Sri Jasti Srinivasa Rao, Chataparru V. The Commissioner of Income Tax, Rajahmundry

ITA 145/VIZ/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6900 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 25-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: TH LUCAS PETER
• Section: 263

Judgement Text

ITA NOS 142 144 AND 145 OF 2011 ERRADA SUMATHI ELU RU & OTHERS PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.142/VIZAG/2011 ASSESSMENT YEAR: 2007 - 08 ERRADA SUMATHI, ELURU VS. COMMISSIONER OF INCOME TAX, RAJAHMUNDRY (APPELLANT) PAN NO:AAFPE 9833 Q (RESPONDENT) ITA NO.144/VIZAG/2011 ASSESSMENT YEAR: 2007-08 CHINTA SRIDHAR, CHATAPARRU VS. COMMISSIONER OF INCOME TAX, RAJAHMUNDRY (APPELLANT) PAN NO:BGFPS 6669 K (RESPONDENT) ITA NO.145/VIZAG/2011 ASSESSMENT YEAR: 2007-08 JASTI SRINIVASA RAO, CHATAPARRU VS. COMMISSIONER OF INCOME TAX, RAJAHMUNDRY (APPELLANT) PAN NO:AHAPJ 0657 P (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI T.H. LUCAS PETER, CIT (DR) ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THESE APPEALS OF THE ASSESSEES ARE DIRECTED AGAINST THE ORDERS PASSED BY LEARNED CIT, RAJAHMUNDRY IN THEIR RESPECT IVE HANDS UNDER SECTION 263 OF THE ACT FOR THE ASSESSMENT YEAR 2007 -08. CERTAIN ISSUES URGED IN THESE APPEALS ARE IDENTICAL IN NATURE AND HENCE THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2. ALL THE GROUNDS RAISED BY THESE ASSESSEES ARE RE LATING TO THE VALIDITY OF INITIATION OF REVISION PROCEEDING U/2 263 OF THE ACT. ITA NOS 142 144 AND 145 OF 2011 ERRADA SUMATHI ELU RU & OTHERS PAGE 2 OF 7 3. ALL THESE ASSESSEES ARE ENGAGED IN TRADING O F INDIAN MADE FOREIGN LIQUORS (IMFL). DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE ASSESSING OFFICER NOTICED THAT THESE ASSESSEES COUL D NOT SUBSTANTIATE THE SALES VALUE WITH PROPER SALES BILLS. HENCE THE ASS ESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE INCOME FROM IMFL BUSINESS AT 4%/ OF THE PURCHASE VALUE IN THE CASE OF ERRADA SUMATHI AN D 5% OF THE PURCHASE VALUE IN OTHER TWO CASES. THE LEARNED CIT, BY INVO KING THE PROVISIONS OF SEC. 263 OF THE ACT, DIRECTED THE ASSESSING OFFICER TO COMPLETE THE ASSESSMENT AFRESH AFTER EXAMINING FOLLOWING ISSUES. (A) ERRADA SUMATHI:- (A) ESTIMATION OF PROFIT. (B) CHINTA SRIDHAR: (A) ESTIMATION OF PROFIT. (B) VERIFICATION OF SOURCES FOR CAPITAL INTRODUCT ION. (C) VERIFICATION OF GENUINENESS OF CREDITORS. (D) VERIFICATION OF PERSONAL DRAWINGS. (C) JASTI SRINIVASA RAO: (A) ESTIMATION OF PROFIT. (B) VERIFICATION OF SOURCES FOR CAPITAL INTRODUCT ION. (C) VERIFICATION OF GENUINENESS OF CREDITORS. (D) VERIFICATION OF PERSONAL DRAWINGS THE ASSESSEES ARE CHALLENGING THE ORDER OF LEARNED CIT BEFORE US. 4. THE FIRST ISSUE, WHICH IS COMMON IN ALL THE THREE APPEALS, RELATES TO THE ESTIMATION OF PROFIT. AS STATED EARLIER, THESE ASS ESSEES ARE ENGAGED IN THE BUSINESS OF TRADING IN IMFL. THE ASSESSING OFFICER ESTIMATED THE INCOME AT 4%/5%, AS THE CASE MAY BE, OF THE PURCHASE PRICE. THE LEARNED CIT WAS OF THE VIEW THAT THE ASSESSING OFFICER SHOULD HAVE FOLLOWED THE DECISION OF JURISDICTIONAL ITAT, VISAKHAPATNAM IN THE CASE OF A CIT VS. M/S M.VEERABHADRA RAO AND OTHERS IN ITA NOS. 345 & 346, WHERE IN IT WAS DIRECTED TO COMPUTE THE SALES AT EIGHT TIMES OF PUR CHASE PRICE AND THEN TO ESTIMATE NET PROFIT AT 1% OF THE SAID ESTIMATED SAL ES VALUE. IT WAS ALSO ITA NOS 142 144 AND 145 OF 2011 ERRADA SUMATHI ELU RU & OTHERS PAGE 3 OF 7 HELD THEREIN THAT IF THE PROFIT SO COMPUTED IS LESS THAN THE PROFIT DECLARED BY THE ASSESSEE, THEN THE PROFIT DECLARED BY THE ASSES SEE SHOULD BE TAKEN. THE ASSESSEE EXPLAINED THAT THE SAID DECISION WAS R ENDERED IN THE CASE OF ARRACK BUSINESS (COUNTRY LIQUOUR) AND HENCE THE S AID DECISION IS NOT APPLICABLE TO THESE ASSESSEES AS THEY ARE TRADING I N IMFL, WHICH IS A DIFFERENT PRODUCT. IT WAS FURTHER EXPLAINED AS UNDE R: IN THE ARRACK BUSINESS THE COST OF ARRACK WAS VERY LESS AND THE EXCISE DUTY WAS NEARLY SEVEN TIMES THE COST OF ARRACK. WHERE AS IN THE IMFL TRDE, THE COST OF PURCHASE OF IM FL IS SUBSTANTIALLY HIGH BUT THE LICENSE FEE IS LOW. HOWEVER, THE LEARNED CIT WAS NOT CONVINCED WITH THE SAID EXPLANATIONS, SINCE HE WAS OF THE VIEW THAT THE IMFL IS ANOTHER C HEAP LIQUOR SUBSTITUTED IN THE PLACE OF COUNTRY LIQUOR OR ARRACK AND HENCE BOTH STAND ON SAME FOOTING. ACCORDINGLY HE DIRECTED THE ASSESSING OFF ICER TO ESTIMATE THE PROFIT AS PER THE FORMULA GIVEN BY THE ITAT IN THE CASE OF M/S M.VEERABHADRA RAO AND OTHERS CITED (SUPRA). 4.1 THE LEARNED COUNSEL FOR THE ASSESSEES SUBMI TTED THAT THE LEARNED CIT IS NOT CORRECT IN HOLDING THAT BOTH ARRACK BUSI NESS AND IMFL BUSINESS STAND ON THE SAME FOOTING, SINCE THE NATURE OF BOTH ITEMS, THE METHODOLOGY OF SALES, EXCISE DUTY PATTERN ETC. ARE TOTALLY DIFF ERENT. HENCE THE DECISION HON'BLE ITAT IN THE CASE OF M.VEERABHADRA RAO AND O THERS CITED ABOVE CANNOT BE APPLIED TO THE FACTS OF THE INSTANT CASES . EVEN OTHERWISE, THE ASSESSING OFFICER HAS APPLIED HIS MIND AND HAS TAKE N A CONSCIOUS DECISION TO ESTIMATE THE INCOME AT A PARTICULAR PERCENTAGE. HENCE HIS ORDER CANNOT BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. THE LEARNED AUTHORISED REPRESENTATIVE, IN SUPPORT O F HIS CONTENTIONS, RELIED ON THE ORDER DATED 13-11-2009 PASSED BY THIS BENCH IN THE CASE OF MOOKAMBICA CONSTRUCTIONS IN ITA NO.25/VIZAG/2009. 4.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAS COMMITTED A FUNDAMENTAL ERROR BY ESTIMATING THE NET PROFIT ON THE BASIS OF PURCHASES , WHILE GENERALLY GROSS ITA NOS 142 144 AND 145 OF 2011 ERRADA SUMATHI ELU RU & OTHERS PAGE 4 OF 7 PROFIT IS ESTIMATED ON SALES. ANY CASE, THE ASSESS ING OFFICER HAS NOT BROUGHT ANY COMPARABLE CASE FROM THE SAME AREA IN S UPPORT OF THE RATE OF PROFIT ADOPTED BY HIM. HE FURTHER SUBMITTED THAT T HE OBSERVATIONS OF LEARNED CIT THAT BOTH ARRACK AND IMFL STAND ON SAME FOOTING CANNOT BE FOUND FAULT WITH, WHEN ONE HAS TO ESTIMATE THE PRO FIT ON SALE OF THOSE ITEMS. 4.3 WE HAVE CONSIDERED RIVAL CONTENTIONS. THE ISSUE UNDER CONSIDERATION IS THE QUESTION OF ESTIMATION OF PROFIT. AS SEEN F ROM THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS ADOPTED A PARTICULAR METH OD OF ESTIMATION IN ORDER TO ARRIVE AT THE PROFIT FROM THE IMFL BUSINESS CARR IED ON BY THESE ASSESSEES. IT IS A SETTLED POSITION OF LAW THAT THE LEARNED CIT CANNOT SIT OVER JUDGMENT OF THE ASSESSING OFFICER, IF HE HAS ADJUDICATED THE ISSUE IN DETAIL BY PASSING A SPEAKING ORDER. IN THIS CASE, THERE CANNOT BE ANY DISPUTE THAT THE ASSESSING OFFICER HAS DISCUSSED IN DETAIL ABOUT THE REASONS FOR REJECTION OF BOOKS OF ACCOUNT AND HE HAS ADOPTED A PARTICULAR RA TE FOR ESTIMATION OF THE PROFIT. THE RATE OF PROFIT ADOPTED BY THE ASSESSING OFFICER FOR ESTIMATION OF PROFIT IS CORRECT OR NOT IS A DEBATABLE QUESTION. OTHERWISE, THE LEARNED CIT HAS NOT POINTED OUT ANY MISTAKE IN THE SAID ESTIMAT ION WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. T HE QUESTION, WHETHER THE DECISION OF THE ITAT IN THE CASE OF M/S M.VEERABHAD RA RAO AND OTHERS CITED (SUPRA), WHICH WAS RENDERED IN THE CASE OF ARRACK B USINESS, SHALL APPLY TO THE IMFL BUSINESS OR NOT IS ALSO DEBATABLE QUESTIO N. HENCE ON A TOTALITY OF FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE ESTIM ATE OF PROFIT MADE BY THE ASSESSING OFFICER CANNOT BE CONSIDERED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WE ACCORDINGLY SET ASIDE THE ORDER OF LEARNED CIT ON THIS ISSUE. 5. THE NEXT TWO ISSUES RELATE TO THE DIRECTION ISSUED BY THE LEARNED CIT IN THE HANDS OF SRI CHINTA SRIDHAR AND SHRI JASTI S RINIVASA RAO TO VERIFY THE SOURCES OF CAPITAL AND ALSO THE GENUINENESS OF LOAN CREDITORS. THE LEARNED CIT WAS OF THE VIEW THAT THE ASSESSING OFFICER DID NOT PROPERLY EXAMINE THE ITA NOS 142 144 AND 145 OF 2011 ERRADA SUMATHI ELU RU & OTHERS PAGE 5 OF 7 ADEQUACY OF SOURCES OF CAPITAL INTRODUCED BY THESE ASSESSEES AND THE GENUINENESS OF CREDITORS. HOWEVER, IT WAS BROUGHT TO OUR NOTICE THAT THE ASSESSING OFFICER DID ENQUIRE ABOUT THE SOURCES OF CAPITAL AND ALSO THE LOAN CREDITORS. IN THIS CONNECTION OUR ATTENTION WAS INV ITED TO THE LETTERS ISSUED BY THE ASSESSING OFFICER TO BOTH THE ASSESSEES AND THE REPLIES FILED BY THEM. IT IS SEEN THAT THE ASSESSING OFFICER HAS SPECIFICAL LY ASKED FOR A COPY OF THE CAPITAL ACCOUNT AND ALSO THE SOURCES FOR THE SAME. THE ASSESSING OFFICER HAS ALSO ASKED FOR THE CONFIRMATION LETTERS FROM TH E LOAN CREDITORS. THE SAID LETTER WAS DATED 09-02-2009 IN THE CASE CHINTA SRID HAR AND 11-02-2009 IN THE CASE OF JASTI SRINIVASA RAO. OUR ATTENTION WAS ALSO INVITED TO THE REPLIES FILED BY THESE ASSESSEES IN RESPONSE THERE TO. IT IS SEEN THAT BOTH THE ASSESSEES HAVE FILED COPY OF CAPITAL ACCOUNT, SOURC ES FOR THE SAME AND ALSO CONFIRMATION LETTERS FROM THE LOAN CREDITORS ALONG WITH LOAN ACCOUNT COPIES. 5.1 ACCORDINGLY, THE LEARNED A.R CONTENDED THAT THE ASSESSING OFFICER HAS DULY EXAMINED THE ISSUES RELATING TO THE SOURCE S OF CAPITAL AND ALSO GENUINENESS OF LOAN CREDITORS. SINCE THE ASSESSING OFFICER WAS SATISFIED WITH THE REPLIES, NO ADDITION WAS MADE BY HIM. HE FURTHER SUBMITTED THAT THE FACT THAT THE ASSESSING OFFICER DID NOT DISCUSS ABOUT THE RESULTS OF SUCH EXAMINATION IN THE ASSESSMENT ORDER DOES NOT MEAN T HAT THE ASSESSING OFFICER DID NOT PROPERLY EXAMINE THE SAID ISSUES. 5.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE ACCEP TED THE FACT THAT THE ASSESSING OFFICER DID RAISE QUERIES ON THE IMPUGNED MATTERS AND THESE ASSESSEES HAVE ALSO FILED REPLIES TO THOSE QUERIES. HOWEVER HE SUBMITTED THAT THE ASSESSMENT ORDER IS NOT CLEAR AS TO WHETHE R THE ASSESSING OFFICER HAS PROPERLY APPLIED HIS MIND ON THOSE REPLIES AND HAS TAKEN A CONSCIOUS DECISION, AS THERE IS NO DISCUSSION ABOUT THE SAME IN IT. ACCORDINGLY HE SUBMITTED THAT MERE RAISING A QUERY AND FILING THE REPLY GIVEN BY THE ASSESSEE CANNOT BE TERMED AS A PROPER EXAMINATION. ITA NOS 142 144 AND 145 OF 2011 ERRADA SUMATHI ELU RU & OTHERS PAGE 6 OF 7 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSING OFFICER, IN THE HANDS OF BOTH THE ASSESSEES REFERRED (SUPRA), DID RAISE QUER IES ABOUT THE SOURCES OF CAPITAL AND ALSO ABOUT THE LOAN CREDITORS. THESE A SSESSEES HAVE FILED ACCOUNT COPIES OF THE CAPITAL ACCOUNT AND ALSO LOAN CREDITOR ACCOUNTS ALONG WITH THE CONFIRMATION LETTERS OBTAINED FROM THEM. IN THE CONFIRMATION LETTERS, THE ASSESSEES AS WELL AS THE LOAN CREDITOR S HAVE EXPLAINED THE SOURCES FOR THE MONEY INVESTED IN THE BUSINESSES. IN THE ABSENCE OF ANY OTHER CONTRARY EVIDENCES, IT IS QUIET REASONABLE TO PRESUME THAT THE ASSESSING OFFICER DID APPLY HIS MIND TO THE REPLIES FILED BY THE ASSESSEES IN RESPONSE TO THE QUERIES RAISED BY HIM AND WAS SATIS FIED WITH THE EXPLANATIONS OF THE ASSESSEE. IT IS WELL SETTLED P ROPOSITION NOW THAT THE ABSENCE OF DISCUSSION ABOUT THE RESULT OF ENQUIRY W ILL NOT RENDER THE ASSESSMENT ORDER AN ERRONEOUS ONE. THOUGH THE LEARN ED CIT WAS OF THE VIEW THAT THE ASSESSING OFFICER DID NOT PROPERLY EX AMINE THE IMPUGNED ISSUES; YET HE HAS FAILED TO DEMONSTRATE HOW THE AS SESSING OFFICER HAS COMMITTED ERROR IN SUCH EXAMINATION WHICH HAS RESUL TED IN AN ERROR IN THE ASSESSMENT ORDER WHICH IS PREJUDICIAL TO THE INTERE STS OF THE REVENUE. HENCE WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LEARNED CIT IN DIRECTING THE ASSESSING OFFICER TO RE-EXAMINE THE I MPUGNED ISSUES AND ACCORDINGLY WE SET ASIDE HIS ORDERS ON THESE TWO IS SUES. 6. THE NEXT ISSUE RELATES TO THE DIRECTION ISSU ED BY LEARNED CIT ON VERIFICATION OF PERSONAL DRAWINGS. THE LEARNED CIT NOTICED THAT THE CAPITAL ACCOUNT FILED BY THE ASSESSEES SHRI CHINTA SRIDHAR AND SRI JASTI SRINIVASA RAO DID NOT SHOW ANY DRAWINGS FOR DOMESTIC PURPOSES . ACCORDINGLY HE DIRECTED THE ASSESSING OFFICER TO MAKE NECESSARY EN QUIRIES ABOUT THE DRAWINGS FOR DOMESTIC PURPOSES. 6.1 WE NOTICE THAT THE ASSESSEES DID NOT WITHDRA W ANY AMOUNT FROM THE BUSINESS CAPITAL FOR DOMESTIC PURPOSES. THOUGH THE ASSESSING OFFICER DID RAISE A QUERY ABOUT THE DETAILS OF WITHDRAWALS FOR DOMESTIC PURPOSES IN THE ITA NOS 142 144 AND 145 OF 2011 ERRADA SUMATHI ELU RU & OTHERS PAGE 7 OF 7 LETTER ISSUED TO THE ASSESSEES REFERRED (SUPRA), IT IS NOT CLEAR WHETHER THESE ASSESSEES FURNISHED ANY REPLY IN THIS REGARD, AS TH E SAME IS NOT AVAILABLE IN THE PAPER BOOK FILED BY THE ASSESSEES. IN THE ABSEN CE OF ANY REPLY FROM THE ASSESSEES, IT CANNOT BE SAID THAT THE ASSESSING OFFICER DID EXAMINE THE ISSUE OF WITHDRAWALS FOR DOMESTIC PURPOSES. HENCE, IN OUR VIEW, THE LEARNED CIT IS RIGHT IN DIRECTING THE ASSESSING OFF ICER TO EXAMINE THE IMPUGNED ISSUE OF DRAWINGS FOR DOMESTIC PURPOSES. ACCORDINGLY WE UPHOLD HIS DIRECTIONS ON THIS ISSUE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.142/VIZAG/2011 IS ALLOWED AND THE APPEALS OF OTHER TWO ASSESSEES ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 27 TH JUNE, 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 27-06-2011 COPY TO 1 SMT. ERRADA SUMATHI, PROP-MGR WINES, 2-53, 2 ND LINE, CHANIKYAPURI COLONY, ELURU 534 002 2 SHRI CHINTA SRIDHAR, D.NO.4-13, CHATAPPARU 534 00 4 ELURU MANDAL 3 SHRI JASTI SRINIVASA RAO, D.NO.4-44 CHATTAPPARU 5 34 004, ELURU MANDAL 4 THE COMMISSIONER OF INCOME TAX, RAJAHMUNDRY 5 THE ADDITIONAL COMMISSIONER OF INCOME TAX, ELURU RANGE, 6 THE ITO WARD-2 ELURU 7 THE DR, ITAT, VISAKHAPATNAM. 8 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM