K.L.Prasada Rao, Visakhapatnam V. THE ITO, Srikakulam

ITA 34/VIZ/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6499 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 14-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C DAS
• Keywords: Gross profit estimation; Unexplained investment; Additional evidence
• Section: 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI D. MANMOHAN , VICE - PRESIDENT ITA NO. 3 4 / VIZ /201 5 (ASST. YEAR : 20 11 - 12 ) K.L. PRASADA RAO, D.NO. 11 - 5 - 26, KALINGA ROAD, SRIKAKULAM. VS. IT O , WARD - 1 , SRIKAKULAM . PAN NO. AKRPK 5500 A (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. SUBRAHMANYAM - FCA DEPARTMENT BY : SHRI K.C. DAS SR. DR DATE OF HEARING : 04 / 12 /201 7 . DATE OF PRONOUNCEMENT : 06 / 12 /201 7 . O R D E R THIS APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE LD.CIT(A), VISAKHAPATNAM AND IT PERTAINS TO ASSESSMENT YEAR 2011 - 12 . 2. ESTIMATION OF INCOME O N SALE O F IMFL AND ADDITION TOWARDS UNEXPLAINED INVESTMENT ARE THE ISSUES IN DISPUTE BEFORE THE TRIBUNAL. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF IMFL. FOR THE YEAR UNDER CONSIDERATION , ASSESSEE DECLARED TOTAL INCOME OF RS. 5,94,023/ - . THOUGH, RETURN WAS ORIGINALLY 2 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) PROCESSED UNDER SECTION 143(1) OF THE ACT, THE SAME WAS REOPENED SUBSEQUENTLY , SINCE THE MATTER WAS SELECTED FOR SCRUTINY. DURING TH E COURSE OF HEARING, IT WAS NOTICE D THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF STONE CRUSHING AND ALSO CARRIED ON BUSINESS OF PURCHASE OF IMFL FROM ANDHRA PRADESH BEVERAGES CORPORATION LTD. IN RESPECT OF IMFL PRODUCTS. AS PER THE RECORDS, THE ASSESSEE MADE PURCHASE S OF QUANTITY WORTH RS.1,37,23,908/ - . THE ASSESSEE ADMITTED SALES OF RS.1,87,61,260/ - . A GAINST THE SALE S, INCOME OF RS. 4,41,263/ - WAS OFFERED TO TAX , WHICH WORKS OUT TO NET PROFIT RATE OF 2.3% . 4. SINCE THE PROFIT DECLARED FROM BUSINESS OF IMFL IS TOO LOW, THE ASSESSEE WAS CALLED UPON TO JUSTIFY THE CLAIM OF DERIVING SUCH A LOW PROFIT , WITH THE HELP OF BOOKS OF ACCOUNT, SALE BILLS AND VOUCHERS ETC. ADMITTEDLY, THE ASSESSEE DID NOT MAINTAIN ANY STOCK REGISTER , AND T HE SALE BILLS MAINTAINED DID NOT CONTAIN QUANTITATIVE AND QUALITATIVE DETAILS. UNDER THESE CIRCUMSTANCES, THE ASSESSING OFFICER REJECTED THE BOOK RESULTS AND ESTIMATED THE NET PROFIT AT 20% ON STOCK PUT TO SALE. 5 . THE ASSESSEE TRIED TO JUSTIFY LOW GROSS PROFIT BY CONTENDING THAT IN THE YEAR UNDER CONSIDERATION, THE VOLUME OF SALE IS MORE LEAVING RS. 1,23,768/ - AS CLOSING STOCK . THE GROSS PROFIT RATE 3 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) VARIES DEPENDING UPON THE BRANDS AND HENCE, NET PROFIT ESTIMATION AT 20% IS ON HIGHER SIDE SINCE THE ASSESSEE HAS TO SPEN D FOR ADMINISTRATIVE COSTS IN ADDITION TO THE LICENCE FEE PAID TO APBCL WHICH IS MAJOR EXPENDITURE. 6 . THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT LOW PROFIT DECLARED IS NOT SUBSTANTIATED WITH PROPER MATERIAL. IN THIS REGARD, ASSESSING OFFICER OBSERVED THAT IMFL IS A SELLER S MARKET ; THOUGH MRP IS FIXED BY THE GOVERNMENT AND THE DEALERS HAVE ALWAYS SOLD THE LIQUOR AT A PRICE SUBSTANTIALLY HIGHER THAN MRP , GOING BY THE MEDIA REPORTS. ON SPECIAL DAYS AND FESTIVE OCCASIONS, THE SALE RATE WOULD BE HIGHER AND THUS, ASSESSING OFFICER TREATED THAT IT IS A FIT CASE FOR ESTIMATING PROFIT AT 20%. 7 . DURING THE YEAR , THE ASSESSEE PAID LICENCE FEE OF RS. 44,23,125/ - BESIDES PRE - PAID LICENCE OF RS. 14,77,375/ - . THE TOTAL LICENCE FEE, THUS WORKS OUT TO RS. 59,09,500/ - , WHICH WAS PAID IN INSTALMENTS. O UT OF WHICH , AN INVESTMENT OF RS.7,92,954/ - WAS NOT PROPERLY EXPLAINED WITH REGARD TO SOURCE. THEREFORE, THE ADDITION OF RS. 7,92,954/ - WAS MADE BY OBSERVING AS UNDER: - 5. DURING THE YEAR THE ASSESSEE CLAIMED TO HAVE PAID LICENCE FEE OF RS. 44,32,125/ - BESIDES PRE PAID LICENCE OF RS. 14,77,375/ - . THUS, THE TOTAL LICENCE FEE PAID WAS RS. 59,09,500/ - . OUT OF THIS, THE FIRST INSTALLMENT OF LICENCE FEE WAS RS.19,69,833/ - BEING 1/3 OF THE TOTAL AMOUNT. 4 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) BESIDES THIS, HE HAS ALSO MADE INVESTMENT TOWARDS FDR OF RS.5,91,000/ - AND 1ST PURCHASE OF RS. 3,00,000/ - AND 8G COMMISSION OF RS. 3,21,681/ - . THUS, THE TOTAL INVE STMENT MADE DURING THE MONTH OF JUNE, 2010 BEFORE THE COMMENCEMENT OF THE BUSINESS COMES TO RS. 31,23,549/ - . THE ASSESSEE CLAIMED THAT HE IS ASSESSED TO TAX REGULARLY AND BESIDES WINE BUSINESS, HE HAS ALSO CARRIED CRUSHER BUSINESS. HE FURTHER STATED THAT H E HAS USED CERTAIN AMOUNTS FROM HIS CRUSHER BUSINESS ALSO FOR THE PURPOSE INVESTMENT IN THE WINE BUSINESS. HE THEREFORE, FILED A CASH FLOW STATEMENT TO PROVE CERTAIN AMOUNTS RELATING TO CRUSHER BUSINESS WERE ALSO USED. SUCH AMOUNT WAS ARRIVED AT RS. 29,73, 195/ - AS CASH ON HAND AVAILABLE WHICH HE SOUGHT CREDIT FROM THE ABOVE INVESTMENT. ON VERIFICATION OF THE CASH FLOW STATEMENT IT IS FOUND THAT AMONG OTHER AMOUNTS, HE CLAIMED AN AMOUNT OF RS. 6,42,600/ - AS AMOUNTS RECEIVED BY WAY OF MISC. ADVANCES FROM FRIE NDS /WELL WISHERS TO SUBMIT WINE BIDDING. EXCEPT STATING SO HE COULD NOT FURNISH ANY DETAILS WHATSOEVER TO PROVE SUCH CREDITS. THEREFORE, NO CREDENCE COULD BE GIVEN TO THIS CLAIM AND AFTER ALLOWING CREDIT FOR AN AMOUNT OF RS. 23,30,595/ - AS CASH AVAILABLE, THE BALANCE INVESTMENT TO BE EXPLAINED WORKS OUT TO RS. 7,92,954/ - (RS.31,23,549 - RS. 23,30,595) FOR WHICH NO EXPLANATION COULD BE OFFERED BY THE ASSESSEE FROM THE SOURCES INVESTED. HENCE, THE AMOUNT OF RS.7,92,954/ - IS TREATED AS ASSESSEE'S UNEXPLAINED INCOME AND ADDED UNDER THE HEAD INCOME FROM OTHER SOURCES. ASSESSMENT WAS , ACCORDINGLY , COMPUTED ON A TOTAL TAXABLE INCOME OF RS. 37,51,49 0 / - . 8 . AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT THERE IS A DIFFERENCE IN ARRACK BUSINESS AND INDIAN MADE FOREIGN LIQUOR . IN THE CASE OF COUNTRY LIQUOR, THE SELLER CAN FIX THE PRICE ACCORDING TO THE DEMAND IN THE MARKET , WHEREAS IN IMFL THE MRP IS FIXED BY THE GOVERNMENT AND ALL EXPENSES SUCH AS, LICENCE FEE, SALARIES, SHOP RENTS AND OTHER MISCELLANEOUS EXPENSES HAVE TO BE 5 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) BORNE BY THE DEALER LEAVING NET PROFIT OF 2% TO 3% ONLY. HE RELIED UPON SEVERAL DECISIONS OF THE ITAT, VISAKHAPATNAM BENCH IN SUPPORT OF HIS PLEA THAT NET PROFIT RATE OF 3% , IN THIS LINE OF BUSINESS , IS REASONABLE. 9 . SIMILARLY, WITH REGARD TO ADDITION OF RS. 7,92,954/ - , THE MAIN CONTENTION OF THE ASSESSEE IS THAT WHEN BOOKS ARE REJECTED, TH E RE CANNOT BE ANY SEPARATE ADDITION TOWARDS UNPROVED CASH CREDITS. IN THIS REGARD, HE PLACED R ELIANCE ON THE DECISION OF THE JURIS DICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT (232 ITR 776) AND ALSO THE DECISION IN THE CASE OF MADDI SUDARSHANAM OIL MILLS CO. VS. CIT (37 ITR 369) . 10 . THE LD. CIT(A) OBSERVED THAT THERE IS A RAMPANT PRACTICE OF SALE OF LIQUOR ABOVE THE MRP WHICH WAS RIGHTLY TAKEN INTO CONSIDERATION BY THE A.O. H OWEVER, PROFIT ESTIMATED 20% WAS FOUND TO BE EXCESSIVE AND THUS ESTIMATED THE PROFIT AT 10% OF PURCHASE PRICE . 11 . AS REGARDS UNEXPLAINED INVESTMENT, THE LD. CIT(A) OBSERVED THAT THE ASSESSI NG OFFICER IS NOT PRECLUDED FROM TREATING THE AMOUNTS OF CREDIT ENTRIES AS INCOME FROM UNDISCLOSED SOURCE , MERELY BECAUSE INCOME WAS COMPUTED ON PERCENTAGE BASIS . SINCE 6 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) ASSESSEE COULD NOT PROVE THE SOURCE OF RS. 7,92,954/ - , THE ADDITION MADE BY THE ASSESS ING OFFICER WAS CONFIRMED. 12 . FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING , IN ALL , 7 GROUNDS. 13 . LD. C OUNSEL SUBMITTED THAT ESTIMATE OF INCOME AT 10% IS HIGHER AND RELIED UPON THE DECISIONS OF THE ITAT, VISAKHAPATNAM BENCH IN THE CASE OF MEKA RAMAMURTHY IN ITA NO.66/VIZAG/2016 TO SUBMIT THAT PROFIT RATE OF 5% , IN THIS LINE OF BUSINESS , CLEAR OF ALL DEDUCTIONS , IS REASONABLE. 14 . AS REGARDS ADDITION OF RS. 7,92,954/ - , LD. C OUNSEL FILED A DETAILED PAPER BOOK CONSISTING OF CONFIRMATION LETTERS FROM 56 PERSONS AND REQUESTED FOR ADMISSION OF ADDITIONAL EVIDENCE. 15 . THE CONTENTION OF THE ASSESSEE IS THAT THE LOANS WERE BORROWED FROM SEVERAL PARTIES, BUT COLLECTING CONFIRMATION LETTERS FROM ALL THE PERSONS IS TIME CONSUMING JOB . H ENCE, IT COULD NOT BE PLACED BEFORE THE TAX AUTHORITIES. IT MAY BE NOTICED THAT M OST OF THEM ARE NOT TAX ASSESSEES AND THE Y ARE CLAIMED TO BE PETTY VEGETABLE VENDORS AND DAILY LABOURERS ETC., WHO WOULD NOT HAVE BEEN IN A POSITION TO GIVE LOANS. 7 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) 16 . LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THIS ADDITIONAL EVIDENCE NEED NOT BE ADMITTED AT THIS STAGE , SINCE IT IS VERY DIF FICULT EVEN TO CROSS VERIFY , S INCE IT WAS FILED FOR THE FIRST TIME AND EVEN THE CONFIRMATION LETTERS DO NOT PROVE THEIR CREDITWORTHINESS. 17 . I HAVE CONSIDERED THE RIVAL SUBMISSION S AND CAREFULLY PERUSED THE RECORDS. 18 . IN IMFL BUSINESS, FEW NEWSPAPERS HAVE NO DOUBT MENTIONED ABOUT CONSIDERED SALE OF LIQUOR AT A HIGHER PRICE I.E. AT A PRICE HIGHER THAN THE RATE FIXED BY THE GOVERNMENT, BUT THE FACT REMAINS THAT IN THE ASSESSEES CASE, THERE IS NOTHING ON RECORD TO SUGGEST THAT HE HAS FLOUTED THE NORMS AN D SOLD LIQUOR AT A HIGHER PRICE. THE GOVERNMENT OF ANDHRA PRADESH THROUGH AP BEVERAGES CORPORATION LTD. IS THE ONLY AGENCY AUTHORISED TO SELL IMFL . S ALE RATE IS FIXED BY A.P. BEVERAGES CORPORATION. HOWEVER, HAVING REGARD TO THE HUGE LICENCE FEE PAYABLE AND OTHER INCIDENTAL EXPENDITURE , T HE ITAT, VISAKHAPATNAM BENCH CONS ISTENTLY HELD THAT PROFIT RATE AT 5% OF PURCHASE PRICE , CLEAR OF ALL DEDUCTIONS IS REASONABLE . CONSISTENT WITH THE VIEW TAKEN THEREIN, I AM OF THE VIEW THAT ESTIMATE OF PROFIT AT 5% OF PURCHASE PRICE IS REASONABLE AND DIRECTED ASSESSING OFFICER , ACCORDINGLY. 8 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) 19 . THE NEXT ISSUE IS WITH REGARD TO UNEXPLAINED INVESTMENT OF RS. 7,92,954/ - . 20 . NEITHER BEFORE THE ASSESSI NG OFFICER NOR BEFORE THE LD.CIT(A), THE ASSESSEE COULD PROVE THE SOURCE OF INVESTMENT, IN FACT, NO EXPLANATION WAS OFFERED . T HUS, ADDITIONAL EVIDENCE FILED FOR THE FIRST TIME , CANNOT BE ENTERTAINED , M ORE PARTICULARLY ON THE GROUND THAT EVEN THE CONFIRMAT ION LETTERS ARE NOT SUFFICIENT TO PROVE THE INVESTMENT . I T IS THE DUTY OF THE ASSESSEE TO PROVE THE CREDITWORTHINESS OF THE PARTIES ALSO , WHICH IS ABSEN T IN THE INSTANT CASE. HAVING REGARD TO THESE CIRCUMSTANCES, THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(A) UNDER SECTION 69 OF THE ACT IS UPHELD. 21. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 6 T H DECEMBER, 2017 . S D / - ( D. MANMOHAN ) VICE - PRESIDENT DATED : 6 T H D ECEMBER , 201 7 . VR/ - 9 ITA NO. 34 /VIZ/201 5 ( K.L. PRASADA RAO ) COPY TO: 1. THE ASSESSEE - K.L. PRASADA RAO, D.NO. 11 - 5 - 26, KALINGA ROAD, SRIKAKULAM. 2. THE REVENUE ITO, WARD - 1, SRIKAKULAM. 3. THE CIT - 2 , VISAKHAPATNAM. 4. THE CIT(A) , VISAKHAPATNAM. 5. THE D.R. , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.