Tankala Nagaraju, Srikakulam V. THE ITO, Srikakulam

ITA 100/VIZ/2016

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9777 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 04-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S RAVI SHANKAR NARAYAN
• Keywords: Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Income from undisclosed sources
• Section: 143(3); 68; 69

Judgement Text

ITA NO.100/VIZAG/2016 TANKALA NAGARAJU, SRIKAKULAM ` 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER ./I.T.A.NO.100/VIZAG/2016 ( / ASSESSMENT YEAR: 2011-12) TANKALA NAGARAJU, SRIKAKULAM VS. ITO, WARD - 1, SRIKAKULAM [PAN: ALKPT9810G ] ( / APPELLANT) ( ! / RESPONDENT) / APPELLANT BY : G.V.N. HARI, AR / RESPONDENT BY : SHRI S. RAVI SHANKAR NARAYAN, DR / DATE OF HEARING : 31.10.2016 / DATE OF PRONOUNCEMENT : 31.10.2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE CIT(A)-2, VISAKHAPATNAM DATED 17.12.2015 FOR THE AS SESSMENT YEAR 2011-12. ITA NO.100/VIZAG/2016 TANKALA NAGARAJU, SRIKAKULAM ` 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN IMFL AND FILED ITS RETURN OF INCOME BY D ECLARING TOTAL INCOME OF ` 3,69,234/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED AS 'THE ACT') AND THEREAFTER, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING TOTAL INCOME AT 20% OF STOCK PUT FOR SAL E. ON APPEAL, THE LD. CIT(A) HAS SCALED DOWN THE SAME TO 8% AND DIRECTED THE A.O. TO RE- COMPUTE THE INCOME AT 8%. 3. ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT IN THE SIMILAR LINE OF BUSINESS, THE COORDINATE BENCH OF VISAKHAPATNAM BENCH HAS PASSED AN ORDER IN THE CASE OF TANGUDU JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2. 6.2016 AND ESTIMATED THE INCOME OF THE ASSESSEE AT 5% OF THE S TOCK PUT TO SALE. ASSESSEE SUBMITTED THAT THE SAME MAY BE FOLLOWED. 4. ON THE OTHER HAND LD. D.R. HAS RELIED ON THE ORD ERS OF THE AUTHORITIES BELOW. 5. I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. IN THIS REGARD, I FIND THAT AS SUBMITTED BY THE ASSESSEE, T HE VERY SAME ISSUE OF ITA NO.100/VIZAG/2016 TANKALA NAGARAJU, SRIKAKULAM ` 3 ESTIMATION OF PROFIT IN THE TRADE OF IMFL WAS CONSI DERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TAN GUDU JOGISETTY (SUPRA) AND HELD THAT ESTIMATION OF 5% NET PROFIT O N PURCHASE IS REASONABLE AND DIRECTED THE A.O. TO ESTIMATE THE NE T PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. THE RELEVAN T PORTION OF THE ORDER IS EXTRACTED AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE A.O. ESTIMATED NET PROFIT OF 20% ON STOC K PUT FOR SALE. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS N OT MAINTAINED PROPER BOOKS OF ACCOUNTS AND VOUCHERS IN SUPPORT OF PURCHASES AND SALES. THE A.O. FURTHER OBSERVED THAT THE ASSE SSEE HAS FAILED TO MAINTAIN STOCK REGISTERS AND BOOKS OF ACCOUNTS M AINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, THEREFORE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT OF 2 0% BY RELYING UPON THE DECISION OF HONBLE A.P. HIGH COURT. IT IS THE CONTENTION OF THE ASSESSEE THAT THE NET PROFIT ESTIMATED BY TH E A.O. IS QUITE HIGH WHEN COMPARED TO THE NATURE OF BUSINESS CARRIE D ON BY THE ASSESSEE. IT IS FURTHER SUBMITTED THAT THE CASE LA W RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE CASE BEFORE THE HONBLE A.P. HIGH COURT WAS THAT TH E ASSESSEE IS INTO THE BUSINESS OF TRADING IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURTHER CONTENDED THAT IMFL TRADE WAS CONTROLLED BY THE STATE GOVERNMENT THROUG H A.P. STATE BEVERAGES CORPORATION LTD. AND THE PRICES OF THE PR ODUCTS ARE FIXED BY THE STATE GOVERNMENT. THE ASSESSEE BEING A LICE NSE HOLDER OF STATE GOVERNMENT CANNOT SELL THE PRODUCTS OVER AND ABOVE THE MRP FIXED BY THE STATE GOVERNMENT. WE FIND FORCE I N THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE A .O. HAS ESTIMATED THE NET PROFIT BY RELYING UPON THE DECISI ON OF A.P. HIGH COURT IN THE CASE OF CIT VS. R. NARAYANA RAO IN ITA NO.3 OF 2003 WHICH IS RENDERED UNDER DIFFERENT FACTS. THE A.P. HIGH COURT HAS CONSIDERED THE CASE OF AN ARRACK DEALER, WHEREAS, T HE ASSESSEE IS INTO THE BUSINESS OF DEALING IN IMFL. THEREFORE, WE ARE OF THE VIEW THAT THE A.O. WAS NOT JUSTIFIED IN RELYING UPON THE JUDGEMENT, WHICH WAS RENDERED UNDER DIFFERENT FACTS TO ESTIMAT E THE NET PROFIT. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE, R ELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM BENCH IN THE CASE O F T. APPALASWAMY VS. ACIT IN ITA NO.65 & 66/VIZAG/2012. WE HAVE GONE THROUGH THE CASE LAWS RELIED UPON BY THE ASSES SEE IN THE LIGHT ITA NO.100/VIZAG/2016 TANKALA NAGARAJU, SRIKAKULAM ` 4 OF THE FACTS OF THE PRESENT CASE AND FINDS THAT THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% NET PROFIT ON PURCHASES IS REASONABLE. THE RELE VANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS O F THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON R ECORD. IT IS THE CONTENTION OF THE LD. A.R. THAT THE ESTIMATION OF P ROFIT AT 16% IS HIGH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF P ROFIT IN THIS LINE OF BUSINESS. WHEREAS, THE LD. D.R. SUPPORTED THE O RDER OF THE CIT(A). HAVING CONSIDERED THE SUBMISSIONS OF THE A SSESSEE, WE ARE OF THE VIEW THAT THE ISSUE IS NO MORE RES INTEG RA IN VIEW OF A SERIES OF DECISIONS OF THE ITAT HYDERABAD BENCH IN SIMILAR CASES. THE COORDINATE BENCH IN CASE OF ITA NO.127/HYD/12 A ND OTHERS DATED 18.05.2012 AS WELL AS A NUMBER OF OTHER CASES HAVE HELD THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FOREI GN LIQUOR HAS TO BE ESTIMATED AT 5% OF THE PURCHASES MADE BY THE ASS ESSEE. THEREFORE, FOLLOWING THE DECISION OF THE ITAT HYDER ABAD BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO ESTIMATE THE PROFIT FROM THE WINE BUSINESS OF THE A SSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NET O F ALL OTHER DEDUCTIONS. THE ASSESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERMINED SHOULD BE BELOW THE I NCOME RETURNED. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE RATIOS OF COORDINATE BEN CH, WE ARE OF THE VIEW THAT THE NET PROFIT ESTIMATED BY THE A.O. BY RELYIN G UPON THE DECISION OF HONBLE A.P. HIGH COURT (SUPRA), WHICH WAS RENDERED UNDER DIFFERENT FACTS IS QUITE HIGH. ON THE OTHER HAND, THE ASSESS EE RELIED UPON THE DECISION OF COORDINATE BENCH AND THE COORDINATE BEN CH UNDER SIMILAR CIRCUMSTANCES ESTIMATED THE NET PROFIT OF 5% ON TOT AL PURCHASES NET OF ALL DEDUCTIONS. NO CONTRARY DECISION IS PLACED ON RECORD BY THE REVENUE TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COORDINATE BENCH. THEREFORE, WE DIRECT THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIO NS. ORDERED ACCORDINGLY. 6. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE CO ORDINATE BENCH OF THE TRIBUNAL, I SET ASIDE THE ORDER PASSED BY THE L D. CIT(A) AND REMIT MATTER BACK TO THE A.O. TO ESTIMATE THE PROFIT FROM THE BUSINESS OF THE ASSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASE S MADE NET OF ALL ITA NO.100/VIZAG/2016 TANKALA NAGARAJU, SRIKAKULAM ` 5 OTHER DEDUCTIONS. THUS, THIS GROUND OF APPEAL RAIS ED BY THE ASSESSEE IS PARTLY ALLOWED. 7. THE SECOND GROUND OF APPEAL RAISED BY THE ASSESS EE IS IN RESPECT OF UNEXPLAINED INVESTMENT. IN THE ASSESSMENT ORDER , THE A.O. HAS ASKED THE ASSESSEE TO EXPLAIN THE SOURCE OF ` 2,91,566/- AND ASSESSEE HAS NOT GIVEN ANY EXPLANATION. THEREFORE, THE A.O. HAS ADDED INCOME U/S 68 OF THE ACT TO THE TOTAL INCOME OF THE ASSESS EE. 8. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN A PPEAL BEFORE THE CIT(A). EVEN BEFORE CIT(A), NO EXPLANATION IS GIVE N. THE LD. CIT(A) AFTER HEARING THE COUNSEL FOR THE ASSESSEE, CONFIRM ED THE ORDER OF THE A.O. THE RELEVANT PORTION OF THE ORDER IS EXTRACTE D AS UNDER: 5.2 DURING THE APPEAL HEARING ALSO, THE ASSESSEE C OULD NOT FURNISH ANY DETAILS TO EXPLAIN THE SOURCE FOR THE IMPUGNED INVE STMENT OF RS.2,91,566/- MADE PRIOR TO COMMENCEMENT OF BUSINESS. HENCE, IT I S HELD THAT THE AO IS JUSTIFIED IN MAKING THE IMPUGNED ADDITION OF RS.2,9 1,566/-. 5.3 THE ASSESSEE HAS RAISED A PLEA DURING THE APPEA L HEARING THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED, THEN THE AO IS N OT JUSTIFIED IN MAKING ADDITION TO CASH CREDITS WITH REFERENCE TO THE SAME BOOKS OF ACCOUNT. IN SUPPORT, THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE AP HIGH COURT IN THE CASE OF MADDI SUDARSHANAM OIL MILLS CO. V. C IT(37 ITR 369) AND INDWELL CONSTRUCTIONS V. CIT(232 ITR 776 AP). IN THI S REGARD, IT IS RELEVANT TO NOTE A SIMILAR ISSUE AS TO WHETHER ADDITION U/S. 68 OR 69 COULD BE MADE WHEN THE AO HAS ESTIMATED THE INCOME WAS DEALT BY T HE HON'BLE FIAT, HYDERABAD IN THE CASE OF SMT. SHOBA GUPTA (ITA NO.4 61/HYD/2013, DT.10.7.2013), WHEREIN IT WAS HELD THAT EVEN IF THE INCOME IS ESTIMATED, THE AO MAY INVOKE THE PROVISIONS OF SEC.68/69 OF TH E ACT. THE HON'BLE TRIBUNAL FOLLOWED THE DECISION IN THE CASE OF P.V. SITARAMASWAMY NAIDU IN ITA NO.26/HYD/12 VIDE ORDER DT.9.1.2013. THE HON'BL E TRIBUNAL TOOK THE VIEW THAT UNLESS THE ASSESSEE, BY INDEPENDENT AND S ATISFACTORY EVIDENCE, ESTABLISHES THAT THESE AMOUNTS RELATE OR REFERABLE TO THE UNDISCLOSED INCOME FROM KNOWN OR DISCLOSED SOURCES, I.E. THE BU SINESS, WHOSE INCOME ITA NO.100/VIZAG/2016 TANKALA NAGARAJU, SRIKAKULAM ` 6 HAD ALREADY BEEN ESTIMATED, THE ITO IS ENTITLED TO TREAT UNEXPLAINED CASH CREDIT AS INCOME FROM UNDISCLOSED SOURCES. THE HON' BLE TRIBUNAL PLACED RELIANCE ON THE JUDGMENT OF JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT V. MADURI RAJAIAHGARI KISTAIAH(120 JTR 294) AND OF THE APEX COURT IN THE CASE OF DEVI PRASAD VISWANATH PRASAD 72 ITR. 194. T HE HON'BLE TRIBUNAL ALSO REFERRED TO THE OBSERVATION OF SUPREME COURT I N THE CASE OF KALE KHAN MOHAMMED HANIF VS. CIT (50 1TR 1 SC), 'IT CANNO T BE SAID THAT THE TAX AUTHORITIES WERE PRECLUDED FROM TREATING THE AM OUNTS OF THE CREDIT ENTRIES AS INCOME FROM UNDISCLOSED SOURCES SIMPLY B ECAUSE THE ENTRIES APPEAR IN THE BOOKS OF A BUSINESS WHOSE INCOME THEY HAD PREVIOUSLY COMPUTED ON A PERCENTAGE BASIS' WHILE RENDERING THE ABOVE DECISION. THEREFORE, THE GROUND RAISED IN THIS REGARD IS REJE CTED. THE ADDITION MADE OF RS.2,91,566/- IS CONFIRMED. 9. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN A PPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE AMOUNT OF ` 2,91,566/- IS AVAILABLE WITH THE ASSESSEE AND PRAY ED THAT ADDITION MADE BY THE A.O. MAY BE DELETED. 10. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPOR TED THE ORDER PASSED BY THE AUTHORITIES BELOW. 11. I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. IN RESPECT OF THE ADDITION IN RESPECT OF UNEXPLAINED INVESTMEN T, THE ASSESSEE NEITHER EXPLAINED THE SOURCE BEFORE A.O. NOR BEFORE THE CIT(A) AND EVEN BEFORE THE TRIBUNAL. I FIND THAT IN THE ABSENCE OF EXPLANATION GIVEN BY ASSESSEE, THE A.O. HAS RIGHTLY ADDED INCOME U/S 68 OF THE ACT. SAME IS CONFIRMED BY THE CIT(A). I FIND NO REASON TO INTER FERE WITH THE ORDER OF THE CIT(A) AND ACCORDINGLY THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. ITA NO.100/VIZAG/2016 TANKALA NAGARAJU, SRIKAKULAM ` 7 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCT16. SD/- ( . ) (V. DURGA RAO) /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 31.10.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT TANKALA NAGARAJU, PROP: SRI KOTA MMATALLI WINES, S/O TIRUPATHI RAO, PONGTIVALASA VILLAGE, RAJAM MANDAL, SRIKAKULAM DIST. 2. / THE RESPONDENT THE ITO, WARD-1, SRIKAKULAM 3. ) / THE CIT-2, VISAKHAPATNAM 4. ) ( ) / THE CIT(A)-2, VISAKHAPATNAM 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM