M.Srinivasa Rao, Srikakulam V. THE ITO, Srikakulam

ITA 32/VIZ/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1122 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 12-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Keywords: Unexplained investment
• Section: 69

Judgement Text

ITA NO.32/VIZAG/2015 AY: 2011-12 SHRI M.SRINIVASA RAO, SRIKAKULAM 1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 32/VIZAG/2015 ASSESSMENT YEAR: 2011-12 SHRI M.SRINIVASA RAO VS. THE ITO, WARD 1 SRIKAKULAM SRIKAKULAM (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI G V N HARI, ADV. REVENUE BY: SHRI D. MANOJ KUMAR, SR. DR DATE OF HEARING : 05.03.2015 DATE OF PRONOUNCEMENT : 22.05.2015 ORDER PER J.SUDHAKAR. REDDY : - THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX-2, VISAKHAPATNAM DATE D 23.12.2014 FOR THE A.Y. 2011-12. 2. FACTS IN BRIEF . THE ASSESSEE IS PROPRIETOR OF M/S RINISHA BEER & WINES AND HAS CARRIED ON BUSINESS IN PURCHASE AND SALE OF INDI AN MADE FOREIGN LIQUOR IN SRIKAKULAM DISTRICT. FOR THE AY 2010-11 HE FILED R ETURN OF INCOME DECLARING AN INCOME OF RS.4,96,713/- THROUGH E-FILING ON 17.9.20 11. THE CASE WAS PICKED UP FOR SCRUTINY AND THE AO VIDE HIS ORDER DATED 21.02. 2014 DETERMINED TOTAL INCOME AT RS. 31,72,312/-, INTER-ALIA, MAKING THE FOLLOWIN G ADDITIONS: 1. ESTIMATION OF INCOME OF RS.25,78,830/- @ 20% OF THE STOCK PUT TO SALE; 2. UNEXPLAINED INVESTMENT OF RS. 5,63,340/-; 3. INTEREST ON FDR OF RS. 30,142/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL. 3. THE FIRST APPELLATE AUTHORITY GRANTED PART RELIE F. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS: ITA 32/VIZAG/2015 AY: 2011-12 SHRI M.SRINIVASA RAO, SRIKAKULAM 2 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND ALSO THE LAW APPLICABLE T O THE FACTS OF THE CASE; 2. THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT; 3. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(APPEALS ) IS NOT JUSTIFIED IN ESTIMATING THE NET PROFIT @ 10% OF PURCHASE PRICE A S AGAINST NET PROFIT OF 5% OF COST OF GOODS SOLD AS DETERMINED BY THE HONB LE ITAT, VISAKHAPATNAM AND HYDERABAD BENCHES; 4. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(APPEALS ) IS NOT JUSTIFIED IN ESTIMATING THE NET PROFIT @ 10% OF PURCHASE PRICE A S AGAINST NET PROFIT OF 5% OF COST OF GOODS SOLD; 5. THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ADDITIONS OF RS. 5,63,340 MADE BY THE AO TOWARDS UNEXPLAINED INVEST MENT; 6. THE LD. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ENTIRE INVESTMENT WAS RECORDED IN THE BOOKS OF ACCOUNT AND HENCE CANNOT BE TERMED AS UNEXPLAINED INVESTMENT. 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF A PPEAL HEARING. 4. WE HAVE HEARD SHRI G V N HARI, LD. COUNSEL FOR T HE ASSESSEE AND SHRI D. MANOJ KUMAR, LD. DR ON BEHALF OF THE REVENUE. 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS: 1. THERE ARE TWO ISSUES THAT ARE AGITATED BEFORE US. THESE ARE : A) ESTIMATION OF NET PROFIT @10% OF THE PURCHASE PRICE , AS AGAINST NET PROFIT OF 5% OF THE COST OF GOODS SOLD; B) ADDITION OF RS. 5,63,340/- U/S 69 OF THE ACT, WHEN THE EXPENDITURE IN QUESTION HAS BEEN RECORDED IN THE BOOKS OF ACCOUNT. 6. AS FAR AS ESTIMATION OF NET PROFIT IS CONCERNED THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF T. APPALASWAMY VS. ACIT (IT A NO. 65 & 66/VIZ/2012) ORDER DATED 3.3.2014 AT PARA 3 HELD AS FOLLOWS: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDER S OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. IT IS THE CONTENTION OF THE LD. AR 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. DR SUPPORTED THE ORDER OF THE CIT(A). HAVING C ONSIDERED 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./2012 AND OTHERS DATED 18.05.2012 AS WELL AS A NUMBER OF OTHER CASES HAVE HELD THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FORE IGN 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 AO TO ESTIMATE T HE PROFIT FROM THE WINE BUSINESS OF THE ASSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE ITA 32/VIZAG/2015 AY: 2011-12 SHRI M.SRINIVASA RAO, SRIKAKULAM 3 NET OF ALL OTHER DEDUCTIONS. THE AO SHOULD ALSO BE AR IN MIND THAT IN NO CASE THE INCOME DETERMINED SHOULD BE BELOW THE INCO ME RETURNED. 7. THIS DECISION WAS FOLLOWED IN NUMBER OF CASES IN CLUDING ITA NO. 563/VIZ/2014 IN THE CASE OF U VENKATA NEELADRI RAJU VS. ITO, RAJAHMUNDRY ORDER DATED 26.09.2014. 8. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE DIREC T THE AO TO ESTIMATE THE PROFIT FROM IMFL BUSINESS BY ADOPTING THE RATE OF 5% ON THE COST OF SALES. 9. GROUND NOS. 6 AND 7 DISPUTE THE ADDITION OF RS.5 ,63,340/- CONFIRMED BY THE LD.CIT(A). 10. SHRI GVN HARI, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION IN QUESTION WAS MADE U/S 69 OF THE ACT AND AS THE ASSE SSEE HAD MAINTAINED REGULAR BOOKS OF ACCOUNTS AND HAD RECORDED THE EXPENDITURE IN I TS BOOKS, NO ADDITION CAN BE MADE U/ 69 OF THE ACT. 11. SRI D.MANOJ KUMAR, LD.SR.D.R. OPPOSED THE CONTE NTIONS OF THE ASSESSEE BY SUBMITTING THAT, THE AO HAS RECORDED THAT THE EXP ENDITURE IN QUESTION WAS INCURRED BEFORE THE COMMENCEMENT OF BUSINESS AND THAT THE S AME WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS. HE REFERRED TO THE ORDER OF THE FIRST APPELLATE AUTHORITY AND RELIED ON THE SAME AND SUBMITTED THAT THE ADDITION HAS TO BE SUSTAINED. 12. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT TH E AO HAS IN PARA 5 PAGE 3 OF HIS ORDER HAS CLEARLY RECORDED THAT THE INTRODUCTION O F CASH INTO THE CAPITAL ACCOUNT OF THE ASSESSEE WAS NOT PROVED BY HIM. HE FURTHER RECORDE D THAT THESE ENTRIES ARE NOT ROOTED THROUGH THE BOOKS OF ACCOUNTS AS THE EXPENDITUR E IN QUESTION WAS INCURRED PRIOR TO COMMENCEMENT OF BUSINESS. THE FIRST APPELLATE AU THORITY HAS AT PARA 5.3 HELD AS FOLLOWS. 5.3. I HAVE CONSIDERED THE SUBMISSIONS. IT IS SEEN THAT THE ASSESSEE DID NOT ADDUCE SATISFACTORY EVIDENCE TO EXPLAIN THE SO URCES FOR THE INITIAL EXPENDITURE INCURRED TO THE TUNE OF RS.5,63,340/-. THE SOU RCE FOR CASH CONTRIBUTION IN THE CAPITAL ACCOUNT WAS NOT PROVED. EVEN DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE COULD NOT FURNISH ANY SATISFACTO RY EXPLANATION TO CONTROVERT SUCH FINDINGS OF THE AO. THE ONLY PLEA RAISED WAS TH AT THE ADDITION SHOULD NOT HAVE ITA 32/VIZAG/2015 AY: 2011-12 SHRI M.SRINIVASA RAO, SRIKAKULAM 4 BEEN MADE U/S 69. SUCH A PLEA WAS ONLY HYPER TECHNICAL AND IS NOT TENABLE AS THERE IS NO REFERENCE IN THE IMPUGNED ORD ER THAT THE IMPUGNED ADDITION WAS MADE U/S 69. THE INDISPUTABLE FACT REMAIN S THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE CREDITS WITH REFERENCE TO WHICH T HE EXPENDITURE TO THE TUNE OF RS.5,63,340/- WAS SOUGHT TO BE EXPLAINED AND THUS THE SOURCE FOR SUCH EXPENDITURE REMAINS UNEXPLAINED. ACCORDINGL Y THE IMPUGNED ADDITION OF RS.5,63,340/- IS CONFIRMED. 13. AS THE ASSESSEE COULD NOT EXPLAIN THE C REDITS WITH REFERENCE TO THE EXPENDITURE INCURRED THE ADDITION HAS BEEN CONFI RMED BY THE LD.CIT(A). THUS, THE ARGUMENTS OF THE LD.COUNSEL FOR TH E ASSESSEE IS DEVOID OF MERIT. IN THE RESULT WE UPHOLD THE ORDER O F THE FIRST APPELLATE AUTHORITY AND DISMISS GROUND NOS. 5 AND 6 OF THE ASSESSEE. 14. GROUND NO.7 IS GENERAL IN NATURE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. PRONOUNCED IN THE OPEN COURT ON 22.05.2015. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 ND MAY, 2015 MANGA COPY TO 1 APPELLANT 2 RESPONDENT 3 THE CIT, VISAKHAPATNAM 4 THE CIT(A), VISAKHAPATNAM. 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER ASSISTANT REGISTRAR