Vysyaraju Satyanarayana Raju, Srikakulam V. THE ITO, Srikakulam

ITA 2/VIZ/2016

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9947 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 04-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S RAVI SHANKAR NARAYANA
• Assessee Lawyers: N V RAMANA MURTHYAR
• Keywords: Rejection of books of accounts
• Section: 143(3)

Judgement Text

ITA NO.2/VIZAG/2016 SRI VYSYARAJU SATYANARAYANA RAJU, SRIKAKULAM DIST. 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER ./I.T.A.NO.2/VIZAG/2016 ( / ASSESSMENT YEAR: 2011-12) SRI VYSYARAJU SATYANARAYANA RAJU SRIKAKULAM DIST. VS. ITO, WARD - 1, SRIKAKULAM [PAN: ALGPV2599C ] ( / APPELLANT) ( ! / RESPONDENT) / APPELLANT BY : SHRI N.V. RAMANA MURTHY,AR / RESPONDENT BY : SHRI S. RAVI SHANKAR NARAYANA, DR / DATE OF HEARING : 02.08.2016 / DATE OF PRONOUNCEMENT : 12.08.2016 / 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 2.11.2015 FOR THE ASS ESSMENT YEAR 2011-12. ITA NO.2/VIZAG/2016 SRI VYSYARAJU SATYANARAYANA RAJU, SRIKAKULAM DIST. 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIV IDUAL CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) IN SRIKAKULAM DISTRICT. THE ASSESSEE HAD FILED RETURN OF INCOME BY DECLARING ` NIL INCOME. 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 THE DUE PROCEDURE, ASSESSMEN T WAS COMPLETED U/S 143(3) OF THE ACT. IN THE ASSESSMENT ORDER, THE A. O. HAS OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER AND NOT PRODUCED SALE BILLS, NO QUANTITATIVE DETAILS OF SALE EFFECTE D AND THEREFORE, HE HAS ESTIMATED THE NET PROFIT, CLEAR OF ALL EXPENSES AT 20% OF THE STOCK PUT TO SALE. 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 10% OF PURCHASE PRICE. 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 TRIBUN AL WHERE THE TRIBUNAL HAS SCALED DOWN THE ESTIMATION OF PROFIT FROM 10% T O 5% IN THE CASE OF TANGUDU JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016. ITA NO.2/VIZAG/2016 SRI VYSYARAJU SATYANARAYANA RAJU, SRIKAKULAM DIST. 3 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 MATER IALS 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 (S UPRA) HAS CONSIDERED THE PROFIT LEVEL IN THE LINE OF BUSINESS AND DECIDE D THAT 5% OF PURCHASE PRICE IS REASONABLE PROFIT MARGIN IN THE LINE OF IM FL BUSINESS AND DIRECTED THE A.O. TO RE-COMPUTE THE PROFIT OF THE A SSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 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. 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 PR OFIT 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 TH E ASSESSEE. IT IS FURTHER SUBMITTED THAT THE CASE LAW RELIED UPON BY THE ASSE SSEE 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 TRADI NG IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURT HER CONTENDED THAT IMFL TRADE WAS CONTROLLED BY THE STATE GOVERNMENT THROUG H 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 FIX ED BY THE STATE GOVERNMENT. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON ITA NO.2/VIZAG/2016 SRI VYSYARAJU SATYANARAYANA RAJU, SRIKAKULAM DIST. 4 THAT THE A.O. HAS ESTIMATED THE NET PROFIT BY RELYI NG UPON THE DECISION OF A.P. HIGH COURT IN THE CASE OF CIT VS. R. NARAYANA RAO I N 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 THAT THE A.O. WAS NOT JUSTIFIED IN RELYING UPON THE JUDGEMENT, WHICH WAS RENDERED U NDER 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 BEN CH 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 I N THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FINDS THAT THE COORDINATE BENC H OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% NE T PROFIT ON PURCHASES IS REASONABLE. THE RELEVANT PORTION OF THE ORDER IS R EPRODUCED HEREUNDER: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS O F 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 HI GH 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 THA T 