Polarapu Ganesh Nageswara Rao, Visakhapatnam V. The ITO, Anakapalle

ITA 257/VIZ/2016

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9663 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S ARAVINDAKSHAM
• Assessee Lawyers: S V SATYANARAYANA
• Keywords: Unexplained investment
• 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. 257 / VIZ /201 6 (ASST. YEAR : 20 11 - 1 2 ) POLARAPU GANESH NAGESWARA RAO, PROP: BHAGIRADHI BABU WINES, D.NO. 10 - 67A, THIMMARAJUPETA, MUNAGAPAKA MANDAL, VISAKHAPATNAM DISTRICT. VS. ITO , WARD - 1, ANAKAPALLE. PAN NO. BHYPP 7898 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.V. SATYANARAYANA - ADV . DEPARTMENT BY : SHRI R.S. ARAVINDAKSHAM - DR DATE OF HEARING : 14 / 1 2 /201 6 . DATE OF PRONOUNCEMENT : 21/ 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 0 8 /0 2 /201 6 FOR THE ASSESSMENT YEAR 2011 - 12 . 2. FACTS OF THE CASE , IN BRIEF , ARE THAT THE ASSESSEE HAS CARRIED IN IMFL BUSINESS AND DECLARING TOTAL INCOME OF RS. 2,03,090/ - . THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT BY ESTIMATING THE PROFIT AT 20% OF THE STOCK PUT TO SALE . ON APPEAL, THE LD. CIT(A) HAS SCALED DOWN THE ESTIMATION TO 10% OF PURCHASE PRICE AND DIRECTED THE A.O. TO RE - COMPUTE THE PROFIT AT 10% . 2 ITA NO. 257 / VIZ /201 6 3. ON BEING AGGRIEVED, THE ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL WHERE IN THE TRIBUNAL HAS SCALED DOWN THE ESTIMATION OF PROFIT FROM 10% TO 5% IN THE CASE OF TA NGUDU JOGISETTY IN ITA NO.96/VIZ /2016 , BY ORDER DATED 0 2. 0 6.2016. 4. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTATIVE RELIED O N THE ORDERS OF THE AUTHORITIES BELOW. 5. 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 THIS APPEAL IS THAT THE ESTIMATION OF PROFIT IN RESPECT OF I MFL BUSINESS CARRIED BY THE ASSESSEE. IN THIS RESP ECT, THE COORDINATE BENCH OF THIS 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 ASSESSING OFFICER 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 PR OPER 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 REJE CTED 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 CARRIE D 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 ASSESSEE IS INTO THE BUSINESS OF TRADING IN ARRACK, W HEREAS 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 AS SESSEE BEING A LICENSE 3 ITA NO. 257 / VIZ /201 6 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 D ECISION 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 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 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, VISAKHAP ATNAM 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 SIMIL AR 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 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 THAT 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 O THER 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 THE CIT(A) AND DIR ECT 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 SHOU LD 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 COORDINATE BENCH AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMATED THE NET PROFIT OF 5% ON TOTAL PURCH ASES 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 . 4 ITA NO. 257 / VIZ /201 6 6. IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL, I DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE PROFIT OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 7 . THE SECOND GROUND OF APPEAL RELATING TO THE ADDITION IN RESPECT OF UNEXPLAINED INVESTMENT. IN THE ASSESSMENT ORDER, T HE ASSESSING OFFICER HAS NOTED TH A T THE ASSESSEE HAS COMMENCED LIQUOR BUSINESS FROM 01/07/2010 AND FURTHER HE MADE INITIAL PURCHASE OF LIQUOR TO THE TUNE OF RS. 1,48,033/ - AND MADE PAYMENT OF LICENSE FEE OF RS.12,01,497/ - , AGGREGATING TO RS. 13,49,530/ - . THE ASSESSEE WAS ASKE D TO EXPLAIN THE SOURCE OF THE ABOVE INVESTMENT , WHICH IS MADE BY THE ASSESSEE PRIOR TO THE COMMENCEMENT OF BUSINESS. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE EXPENSES INCURRED BY HIM PRIOR TO THE COMMENCEMENT OF BUSINESS ARE FROM AVAILABILITY OF CAPITAL OF RS.9,35,000/ - AND UNSECURED LOAN OF RS. 1,64,800/ - , HOWEVER , NO DOCUMENTARY EVIDENCE WAS FILED IN SUPPORT OF HIS CLAIM. ACCORDINGLY , AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE , THE ASSESSING OFFICER HAD ADDED THE AMOUNT OF RS. 13,49,530/ - AS UNEXPLAINED INCOME FROM OTHER SOURCES. 8. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) , THE ASSESSEE HAS REITERATED THE SUBMISSIONS , WHICH HE MADE BEFORE THE ASSESSING OFFICER , HOWEVER, THE ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE TO SUPPORT HIS CASE. THUS, THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. EVEN BEFORE US, NO DOCUMENTARY EVIDENCE WAS FILED TO SUBSTANTIATE HIS CASE EXCEPT REITERATING THE SUBMISSIONS , WHICH HE MADE BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) . THUS, I FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), WHICH IS HEREBY CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 5 ITA NO. 257 / VIZ /201 6 9 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 21 ST DAY OF DECEMBER , 201 6 . SD/ - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 21 ST DECEMBER , 201 6 . VR/ - COPY TO: 1 . THE ASSESSEE. POLARAPU GANESH NAGESWARA RAO, PROP: BHAGIRADHI BABU WINES, D.NO. 10 - 67A, THIMMARAJUPETA, MUNAGAPAKA MANDAL, VISAKHAPATNAM DISTRICT. 2 . THE REVENUE. ITO , WARD - 1, ANAKAPALLE. 3 . THE CIT - 2, VISAKHAPATNAM . 4 . THE CIT(A) - 2, VISAKHAPATNAM . 5 . THE D.R . 6 . GUARD FILE. BY ORDER SR. PRIVATE SECRETARY I.T.A.T., VISAKHAPATNAM .