Korada HGareesh(HUF), Srikakulam V. THE ITO, Srikakulam

ITA 111/VIZ/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8896 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 09-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S R S NARAYAN
• Keywords: Rejection of books of accounts; Unexplained investment; Additional evidence; Reasonable cause
• Section: 143(3); 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON'BLE JUDICIAL MEMBER ITA NO. 111/VIZ/2016 (ASST. YEAR : 2011-12) KORADA HAREESH (HUF), PLOT NO. 9A, RAJEEV NAGAR, SRIKAKULAM. VS. ITO, WARD-1, SRIKAKULAM. PAN NO. AAIHK 7926 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. SUBRAHMANYAM FCA. DEPARTMENT BY : SHRI S.R.S. NARAYAN - SR. DR DATE OF HEARING : 29/05/2017. DATE OF PRONOUNCEMENT : 31/05/2017. O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-2, VISAKHAPATNAM, DATED 17/12/2015 FOR THE ASSESSMENT YEAR 2011-12. 2. THE FIRST GROUND OF APPEAL RELATING TO ESTIMATION OF INCOME. ASSESSEE IS CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF IMFL, FILED HIS RETURN OF INCOME BY DECLARING INCOME OF 4,43,755/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). LATER, AFTER FOLLOWING THE DUE PROCEDURE, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY 2 ITA NO. 111/VIZ/2016 [KORADA HAREESH (HUF)] ESTIMATING THE NET PROFIT, CLEAR OFF ALL EXPENSES AT 20% OF THE STOCK PUT TO SALE. 3. ON APPEAL, THE LD. CIT(A) GRANTED A PARTIAL RELIEF TO THE ASSESSEE BY SCALING 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, AUTHORIZED REPRESENTATIVE 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 JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016. 5. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDERS 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 THE 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: 3 ITA NO. 111/VIZ/2016 [KORADA HAREESH (HUF)] 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 MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, THEREFORE REJECTED 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 CARRIED 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 THE 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 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 ESTIMATE THE NET PROFIT. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE, RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM 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 SIMILAR 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 RECORD. 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 SUBMISSIONS OF THE ASSESSEE, WE 4 ITA NO. 111/VIZ/2016 [KORADA HAREESH (HUF)] 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 THE CIT(A) AND DIRECT 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 SHOULD 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 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 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 ASSESSEE IS ALLOWED. 8 . THE SECOND GROUND OF APPEAL RELATING TO UNEXPLAINED INVESTMENT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT DURING THE YEAR, THE ASSESSEE HAS CLAIMED TO HAVE PAID LICENSE FEE OF 15,98,480/-, FIRST PURCHASE OF STOCK OF 3,00,000/- AND FDR OF 6,40,000/-, TOTAL INVESTMENT CAME TO 25,38,480/- AND FOUND TO HAVE 5 ITA NO. 111/VIZ/2016 [KORADA HAREESH (HUF)] BEEN INVESTED BEFORE THE COMMENCEMENT OF THE BUSINESS I.E. DURING THE MONTH OF JUNE 2010. THE ASSESSEE CLAIMED AN AMOUNT OF 18,01,200/- BEING THE CAPITAL AVAILABLE BROUGHT FORWARD FROM EARLIER YEAR, FOR WHICH HE FILED A COPY OF RETURN OF INCOME ALONG WITH BALANCE SHEET TO PROVE HIS CLAIM. AFTER ALLOWING CREDIT FOR SUCH CAPITAL, THE BALANCE AMOUNT OF 7,37,200/-, FOR WHICH THE ASSESSEE SOUGHT TO EXPLAIN THAT DURING THE YEAR, ASSESSEE ACCEPTED TWO UNSECURED LOANS AGGREGATING TO 2,74,000/-. THE ASSESSEE FURNISHED CONFIRMATIONS AS PER WHICH, HE ACCEPTED