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 DATED 18.05.2012 AS WELL AS A NUMBER OF OTHE R 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 ASSESS EE. THEREFORE, FOLLOWING THE DECISION OF THE ITAT HYDERABAD BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R 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 AS SESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERM INED 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 I S QUITE HIGH. ON THE OTHER HAND, THE ASSESSEE RELIED UPON THE DECISION OF COOR DINATE BENCH AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMA TED THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. NO CONTR ARY 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 DIREC T THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDU CTIONS. ORDERED ACCORDINGLY. 6. 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 ITA NO.2/VIZAG/2016 SRI VYSYARAJU SATYANARAYANA RAJU, SRIKAKULAM DIST. 5 5% OF PURCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 7. SO FAR AS INITIAL INVESTMENT MADE BY THE ASSESSE E IS CONCERNED, THE A.O. HAS ASKED THE ASSESSEE FOR THE SOURCE OF INVES TMENT. IT WAS SUBMITTED BEFORE THE A.O. THAT THE ABOVE INVESTMENT S WERE MADE FROM OUT OF OPENING CAPITAL BROUGHT FORWARD FROM EARLIER YEARS AND THE BALANCE SHEET MADE OUT OF THE ADVANCE RECEIVED FROM PROSPECTIVE CUSTOMERS AND WELL WISHERS. BEFORE THE A.O., HE HA S NOT BROUGHT ANYBODY TO SUBSTANTIATE HIS CASE. ACCORDINGLY, A.O . HAS TREATED THE INITIAL INVESTMENT MADE BY THE ASSESSEE AS UNEXPLAI NED INCOME, ACCORDINGLY, ADDITION WAS MADE. 8. ON APPEAL BEFORE THE CIT(A), IT WAS SUBMITTED TH AT THE ASSESSEE HAD ENTERED INTO A MEMORANDUM OF ASSOCIATION ALONG WITH 5 MEMBERS FOR RAISING NECESSARY FUNDS AND FILED A COPY OF MEM ORANDUM OF ASSOCIATION. THE LD. CIT(A) SIMPLY REJECTED THE ME MORANDUM OF ASSOCIATION FILED BY THE ASSESSEE ON THE GROUND THA T NO ADDITIONAL GROUND IS RAISED. BEFORE US, IT IS SUBMITTED THAT THE LD. CIT(A) WITHOUT CONSIDERING THE MEMORANDUM OF ASSOCIATION ENTERED B Y THE ASSESSEE ALONG WITH OTHERS REJECTED THE EXPLANATION GIVEN BY THE ASSESSEE AND HE ITA NO.2/VIZAG/2016 SRI VYSYARAJU SATYANARAYANA RAJU, SRIKAKULAM DIST. 6 PRAYED THAT THE ISSUE MAY BE REMITTED BACK TO THE A .O. TO CONSIDER THE MEMORANDUM OF ASSOCIATION ENTERED BY THE PARTIES. 9. ON THE OTHER HAND, THE LD. D.R. HAS SUBMITTED TH AT A COPY OF THE MEMORANDUM OF ASSOCIATION HAS NOT BEEN FILED BEFORE THE A.O. AND THIS ISSUE WAS ONLY RAISED BEFORE THE LD. CIT(A), THEREF ORE, HE SUBMITTED THAT ORDER OF LD. CIT(A) MAY BE UPHELD. 10. AFTER HEARING BOTH SIDES, I FIND THAT THE ASSES SEE HAS FILED A MEMORANDUM OF ASSOCIATION ENTERED BY HIM ALONG WITH OTHERS BEFORE CIT(A), THOUGH IT WAS NOT FILED BEFORE THE A.O. TH E CIT(A) OUGHT TO HAVE CALLED FOR THE REMAND REPORT. INSTEAD OF THAT , THE LD. CIT(A) SIMPLY REJECTED THE EXPLANATION GIVEN BY THE ASSESS EE IN RESPECT OF THE MEMORANDUM OF ASSOCIATION. IN MY OPINION, ASSESSEE SHOULD BE GIVEN ONE MORE OPPORTUNITY TO SUBSTANTIATE HIS CASE IN RE SPECT OF MEMORANDUM OF ASSOCIATION ENTERED BY THE ASSESSEE A LONG WITH OTHERS. THUS, I SET ASIDE THE ORDER PASSED BY THE LD. CIT(A ) AND REMIT THE MATTER BACK TO THE A.O. AND CONSIDER THE MEMORANDUM OF ASSOCIATION TO DECIDE THE ISSUE DE-NOVO AFTER GIVING OPPORTUNITY T O THE ASSESSEE. ITA NO.2/VIZAG/2016 SRI VYSYARAJU SATYANARAYANA RAJU, SRIKAKULAM DIST. 7 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESS EE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12 TH AUG16. SD/- ( . ) (V. DURGA RAO) /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 12.08.2016 VG/SPS '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI VYSYARAJU SATYANARAYANA RAJU , PROP: M/S. SRI SURYA WINES, D.NO.6-57, CHINNA KOMMATI STREET, L.N. PETA VILLAGE & POST, SRIKAKULAM DIST. 2. / THE RESPONDENT THE ITO, WARD-1, SRIKAKULAM 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