPPOR T OF PURCHASES OF CHICKEN, MUTTON, BAZAAR (VEGETABLES) E TC., ASSESSEE SUBMITTED THAT PURCHASES OF THESE ITEMS A RE MADE FROM SMALL TIME VENDORS, HENCE NO REGULAR BILLS ARE AVAILABLE. SIMILARLY, SO FAR AS SALES ARE CONCERNED, THE ASSES SEE SUBMITTED THAT NUMBER OF ITEMS SOLD EVERY DAY IS CO UNTED AND SALES ARE RECORDED. THE AO OBSERVING THAT THE ACCO UNTS OF THE ASSESSEE ARE NOT FULLY SUPPORTED BY PROPER BILLS AN D VOUCHERS, THE BOOKS OF ACCOUNTS OF THE ASSESSEE CANNOT BE TRE ATED AS CORRECT AND COMPLETE AND ARE NOT RELIABLE TO ARRIVE AT A CORRECT INCOME. THEREFORE, HE REJECTED THE BOOKS OF ACCOUNT S BY APPLYING THE PROVISIONS OF SECTION 145(3). THE AO FOUND THAT THE GROSS PROFIT DECLARED BY THE ASSESSEE ON THE AD MITTED SALES COMES TO 31.15%. THE AO COMPLETED THE ASSESSMENT B Y ESTIMATING THE GROSS PROFIT AT THE RATE OF 40% ON T HE SALES ADMITTED BY THE ASSESSEE AND ADDED THE DIFFERENTIAL INCOME OF RS.21,84,024/-. THE AO FURTHER DISALLOWED AN AMOUN T OF RS.1,05,722/- U/S 40(A)(IA) OF THE ACT. THE ASSESSE E BEING AGGRIEVED OF THE ADDITIONS MADE TO ITS TOTAL INCOME , FILED AN APPEAL BEFORE THE CIT (A). 4. BEFORE THE CIT (A), THE ASSESSEE CONTENDED THAT FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006-07, IDEN TICAL ISSUE WAS DECIDED BY THE CIT (A) WHEREIN THE CIT (A ) HELD THAT THE ESTIMATION OF PROFIT AT 40% IS NOT SUSTAINABLE AND ACCEPTED THE PROFIT DECLARED BY THE ASSESSEE AT 31% OF THE T OTAL 4 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. TURNOVER. THE CIT (A) FOLLOWING HIS EARLIER ORDER P ASSED IN THE ASSESSMENT YEAR 2006-07 ALLOWED THE APPEAL OF THE A SSESSEE BY HOLDING THAT ESTIMATION OF GROSS PROFIT AT THE R ATE OF 40% ON TOTAL SALES IS NOT SUSTAINABLE. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT FOR THE ASSESSMENT YEAR 2006-07, THE REVENUE CHALLENGED THE ORDER OF THE CIT (A) BEF ORE THE ITAT IN ITA NO.1126/HYD/2010. THE ITAT WHILE DECID ING THE APPEAL DIRECTED THE AO TO ESTIMATE THE GP AT 35% IN STEAD OF 40% MADE BY HIM. FOR THE SAKE OF CLARITY, THE OPERA TIVE PORTION OF THE ORDER PASSED BY THE ITAT DATED 19-11 -2010 IS EXTRACTED HEREUNDER:- WE HAVE HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, THE CIT (A) ACCEPTED THE REJECTION OF BOOKS BY THE AO AS VALID. HOWEVER, HE GAVE DIRECTION TO THE AO TO ACC EPT THE INCOME DECLARED BY THE ASSESSEE. IN OUR OPINIO N, THIS IS NOT CORRECT. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE AO ESTIMATED GROSS PROFIT AT 40% AGAINST GP OF 31% DECLARED BY THE ASSESSEE. THE BOO KS OF ACCOUNT OF THE ASSESSEE WERE NOT VERIFIABLE, PURCHASES OF FRUITS, VEGETABLES, MEATS AND OTHER EATABLES ETC., WERE NOT PROPERLY SUPPORTED BY VOUCH ERS. SALES WERE ALSO NOT PROPERLY VOUCHED AND THE SAME WERE SUPPORTED ONLY BY CASH MEMOS. THERE IS EVERY CHANCE OF INFLATING EXPENSES AND SUPPRESSION OF SAL ES MADE. ACCORDINGLY, BOOKS OF ACCOUNTS WERE REJECTED BY THE LOWER AUTHORITIES. AFTER CONSIDERING THE TOTAL ITY OF FACTS AND THE CIRCUMSTANCES OF THE CASE AND EARLIER YEARS GP RATE AND DISCREPANCY IN THE BOOKS OF ACCO UNT, 5 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. WE DIRECT THE AO TO ESTIMATE THE GROSS PROFIT AT TH E RATE OF 35% OF THE TOTAL TURNOVER INSTEAD OF 40% MADE BY HIM. FOLLOWING THE RATIO OF THE AFORESAID ORDER, WE DIRE CT THE AO TO ESTIMATE THE PROFIT AT THE RATE OF 35% ON TOTAL TU RNOVER. 6. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE IS ALLOWED IN PART. 7 IN CROSS OBJECTION, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF EXPENDITURE OF RS.1,05,722/- PAID BY THE ASSESSE E TO M/S KHAN & SONS TOWARDS ADVERTISING CHARGES BY APPLYING THE PR OVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE AO WHILE COMPLE TING THE ASSESSMENT, DISALLOWED HE AFORESAID CLAIM OF EXPEND ITURE ON THE GROUND THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SO URCE WHILE MAKING PAYMENT OF RS.1,05,722/-. IT IS SEEN FROM T HE ASSESSMENT ORDER THAT THE AO HAS ADMITTED THE FACT THAT THE AM OUNT OF RS.1,05,722/- WAS PAID AND NOT PAYABLE ON THE DATE OF BALANCE- SHEET. WE THEREFORE FOLLOWING THE ORDER OF THE ITA T, SPECIAL BENCH IN THE CASE OF MERLYN SHIPPING & TRANSPORTS, VISAKH APATNAM VS. ACIT (ITA NO. 477/HYD/2008 29-3-2012, HOLD THAT EXPENDITURE CLAIMED TOWARDS PAYMENT OF RS.1,05,722/- CANNOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. HENCE, THE GROUND RAISED BY T HE ASSESSEE IN ITS CROSS OBJECTION IS ALLOWED. 6 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. 8. IN THE RESULT, APPEAL FILED OF THE REVENUE IS ALLOWED IN PART AS INDICATED ABOVE AND CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 27-7-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED 27 TH JULY, 2012. COPY TO:- 1) INCOME-TAX OFFICER, WARD-4(2), HYDERABAD. 2) M/S. BAWARCHI RESTAURANT, PLOT NO.66, AZAMABAD, HYDERABAD. 3) THE CIT (A)-V, HYDERABAD 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR* 7 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. ITA 125 OF 2011 AND CO NO.88 OF 2012 APPEAL FILED BY THE REVENUE. THE REVENUE RAISED TH E FOLLOWING EFFECTIVE GROUNDS BEFORE US:- // GROUNDS 1 AND 2// BRIEFLY THE FACTS ARE THE ASSESSEE IS ENGAGED IN TH E BUSINESS OF RUNNING A RESTAURANT. THE ASSESSEE FILED ITS RET URN FOR THE ASSESSMENT YEAR UNDER DISPUTE DECLARING AN INCOME O F RS.13,65,315. IN THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSEE SUBMITTED ITS BOOKS OF ACCOUNTS WITH VOUCH ERS BANK STATEMENTS ETC., FOR VERIFICATION OF THE AO. THE A O FOUND FROM THE P & L A/C THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,64,92,813 TOWARDS PURCHASES AGAINST AN ADMI TTED SALES TURNOVER OF RS.2,45,86,179/-. THE AO WHEN AS KED THE ASSESSEE TO SUBMIT THE BILLS AND VOUCHERS IN SUPPOR T OF PURCHASES OF CHICKEN .......... ETC., THE ASSESSEE SUBMITTED THAT AS THE PURCHASES OF THESE ITEMS ARE MADE BY S OME TIME VENDORS, NO REGULAR BILLS ARE NOT AVAILABLE. SIMIL ARLY, SO FAR 8 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. AS SALES ARE CONCERNED, THE ASSESSEE SUBMITTED THAT NUMBER OF ITEMS SOLD EVERY DAY IS COUNTED AND SALES ARE RECORDED. THE AO OBSERVING THAT THE ACCOUNTS OF THE ASSESSEE ARE NOT FULLY SUPPORTED BY PROPER BILLS AND VOUCHERS. THE BOOKS OF ACCOUNTS OF THE ASSESSEE CANNOT BE TREATED AS CORRE CT AND COMPLETE AND ARE NOT RELIABLE TO ARRIVE AT A CORREC T INCOME. THEREFORE, HE REJECTED THE BOOKS OF ACCOUNTS BY APP LYING THE PROVISIONS OF SECTION 145(3). THE AO FOUND THAT TH E GROSS PROFIT DECLARED BY THE ASSESSEE ON THE ADMITTED SAL ES COMES TO 31.15%. THE AO COMPLETED THE ASSESSMENT BY ESTI MATING THE GROSS PROFIT AT THE RATE OF 40% ON THE SALES AD MITTED BY THE ASSESSEE AND ADDED THE DIFFERENTIAL INCOME OF RS.21,84,024/-. THE AO FURTHER DISALLOWED AN AMOUN T OF RS.1,05,722/- U/S 40(A)(IA) OF THE ACT. THE ASSESSE E BEING AGGRIEVED OF THE ADDITIONS MADE TO HIS TOTAL INCOM E, FILED AN APPEAL BEFORE THE CIT (A). XX. BEFORE THE CIT (A), THE ASSESSEE CONTENDED THAT FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006-07, IDE NTICAL ISSUE WAS DECIDED BY THE CIT (A) WHEREIN THE CIT (A ) HELD THAT THE ESTIMATION OF PROFIT AT 40% IS NOT SUSTAIN ABLE AND ACCEPTED THE PROFIT DECLARED BY THE ASSESSEE AT 31% OF THE TOTAL TURNOVER. THE CIT (A) FOLLOWING HIS EARLIER O RDER PASSED IN THE ASSESSMENT YEAR 2006-07 ALLOWED THE APPEAL O F THE ASSESSEE BY HOLDING THAT ESTIMATION OF GROSS PROFIT AT THE RATE OF 40% ON TOTAL SALES IS NOT SUSTAINABLE. XX. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SEEN THAT FOR THE ASSESS MENT YEAR 2006-07, THE REVENUE CHALLENGED THE ORDER OF THE CI T (A) BEFORE THE ITAT IN ITA NO.1126/HYD/2010. THE ITAT WHILE DECIDING THE APPEAL DIRECTED THE AO TO ESTIMATE THE GP AT 35% INSTEAD OF 40% MADE BY HIM. FOR THE SAKE OF CLA RITY, THE OPERATIVE PORTION OF THE ORDER PASSED BY THE IT AT DATED 19-11-2010 IS EXTRACTED HEREUNDER:- 9 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT. // PARA -4 // FOLLOWING THE RATIO OF THE AFORESAID ORDER, WE DIRE CT THE AO TO ESTIMATE THE PROFIT AT THE RATE OF 35% ON TOTA L TURNOVER. XX. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE IS ALLOWED IN PART. // IN CROSS OBJECTION, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF EXPENDITURE OF RS.1,05,722/- PAID B Y THE ASSESSEE TO M/S KHAN & SONS TOWARDS ADVERTISING CHA RGES BY APPLYING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE AO WHILE COMPLETING THE ASSESSMENT, DISALLOWED HE AFORESAID CLAIM OF EXPENDITURE ON THE GROUND THAT T HE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE WHILE MAKIN G PAYMENT OF RS.1,05,722/-. IT IS SEEN FROM THE ASSE SSMENT ORDER THAT HTE AO HAS ADMITTED THE FACTS THAT THE A MOUNT JOF RS.1,05,722/- WAS PAID AND NOT PAYABLE ON THE DATE OF BALANCE-SHEET. WE THEREFORE FOLLOWING THE ORDER OF THE ITAT, SPECIAL BENCH IN THE CASE OF MERLINXXXXXXXXXXXXXXXXXXXXXXXXXX , WE HOLD THAT EXPENDITURE CLAIMED JTOWARDS PAYMENT OF RS.1,05,722 /- CANNOT BE DISALLOWED U/S 40(A)(IA) OF THE ACT. HENC E, THE GROUND RAISED BY THE ASSESSEE IN ITS CROSS OBJECTIO N IS ALLOWED. //. IN THE RESULT, THE APPEAL FILED BY TAHE REVENU E IS ALLOWED IN PART WHILE JCROSS OBJECTGION FILED BY HT HE ASSESSEE IS ALLOWED. 10 ITA NO. 125 AND CO88 OF 2012 BAWARCHI RESTAURANT.