A LOAN OF 1 LAKH FROM SHRI V.BHANU PRASAD VIDE ACCOUNT PAYEE CHEQUE NO. 276851, DATED 15/07/2010 AND 1,74,000/- FROM ONE BOYINA RAMESH BY WAY OF TRANSFER INTO HIS ACCOUNT ON 28/06/2010 OF 1,57,000/- AND 17,000/- ON 28/06/2010. WHILE THE ASSESSEE WAS SPECIFICALLY ASKED TO PROVE THE ABOVE LOANS WITH NECESSARY DOCUMENTARY EVIDENCES BY WAY OF BANK ACCOUNTS OF THE LOAN CREDITORS TO PROVE THAT HAVE LENT THE AMOUNT FROM THEIR ACCOUNTS, THROUGH WHICH THEY HAVE CLAIMED TO HAVE PAID THE ABOVE AMOUNTS. THE ASSESSEE HAS NOT FILED ANY EVIDENCE BEFORE THE ASSESSING OFFICER. THEREFORE, THE ASSESSING OFFICER HAS TREATED THE ENTIRE AMOUNT OF 7,37,200/- AS INCOME FROM OTHER SOURCES AND THE SAME IS ADDED TO THE INCOME OF THE ASSESSEE. 9 . ON APPEAL, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 10 . ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. BEFORE ME ALSO, THE ASSESSEE HAS FILED THE SAME 6 ITA NO. 111/VIZ/2016 [KORADA HAREESH (HUF)] DETAILS ABOUT THE LOAN CREDITORS AND FILED A PETITION UNDER RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 AND SUBMITTED THAT ADDITIONAL EVIDENCE FILED, MAY BE ADMITTED AND THE ISSUE MAY BE REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 11 . ON THE OTHER HAND, DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE HAS NOT FILED ANY DETAILS IN RESPECT OF LOAN CREDITORS NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LD. CIT(A). THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE CANNOT BE ACCEPTED AT THIS STAGE AND SUBMITTED THAT ORDER PASSED BY THE LD. CIT(A) MAY BE UPHELD. 12 . I HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 13 THE ASSESSEE HAS FILED A PETITION FOR ADMISSION OF ADDITIONAL EVIDENCE WHEREIN HE STATED THAT WHEREAS, IT IS SUBMITTED BEFORE THE HON'BLE ITAT THAT THE RELEVANT EVIDENCE COULD NOT BE PRODUCED BEFORE THE LOWER AUTHORITIES AS THE PARTIES FROM WHOM THE CONFIRMATIONS ARE TO BE OBTAINED WERE IGNORANT OF THE IMPORTANCE OF THESE EVIDENCES AND HENCE, DID NOT RESPOND PROMPTLY. UNDER THESE CIRCUMSTANCES, THE ASSESSEE COULD NOT PRODUCE THESE EVIDENCES WITHIN THE PRESCRIBED TIME TO SUBSTANTIATE THE CASE. THIS WAY THE ASSESSEE WAS PREVENTED BY A REASONABLE CAUSE, BEING UNABLE TO PRODUCE EVIDENCES BEFORE THE AUTHORITIES. 14 FROM THE ABOVE, IT APPEARS THAT THE ASSESSEE HAS NOT FILED EVIDENCE BECAUSE THE LOAN CREDITORS ARE UNEDUCATED PEOPLE. IT APPEARS 7 ITA NO. 111/VIZ/2016 [KORADA HAREESH (HUF)] TO ME THAT THE EXPLANATION GIVEN BY THE ASSESSEE CANNOT BE ACCEPTED FOR THE REASON THAT IF AT ALL ASSESSEE BORROWED SOME LOANS, HE HAS TO SUBMIT ALL THE DETAILS BEFORE THE ASSESSING OFFICER AND IF ASSESSING OFFICER IS NOT SATISFIED ON ANY DETAILS, ASSESSEE HAS TO MAKE AN APPEAL FOR ADMITTING THOSE DETAILS. IN THIS CASE, THE ASSESSEE HAS NOT MADE ANY ATTEMPT NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LD.CIT(A). BEFORE ME, HE SIMPLY SUBMITS THAT HE HAS NOT SUBMITTED ALL THE DETAILS OF LOAN CREDITORS BECAUSE LOAN CREDITORS ARE ILLITERATES. THIS IS NOT A GROUND TO ADMIT THE ADDITIONAL EVIDENCE, THEREFORE, PRAYER MADE BY THE ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE IS REJECTED. 15 SO FAR AS MERITS OF THE CASE IS CONCERNED, THE ASSESSEE HAS NOT FILED ANY EVIDENCE NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LD.CIT(A), EVEN BEFORE THE TRIBUNAL ALSO. THEREFORE, I FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) ON THIS GROUND. THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 16 IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF MAY, 2017. SD/- (V. DURGA RAO) JUDICIAL MEMBER DATED : 31 ST MAY, 2017. VR/- 8 ITA NO. 111/VIZ/2016 [KORADA HAREESH (HUF)] COPY TO: 1. THE ASSESSEE KORADA HAREESH (HUF), PLOT NO. 9A, RAJEEV NAGAR, SRIKAKULAM. 2. THE REVENUE ITO, WARD-1, SRIKAKULAM. 3. THE CIT-2, VISAKHAPATNAM. 4. THE CIT(A)-2, VISAKHAPATNAM. 5. THE D.R., VISAKHAPATNAM. 6. GUARD FILE. BY ORDER