A.Nagabhushana Rao, Srikakulam V. THE ITO, Srikakulam

ITA 14/VIZ/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8845 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 18-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Rejection of books of accounts; Unexplained investment; Business income

Judgement Text

ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.14/VIZAG/2016 ( / ASSESSMENT YEAR: 2011-12) A . NAGABHUSHANA RAO, UNGRADAMETTA VILLAGE SRIKAKULAM DIST. ITO, WARD - 1, SRIKAKULAM [PAN NO. AFJPA4755J ] ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM, AR / RESPONDENT BY : SHRI M.K. SETHI, DR / DATE OF HEARING : 24.07.2017 / DATE OF PRONOUNCEMENT : 26.07.2017 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS-2) {CIT(A)-2}, GUNTUR VIDE ITA NO.104/14-15 DATED 17.11.2015 FOR THE A.Y. 2011-12. 2. GROUND NO.1 TO 4 ARE RELATED TO THE ESTIMATION O F INCOME. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF (IMFL) LIQUO R TRADE AND FOR THE ASSESSMENT YEAR 2011-12 THE ASSESSING OFFICER ESTIM ATED THE INCOME ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 2 @ 20% ON TOTAL SALES OF ` 2,86,75,398/- AND DETERMINED THE NET PROFIT OF ` 71,05,890/-. THE ASSESSEE WENT ON APPEAL BEFORE T HE CIT(A) AND THE CIT(A) RESTRICTED THE NET PROFIT @ 10% ON TOTAL SALES. 3. ON BEING AGGRIEVED ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE TRIBUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT THE COORDINATE BENCH OF THE TRIBUNAL IN THE SIMILAR LIN ES OF THE BUSINESS CONSIDERED THE VERY SIMILAR ISSUE AND RESTRICTED TH E ESTIMATION AT 5% OF THE PURCHASE PRICE, IN ITA NOS.65&66/VIZAG/2012 DAT ED 3.3.2014 IN THE CASE OF T. APPALASWAMY AND SUBMITTED THAT THE SAME MAY BE FOLLOWED. 5. THE LD. D.R. HAS SUPPORTED THE ORDER PASSED BY T HE AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. 7. THE VERY SAME ISSUE OF ESTIMATION OF PROFIT IN T HE TRADE OF IMFL WAS CONSIDERED BY THE COORDINATE BENCH OF THE TRIBU NAL IN THE CASE OF TANGUDU JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016 AND HELD THAT ESTIMATION OF 5% NET PROFIT ON PURCHASE I S REASONABLE AND DIRECTED THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 3 OF ALL DEDUCTIONS. THE RELEVANT PORTION OF THE ORD ER 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 AUTHORITI ES 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 PR OFIT 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 TH E ASSESSEE. IT IS FURTHER SUBMITTED THAT THE CASE LAW RELIED UPON BY THE ASSE SSEE 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 TRADI NG IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURT HER CONTENDED THAT IMFL TRADE WAS CONTROLLED BY THE STATE GOVERNMENT THROUG H 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 FIX ED 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 RELYI NG UPON THE DECISION OF A.P. HIGH COURT IN THE CASE OF CIT VS. R. NARAYANA RAO I N ITA NO.3 OF 2003 WHICH IS RENDERED UNDER DIFFERENT FACTS. THE A.P. HIGH C OURT 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 U NDER 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 BEN CH 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 I N THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FINDS THAT THE COORDINATE BENC H OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% NE T PROFIT ON PURCHASES IS REASONABLE. THE RELEVANT PORTION OF THE ORDER IS R EPRODUCED HEREUNDER: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS O F 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 HI GH 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 THA T 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 OTHE R CASES HAVE HELD ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 4 THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FOREI GN LIQUOR HAS TO BE ESTIMATED AT 5% OF THE PURCHASES MADE BY THE ASSESS EE. THEREFORE, FOLLOWING THE DECISION OF THE ITAT HYDERABAD BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R 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 AS SESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERM INED 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 I S QUITE HIGH. ON THE OTHER HAND, THE ASSESSEE RELIED UPON THE DECISION OF COOR DINATE BENCH AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMA TED THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. NO CONTR ARY 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 DIREC T THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDU CTIONS. ORDERED ACCORDINGLY. 8. WE RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY T HE LD. CIT(A) AND DIRECT THE A.O. TO ESTIMATE THE PROFIT FROM THE BUS INESS OF THE ASSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NE T OF ALL OTHER DEDUCTIONS. 9. REGARDING THE SECOND ISSUE IS CONCERNED, THE A.O . MADE THE ADDITION OF UNEXPLAINED INVESTMENT ` 13,22,611/-. FACTS LEADING TO THE ADDITION OF ` 13,22,611/- WERE AS UNDER. DURING THE YEAR THE AS SESSEE FOUND TO HAVE MADE TOTAL INVESTMENT OF ` 50,79,868/- IN THE MONTHS OF JUNE, 2010 AND JULY, 2010 (I.E. INITIAL PERIOD OF C OMMENCEMENT OF BUSINESS), TOWARDS THE FIRST INSTALMENT OF LICENSE FEE, FIXED DEPOSIT, BANK GUARANTEE COMMISSION AND TOWARDS FIRST PURCHASE OF LIQUOR STOCK. OUT OF ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 5 THE TOTAL INVESTMENT OF ` 50,79,868/-, THE ASSESSEE EXPLAINED THE SOURCE OF ` 30,79,257/- FROM THE CLOSING CAPITAL BALANCE AS ON 31.10.2010 AND FILED EVIDENCES FOR UNSECURED LOANS OF ` 6,78,000/-. THE A.O. ACCEPTED THE SOURCE OF ` 37,57,257/- AND MADE THE ADDITION OF REMAINING AMO UNT OF ` 13,22,611/- AS UNEXPLAINED INVESTMENT. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CI T(A) AND THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE A.O. AS P ER THE DISCUSSION MADE IN THE CIT(A) ORDER AS UNDER: IN THE PRESENT CASE ALSO THE APPELLANT FAILED TO P ROVE THAT THE AMOUNTS UNDER DISPUTE RELATE OR, ARE REFERABLE TO U NDISCLOSED INCOME FROM KNOWN OR UNDISCLOSED SOURCES I.E. THE BUSINESS, WHO SE INCOME IS ALREADY ESTIMATED. ESPECIALLY THESE AMOUNTS WHICH HAVE BEE N ADDED BY THE A.O. RELATE TO SUCH PERIOD WHERE THE BUSINESS HAS JUST C OMMENCED OR NOT YET COMMENCED. SO THE POUGHING BACK OF PROFITS BY WAY OF INVESTMENT IS RULED OUT. WHEREVER THE APPELLANT ASSESSEE HAD EXP LAINABLE SOURCES BY WAY OF BROUGHT FORWARD CAPITAL OR LOANS/DIFFERENT A MOUNTS RECEIVED FROM OUTSIDE SOURCES DUE CREDIT HAS BEEN GIVEN. THAT IS THE REASON WHY THE A.R. HAD SIGNED IN THE ORDER SHEET, BEFORE THE UNDE RSIGNED ACCORDINGLY. 10. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT ONCE THE BOOKS OF ACCOUNTS ARE REJECTED AND THE INCOME IS ES TIMATED, NO SEPARATE ADDITION REQUIRED TO BE MADE RELATING TO ANY OTHER EXPENDITURE OR INVESTMENT. THE ASSESSEE FURTHER RELIED ON THE DEC ISION OF A.P. HIGH COURT IN THE CASE OF MADDI SUDARSHANAM OIL MILLS CO . VS. CIT (37 ITR 369) AND INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776 (A.P.). IN THE ASSESSEES CASE, THE INVESTMENT WAS MADE IN THE BEG INNING OF THE YEAR FOR PAYMENT OF LICENSE FEE AND FOR FIRST PURCHASE O F THE LIQUOR, BEFORE ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 6 COMMENCING THE BUSINESS OPERATIONS. THE ASSESSEE H AS MADE THE INVESTMENT OF ` 50,79,868/- AND COULD EXPLAIN THE SOURCES OF ` 37,57,257/- AND THE BALANCE AMOUNT WAS NOT EXPLAINE D. BEFORE THE CIT(A), THE ASSESSEE FAILED TO EXPLAIN THE SOURCES OF THE IMPUGNED EXPENDITURE OR INVESTMENT, WHICH WAS AGREED AND SIG NED BY THE ASSESSEE IN THE ORDER SHEET. THE TOTAL TURNOVER OF THE ASSESSEE WAS ` 2.86 CRORES AND THE ESTIMATION OF INCOME @ 5% ON TO TAL TURNOVER OF ` 2,86,75,398/- WORKED OUT TO ` 14.33 LAKHS AND THIS INCOME OF ` 14.33 LAKHS HAD ACCRUED FROM JUNE TO MARCH, 2011. IF THE ASSESSEES EXPLANATION IS ACCEPTED AND THE CREDIT IS ALLOWED T O UNEXPLAINED INVESTMENT FROM THE ESTIMATED INCOME, THE NET PROFI T WOULD BE ` 1,11,159/-, WHICH IS NOT SUFFICIENT TO MEET THE DRA WINGS OF THE ASSESSEE. THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THE D RAWINGS, HOUSEHOLD EXPENDITURE, INVESTMENTS MADE BY THE ASSESSEE OTHER THAN IN BUSINESS, ETC. THE ASSESSEE IS AN INDIVIDUAL. SINCE THE INV ESTMENT WAS MADE IN THE BEGINNING OF THE MONTH FOR PAYMENT OF LICENSE F EE AND FOR FIRST PURCHASE OF LIQUOR AND THE ASSESSEE COULD NOT EXPLA IN THE SOURCE THE RELIANCE PLACED BY THE ASSESSEE IN THE CASE LAW CIT ED (SUPRA) ARE NOT APPLICABLE AND THE FACTS ARE CLEARLY DISTINGUISHABL E AS DISCUSSED ABOVE. DURING THE APPEAL HEARING ALSO, THE ASSESSEE DID NO T PLACE ANY EVIDENCE TO ESTABLISH THE SOURCE OF UNEXPLAINED INVESTMENT O F ` 13,23,611/-, ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 7 THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE CIT(A) AND THE SAME IS UPHELD. THE ASSESSEES GROUND OF APPEAL ON THE ISSUE IS DISMISSED. 11. WITH REGARD TO ADDITION OF ` 48,200/- TOWARDS OTHER INCOME, WE AGREE WITH THE ASSESSEE THAT SINCE THE INCOME IS ES TIMATED BY REJECTING THE BOOKS OF ACCOUNTS, NO SEPARATE ADDITION REQUIRE D TO BE MADE ON ACCOUNT OF FURTHER EXPENDITURE/INCOME. THE ASSESSE E STATED THAT THE INCOME WAS EARNED ON THE DEPOSITS MADE AS GUARANTEE DEPOSIT. THE DEPOSIT MADE FOR SECURING THE GUARANTEE IN CONNECTI ON WITH THE SETTING UP OF BUSINESS REQUIRED TO BE CONSIDERED WHILE ESTI MATING THE BUSINESS INCOME AND THE SAME CANNOT BE TAKEN AS SEPARATE SOU RCE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT ONCE THE BUSI NESS INCOME IS ESTIMATED, NO SEPARATE ADDITION REQUIRED TO BE MADE TOWARDS THE INTEREST. HENCE, WE SET ASIDE THE ORDER OF LOWER A UTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 26 TH JUL17. SD/- SD/- ( . ) ( . . ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM: /DATED : 26.07.2017 VG/SPS ITA NO.14/VIZAG/2016 A. NAGABHUSHANA RAO, SKLM 8 /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT A. NAGABHUSHANA RAO, PROP: NAIDU WINES, UNGRADAMETTA VILLAGE, SRIKAKULAM DIST. 2. / THE RESPONDENT THE ITO, WARD-1, SRIKAKULAM. 3. / THE PRINCIPAL CIT-2, VISAKHAPATNAM 4. / THE CIT, VIJAYAWADA. 5. ( ) / THE CIT (A)-2, GUNTUR 6. , , / DR, ITAT, VISAKHAPATNAM 7 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM