ITO, Ward - 9(3), Hyderabad V. M/s Mallikarjuna Bar & Restaurant, Hyderabad

ITA 186/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61945 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K VISWANATHAM
• Assessee Lawyers: SRINIVASA MURTHY
• Keywords: Reassessment proceedings
• Section: 145; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.186/HYD/2012 ASST. YEAR: 2007-08 ITO, WARD - 9(3), HYDERABAD. VS M/S. MALLIKHARJUNA BAR & RESTAURANT, CHAITANYAPURI, HYDERABAD. PAN:AAMFM 5270 A ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SRI K. VISWANATHAM RESPONDENT BY : SHRI SRINIVASA MURTHY DATE OF HEARING : 17-05-2012 DATE OF PRONOUNCEMENT : 28-06-2012 ORDER PER SAKTIJIT DEY J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST ORDER DATED 25-11-2011 OF THE CIT (A)-VI, HYDERABAD AND IT PERTAINS TO THE ASSESSMENT YEAR 2007-08. 2. THE REVENUE HAS FILED APPEAL BASICALLY CHALLENGING THE ORDER PASSED BY THE CIT (A) DIRECTING TO ESTIMATE THE NET PROFIT FROM SALE OF LIQUOR AT 3% BY FOLLOWING THE DECISION OF ITAT IN ITA NO.591/HYD/20 11 DATED 28-7-2011 IN THE CASE OF M/S. KANAKA DURGA WINES. ITA NO. 186 OF 2012 M/S. MALLIKHARJUNA BAR & RESTAURANT, HYD. 2 3. BRIEF FACTS ARE, THE ASSESSEE IS A BAR AND RESTAURANT. FOR THE ASSESSMENT YEAR 2007-08, IT FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.2,57,060/-. INITIALLY, RETURN WAS PROCESSED U/S 143(1). SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED BY ISSUING A NOTICE U/S 148 ON 29-6-2009 ON THE REASON THAT THE ASSESSEE HAD UNDERSTATED THE SALES TO THE EXTENT OF RS.45,62,681/-. IN COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSEE APPEARED AND PRODUCED ITS BOOKS OF ACCOUNT AND OTHER DOCUMENTS LIKE PURCHASE BILLS, VOUCHERS FOR EXPENSES AS CALLED FOR BY THE A O. AS HAS BEEN OBSERVED BY THE AO, THE ASSESSEE DID NOT PRODUCE ANY SALE BILLS AND THEREFORE THE AO WAS NOT WILLING TO ACCEPT BOOK RESULTS IN THE ABSENCE OF SALE BILL AND PROPOSED TO REJECT THE BOOK RESULTS APPLYING THE PROVISIONS OF SECTION 145 TO WHICH THE ASSESSEES AR AGREED. THE AO FOUND FROM THE PROFIT & LOSS A/C ENCLOSED TO THE RETURN AND THE ASSESSEE HAD DECLARED PURCHASES AT RS.2,10,27,958/- AND SALES AT RS.2,28,28,192/- RESPECTIVELY IN RESPECT OF LIQUOR AN D BEER ITEMS. IN VIEW OF NON-VERIFIABLE NATURE OF SALE S ADMITTED IN THE RETURN DUE TO NON PRODUCTION OF SALE BILLS, THE AO PROPOSED TO ESTIMATE PROFIT AT THE RATE O F 27% ON THE COST OF GOODS SOLD IN RESPECT OF LIQUOR AN D BEER AS PER THE GOVERNMENT OF ANDHRA PRADESH, PROHIBITION AND EXCISE- EXCISE POLICY FOR THE YEAR 2 005- 06,REVENUE (EXCISE-II) DEPARTMENT, GOMS NO.184 