A Venugopal Goud, Hyderabad V. ITO, Hyderabad

ITA 241/HYD/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3168 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 19-02-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Assessee Lawyers: A V RAGHURAM
• Keywords: Gift; Set aside
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMEBR ITA NO. 241/HYD/2009 ASSESSMENT YEAR 2005-06 MR. M. VENUGOPAL GOUD SHAMSHABAD, R.R. DIST. PAN: AFLPM8914P VS. THE I.T.O. WARD-8(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI A.V. RAGHU RAM RESPONDENT BY: SHRI E.S. NAGENDRA PRASAD O R D E R PER N.R.S. GANESAN, JM: THIS APPEAL OF THE ASSESSEE WAS DIRECTED AGAINST T HE ORDER OF THE CIT(A)-III, HYDERABAD DATED 5.12.2008 AND PE RTAINS TO ASSESSMENT YEAR 2005-06. 2. THE FIRST ISSUE ARISING FOR CONSIDERATION IS ESTIMA TION OF NET PROFIT. SHRI A.V. RAGHU RAM, THE LEARNED COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS R EJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE NET PROFIT AT 5% . ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE REJECTION O F BOOK PROFIT IS IMPROPER. REFERRING TO PAGE 32 OF THE PAPER BOOK , THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE EXPENDI TURE INCURRED BY THE ASSESSEE WAS IN RELATION TO THE SAL ARY, RENT, ELECTRICITY, TELEPHONE, PRINTING STATIONERY, LICENC E FEE, ETC. THESE EXPENSES ARE VERY MUCH VERIFIABLE AND MOST OF THE P AYMENTS ARE MADE TO GOVERNMENT OR ITS AGENCIES. THEREFORE, ACC ORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE REJECTION OF B OOKS OF ACCOUNT IS NOT JUSTIFIED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE TOTAL TURNOVER WAS RS.82 ,92,063 AND THE GROSS PROFIT WAS RS.12,75,068. THIS GIVE A GRO SS PROFIT OF NEARLY 15.37%. THE LEARNED COUNSEL FOR THE ASSESSE E FURTHER POINTED OUT THAT THE VERY SAME CIT(A) IN THE CASE O F PREMSAGAR ITA NO. 241/HYD/2009 MR. M. VENUGOPAL GOUD, ================ 2 RAO DIRECTED THE ASSESSING OFFICER TO ADOPT GROSS P ROFIT OF 6.8% AND NET PROFIT OF 0.62%. THEREFORE, ADOPTING A NE T PROFIT OF 5% IN THE CASE OF THE ASSESSEE IS HIGHLY ARBITRARY. A CCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE GROSS PROFIT SHOWN BY THE ASSESSEE OUGHT TO HAVE BEEN ACCEPTED BY THE ASSESSI NG OFFICER AS WELL AS THE CIT(A). 3. ON THE CONTRARY, SHRI E.S. NAGENDRA PRASAD, THE LEA RNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSE SSEE WAS NOT MAINTAINED DAY TO DAY STOCK REGISTER. THE ASSE SSEE WAS ALSO NOT MAINTAINING ANY VERIFIABLE VOUCHERS/BILLS FOR P URCHASES AND SALES. ALL EXPENSES WERE MADE IN CASH AND THEY WER E SUPPORTED ONLY BY SELF MADE VOUCHERS. THEREFORE, THE ASSESSI NG OFFICER REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE NET PROFIT AT 5%. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHE R SUBMITTED THAT THE ASSESSING OFFICER BY FOLLOWING T HE JUDGEMENT OF MADHYA PRADESH HIGH COURT IN THE CASE OF BADRI P RASAD BHAGWANDAS & CO., 82 TAXMAN 109, ESTIMATED THE NET PROFIT AT 5% OF THE TOTAL TURNOVER. ACCORDINGLY, THE DIFFERE NCE IN THE PROFIT DECLARED BY THE ASSESSEE AND THE PROFIT ESTI MATED BY THE ASSESSING OFFICER TO THE EXTENT OF RS.1,84,250 WAS ADDED TO THE TOTAL INCOME. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. THE ASSES SEE, ADMITTEDLY, HAD DECLARED A GROSS PROFIT OF RS.15.38 %. HOWEVER, NET PROFIT COMES TO 2.77%. THE ASSESSING OFFICER M AINLY REJECTED THE BOOKS OF ACCOUNT ON THE GROUND THAT TH E ASSESSEE HAS NOT MAINTAINED THE DAY TO DAY STOCK REGISTER AN D NO PROPER BILLS/VOUCHERS WERE MAINTAINED FOR PURCHASES AND SA LES. THE ASSESSEE HAS ALSO PAID MAJORITY OF THE EXPENSES IN CASH. OF COURSE, MAJORITY OF THE PAYMENTS WERE MADE TO THE G OVERNMENT AND TO THE GOVERNMENT AGENCIES. HOWEVER, IT IS ALS O A FACT THAT THE ASSESSEE HAS NOT MAINTAINED PROPER BILLS/VOUCHE RS FOR ITA NO. 241/HYD/2009 MR. M. VENUGOPAL GOUD, ================ 3 PURCHASES AND SALES. THE SELF MADE VOUCHERS MADE B Y THE ASSESSEE COULD NOT BE VERIFIED. THEREFORE, WE DO N OT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHORITY IN RE JECTING THE BOOKS OF ACCOUNT. 5. NOW COMING TO THE ESTIMATION OF NET PROFIT, THE NET PROFIT HAS TO BE MADE ON THE BASIS OF THE MATERIAL AVAILAB LE ON RECORD. NO DOUBT, THE ESTIMATION INVOLVES LITTLE BIT OF GUE SS WORK. HOWEVER, IT DOES NOT MEAN THAT THE ASSESSING OFFICE R COULD ESTIMATE THE PROFIT AT HIS WHIMS AND FANCIES. THE ASSESSING OFFICER IS BOUND TO TAKE INTO CONSIDERATION THE NAT URE OF THE BUSINESS, LOCALITY IN WHICH THE BUSINESS IS CARRIED ON, THE PROFIT RATE DECLARED BY THE SIMILARLY PLACED TRADERS IN TH AT LOCALITY HAS TO BE TAKEN INTO CONSIDERATION. IN THE CASE BEFORE US, THE LOWER AUTHORITIES HAVE NOT CONSIDERED THESE FACTS. THE A SSESSING OFFICER SIMPLY ESTIMATED THE PROFIT ON THE BASIS OF MADHYA PRADESH HIGH COURT DECISION. THE JUDGEMENT OF MADH YA PRADESH HIGH COURT MAY BE ONE OF THE FACTORS TO BE TAKEN INTO CONSIDERATION, BUT IT IS OBLIGATORY ON THE PART OF THE ASSESSING OFFICER TO TAKE INTO CONSIDERATION THE COMPARABLE C ASES OF THE SIMILARLY PLACED TRADERS IN THE LOCALITY. FROM THE ORDER OF THE CIT(A) IT APPEARS THAT THE ASSESSEE HAS BROUGHT TO THE NOTICE OF THE CIT(A) THE CASE OF THE PREMSAGAR RAO IN WHICH T HE VERY SAME COMMISSIONER (APPEALS) HAS ACCEPTED THE NET PROFIT AT 0.62%, IN ANOTHER LIQUOR TRADER. THE CIT(A) SIMPLY DISTINGUI SHED HIS EARLIER ORDER ON THE GROUND THAT THE ASSESSING OFFI CER ESTIMATED THE GROSS PROFIT AND NOT THE NET PROFIT. IN OUR OP INION, WHEN SHRI PREMSAGAR RAO WAS CARRYING ON THE SAME LIQUOR BUSINESS IN THE SAME LOCALITY AND THE CIT(A) HAS DIRECTED TH E ASSESSING OFFICER TO ADOPT THE NET PROFIT AT 0.62%, WE DO NOT FIND ANY REASON TO TAKE A DIFFERENT VIEW IN THE CASE OF PRES ENT ASSESSEE. WHEN THE ESTIMATION COMES, IT IS FOR THE LOWER AUTH ORITIES TO TAKE INTO CONSIDERATION THE SIMILARLY PLACED TRADER IN THE LOCALITY RATHER THAN PLACING RELIANCE ON THE JUDGEMENT OF TH E MADHYA ITA NO. 241/HYD/2009 MR. M. VENUGOPAL GOUD, ================ 4 PRADESH HIGH COURT. AS WE HAVE ALREADY OBSERVED, J UDGEMENT OF THE MADHYA PRADESH HIGH COURT MAY BE ONE OF THE FAC TORS TO BE TAKEN INTO CONSIDERATION, HOWEVER, IT MAY NOT BE CO RRECT TO IGNORE THE NET PROFIT RATIO ACCEPTED BY THE VERY SA ME CIT(A) IN SIMILARLY PLACED TRADER IN THE VERY SAME LOCALITY. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION IN ESTIMATING THE PRO FIT AT 5%. IN OUR OPINION, THE PROFIT DECLARED BY THE ASSESSEE AT 2.37% IS VERY REASONABLE WHEN COMPARED TO THE NET PROFIT OF 0.62% ADOPTED BY THE CIT(A) IN THE CASE OF SHRI PREMSAGAR RAO. IN V IEW OF THE ABOVE, WE MODIFY THE ORDER OF THE LOWER AUTHORITY A ND DIRECT THE ASSESSING OFFICER TO ACCEPT THE INCOME DECLARED BY THE ASSESSEE WHICH IS ADMITTEDLY AT 2.37%. 6. THE NEXT GROUND OF APPEAL IS ADDITION OF RS.12,54,4 00 U/S. 69 OF THE INCOME-TAX ACT, 1961. SHRI RAGHU RA M, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS RECEIVED GIFTS FROM NON RESIDENT INDIAN TO THE EXTENT OF RS.15,52,916. THE ASSESSEE HAS SALE PROCEEDS OF TH E LAND, AGRICULTURAL INCOME, ETC. HOWEVER, THE EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE FILED ALL THE DETAILS BEFORE THE LOWER AUTHORITIES. THE AMOUNT WITHDRAWN FROM T HE BANK WAS NOT ACCEPTED BY THE ASSESSING OFFICER ON THE GR OUND THAT IT MIGHT HAVE BEEN USED FOR SOME OTHER PURPOSES. ACCO RDING TO THE LEARNED COUNSEL FOR THE ASSESSEE IN ABSENCE OF ANY MATERIAL THAT THE ASSESSEE HAS UTILISED THE AMOUNT FOR SOME OTHER PURPOSES, THE EXPLANATION OF THE ASSESSEE OUGHT TO HAVE BEEN ACCEPTED. THE LEARNED COUNSEL FOR THE ASSESSEE FUR THER SUBMITTED THAT THE MOTHER, FATHER AND BROTHER OF TH E ASSESSEE ARE EARNING MEMBERS OF THE FAMILY. THE ASSESSEE WA S ALSO HOLDING POWER OF ATTORNEY TO OPERATE TWO BANK ACCOU NTS. THE ASSESSEE HAS FILED THE COPY OF THE LAST PAY CERTIFI CATE OF HIS FATHER WHO WORKED IN OSMANIA GENERAL HOSPITAL. THE ASSESSEE HAS ALSO FILED A COPY OF HIS MOTHER'S PATTA PASSBOO K TO SHOW ITA NO. 241/HYD/2009 MR. M. VENUGOPAL GOUD, ================ 5 THAT THE ASSESSEE'S MOTHER WAS HOLDING AGRICULTURAL LAND. IN VIEW OF THESE SUPPORTING MATERIALS, ACCORDING TO TH E LEARNED COUNSEL FOR THE ASSESSEE, THE NRI GIFT RECEIVED BY THE ASSESSEE FROM HIS BROTHER COULD NOT BE USED OF THE FAMILY EX PENSES. THEREFORE, THE OBSERVATION OF THE ASSESSING OFFICER THAT THE NRI GIFT WAS NOT USED FOR BUSINESS PURPOSES CANNOT BE C ORRECT. 7. ON THE CONTRARY, SHRI NAGENDRA PRASAD, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE NRI GIFT WAS SPREAD OVER FOR MORE THAN 4 1/2 YEARS. ON EXAMINAT ION OF THE ACCOUNT, THE ASSESSING OFFICER FOUND THAT THE ASSES SEE WITHDRAWN THE FOREIGN FUND BY WAY OF CASH IMMEDIATE LY. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIV E WHENEVER THE ASSESSEE'S BROTHER SENT THE AMOUNT THE SAME WAS WITHDRAWN BY THE ASSESSEE. ACCORDING TO THE LEARNE D DEPARTMENTAL REPRESENTATIVE IN CASE THE AMOUNTS WER E RECEIVED AS GIFTS OVER A PERIOD OF TIME, IT WAS NOT EXPLAINE D BEFORE THE ASSESSING OFFICER WHY SUCH AMOUNT WAS NOT INTRODUCE D IN THE BOOKS OF ACCOUNT AT THAT POINT OF TIME. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE ASSESSEE HAS USED THE FUNDS WHENEVER THE SOURCES WERE REQUIRED FOR EXPLAINING T HE DRAFT AMOUNT. THEREFORE, ACCORDING TO THE LEARNED DEPART MENTAL REPRESENTATIVE, THE NRI GIFT WAS SENT ONLY FOR THE PURPOSE OF FAMILY EXPENSES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL ON RECORD. THE ASSES SING OFFICER ON VERIFICATION OF THE BANK ACCOUNT FOUND THAT CERT AIN AMOUNTS ARE CREDITED BY WAY OF FOREIGN REMITTANCE. ON EXAM INATION OF THE ACCOUNT, THE ASSESSING OFFICER FOUND THAT AN AM OUNT OF RS.24 LAKHS WAS CREDITED IN THE BANK ACCOUNT. THE ASSESSEE EXPLAINED THAT A SUM OF RS.15,52,916 WAS RECEIVED A S NRI GIFT FROM 21.7.2000 TO 14.2.2005 FROM HIS BROTHER SHRI M .S. ANAND GOUD. OUT OF THIS RS.15,52,916 A SUM OF RS.1,32,51 6 WAS USED ITA NO. 241/HYD/2009 MR. M. VENUGOPAL GOUD, ================ 6 FOR PERSONAL EXPENSES AND REMAINING AMOUNT OF RS.14 ,20,400 WAS USED FOR PURCHASE OF THE DEMAND DRAFT. THE ASS ESSING OFFICER ACCEPTED THE NRI GIFT TO THE EXTENT OF RS.2 ,16,000 WHICH WAS SAID TO BE RECEIVED ON 14.2.2005. HOWEVER, THE BALANCE AMOUNT OF RS.12,54,400 WAS TREATED AS UNEXPLAINED I NVESTMENT U/S. 69 OF THE ACT. THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT A PROPERTY WAS SOLD FOR A CONSIDER ATION OF RS.9,29,600 AND THE ASSESSEE'S FATHER, MOTHER AND B ROTHER ARE ALL EARNING MEMBERS. THE ASSESSEE'S FATHER WAS A R ETIRED EMPLOYEE FROM OSMANIA GENERAL HOSPITAL. IN SUPPORT OF HIS CONTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THE COPIES OF THE LAST PAY CERTIFICATE, PATTA PASSBOOK IN RESPECT OF HIS MOTHER AND OTHER BANK STATEMENTS. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE PERSONAL EXPE NSES AND FAMILY MAINTENANCE WERE MET FROM THE AGRICULTURAL I NCOME, SALARY OF HIS FATHER, ETC. THEREFORE, THE AMOUNT W ITHDRAWN FROM NRI GIFT WAS USED ONLY FOR THE PURPOSE OF PURCHASIN G THE DEMAND DRAFT. THIS CONTENTION OF THE ASSESSEE WAS NOT EXAMINED BY THE LOWER AUTHORITIES. WHEN THE ASSESS EE CLAIMED THAT HIS MOTHER WAS HOLDING AGRICULTURAL LAND AND R ECEIVING AGRICULTURAL INCOME, OTHER FAMILY MEMBERS ARE ALSO HOLDING INCOME EARNING PROPERTIES, IN OUR OPINION, THE MATT ER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER. ACCORDING LY, WE SET ASIDE THE ORDER OF THE LOWER AUTHORITIES AND REMAND BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER. THE A SSESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH IN THE LIGHT OF T HE MATERIAL THAT MAY BE PRODUCED BY THE ASSESSEE AND THEREAFTER DECI DE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 9. THE NEXT ISSUE ARISING FOR CONSIDERING IS ADDITION OF RS.2 LAKHS AS UNEXPLAINED HOUSEHOLD EXPENSES. WE HAVE H EARD THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE LEARNED COUNSEL FOR THE ASSESSEE. THE ASSESSING OFFICER FOUND THAT THERE WAS NO ITA NO. 241/HYD/2009 MR. M. VENUGOPAL GOUD, ================ 7 DRAWINGS FOR THE PERSONAL EXPENSES. THE CLAIM OF T HE ASSESSEE IS THAT HE RECEIVED RENTAL INCOME OF RS.60,000 AND HE IS RESIDING WITH HIS PARENTS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS PAYING LIC PREMIUM AND SCHOOL FEES FOR HIS CHIL DREN. BY TAKING INTO CONSIDERATION THE SIZE OF THE FAMILY, H E MADE AN ADDITION OF RS.2 LAKHS TOWARDS PERSONAL DRAWINGS. THE FACT THAT THE ASSESSEE'S MOTHER WAS HOLDING AGRICULTURAL LAND AND RECEIVING AGRICULTURAL INCOME IS SUPPORTED BY THE M ATERIAL AVAILABLE ON RECORD LIKE PATTA PASSBOOK, ETC. THE ASSESSEE'S FATHER WAS ALSO RECEIVING INCOME FROM OSMANIA GENER AL HOSPITAL. IT IS NOT IN DISPUTE THAT THE ASSESSEE W AS LIVING WITH HIS PARENTS. THEREFORE, THE INCOME OF THE PARENTS, ASSESSEE AND HIS BROTHER HAS TO BE TAKEN INTO CONSIDERATION WHIL E ESTIMATING THE PERSONAL EXPENDITURE AND THE FAMILY. BY TAKING INTO CONSIDERATION THE AGRICULTURAL LAND TO THE EXTENT O F 12 ACRES AND THE INCOME DRAWN BY HIS FATHER FROM OSMANIA GENERAL HOSPITAL AND THE RENTAL INCOME OF RS.60,000 BY THE ASSESSEE, IN OUR OPINION, NO FURTHER ADDITION NEEDS TO BE MADE TOWAR DS PERSONAL DRAWINGS. THE ASSESSEE CAN VERY WELL MEET THE LIC PREMIUM AND SCHOOL FEES FROM THE INCOME OF THE FAMILY MEMBE RS. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION FOR MAK ING ADDITION OF RS.2 LAKHS. ACCORDINGLY, THE SAME IS DELETED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH JUNE, 2010. SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER SD/- (N.R.S. GANESAN) JUDICIAL MEMBER TPRAO HYDERABAD, DATED 25TH JUNE, 2010 ITA NO. 241/HYD/2009 MR. M. VENUGOPAL GOUD, ================ 8 COPY FORWARDED TO: 1. MR. M. VENUGOPAL GOUD, PROP. M/S. SWAPNA WINES, C/O. MR. S. VASANTKUMAR, ADVOCATE, 403, MANISHA TOWERS, 10- 1-18/31, SHYAM NAGAR, HYDERABAD-500 004 2. THE INCOME-TAX OFFICER, WARD-8(2), HYDERABAD. 3. THE CIT(A)-III, HYDERABAD 4 THE CIT-II, HYDERABAD 5. THE DR B BENCH, HYDERABAD