Bandaru Simhadri Appala Naidu, Visakhapatnam V. The ITO, Anakapalle

ITA 175/VIZ/2016

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9934 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T SATYANADHAMDR
• Assessee Lawyers: K S S SARMA

Judgement Text

ITA NO.175/VIZAG/2016 BANDARU SIMHADRI APPALA NAIDU, VISAKHAPATNAM DIST. 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER ./I.T.A.NO.175/VIZAG/2016 ( / ASSESSMENT YEAR: 2011-12) BANDARU SIMHADRI APPALA NAIDU VISAKHAPATNAM DIST. VS. ITO, WARD - 1, ANAKAPALLI [PAN: AZAPB0161C ] ( / APPELLANT) ( ! / RESPONDENT) / APPELLANT BY : SHRI K.S.S. SARMA, AR / RESPONDENT BY : SHRI T. SATYANADHAM,DR / DATE OF HEARING : 10.08.2016 / DATE OF PRONOUNCEMENT : 23.08.2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-2, VISAKHAPATNAM DATED 7.1.2016 FOR THE ASSE SSMENT YEAR 2011-12. 2. GROUND NO.1 RELATED TO ESTIMATION OF PROFIT. FA CTS ARE IN BRIEF THAT THE ASSESSEE IS CARRYING ON BUSINESS OF INDIAN MADE FOREIGN LIQUOR ITA NO.175/VIZAG/2016 BANDARU SIMHADRI APPALA NAIDU, VISAKHAPATNAM DIST. 2 (IMFL) HAD FILED A RETURN OF INCOME BY DECLARING TO TAL INCOME OF RS.3,71,852/-. THE CASE OF THE ASSESSEE WAS SELECT ED FOR SCRUTINY AND THE A.O. HAS NOT ACCEPTED THE INCOME DECLARED BY TH E ASSESSEE AND ESTIMATED THE PROFIT FROM THE BUSINESS AT 20% OF TH E STOCK PUT TO SALE. ON APPEAL, THE CIT(A) HAS SCALED DOWN THE PERCENTAG E OF PROFIT FROM 20% TO 10% AND DIRECTED THE A.O. TO RE-COMPUTE THE INCOME AT 10% OF PURCHASE PRICE. 3. ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE LD. COUN SEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEA L IS SQUARELY COVERED IN THE CASE OF SRI VYSYARAJU SATYANARAYANA RAJU, SR IKAKULAM DIST. IN ITA NO.2/VIZAG/2016, WHICH IS REPRODUCED AS UNDER: 3. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN A PPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE LD. COUNSEL 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 W HERE 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. 4. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER PASSED BY THE AUTHORITIES BELOW. 5. I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERI ALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ESTIMATION OF PROF IT IN RESPECT OF IMFL BUSINESS CARRIED BY THE ASSESSEE. IN THIS RESPECT, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TANGUDU JOGISETTY (SUPR A) HAS CONSIDERED THE PROFIT LEVEL IN THE LINE OF BUSINESS AND DECIDED TH AT 5% OF PURCHASE PRICE IS REASONABLE PROFIT MARGIN IN THE LINE OF IMFL BUSI NESS AND DIRECTED THE A.O. TO RE-COMPUTE THE PROFIT OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: ITA NO.175/VIZAG/2016 BANDARU SIMHADRI APPALA NAIDU, VISAKHAPATNAM DIST. 3 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. TH E A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO MAINTAIN S TOCK REGISTERS AND BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NO T SUSCEPTIBLE FOR VERIFICATION, THEREFORE REJECTED THE BOOKS OF ACCOU NTS AND ESTIMATED NET PROFIT OF 20% BY RELYING UPON THE DECISION OF HONB LE A.P. HIGH COURT. IT IS THE CONTENTION OF THE ASSESSEE THAT THE NET PROF IT ESTIMATED BY THE A.O. IS QUITE HIGH WHEN COMPARED TO THE NATURE OF B USINESS 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 ASS ESSEE IS INTO THE BUSINESS OF TRADING IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURTHER CONTENDED THAT IMFL TRA DE WAS CONTROLLED BY THE STATE GOVERNMENT THROUGH A.P. STATE BEVERAGE S CORPORATION LTD. AND THE PRICES OF THE PRODUCTS ARE FIXED BY THE STA TE 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 DE CISION 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 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 T HAT 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 C ASE AND FINDS THAT THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CI RCUMSTANCES HELD THAT ESTIMATION OF 5% NET PROFIT ON PURCHASES IS REASONA BLE. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS O F THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON R ECORD. IT IS THE CONTENTION OF THE LD. A.R. THAT THE ESTIMATION OF P ROFIT AT 16% IS HIGH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF P ROFIT IN THIS LINE OF BUSINESS. WHEREAS, THE LD. D.R. SUPPORTED THE O RDER OF THE CIT(A). HAVING CONSIDERED THE SUBMISSIONS OF THE A SSESSEE, WE ARE OF THE VIEW THAT THE ISSUE IS NO MORE RES INTEG RA 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 A ND OTHERS DATED 18.05.2012 AS WELL AS A NUMBER OF OTHER CASES HAVE HELD THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FOREI GN LIQUOR HAS TO BE ESTIMATED AT 5% OF THE PURCHASES MADE BY THE ASS ESSEE. ITA NO.175/VIZAG/2016 BANDARU SIMHADRI APPALA NAIDU, VISAKHAPATNAM DIST. 4 THEREFORE, FOLLOWING THE DECISION OF THE ITAT HYDER ABAD BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO ESTIMATE THE PROFIT FROM THE WINE BUSINESS OF THE A SSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NET O F ALL OTHER DEDUCTIONS. THE ASSESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERMINED SHOULD BE BELOW THE I NCOME RETURNED. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE RATIOS OF COORDINATE BEN CH, WE ARE OF THE VIEW THAT THE NET PROFIT ESTIMATED BY THE A.O. BY RELYIN G UPON THE DECISION OF HONBLE A.P. HIGH COURT (SUPRA), WHICH WAS RENDERED UNDER DIFFERENT FACTS IS QUITE HIGH. ON THE OTHER HAND, THE ASSESS EE RELIED UPON THE DECISION OF COORDINATE BENCH AND THE COORDINATE BEN CH UNDER SIMILAR CIRCUMSTANCES ESTIMATED THE NET PROFIT OF 5% ON TOT AL 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 DEDUCTIO NS. ORDERED ACCORDINGLY. 4. IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, I DIRECT THE A.O. TO RE-COMPUTE THE INCOM E OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 5. GROUND NO.2 RELATING TO UNEXPLAINED INCOME. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. HAS NOTED THAT THE ASSESSEE COMMENCED LIQUOR BUSINESS FROM 1.7.2010 AND FOR THA T HE HAD MADE INITIAL PURCHASE OF LIQUOR TO THE TUNE OF RS.65,00, 378/- AND MADE A PAYMENT OF LICENSE FEE OF RS.15,86,666/-, AGGREGATI NG TO RS.16,52,044/- THE A.O. HAS ASKED ASSESSEE TO EXPLAIN THE SOURCE F OR SUCH INVESTMENT MADE PRIOR TO THE COMMENCEMENT OF THE BUSINESS. TH E ASSESSEE HAS ITA NO.175/VIZAG/2016 BANDARU SIMHADRI APPALA NAIDU, VISAKHAPATNAM DIST. 5 SUBMITTED BEFORE THE A.O. THAT THESE EXPENSES WERE MADE FROM THE AVAILABILITY OF FUNDS AND IT HAS A CAPITAL OF RS.5, 31,999/- AND UNSECURED LOAN OF RS.9,50,000/-. IN THE ASSESSMENT ORDER, TH E A.O. HAS NOTED THAT THE ASSESSEE FAILED TO FURNISH ANY DOCUMENTARY EVID ENCE IN SUPPORT OF CLAIM OF UNSECURED LOAN. ACCORDINGLY, AN AMOUNT OF RS.16,52,044/- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY CONSID ERING IT AS AN UNEXPLAINED INCOME. ON APPEAL BEFORE THE CIT(A), I T WAS SUBMITTED THAT THE INITIAL INVESTMENT MADE BY THE ASSESSEE IS FROM OWN CAPITAL AS WELL AS UNSECURED LOAN. ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS CONFIRMED THE ORDER OF THE A.O. 6. BEFORE ME, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ALL THE DETAILS OF INITIAL PAYMENTS ARE AVAILABLE WITH HIM AND ONE MORE OPPORTUNITY MAY BE GIVEN TO THE ASSESSEE TO SUBSTAN TIATE HIS CASE BEFORE THE A.O. THOUGH THE ASSESSEE HAS NOT FILED DOCUMENTARY EVIDENCE BEFORE THE A.O. AS WELL AS CIT(A), IN MY O PINION ONE MORE OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE TO SUBS TANTIATE HIS CASE. ACCORDINGLY, I SET ASIDE THE ORDER PASSED BY THE LD . CIT(A) AND DIRECT THE A.O. TO CONSIDER THE ISSUE DE-NOVO AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. I FURTHER DIRECT THE ASSESSEE TO FILE ALL THE ITA NO.175/VIZAG/2016 BANDARU SIMHADRI APPALA NAIDU, VISAKHAPATNAM DIST. 6 RELEVANT DETAILS BEFORE THE A.O. THIS GROUND OF AP PEAL RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 23 RD AUG16. SD/- ( . ) (V. DURGA RAO) /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 23.08.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT BANDARU SIMHADRI APPALA NAIDU, C /O KSS SARMA, 12-5- 25A, NEWCOLONY, VISAKHAPATNAM DIST. 531001. 2. / THE RESPONDENT THE ITO, WARD-1, ANAKAPALLI 3. ) / THE CIT-2, VISAKHAPATNAM 4. ) ( ) / THE CIT(A)-2, VISAKHAPATNAM 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM