Vandana Rama Rao, Visakhapatnam V. THE ITO, Srikakulam

ITA 124/VIZ/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8859 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S R S NARAYAN
• Keywords: Unexplained cash credit; Rejection of books of accounts; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON'BLE JUDICIAL MEMBER ITA NO. 124/VIZ/2015 (ASST. YEAR : 2011-12) VANDANA RAMA RAO, PROP : SURYATEJA WINES, VOPPANGI, SRIKAKULAM. VS. ITO, WARD-1, SRIKAKULAM. PAN NO. AECPV 3187 R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. SUBRAHMANYAM FCA DEPARTMENT BY : SHRI S.R.S. NARAYAN SR.DR DATE OF HEARING : 19/06/2017. DATE OF PRONOUNCEMENT : 23/06/2017. 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 09/02/2015 FOR THE ASSESSMENT YEAR 2011-12. 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIVIDUAL, CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL, FILED HIS RETURN OF INCOME BY DECLARING TOTAL INCOME OF 3,50,245/-. 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 DUE PROCESS, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING NET PROFIT 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 THE PURCHASE PRICE. 2 ITA NO. 124/VIZ/2015 (VANDANA RAMA RAO) 4. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, LEARNED AUTHORISED 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 ISSUE INVOLVED IN THIS APPEAL IS WITH REGARD TO 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: 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 3 ITA NO. 124/VIZ/2015 (VANDANA RAMA RAO) 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 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. 4 ITA NO. 124/VIZ/2015 (VANDANA RAMA RAO) 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 . SO FAR AS UNEXPLAINED CASH CREDITS ARE CONCERNED, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. HAS NOTED THAT THE ASSESSEE HAD PAID FIRST INSTALMENT WITH REGARD TO LICENCE FEE OF 18,61,667/-. THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO EXPLAIN THE SOURCE FOR THE SAME. THE ASSESSEE HAS EXPLAINED THAT THE EXPENDITURE WAS INCURRED OUT OF THE OPENING CAPITAL OF 11,69,433/- AND ALSO FROM UNSECURED LOANS OF 6,92,234/-. IT WAS SUBMITTED THAT LOANS WERE TAKEN FROM HIS FRIENDS AND RELATIVES, HOWEVER ASSESSEE HAS NOT FILED ANY DETAILS BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER ASSESSED THE AMOUNT OF 6,92,234/- AS UNEXPLAINED CASH CREDITS AND SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS CREDITED AN AMOUNT OF 93,769/- TO THE TRADING 5 ITA NO. 124/VIZ/2015 (VANDANA RAMA RAO) ACCOUNT, NO DETAILS WERE FILED AND NO EXPLANATION WAS ALSO GIVEN, HENCE, ABOVE AMOUNT IS ALSO ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9 . ON APPEAL BEFORE THE CIT(A), ASSESSEE EXCEPT STATING THAT AMOUNTS WERE BORROWED FROM HIS FRIENDS AND RELATIVES, NO EVIDENCE WAS FILED. THEREFORE, LD.CIT(A) HAS CONFIRMED THE ORDER OF ASSESSING OFFICER. 10 . AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. 11 . LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT ASSESSEE HAS BORROWED AN AMOUNT OF 6,92,234/- FROM HIS FRIENDS AND RELATIVES AND TO SUBSTANTIATE THE ABOVE TRANSACTION, HE FILED CONFIRMATIONS IN THE FORM OF PAPER BOOK AND ALSO FILED A PETITION UNDER RULE 29 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 AND SUBMITTED THAT THE SAME MAY BE ADMITTED AND THE ISSUE MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 12 . ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE SERIOUSLY OBJECTED THAT AT THIS STAGE, NO ADDITIONAL EVIDENCE CAN BE ADMITTED. 13. I HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. THE CASE OF THE ASSESSEE IS THAT HE BORROWED CERTAIN FUNDS FROM HIS FRIENDS AND RELATIVES FOR THE PURPOSE OF IMFL BUSINESS. WHEN THE ASSESSING OFFICER ASKED, IT WAS SUBMITTED THAT HE HAS BORROWED FUNDS FROM HIS FRIENDS AND RELATIVES, BUT NO EVIDENCE WHATSOEVER IS FILED. THEREFORE, ASSESSING OFFICER BY 6 ITA NO. 124/VIZ/2015 (VANDANA RAMA RAO) ORDER DATED 29/11/2013 REJECTED THE EXPLANATION GIVEN BY THE ASSESSEE AND MADE THE ADDITION. BEFORE THE LD. CIT(A) HE REITERATED THE SUBMISSIONS WHICH WERE MADE BEFORE THE ASSESSING OFFICER WITHOUT FILING ANY DETAILS. THE LD. CIT(A) DATED 09/02/2015 CONFIRMED THE ORDER OF THE ASSESSING OFFICER. NOW, ASSESSEE FILED AN ADDITIONAL EVIDENCE ON 15/02/2017 AND SUBMITTED THAT HE IS IN THE PROCESS OF COLLECTING THE EVIDENCE AND ULTIMATELY HE SUCCEEDED IN COLLECTING THE EVIDENCE AND THEREFORE, SAME MAY BE CONSIDERED AND ADMITTED AND REMITTED MATTER BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION. I FIND THAT ALL THE CONFIRMATION LETTERS FILED BY THE ASSESSEE WERE OBTAINED FROM THE CREDITORS, WHO BELONGS TO THE ASSESSEES VILLAGE AND THE AMOUNT IS BELOW 20,000/-. WHEN THE ASSESSEE HAS BORROWED FUNDS FROM FRIENDS AND RELATIVES, WHO ARE BELONGING TO THE SAME VILLAGE, AS TO WHY HE HAS TAKEN NEAR ABOUT FIVE YEARS TO COLLECT THE CONFIRMATION LETTERS. THE ASSESSEE HAS NOT GIVEN ANY EXPLANATION FOR THAT. I ALSO FIND THAT THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE IN THE FORM OF CONFIRMATION LETTERS IS ONLY AN AFTERTHOUGHT. I AM OF THE OPINION THAT IT IS NOT A FIT CASE TO ADMIT THE ADDITIONAL EVIDENCE, HENCE, I REJECT THE SAME. 14. SO FAR AS MERITS OF THE CASE IS CONCERNED, THE ASSESSEE HAS NOT FILED ANY DETAILS TO SUBSTANTIATE HIS CASE. THEREFORE, I FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). 7 ITA NO. 124/VIZ/2015 (VANDANA RAMA RAO) 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF JUNE, 2017. SD/- (V. DURGA RAO) JUDICIAL MEMBER DATED : 23 RD JUNE, 2017. VR/- COPY TO: 1. THE ASSESSEE - VANDANA RAMA RAO, PROP : SURYATEJA WINES, VOPPANGI, 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 (VUKKEM RAMBABU) SENIOR PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.