The ITO, Vijayawada V. Sri Pydimarri Venkata Naga Suresh Kumar, Vijayawada

ITA 294/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5184 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 17-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K SIVA RAM KUMAR
• Keywords: Gross profit estimation; Unexplained cash credit; Business expenditure; Peak credit
• Section: 263

Judgement Text

ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.294/VIZAG/2017 ( / ASSESSMENT YEAR: 2007-08) ITO, WARD - 1(3), VIJAYAWADA SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA [PAN NO. AJDPP5173H ] ( ' / APPELLANT) ( ()' / RESPONDENT) C.O. 77/VIZAG/2017 (ARISING OUT OF I.T.A.NO.294/VIZAG/2017 ) ( / ASSESSMENT YEAR: 2007-08) SRI PYDIMARRI VENKATA NA GA SURESH KUMAR, VIJAYAWADA ITO, WARD - 1(3), VIJAYAWADA ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI M.N. MURTHY NAIK, DR / RESPONDENT BY : SHRI K. SIVA RAMKUMAR, AR / DATE OF HEARING : 03.07.2018 / DATE OF PRONOUNCEMENT : 11.07.2018 ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 2 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), VIJAYAWADA {C IT(A)}, VIDE ITA NO.17/CIT(A)/VJA/2015-16 DATED 31.1.2017 FOR THE AS SESSMENT YEAR 2007-08. THE ASSESSEE FILED THE CROSS OBJECTIONS S UPPORTING THE ORDER OF THE LD.CIT(A). 2. ALL THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE ON TWO ISSUES I.E. ADDITION MADE TOWARDS UNEXPLAINED SOURCES FOR PEAK CREDITS IN ICICI BANK ACCOUNT BUT NOT DISCLOSED IN THE BOOKS OF ACCO UNTS AMOUNTING TO ` 50,89,252/- AND GROSS PROFIT ADDITION OF ` 24,49,962/-. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. FOUND THAT THE ASSESSEE HAS MADE THE CASH DEPOSITS IN ICICI BANK A CCOUNT BEARING NO.030301000019 BUT NOT DISCLOSED THE TRANSACTIONS IN THE REGULAR BOOKS OF ACCOUNTS. THE A.O. WORKED OUT THE PEAK CRE DITS IN THE BANK ACCOUNT AT ` 50,89,252/- AND ASSESSED THE SAME AS INCOME UNDER THE HEAD UNEXPLAINED SOURCES. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND ARGUED THAT THE A.O. ERRED IN WORKING OUT THE CORRECT PEAK CREDIT BALANCE. THE AO WORKED OUT THE PEAK CREDIT BALANCE ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 3 AT ` 50,89,252/- INSTEAD OF ` 5.00 LAKHS AS ON 27.2.2007. THE LD.CIT(A) UPHELD THE ADDITION OF ` 5 LAKHS AS AGAINST THE ADDITION MADE BY THE A.O. AT ` 50,89,252/-. 4. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN APPEAL BEFORE US. DURING THE APPEAL HEARING, THE LD. D.R. SUBMITTED THAT THE ASSESSEE MADE CASH DEPOSITS IN ICICI BANK ACCOUNT O N VARIOUS DATES TO THE TUNE OF ` 73,88,902/- AND THE PEAK CREDIT BALANCE WAS WORKED OUT BY THE ITO AT ` 50,89,252/- CORRECTLY AND THUS ARGUED THAT THE ORD ER LD. CIT(A) BE SET ASIDE AND RESTORE THE ORDER OF THE A O. 5. ON THE OTHER HAND, THE LD. A.R. SUBMITTED THAT T HE A.O. HAS MADE INCORRECT