DATED 7-2-2005. AS HAS BEEN OBSERVED BY THE AO THOUGH THE ASSESSEES AR AGREED FOR ESTIMATION OF ITA NO. 186 OF 2012 M/S. MALLIKHARJUNA BAR & RESTAURANT, HYD. 3 INCOME U/S 145 OF THE ACT BUT WAS NOT WILLING TO ACCEPT ESTIMATION OF PROFIT AT 27% ON THE TOTAL COST OF GOODS SOLD IN RESPECT OF LIQUOR AND BEER ITEMS ON THE REASONING THAT THE ASSESSEE FIRM HAS NOT SOLD ANYTHING IN THE CATEGORY OF ORDINARY LIQUOR AND WHATEVER LIQ UOR WAS SOLD BY THE FIRM WAS IN THE RANGE OF MEDIUM AND PREMIUM QUALITY. 4. THE AO AFTER VERIFYING THE DATA FURNISHED BY THE ASSESSEE FOUND THAT THE COST OF LIQUOR ITEMS IN THE CATEGORY OF MEDIUM AND PREMIUM VARIETY IS RS.1,26,99,970/- AND COST OF BEER ITEM IS RS.81,31,471/- FOR GOODS SOLD DURING THE PREVIOUS YEAR. THE AO BY FOLLOWING THE APBCL MEMORANDUM, DETERMINED THE SALE VALUE OF LIQUOR ITEMS BY ESTIMATIN G THE PROFIT AT THE RATE OF 20% FOR MEDIUM AND PREMIUM LIQUOR ITEM AND 25% FOR BEER ITEM WHICH WORKED OUT TO RS.2,54,04,320 WHEN COMPARED TO THE GROSS SALES OF LIQUOR ADMITTED BY THE ASSESSEE IN THE RETURN TO THE TUNE OF RS.2,28,28,192 A DIFFERENCE OF RS.25,76,110/ - AROSE WHICH WAS TREATED AS UNDERSTATEMENT OF SALES BY THE AO. AFTER TAKING INTO CONSIDERATION THE ASSESSEES CONTENTION THAT THE SALE OF EMPTY BOTTLES ADMITTED AT RS.3,73,085 IN THE RETURN OF INCOME IS TO BE REDUCED FROM THE TURNOVER AND IT IS INCIDENTAL TO LIQUOR TRADE. THE NET UNDERSTATEMENT OF SALES WAS DETERMINED AT RS.22,03,025/- WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSESSEE BEING AGGRIEVED OF SUCH ADDITION FILED AN APPEAL BEFORE THE CIT (A). BEFORE THE ITA NO. 186 OF 2012 M/S. MALLIKHARJUNA BAR & RESTAURANT, HYD. 4 CIT (A), THE ASSESSEE CONTENDED THAT THE BAR AND RESTAURANT IS LOCATED IN A MASS AREA AND MOST OF THE VISITORS ARE VERY COST CONSCIOUS AND THEREFORE TO ACHIEVE THE TURNOVER, ASSESSEE WAS CONSTRAINED TO OFFER THE LIQUOR WITH LESSER MARGINS. THE PREMISES OF THE B AR IS IN A VERY OLD BUILDING BELONGING TO ONE OF THE PARTNERS FAMILY AND AS SUCH THE MAJOR SAVING IS THERE WITH REGARD TO THE RENT OF THE PREMISES. THE BAR IS A N ORDINARY BAR WITHOUT ANY KIND OF AMBIENCE LIKE AIR CONDITIONING, NEAT ATMOSPHERE, BEST FLOORING, FURNITUR E AND INTERIOR DECORATION AS THE KIND OF VISITORS FOCUSE D BY THE MANAGEMENT ARE FROM LOWER STRATA OF THE SOCIETY AND ALSO LOWER MIDDLE INCOME GROUP AND THE FOOD ARTICLES SUPPLIED ARE AT GRASS ROOT PRICE AND SOM E TIME VISITORS EVEN DO NOT PREFER TO HAVE ANY FOOD ARTICLES WHILE CONSUMING LIQUOR. THE ASSESSEE CONTENDED THAT KEEPING IN VIEW THESE FACTS, THE ESTIMATION OF PROFIT ARRIVED AT BY THE AO IS NOT JUSTIFIED. IN COURSE OF HEARING BEFORE THE CIT (A) TH E ASSESSEE ALSO RELIED UPON A DECISION OF ITAT, HYDERABAD BENCH IN ITA NO.591/HYD/2011 DATED 28- 7-2011 IN THE CASE OF M/S KANAKA DURGA WINES. THE CIT ((A), HYDERABAD BENCH DIRECTED THE AO TO ESTIMATE NET PROFIT AT 3% OF THE PURCHASES OR STOCK PUT FOR SALE DURING THE YEAR SUBJECT TO ASSESSED INCOME NOT LESS THAN THE RETURNED INCOME. 5. THE LEARNED DR CONTENDED BEFORE US THAT THE DECISION OF THE ITAT IN CASE OF M/S KANAKA DURGA ITA NO. 186 OF 2012 M/S. MALLIKHARJUNA BAR & RESTAURANT, HYD. 5 WINES DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE AND HENCE THE CIT (A) SHOULD NOT HAVE DIRECTED FOR ESTIMATION OF PROFIT AT 3%. THE LEARNED DR CONTENDED THAT IN CASE OF KANAKA DURGA WINES, IT IS AN EXCLUSIV E WINE SHOP WHEREAS THE ASSESSEEE IS OPERATING A BAR AS WELL AS RESTAURANT WHERE FOOD ARTICLES WERE ALSO SOLD. THEREFORE, THE PROFIT ELEMENT WILL NOT BE THE SA ME IN THE CASE OF EXCLUSIVE WINE SHOP. THE LEANED DR FURTHER CONTENDED EVEN IN CASE OF EXCLUSIVE WINES, THE ITAT RECENTLY HAS DIRECTED FOR ESTIMATION OF PROFIT AT 5%. 6. THE LEARNED AR, ON THE OTHER HAND, SUBMITTED THAT THOUGH THE PETITIONER RUNS A RESTAURANT ALONG WITH BAR BUT IN REALITY THE MAJOR SALES IS OF LIQUOR ITEM AND THE SALE OF FOOD ARTICLES IS OF VERY NEGLIGIBLE A MOUNT MAY BE ABOUT 5% OF THE TOTAL TURNOVER. THE LEARNED AR REITERATING ITS CONTENTIONS RAISED BEFORE THE REVENUE AUTHORITIES CONTENDED THAT MOST OF THE CUSTOMERS ARE FROM THE LOWER STRATA OF THE SOCIETY AND LOOKING AT THE COMPETITION IN THIS FIELD, THE ASSESSEE HAS TO SELL LIQ UOR BY KEEPING LESS MARGIN OF PROFIT. THE LEARNED AR CONTENDED THAT SALE OF FOOD ITEM BEING OF VERY NEGLIGIB LE AMOUNT, THE ESTIMATION OF PROFIT AT 3% DIRECTED BY THE ITAT, HYDERABAD BENCH IN KANAKA DURGA WINES WILL ALSO APPLY TO THE FACTS OF THE INSTANT CASE. 7. WE HAVE HEARD RIVAL CONTENTIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ITAT, ITA NO. 186 OF 2012 M/S. MALLIKHARJUNA BAR & RESTAURANT, HYD. 6 HYDERABAD BENCH IN THE KANAKA DURGA WINES ( ITA NO.591/HYD/2011 DATED 28-7-2011) HAS HELD IN THE FOLLOWING MANNER:- 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. IT IS AN ADMITTED FACT THAT THE MAXIMUM RETAIL PRICE O F THE LIQUOR PRODUCTS IS FIXED AT 30% OVER THE COST PRICE OF THE ASSESSEE AS PER THE UNDERSTANDING WITH AN ADMITTED FACT ABOUT ITS INABILITY TO MAINTAIN THE C ASH SALES BILLS AND ACCORDINGLY THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE CANNOT BE RELIED UPON. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE LOWER AUTHORITIES ARE CORRECT AND JUS TIFIED IN REJECTING THE BOOKS OF ACCOUNTS UNDER SECTION 14 5 OF THE ACT. WE FIND THAT THE ASSESSING OFFICER HAS RIG HTLY ADOPTED THE SALE PRICE AT 30% OVER THE COST OF PURCHASE TO ARRIVE AT THE UNDERSTATEMENT OF SALES O F RS.93,65,993/- BY THE ASSESSEE. BUT AT THE SAME TIM E, THE ENTIRE UNDERSTATEMENT OF SALES CANNOT BE TREATE D AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. IT IS WELL SETTLED LAW THAT TH E BEST GUIDE FOR ESTIMATION OF INCOME AFTER REJECTING THE BOOKS OF ACCOUNTS IS EITHER PAST HISTORY OF THE ASSESSEE OR ANY OTHER COMPARABLE CASES. THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY DEMONSTRATED BEFORE US THAT TH E ASSESSEES NET PROFIT IN THE PAST IS BETWEEN 0.12% TO 0.28% OF SALES. THE CO-ORDINATE BENCH OF THE TRIBUN AL IN THE CASE OF MANJIT SINGH BAGGA VS. ITO IN ITA NO.371 AND OTHERS DATED 30 TH SEPT. 2010 HELD THAT THE ESTIMATION OF NET PROFIT AT 3% IS REASONABLE. IN VI EW OF THIS MATTER, ENDS OF JUSTICE WOULD BE MET IF WE EST IMATE THE NET PROFIT OF THE ASSESSEE AT 3% OF THE PURCHAS ES OR STOCK PUT FOR SALE DURING THE YEAR UNDER CONSIDERATION AS AGAINST THE ESTIMATION OF 5% MADE BY THE CIT (A). ACCORDINGLY, THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS REJECTED AND CROSS OBJECTI ON FILED BY THE ASSESSEE ON THIS ISSUE IS ALLOWED. 8. IN THE PRESENT CASE, ADMITTEDLY THE ASSESSEE IS NOT AN EXCLUSIVE WINE SHOP AND IT ALSO RUNS RESTAURANT ITA NO. 186 OF 2012 M/S. MALLIKHARJUNA BAR & RESTAURANT, HYD. 7 ALONG WITH BAR AND FOOD ITEMS ARE SOLD ALONG WITH LIQUOR. THEREFORE, THE PROFIT IN CASE OF THE ASSESSEE CANNOT BE SAME AS IN THE CASE OF EXCLUSIVE WINE SHO P. HOWEVER, CONSIDERING THE FACT THAT THE SALE OF FOOD ITEMS ARE VERY LESS COMPARED TO SALE OF LIQUOR AND BE ER AND ALSO CONSIDERING THE FACT THAT THE ITAT HAS ALSO IN SOME CASES DIRECTED FOR ESTIMATION OF NET PROFIT IN CAS E OF WINE SHOPS AT 5%, WE CONSIDER IT REASONABLE TO DIRE CT THE AO TO ESTIMATE THE PROFIT AT 10% OF PURCHASES OR STOCK PUT TO SALE DURING THE YEAR SUBJECT TO THE ASSESSED INCOME IS NOT LESS THAN THE RETURNED INCOME. THE CIT (A)S ORDER IS MODIFIED TO THIS EXTENT. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART. ORDER WAS PRONOUNCED IN COURT ON 28-06-2012. SD/- (D. KARUNAKARA RAO ) SD/- (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED THE 28 TH JUNE, 2012. COPY FORWARDED TO: 1. M/S MALLIKARJUNA BAR & RESTAURANT, 2-126, RAJALING AM COMPLEX, OPP. PUSHPA GARDEN, CHAITANYAPURI, HYDERABAD. 2. THE ITO, WARD- 9(3), IT TOWERS, AC GUARDS, HYDERABA D. 3. CIT (A)-VI, HYDERABAD. 4. THE CIT CONCERNED, HYDERABAD. 5. THE DR, ITAT, HYDERABAD JMR* ITA NO. 186 OF 2012 M/S. MALLIKHARJUNA BAR & RESTAURANT, HYD. 8