Chitti Nagabhusanam, Srikakulam V. THE ITO, Srikakulam

ITA 105/VIZ/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6584 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 30-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M NARAYANA RAO
• Keywords: Unexplained cash credit
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER ITA NO. 105 / VIZ /201 5 (ASST. YEAR : 20 11 - 1 2 ) CHITTI NAGABHUSANAM , PROP. SRI MANIKANTA WINES, RAGOLU, D.NO. 1 - 3 - 197, BALANGA, SRIKAKULAM. V. ITO, WARD - 2, SRIKAKULAM. PAN NO. AEPPC 4868 M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV. DEPARTMENT BY : SHRI M. NARAYANA RAO - DR DATE OF HEARING : 07 / 1 2 /201 6 . DATE OF PRONOUNCEMENT : 12 / 01 /201 7 . O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 , VISAKHAPATNAM , DATED 3 0/0 1 /201 5 FOR THE ASSESSMENT YEAR 2011 - 12. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEE IS THE PROPRIETOR OF M/S. SRI MANIKANTA WINES , CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) , FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF 3,83,310/ - , WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 . CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING INCOME AT 20% OF THE STOCK PUT TO SALE. 2 ITA NO. 105 / VIZ /201 5 3. ON APPEAL, THE LD. CIT(A) SCAL ED DOWN THE PERCENTAGE FROM 20% TO 10% AND DIRECTED THE A.O. TO RE - COMPUTE THE INCOME AT 10% OF PURCHASE PRICE. 4 . ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL WHERE THE TRIBUNAL HAS SCALED DOWN THE ESTIMATION OF PROFIT FROM 10% TO 5% IN THE CASE OF TANGUDU JOG ISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016. 5 . ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDER PASSED BY THE AUTHORITIES BELOW. 6 . I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ESTIMATION OF PROFIT IN RESPECT OF IMFL BUSINESS CARRIED BY THE ASSESSEE. IN THIS RESPECT, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TANGUDU JOGISETTY (SUPRA) HAS CONSIDERED TH E PROFIT LEVEL IN THE LINE OF BUSINESS AND DECIDED THAT 5% OF PURCHASE PRICE IS REASONABLE PROFIT MARGIN IN THE LINE OF IMFL BUSINESS AND DIRECTED THE A.O. TO RE - COMPUTE THE PROFIT OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE A.O. ESTIMATED NET PROFIT OF 20% ON STOCK PUT FOR SALE. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNTS AND VOUCHERS IN SUPPORT OF PURCHASES AND SALES. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO MAINTAIN STOCK REGISTERS AND BOOKS OF ACCOUNTS 3 ITA NO. 105 / VIZ /201 5 MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, THEREFORE R EJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT OF 20% BY RELYING UPON THE DECISION OF HONBLE A.P. HIGH COURT. IT IS THE CONTENTION OF THE ASSESSEE THAT THE NET PROFIT ESTIMATED BY THE A.O. IS QUITE HIGH WHEN COMPARED TO THE NATURE OF BUSINESS CAR RIED ON BY THE ASSESSEE. IT IS FURTHER SUBMITTED THAT THE CASE LAW 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 THE 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 THROUGH A.P. STATE BEVERAGES CORPORATION LTD. AND THE PRICES OF THE PRODUCTS ARE FIXED BY THE STATE GOVERNMENT. THE ASSESSEE BEING A LICENSE HOLDER OF STATE GOVERNMENT CANNOT SELL THE PRODUCTS OVER AND ABOVE THE MRP FIXED BY THE STATE GOVERNMENT. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE A.O. HAS ESTIMATED THE NET PROFIT BY RELYING UPON TH E DECISION 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, THE ASSESSEE IS INTO THE BUSINESS OF DEALING IN IMF L. 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 ESTIMATE THE NET PROFIT. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE, RELIED UPON THE DECISION OF ITAT, VISAK HAPATNAM BENCH IN THE CASE OF T. APPALASWAMY VS. ACIT IN ITA NO.65 & 66/VIZAG/2012. WE HAVE GONE THROUGH THE CASE LAWS RELIED UPON BY THE ASSESSEE IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FINDS THAT THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SI MILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% NET PROFIT ON PURCHASES IS REASONABLE. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON REC ORD. IT IS THE CONTENTION OF THE LD. A.R. THAT THE ESTIMATION OF PROFIT AT 16% IS HIGH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF PROFIT IN THIS LINE OF BUSINESS. WHEREAS, THE LD. D.R. SUPPORTED THE ORDER OF THE CIT(A). HAVING CONSIDERED THE SUBMISSIO NS OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ISSUE IS NO MORE RES INTEGRA 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 AND OTHERS DATED 18.05.2012 AS WELL AS A NUMBER OF OTHER CASES HAVE HELD THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FOREIGN LIQUOR HAS TO BE ESTIMATED AT 5% OF THE PURCHASES MADE BY THE ASSESSEE. THEREFORE, FOLLOWING THE DECISION OF THE ITAT HYDERABAD BENCH, WE SET ASIDE THE ORDER OF 4 ITA NO. 105 / VIZ /201 5 THE CIT(A) AND D IRECT THE ASSESSING OFFICER TO ESTIMATE THE PROFIT FROM THE WINE BUSINESS OF THE ASSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NET OF ALL OTHER DEDUCTIONS. THE ASSESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERMINED SH OULD BE BELOW THE INCOME RETURNED. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE RATIOS OF COORDINATE BENCH, WE ARE OF THE VIEW THAT THE NET PROFIT ESTIMATED BY THE A.O. BY RELYING UPON THE DECISION OF HONBLE A.P. HIGH COURT (SUPRA), WHICH WAS RENDERED UNDER DIFFERENT FACTS IS QUITE HIGH. ON THE OTHER HAND, THE ASSESSEE RELIED UPON THE DECISION OF COORDINATE BENCH AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMATED THE NET PROFIT OF 5% ON TOTAL PUR CHASES 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 N ET OF ALL DEDUCTIONS. ORDERED ACCORDINGLY. 7 . IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, I DIRECT THE A.O. TO RE - COMPUTE THE INCOME OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE AS SESSEE IS ALLOWED. 8 . THE SECOND GROUND OF APPEAL RELATING TO UNEXPLAINED CREDITS OF 3,50,000/ - . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT THERE IS AN UNEXPLAINED CREDITS TO THE CAPITAL ACCOUNT , AMOUNTING TO 3 ,50,000/ - . THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE DETAILS ABOUT UNEXPLAINED CREDIT S OF 3,50,000/ - . THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT HE HAS RECEIVED CASH FROM ONE SRI GURUGUBELLI JAGAN MOHAN RAO , S/O LATE SHRI MUKUNDA RAO, SRIKAKULAM AND H E FILED A CONFIRMATION BEFORE THE ASSESSING OFFICER. IT WAS ALSO SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAS INVESTED AN AMOUNT OF 5 ITA NO. 105 / VIZ /201 5 3,50,000/ - TOWARDS INVESTMENT FOR 10% SHARE IN THE BUSINESS. H OWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION GIVEN BY THE ASSESSEE ON THE GROUND THAT EXCISE LICENCE IS IN THE NAME OF ASSESSEE AND THE BUSINESS CARRIED OUT BY THE ASSESSEE IN THE NAME OF FIRM/ ASSOCIATION , IT IS A PROPRIETORSHIP. HE ALSO OBSERVED THAT SHRI JAGAN MOHAN RAO FILED A N INVALID RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011 - 12 ONLY ON 03/09/2013. WITH THE ABOVE OBSERVATIONS, THE ASSESSING OFFICER HAS DISBELIEVED THE EXPLANATION GIVEN BY THE ASSESSEE AND THE AMOUNT OF 3,50,000/ - WAS CONSIDERED AS UNEXPLAINED CREDIT TO THE CAPITAL ACCOUNT AND THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE. 9 . ON APPEAL BEFORE THE CIT(A), CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 10 . WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . IN THE ASSESSMENT ORDER , THE ASSESSING OFFICER HAS NOTED THAT IN THE ASSESSEES CAPITAL ACCOUNT, THERE IS AN AMOUNT OF 3,50,000/ - HAS BEEN CREDITED . THE ASSESSING OFFICER HAS CALLED THE ASSESSEE TO EXPLAIN THE SOURCE OF THE ABOVE AMOUNT. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THIS AMOUNT HAS BEEN GIVEN BY SHRI JAGAN MOHAN RAO ON 15/06/2010 TOWARDS INVESTMENT FOR 10% SHARE IN THE BUSINES S. TO THAT EFFECT, HE ALSO FILED A CONFIRMATION BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER WITHOUT CALLING THE CREDITOR SIMPLY DISBELIEVED THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT ASSESSEE IS A 6 ITA NO. 105 / VIZ /201 5 PROPRIET A RY CONCERN AND THE RETURN FILED BY THE CREDITOR WAS BELATED. THEREFORE, THE TRANSACTION IS IN - GENUINE AND THE AMOUNT OF 3,50,000/ - ADDED IN THE HANDS OF THE ASSESSEE. WE FIND TH AT THE ASSESSEE HAD FILED A CONFIRMATION LETTER ALONG WITH THE ADDRESS OF THE CREDITOR AND THE CREDITOR HAS ALSO FILED RETURN OF INCOME BEFORE THE ASSESSING OFFICER. IN THIS CASE, THE ASSESSEE HAS PROVED IDENTIFY OF THE PARTY AND ALSO CREDITWORTHINESS OF THE CREDITOR AND GENUINEN ESS OF THE TRANSACTION. I N MY OPINION, THE ASSESSEE HAS DISCHARGED BURDEN CAST ED UPON HIM TO PROVE THAT THE TRANSACTION IS GENUINE . THE ASSESSING OFFICER WITHOUT EXAMINING THE CREDITOR, SIMPLY DISBELIEVED THE EXPLANATION GIVEN BY THE ASSESSEE AND ADDED THE DISPUTED AMOUNT IN THE HANDS OF THE ASSESSEE WHICH IS CONTRARY TO LAW. IN A PPEAL, COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER WITHOUT CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE. IN VIEW OF THE ABOVE, THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS DESERVES TO BE REVERSED. ACCORDINGLY , I REVERSE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 1 1 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 2 T H DAY OF JANUARY , 201 7 . S D / - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 1 2 T H JANUARY , 201 7 . VR/ - 7 ITA NO. 105 / VIZ /201 5 COPY TO: 1 . THE ASSESSEE. CHITTI NAGABHUSANAM, PROP. SRI MANIKANTA WINES, RAGOLU, D.NO. 1 - 3 - 197, BALANGA, SRIKAKULAM. 2 . THE REVENUE ITO, WARD - 2, SRIKAKULAM. 3 . THE CIT - 2, VISAKHAPATNAM. 4 . THE CIT(A) - 2, VISAKHAPATNAM 5 . THE D.R . 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR , I.T.A.T., VISAKHAPATNAM