WORKINGS OF PEAK CREDITS AND ACTUAL PEAK CREDIT BALANCE WAS RS.5.00 LACS BUT NOT RS.50,89,952/-. THE A.R. FURT HER SUBMITTED THAT WHILE ARRIVING AT THE PEAK CREDIT BALANCE, THE A.O. DID NOT CONSIDER AND EXCLUDE THE CLOSURE OF DEPOSITS ON 5.3.2007, AMOUNT ING TO ` 7 LAKHS. THE ASSESSEE FURTHER SUBMITTED THAT THE TRANSACTION IN THE ACCOUNT OF ICICI BANK WERE RELATED TO PURCHASE AND SALES ACCOU NT OF THIRD PARTIES AND THE ASSESSEE RECEIVED ONLY MEAGER AMOUNT OF COM MISSION ON PURCHASES AND SALES MADE FOR OTHERS. THE ASSESSEE S UBMITTED THAT THE TRANSACTION DID NOT PERTAIN TO HIS PROPRIETORY BUSI NESS, HENCE NOT DISCLOSED IN THE REGULAR BOOKS OF ACCOUNTS. HOWEVE R, HAVING FAILED TO ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 4 ESTABLISH THAT THE ACCOUNT DOES NOT BELONG TO THE H IM, THE LD. A.R. SUBMITTED THAT FOR MAKING THE ADDITION REPRESENTING PEAK CREDIT BALANCE THE SAME SHOULD BE WORKED OUT CORRECTLY TAKING INTO ACCOUNT OF ALL THE CREDITS AND THE DEBITS IN THE BANK ACCOUNT BUT NOT THE CASH DEPOSITS AND WITHDRAWAL ALONE. IN NUTSHELL THE ASSESSEE SUBMITTE D THAT WITHDRAWALS BY CHEQUE ALSO SHOULD BE CONSIDERED AS SOURCE FOR R EDEPOSIT. THE LD.AR FURTHER SUBMITTED THAT THE PEAK CREDIT BALANCE AFTE R TAKING INTO ACCOUNT OF ALL THE DEBITS AND CREDITS WAS WORKED TO ` 5.00 LAKHS WHICH WAS UPHELD BY THE LD.CIT(A) AND NO INTERFERENCE IS CALL ED FOR IN THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE IS OPERATING ICICI BANK ACCOUNT BEARING NO .030301000019 WHICH WAS NOT DISCLOSED TO THE DEPARTMENT IN THE IN COME TAX RETURN. THOUGH THE ASSESSEE CLAIMED THAT THE TRANSACTIONS I N THE SAID BANK ACCOUNT WAS REPRESENTING THE PURCHASES AND SALES OF GOODS RELATING TO OTHERS FOR A MEAGER COMMISSION, THE ASSESSEE FAILE D TO ESTABLISH THAT THE TRANSACTIONS REFLECTED IN THE BANK ACCOUNT DID NOT PERTAIN TO HIS OWN BUSINESS. THE ASSESSEE NEITHER DISCLOSED THE TURNO VER IN THE BANK ACCOUNT NOR DISCLOSED THE COMMISSION RECEIVED ON AC COUNT OF THE TRANSACTIONS MADE IN THE BANK ACCOUNT. THE ASSESSE E DID NOT FURNISH ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 5 ANY EVIDENCE LIKE NAMES OF PARTIES, THEIR ADDRESS, THE QUANTUM AND NATURE OF TRANSACTIONS PARTY WISE AND THEIR PAN NUM BERS, ETC. EVEN THE QUANTUM OF COMMISSION GIVEN BY THE PARTIES WHO SAID TO HAVE BEEN USED THE ASSESSEES BANK ACCOUNT FOR THEIR BUSINESS PURPOSES WAS NOT DISCLOSED FOR THE I.T. PURPOSES. IN THE ABSENCE OF ANY EVIDENCE, WE HAVE NO HESITATION TO HOLD THAT THE TRANSACTIONS OF THE ACCOUNT ARE ASSESSEES UNACCOUNTED TRANSACTIONS. 6.1 THE LD. A.R. ARGUED THAT WHILE ARRIVING AT THE PEAK CREDIT, THE A.O. SHOULD TAKE THE ENTIRE DEBITS AND CREDITS IN THE BA NK ACCOUNT. HOWEVER, THE LD. A.R. COULD NOT SUPPORT HIS ARGUMENTS WITH R ELEVANT EVIDENCES TO SHOW THAT THE CHEQUES ISSUED IN FAVOUR OF THIRD PAR TIES WERE PLOUGHED BACK TO THE UNDISCLOSED BANK ACCOUNT OF THE ASSESSE E AND THE ASSESSEE ALSO FAILED TO ESTABLISH THAT THE STOCKS AND GOODS PURCHASED BY ISSUE OF CHEQUES IN THE NAMES OF VARIOUS PARTIES WERE ACCOUN TED IN THE REGULAR BOOKS OF ACCOUNTS. SINCE THE ASSESSEE FAILED TO EST ABLISH THAT WITHDRAWALS MADE BY CHEQUES IN THE NAME OF THIRD PA RTIES WERE BROUGHT BACK TO THE ACCOUNT, CONTENTION OF THE LD. A.R., FO R ARRIVING THE PEAK CREDIT BALANCE THE ENTIRE DEBITS AND CREDITS REQUIR ED TO BE CONSIDERED IS UNTENABLE. IN THE ABSENCE OF ANY EVIDENCE TO SHOW THAT PAYMENTS MADE TO THIRD PARTIES WERE BROUGHT BACK TO THE UNDI SCLOSED ACCOUNT AND THE RESULTANT CASH WAS CIRCULATED, ONLY THE CASH WI THDRAWALS CASH ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 6 DEPOSITS AND UNEXPLAINED CREDITS SHOULD BE CONSIDER ED FOR ARRIVING THE PEAK CREDIT BALANCE. 6.2 THERE IS NO DISPUTE THAT THE PEAK CREDIT OF TH E UNDISCLOSED BANK ACCOUNT REQUIRED TO BE BROUGHT TO TAX. THIS ISSUE HAS BEEN ACCEPTED BY BOTH THE PARTIES. THE LD. CIT(A) HAS DIRECTED THE A.O. TO ADOPT PEAK CREDIT OF ` 5.00 LAKHS AS AGAINST A SUM OF ` 50,89,252/- WORKED OUT BY THE A.O. AND THE LD.CIT(A) HAS NOT GIVEN THE DETAIL ED WORKING FOR ARRIVING THE PEAK CREDIT BALANCE. HOWEVER, AS OBSE RVED FROM THE ORDER OF THE LD. CIT(A), THERE IS CREDIT FOR CLOSURE OF D EPOSITS MADE IN THE ACCOUNT ON 5.3.2007 WHICH WAS ALSO INCLUDED FOR ARR IVING THE PEAK BALANCE. IT IS NOT EXPLAINED WHETHER THE SOURCES O F DEPOSITS WERE DISCLOSED OR NOT IN THE REGULAR BOOKS OF ACCOUNTS. THEREFORE, WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR MAKING THE ADDITION OF PEAK CREDIT BALANCE, WE DIRECT THE A.O. TO WORK OUT THE PEAK CREDIT BALANCE CORRECTLY, TAKING INTO THE ACCOUNT OF THE C ASH DEPOSITS, CASH WITHDRAWALS AND THE UNEXPLAINED UNDISCLOSED ENTRIES IN THE BANK ACCOUNT. ACCORDINGLY, WE SET ASIDE THE ORDER OF TH E LD. CIT(A) AND REMIT THE ISSUE BACK TO THE FILE OF THE A.O. TO REW ORK THE PEAK CREDIT BALANCE CORRECTLY. NEEDLESS TO SAY, THAT THE A.O. SHOULD GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE BEFORE COMPLETING THE A SSESSMENT. ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 7 ACCORDINGLY, THE APPEAL OF THE REVENUE ON THIS GROU ND IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE ASSESSEE ALSO FILED CROSS OBJECTIONS SUPPORT ING THE ORDER OF THE LD.CIT(A). SINCE WE HAVE CONFIRMED THE ACTION OF THE AO IN THE APPEAL OF THE REVENUE WITH REGARD TO THE ADDITION O F PEAK CREDIT BALANCE AND REMITTED THE MATTER BACK TO THE FILE OF THE AO TO REWORK THE PEAK CREDIT BALANCE CORRECTLY WE CONSIDER IT IS NOT NECE SSARY TO ADJUDICATE CROSS OBJECTION SEPARATELY. ACCORDINGLY, THE CROSS OBJECTION STANDS ALLOWED FOR STATISTICAL PURPOSES. 8. THE NEXT ISSUE IN THIS CASE IS ESTIMATION OF GRO SS PROFIT ON UNACCOUNTED PURCHASES. THE A.O. FOUND THAT THE ASS ESSEE HAS MADE THE PURCHASES OF ` 60,86,864/- THROUGH VARIOUS PARTIES THROUGH THE SAME BANK ACCOUNT OF ICICI BANK, AND THE A.O. HAS E STIMATED THE GROSS PROFIT @ 40.25% ON THE TURNOVER AMOUNTING TO ` 60,86,864/- AND BROUGHT TO TAX THE AMOUNT OF ` 24,49,962/-. THE LD. CIT(A) RESTRICTED THE ADDITION TO 15% OF GROSS PROFIT ON UNACCOUNTED PURCHASES WHICH WORKED OUT TO ` 9,39,029/-. 9. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E HAS FILED THE APPEAL AND THE ASSESSEE HAS FILED THE CROSS OBJECTI ONS. DURING THE APPEAL HEARING, THE LD. D.R. ARGUED THAT ESTIMATION OF INCOME @ ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 8 40.25% IS REASONABLE SINCE NO OTHER EVIDENCE IS PRO DUCED FOR EXPENDITURE INCURRED. FURTHER THE LD. DR ARGUED THA T THE ENTIRE BUSINESS EXPENDITURE WAS ACCOUNTED IN THE REGULAR BOOKS OF A CCOUNTS AND NOTHING REMAINED TO BE BOOKED. 10. ON THE OTHER HAND, THE LD. A.R. SUBMITTED THAT THE ESTIMATION OF INCOME @ 15% IS HIGHLY UNREASONABLE AND REQUESTED T O ESTIMATE THE REASONABLE PROFIT. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ASSESSEE HAD ISSUED CHEQUES ON VARIOUS PARTIES TOWA RDS PURCHASE OF COPRA AND NEITHER DISCLOSED THE SALES NOR THE PROFI T. THE A.O. HAD ESTIMATED THE GROSS PROFIT @ 40.25% ON ENTIRE PURCH ASES TAKING THE CUE FROM THE LD. CITS ORDER U/S 263 OF THE ACT IN ASSE SSEES OWN CASE FOR THE A.Y.2009-10. HOWEVER, THE A.O. HAS NOT BROUGHT ON RECORD ANY COMPARABLE CASES OF OTHERS OR THE ASSESSEES OWN CA SE IN THE EARLIER YEARS FOR RESORTING FOR ESTIMATION OF INCOME @ 40.2 5%. WHEREAS, THE CIT(A) HAS CONSIDERED THE COMPARABLE CASES AND OBSE RVED THAT THE RATE OF GROSS PROFIT FROM COPRA WAS RANGING FROM 4.68% T O 13.25% IN REGULAR CASES WHERE THE PURCHASES AND SALES WERE ACCOUNTED AND ACCORDINGLY, SUSTAINED GROSS PROFIT ESTIMATION @ 15% OF UNACCOUN TED PURCHASES. NO ITA NO.294 /VIZAG/2017 SRI PYDIMARRI VENKATA NAGA SURESH KUMAR, VIJAYAWADA 9 OTHER EVIDENCE WAS BROUGHT ON RECORD BY THE LD. D.R . AND THE A.R. TO CONTROVERT THE FINDING GIVEN BY THE LD. CIT(A) TO E STABLISH THAT THE INCOME FROM UNACCOUNTED PURCHASES IS LESS THAN 15%. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE AS WELL AS THE CR OSS OBJECTION OF THE ASSESSEE ON THIS ISSUE. 12. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE A ND CROSS OBJECTION FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATIS TICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11 TH JUL18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 11.07.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-1(3), VIJAYAWADA 2. / THE RESPONDENT SRI PYDIMARRI VENKATA NAGA SURE SH KUMAR, PROP. SRI MADHAVI ENTERPRISES, SHOP NO.223, M.G.W. COMMERCIAL COMPLEX, GOLLAPUDI, VIJAYAWADA. 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM