Talasu Raj Kumar, Srikakulam V. The ITO, Srikakulam

ITA 154/VIZ/2016

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9602 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-10-2016
• Assessment Year: misc
• Appeal Filed On: 04-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T SATYANDHAM
• Assessee Lawyers: S V SATYANARAYANA
• Keywords: Rejection of books of accounts; Unexplained investment; Gift
• 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. 154 / VIZ /201 6 (ASST. YEAR : 20 11 - 1 2 ) TALASU RAJ KUMAR, PROP : REKHA WINES, D.NO. 12 - 1 - 58, OLD NH - 5 ROAD, KASIBUGGA, SRIKAKULAM DIST. VS. ITO, WARD - 2 , SRIKAKULAM. PAN NO. ADDPT 9751 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.V. SATYANARAYANA ADV. DEPARTMENT BY : SHRI T. SATYANDHAM - DR DATE OF HEARING : 2 6 / 1 2 /201 6 . DATE OF PRONOUNCEMENT : 28 / 12 /201 6 . O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 , VISAKHAPATNAM , DATED 17 / 12 /201 5 FOR THE ASSESSMENT YEAR 2011 - 12. 2. FACTS OF THE CASE , IN BRIEF , ARE THAT THE ASSESSEE WAS CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN M ADE FOREIGN LIQUOR) , FILED HIS RETURN OF INCOME BY DECLARING TOTAL INCOME OF RS. 4,40,670 / - . T HE CASE OF THE ASSESSEE WAS SELECTED FOR SECURITY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING THE INCOME AT 20% OF THE STOCK PUT TO SALE . 2 ITA NO. 154/VIZ/2016 3. ON APPEAL, THE LD. CIT(A) SCA LED DOWN 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, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOL VED 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 S 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 THI S 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 OPINION THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BOOKS OF ACCOUNTS AND VOUCHERS IN SUPPORT OF PURC HASES AND SALES. THE A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO MAINTAIN STOCK REGISTERS AND BOOKS OF 3 ITA NO. 154/VIZ/2016 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 TH E 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 CANN OT 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. N ARAYANA 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 J USTIFIED 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 LI NE 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 C ASES. 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 4 ITA NO. 154/VIZ/2016 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 COORDI NATE 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 TH IS TRIBUNAL, I DIRECT THE A.O. TO RE - COMPU TE 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 RAISED BY THE ASSESSEE IS WITH REGARD TO UNEXPLAINED INVESTMENT OF RS. 10 LAC. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS. 10 LAC. R ECEIVED AS A GIFT AND ASSESSING OFFICER HAS CALLED THE ASSESSEE TO EXPLAIN THE DETAILS ABOUT GIFT RECEIVED FROM THREE PERSON S . THE ASSESSEE FILED A DETAILED DATA AND SUBMITTED THAT THE ABOVE GIFT OF RS. 10 LAC . R ECEIVED FROM THREE PERSONS I.E. 4 LAC. EACH FROM TWO PERSONS AND 1 LAC. FROM ANOTHER PERSON AND SUBMITTED TH A T THE DONARS ARE HAVING OWN AGRICULTURAL LAND, HOUSE 5 ITA NO. 154/VIZ/2016 PROPERTIES, INCOME FROM BUSINESS AND OTHER SOURCES ETC. THE ASSESSEE ALSO FILED PATTADAAR PASSBOOK TO SHOW THAT THE DONARS ARE HAVING AGRICULTURAL INCOME, HOWEVER, HE FAILED TO FILE THEIR RETURN S OF INCOME . THE ASSESSING OFFICER HAS NOT CONSIDER ED THE EXPLANATION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO PROVE CREDITWORTHINESS AND ALSO FAILED TO FILE DONARS RETURN S OF INCOME, HENCE, HE ADDED THE AMOUNT OF RS. 10 LAC . RECEIVED AS GIFT IN THE HANDS OF THE ASSESSEE. 9 . ON APPEAL , COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . 11 . BEFORE US, THE LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS RECEIVED GIFT OF RS. 4 LAC. F ROM HIS FATHER - IN - LAW , RS.4 LAC. FROM HIS FATHER, RS. 2 LAC. FROM HIS BROTHER - IN - LAW AND FILED CONFIRMATION LETTERS AND THE DETAILS OF THEIR AGRICULTURAL HOLDINGS BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER HAS NOT CONSIDERED THE SAME, SIMPLY REJECTED THE SUBMISSIONS MADE BY THE ASSESSEE. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) CONFIR M ED THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS N OT FILED ANY DETAILS . WE FIND THAT ONCE THE ASSESSEE HAS RECEIVED GIFT FROM CLOSE RELATIVES AND FILED CONFIRMATIONS LETTERS AND ALSO THEIR AGRICULTURAL HOLDINGS TO SATISFY THE CREDITWORTHINESS, THE ASSESSING OFFICER OUGHT TO 6 ITA NO. 154/VIZ/2016 HAVE EXAMINED THE SAME AND CON SIDER THE CASE OF THE ASSESSEE. WITHOUT CONSIDERING THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE DONARS ARE NOT ASSESSABLE TO TAX. WE FIND THAT THE ASSESSING OFFICER IS NOT CORRECT IN REJECTING THE CLAIM MADE BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE CONFIRMATION LETTERS AND ALSO PATTADAAR PASSBOOKS . T HE ASSESSING OFFICER IS FREE TO EXAMINE IF ANY OTHER MATERIAL IS REQUIRED TO CONSIDER THE CASE OF THE ASSESSEE AND DECIDE IT IN ACCORDANCE WITH LAW AFTER BEING GIVEN REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE . THIS GROUND OF APPEAL IS ALLOWED FOR STATIS TI CAL PURPOSE. 12 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 8 T H DAY OF DEC , 201 6 . S D / - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 2 8 T H DECEMBER, 201 6 . VR/ - 7 ITA NO. 154/VIZ/2016 COPY TO: 1 . THE ASSESSEE. TALASU RAJ KUMAR, PROP : REKHA WINES, D.NO. 12 - 1 - 58, OLD NH - 5 ROAD,KASIBUGGA, SRIKAKULAM DIST. . 2 . THE REVENUE ITO, WARD - 2 , SRIKAKULAM. 3 . THE CIT - 2 , VISAKHAPATNAM 4 . THE CIT(A) - 2 , VISAKHAPATNAM . 5 . THE D.R . 6 . GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY, I.T.A.T., VISAKHAPATNAM