Sri B. Mallikarjuna Rao, Srikakulam V. The TIO, Srikakulam

ITA 144/VIZ/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8947 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 28-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MURTHY NAIK
• Keywords: Rejection of books of accounts; Unexplained investment
• 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. 144/VIZ/2016 (ASST. YEAR : 2011-12) SHRI BASINA MALLIKARJUNA RAO, KAKARLA STREET, RAJAM, SRIKAKULAM. VS. ITO, WARD-1, SRIKAKULAM. PAN NO. AICPB 8024 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. SUBRAHMANYAM FCA. DEPARTMENT BY : SHRI MURTHY NAIK - DR DATE OF HEARING : 18/04/2017. DATE OF PRONOUNCEMENT : 18/04/2017. 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 28/01/2016 FOR THE ASSESSMENT YEAR 2011-12. 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) IN SRIKAKULAM DISTRICT. THE ASSESSEE HAD FILED A RETURN OF INCOME BY DECLARING TOTAL INCOME OF RS. 2,20,210/-. 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 PROCEDURE, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING INCOME AT 20% OF STOCK PUT TO SALE. 2 ITA NO. 144/VIZ/2016 (BASINA MALLIKARJUNA RAO) 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 8% OF PURCHASE PRICE. 4. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE AUTHORIZED REPRESENTATIVE OF 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 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 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 3 ITA NO. 144/VIZ/2016 (BASINA MALLIKARJUNA RAO) 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 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 4 ITA NO. 144/VIZ/2016 (BASINA MALLIKARJUNA RAO) 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 . SO FAR AS UNEXPLAINED INVESTMENT IS CONCERNED, AT THE TIME OF HEARING, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE ONLY ARGUED ON THE CONFIRMATION LETTERS, WHICH WERE FILED BY THE CREDITORS, NAMELY GORLE THIRUPATHI NAIDU, GORLE JAGAN MOHAN RAO, KASINA VISWANADHAM & MANIKYAM NAGESWARA RAO. THE CASE OF THE ASSESSING OFFICER IS THAT THOUGH, THE ASSESSEE HAS FILED CONFIRMATION LETTERS, THE AMOUNTS ADVANCED BY WAY OF DEMAND DRAFTS THROUGH ANDHRA BANK, RANASTHALAM 5 ITA NO. 144/VIZ/2016 (BASINA MALLIKARJUNA RAO) BRANCH, THE ASSESSING OFFICER HAS DOUBTED THE TRANSACTION DURING THE COURSE OF REMAND PROCEEDINGS ON THE GROUND THAT DDS ARE PURCHASED BY SOME OTHER PARTIES AND NOT BY THE ALLEGED CREDITORS. 9 . ON APPEAL BEFORE THE CIT(A), THE ASSESSEE HAS NOT GIVEN PROPER EXPLANATION IN RESPECT OF PURCHASE OF DDS BY THIRD PARTIES. THEREFORE, LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSEE FAILED TO PROVE THE SOURCE OF INVESTMENT TO THE TUNE OF RS. 7,99,000/-. 10 . ON APPEAL BEFORE THIS TRIBUNAL, AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT ONCE, ASSESSEE FILED CONFIRMATION LETTERS REGARDING DDS WERE TAKEN FROM ANDHRA BANK, RANASTHALAM BRANCH, IT IS IMMATERIAL THAT THOSE DDS WERE TAKEN BY THE ASSESSEE OR THE THIRD PARTIES AND SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) MAY BE DELETED. 11. ON THE OTHER HAND, DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THIS ISSUE MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-EXAMINATION. 12 . HEARD BOTH SIDES AND PERUSED THE RECORDS. I FIND THAT THE ASSESSEE HAS FILED THE CONFIRMATION LETTERS FROM FOUR CREDITORS AMOUNT TO RS. 7,99,000/-. THE ASSESSEE HAS NOT GIVEN PROPER DETAILS DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, BEFORE THE LD. CIT(A), HE FILED DETAILS AND CONFIRMATION LETTERS, HENCE, LD. CIT(A) HAS CALLED REMAND REPORT. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS DOUBTED THE TRANSACTION ON THE GROUND THAT ASSESSEE PAID THE IMPUGNED 6 ITA NO. 144/VIZ/2016 (BASINA MALLIKARJUNA RAO) AMOUNTS BY WAY OF DDS, BUT THOSE DDS WERE TAKEN BY THE THIRD PARTIES AND NOT BY THE ASSESSEE. I FIND THAT THE ASSESSING OFFICER WITHOUT CALLING THE ASSESSEE AND WITHOUT MAKING ANY ENQUIRY, SIMPLY DOUBTED THE TRANSACTION, IN MY OPINION, THE ACTION OF THE ASSESSING OFFICER IS NOT JUSTIFIED. THE LD. CIT(A) IS ALSO NOT JUSTIFIED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER. IN VIEW OF THE ABOVE AND ALSO KEEPING IN VIEW OF THE REQUEST MADE BY THE DEPARTMENTAL REPRESENTATIVE, I FIND THAT IT IS A FIT CASE TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE IN AFRESH IN RESPECT OF UNEXPLAINED INVESTMENT OF RS. 7,99,000/-. THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS PARTLY ALLOWED. 13 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON THIS 18 TH DAY OF APRIL, 2017. SD/- (V. DURGA RAO) JUDICIAL MEMBER DATED : 18 TH APRIL, 2017. VR/- COPY TO: 1. THE ASSESSEE - SHRI BASINA MALLIKARJUNA RAO, KAKARLA STREET, RAJAM, 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.