Gopal Reddy Kolan, Hyderabad V. Income Tax Officer, Ward-6(3), Hyderabad

ITA 339/Hyd/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7458 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 03-01-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 19-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NILANJAN DEY
• Assessee Lawyers: D SATYANARAYANA
• Keywords: Gross profit estimation; Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 339 /HYD/201 8 ASSESSMENT YEAR: 20 1 4 - 15 GOPAL REDDY KOLAN , HYDERABAD. PAN A KOPK 1925A VS. INCOME - TAX OFFICER, W ARD 6( 3 ) , HYDERABAD. ( APPELLANT ) (RESPONDENT) ASSESSEE BY : SHRI D. SATYANARAYANA REVENUE BY : S HRI NILANJAN DEY DATE OF HEARING : 0 3 / 0 1 /201 9 DATE OF PRONOUNCEMENT : 11 / 0 1 / 201 9 O R D E R PER S . RIFAUR RAHMAN , A .M. : T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) 6 , HYDERABAD , DATED 0 1 / 1 1 /201 7 FOR AY 20 1 4 - 15 . 2 . BRIEF FACTS OF THE CASE ARE, THE ASSESSEE , AN INDIVIDUAL CARRYING ON TRADING IN LIQUOR , IN THE NAME AND STYLE OF M/S SREE GANESH WINES , FILED HIS RETURN OF INCOME FOR THE AY 2014 - 15 ON 31 /0 8 /2014 ADMITTING INCOME OF RS. 16,80,380 / - . THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) BY ESTIMATING NET PROFIT AT 5% ON COST OF SALES OF RS. 11,88,50,022 / - WHICH AMOUNTED TO RS. 59,42,501/ - AGAINST THE INCOME ADMITTED BY THE ASSESSEE. 2 .1 D URING THE COURSE OF ASSESSME NT PROCEEDINGS, THE AO ASKED THE ASSESSEE T O PRODUCE SALE BILLS, PURCHASE LEDGERS ALONG WITH EXPLANATION FOR LOW GROSS PROFITS RATE OF 11.57% DISCLOSED IN THE 2 ITA NO. 339 /HYD/1 7 GOPAL REDDY KOLAN, HYD. RETURN OF INCOME AS AGAINST THE GROSS PROFIT MARGIN OF RETAILERS FIXED BY THE GOVERNMENT AT 24%. IN RESPONSE THERETO, THE ASSESSEE REQUESTED TO ADOPT THE NET PROFIT RATE @3% OF THE COST OF GOODS PUT TO SALE. AS SUCH, THE AO GAVE A FINDING OF FACT THAT THE ASSESSEE WAS NOT MAINTAINING PROPER BOOKS OF ACCOUNT WITH REGARD TO SALES TURNOVER REFLECTED IN THE TRADING AND PROFIT & LOSS ACCOUNT FILED ALONG WITH THE RETURN OF INCOME. ALSO, THE ASSESSEE COULD NOT GIVE PLAUSIBLE EXPLANATION WITH REGARD TO LOW GROSS PROFIT MARGIN. IN VIEW OF THIS, THE AO RESORTED TO ESTIMATION OF NET PROFIT @5% OF THE COST OF GOODS PUT TO SALE. 3 . WHEN THE ASSESSEE PREFER RED AN APPEAL BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE ACTION OF AO. 5 . AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1) THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. 2) THE LEARNED CIT (A) ERRED IN CONFIRMING THE ESTIMATION OF INCOME AT 5% OF THE COST OF LIQUOR SALES EFFECTED BY THE APPELLANT. 3) THE LEARNED CIT (A) OUT TO HAVE SEEN THAT THE INCOME ESTIMATED AT 5% IS UNREASONABLE AND IS TOO HIGH BASED ON THE SITUATION EXPLAINED. 4) ANY OTHER GROUND OR GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 6 . BEFORE US, LD. AR OF THE ASSESSEE FILED WRITTEN SUBMISSIONS WHEREIN IT WAS STATED THAT THAT THE TOTAL SALES AMOUNTED TO RS. 1 3,43,80,309/ WHEREAS EXCISE FEE, LICENCE FEE PAID WAS RS.1,04,00,000/ - , WHICH WORKS OUT TO ABOUT 8% OF THE SALES OR 9% OF THE PURCHASE PRICE. THE MAXIMUM TOTAL GROS S PROFIT ON SALE OF LIQUOR IS ABOUT 15% AND IF 8% TOWARDS FEE IS DEDUCTED, THE BALANCE WOULD BE ABOUT 7%. FURTHER, IT WAS STATED THAT T HE A SSESSEE INCURRED 3 ITA NO. 339 /HYD/1 7 GOPAL REDDY KOLAN, HYD. EXPENDITURE ON SALARIES, FREIGHT AND OTHER ITEMS WHICH ARE NECESSARY FOR CARRYING ON THE BUSINESS AC TIVITY. THEREFORE, THE PERCENTAGE OF PROFIT ADOPTED BY THE ASSESSING OFFICER IS TOO HIGH. IT WAS STATED THAT THE AP HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME - TAX VI, HYDERABAD VS. SRI KAMLEKAR SHANKAR LAL, HELD THAT AT A RATE OF 3% IS REASONABLE , A COPY OF WHICH IS FILED ON RECORD. FURTHER, THE LD. AR OF THE ASSESSEE RELIED ON VARIOUS CASES OF ITAT, HYDERABAD. 7 . LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 8 . CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. T HE COORDINATE BENCHES OF THIS TRIBUNAL CONSISTENTLY TAKING A VIEW THAT ESTIMATION OF INCOME AT 3% OF THE COST OF THE GOODS SOLD IS REASONABLE IN THIS LINE OF BUSINESS. IN THE CASE OF SRI VENKATESWARA WINES IN ITA NO. 1206/HYD/2015, DATED 27/11/2015 FOR AY 2011 - 12, THE COORDINATE BENCH HAS HELD AS UNDER: 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT AND THEREFORE, THE ESTIMATION OF INCOME IS JUSTIFIED. IT IS ONLY THE RATE AT WHICH THE INCOME IS TO BE ESTIMATED IS BEFORE US. A.O. HAS ESTIMATED THE INCOME AT 5% OF THE COST OF GOODS SOLD, WHILE THE ASSESSEE IS SEEKING THE ESTIMATION AT 3% OF THE COST OF GOODS SOLD. WE FIND THAT IN THE CASE OF VENKATESWARA WINES, NIZAMABAD (SUPRA), THE COORDINATE BENCH OF THIS TRIBUNAL HAS TAKEN NOTE OF THE DECISION OF HON'BLE HIGH COURT OF TELANGANA AND ANDHRA PRADESH IN ITA.NO. 1198/HYD/2015 SAI VENKATESWARA WINES, SECUNDERABAD THE CASE OF CIT VS. KAMLEKAR SHANKAR LAL (SUPRA) TO HOLD AS UNDER : '6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE AO HAS CALLED FOR BOOKS OF ACCOUNT OF THE ASSESSEE BUT THE ASSESSEE HAD FAILED TO PRODUCE THE SAME. THEREFORE, AO HAD ESTIMATED THE INCOME OF THE' ASSESSEE AT 2.5% OF THE TURNOVER. THE CIT WANTS THE SAME TO BE ESTIMATED AT 5% OF T HE TOTAL TURNOVER BECAUSE THE TRIBUNAL IN THE CASE OF AN ASSESSEE CARRYING ON THE SAME BUSINESS OF SALE OF IMFL HAS ESTIMATED THE INCOME AT 5% OF THE TURNOVER. THIS, IN OUR VIEW, IS NOT JUSTIFIED AS HELD BY THE COORDINATE BENCH OF THIS TRIBUNAL. THE UNIFOR M NET PROFIT CANNOT BE ADOPTED IN EACH AND EVERY CASE OF SIMILAR BUSINESS. ESTIMATION OF NET PROFIT MUST BE ON THE BASIS OF FACTS INVOLVED IN EACH AND EVERY CASE. THEREFORE, IN OUR VIEW, THERE 4 ITA NO. 339 /HYD/1 7 GOPAL REDDY KOLAN, HYD. IS NO ERROR COMMITTED BY THE AU IN ESTIMATING THE PROFIT AT 2.5 % OF THE TOTAL TURNOVER. THUS GROUNDS OF APPEAL NO.2 & 3 ARE ALLOWED.' THEREFORE, WE DIRECT THE AO TO ADOPT 3% OF THE COST OF GOODS OF LIQUOR SOLD AS THE INCOME OF THE ASSESSEE. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY , 201 9 . SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 11 TH JANUARY , 201 9 KV C OPY TO: - 1) SHRI GOPAL REDDY KOLAN , 7 - 2 - 460/SRT/80, SANATH NAGAR, HYD. 2) ITO, WARD 6 ( 3 ) , IT TOWERS, AC GUARDS, HYDERABAD. 3) CIT(A) 6, HYDERABAD. 4) PR. CIT - 6 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE