THE ITO, Srikakulam V. Jaruguilla Vijaya Kumari, Srikakulam

ITA 34/VIZ/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6583 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 27-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Tax effect
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 34 / VIZ /201 6 (ASST. YEAR : 20 11 - 12 ) ITO, WARD - 1, SRIKAKULAM. VS . SMT. JARUGULLA VIJAYA KUMARI , PROP : SRI BHASKARA BEER & WINES, KESAVARAOPETA VILL AGE , ETCHERLA MANDAL, SRIKAKULAM DISTRICT. PAN NO. AOFPJ 4218 L (APPELLANT) (RESPONDENT) ITA NO. 149 / VIZ /201 6 (ASST. YEAR : 20 11 - 12 ) SMT. JARUGULLA VIJAYA KUMARI, PROP: SRI BHASKARA BEER & WINES, KESAVARAOPETA VILLAGE, ETCHERLA MANDAL, SRIKAKULAM DISTRICT. VS. ITO, WARD - 1, SRIKAKULAM. PAN NO. AOFPJ 4218 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI M.N. MURTHY NAIK SR. DR DATE OF HEARING : 23 / 1 0 /201 7 . DATE OF PRONOUNCEMENT : 25 / 1 0 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THESE CROSS APPEAL S BY THE REVENUE AND THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 2 , GUNTUR , DATED 1 7 / 11 /201 5 FOR THE ASSESSMENT YEAR 20 11 - 12 . 2 ITA NO. 34 & 149 /VIZ/2014 ( J. VIJAYA KUMARI ) ITA NO. 34/VIZ/2016 2. AT THE OUTSET, LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT TAX EFFECT INVOLVED IN THIS APPEAL IS BELOW 10 LAKHS AND AS PER THE CBDT CIRCULAR NO. 21/2015, DATED 10/12/2015 THE REVENUE IS BOUND TO WITHDRAW THE APPEAL. LEARNED COUNSEL FURTHER SUBMITTED THAT THE ABOVE REF ERRED CIRCULAR SIMPLY MENTIONED THAT TAX, WHICH DOES NOT INCLUDE SURCHARGE AND EDUCATION CESS ETC. AND SUBMITTED THAT APPEAL FILED BY THE REVENUE, MAY BE DISMISSED. 3. ON THE OTHER HAND, L EARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT TAX EFFECT I S INCLUDING SURCHARGE, EDUCATION CESS ETC. AND IN THIS APPEAL, TAX EFFECT IS ABOVE 10 LAKHS AND HENCE, APPEAL IS PERMISSIBLE FOR ADJUDICATION. 4 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD . 5 . THE ARGUMENT ADVANCED BY THE LEARNED COUNSEL FOR THE ASSESSEE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. GUDAPATI NAGESWARA RAO IN ITA NO. 40/VIZ/2013, BY ORDER DATED 16/06/2017, WHEREIN THE TRIBUNAL HAS HELD THAT IF THE TAX EFFECT EXCLUDING SURCHARGE, EDUCATION CESS ETC. IS BELOW 10 LAKHS, THE REVENUE IS NOT AUTHORISED TO FILE AN APPEAL AND IF IT IS FILED, THEY SHOULD WITHDRAW THE APPEAL. THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. P. PRASEN KUM AR IN MA NO. 63/HYD/2016 (ARISING OUT OF ITA NO. 418/HYD/2014) BY ORDER DATED 07/12/2016 BY FOLLOWING THE ORDER 3 ITA NO. 34 & 149 /VIZ/2014 ( J. VIJAYA KUMARI ) THE ORDER OF ITAT D BENCH, MUMBAI IN THE CASE OF DCIT VS. DOME BELL ELECTRONICS IN ITA NO. 2480/MUM/2012 BY ORDER DATED 22/07/2016 HAS OBSERVE D AS UNDER: - 6. WE HAVE CONSIDERED THE ISSUE. AS FAR AS THE DEFINITION OF TAX IS CONCERNED, THE TAX DOES NOT INCLUDE SURCHARGE AND CESS AS PER THE ABOVE REFERRED CASES. THE COORDINATE BENCH IN THE CASE OF DCIT VS. DOME BELL ELECTRONICS (SUPRA) HAS CONSIDERED THIS ISSUE VIDE PARA 3.2 OF ITS ORDER, WHICH IS AS UNDER: - 3.2 WE HAVE GONE THROUGH THE FACTS OF THIS CASE AND ALSO GONE THROUGH THE AFORESAID CIRCULAR AS WELL AS SUB - SECTION (43) OF SECTION 2 OF THE ACT WHICH DEFINES WORD TAX. IT IS NOTED T HAT DOME BELL ELECTRONICS THE IDENTICAL ISSUE CAME UP BEFORE THE HON'BLE CHENNAI BENCH WHEREIN THE HON'BLE BENCH HELD AS UNDER: - WE FIND THAT IN CLAUSE (4) OF INSTRUCTION NO.5 OF 2008 DATED 15 TH MAY, 2008 OF CBDT, TAX EFFECT IS DEFINED AS UNDER: - 4. FO R THIS PURPOSE, TAX EFFECT MEANS THE DIFFERENCE BETWEEN THE TAX ON THE TOTAL INCOME ASSESSED AND THE TAX THAT WOULD HAVE BEEN CHARGEABLE HAD SUCH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF INCOME IN RESPECT OF THE ISSUE AGAINST WHICH APPEAL IS INTENDED T O BE FILED (HEREAFTER REFERRED TO AS DISPUTED ISSUES). HOWEVER, THE TAX WILL NOT INCLUDE ANY INTEREST THEREON. SIMILARLY, IN LOSS CASES NOTIONAL TAX EFFECT SHOULD NOT BE TAKEN INTO ACCOUNT. IN THE CASE OF PENALTY ORDERS, THE TAX EFFECT WILL MEAN QUANT UM OF PENALTY DELETED OR REDUCED IN THE ORDER TO BE APPEALED AGAINST. NOTHING HAS BEEN MENTIONED IN THE ABOVE DEFINITION TO SHOW THAT TAX WILL INCLUDE SURCHARGE FOR THE PURPOSE OF APPLYING THE SAID CIRCULAR. NOW IF WE LOOK AT THE DEFINITION OF TAX AS PER SUB - SECTION (43) OF SECTION 2 OF INCOME TAX ACT, 1961, IT RUNS AS UNDER: - (43) TAX IN RELATION TO THE ASSESSMENT YEAR COMMENCING ON THE 1 ST DAY OF APRIL, 1965, AND ANY SUBSEQUENT ASSESSMENT YEAR MEANS INCOME TAX CHARGEABLE UNDER THE PROVISIONS OF THIS ACT, AND IN RELATION TO ANY OTHER ASSESSMENT YEAR INCOME - TAX AND SUPER - TAX CHARGEABLE UNDER THE PROVISIONS OF THIS ACT PRIOR TO THE AFORESAID D ATE [AND IN RELATION TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 2006, AND ANY SUBSEQUENT ASSESSMENT YEAR INCLUDES THE FRINGE BONE FIT TAX PAYABLE UNDER SECTION 115WA]' IT IS CLEAR THAT TAX, AS PER THE ABOVE DEFINITION, WOULD INCLUDE SUPER - TAX AND ALSO FRINGE BENEFIT TAX BUT NOT SURCHARGE. ADMITTEDLY, HERE, THE TAX WAS ONLY 2,90,250/ - WHICH IS BELOW 4 ITA NO. 34 & 149 /VIZ/2014 ( J. VIJAYA KUMARI ) THE LIMIT OF 3 LAKHS PRESCRIBED IN THE CIRCULAR FOR FILING APPEALS BEFORE THIS TRIBUNAL. RESULTANTLY, WE DO NOT FIND ANY MISTAKE IN THE ORD ER OF THIS TRIBUNAL MUCH LESS ANY MISTAKE APPARENT ON RECORD. WE HAVE ALSO GONE THROUGH SUB - SECTION (43) OF SECTION 2 WHICH DEFINES 'TAX'. THE PERUSAL OF THE DEFINITION SHOWS THAT WHATEVER WAS INTENDED TO BE INCLUDED IN TAX HAS BEEN MENTIONED THEREIN. WH EN THE LEGISLATURE HAS MENTIONED THE WORDS SUPER - TAX AND FRINGE BENEFIT TAX', THEN, IT COULD HAVE ALSO MENTIONED THE WORDS 'SURCHARGE' AND EDUCATION CESS' AS WELL, IF THERE WAS ANY INTENTION TO INCLUDE THEM IN THE WORD 'TAX'. THUS, WE RESPECTFULLY AGREE WITH THE DECISION TAKEN BY THE CHANNEL BENCH. IN OUR VIEW, SURCHARGE AND EDUCATION CESS SHALL NOT BE INCLUDE IN WORD 'TAX' FOR THE PURPOSE OF EXAMINING OF TAX EFFECT AS ENVISAGED IN CIRCULAR OF BOARD DATED 10 TH DECEMBER 2015 NO. 21/2015. THUS, THE TAX EFF ECT BEING LESS THAN 10 LAKHS, IMPUGNED APPEAL FILED BY THE REVENUE IS NOT MAINTAINABLE AND THEREFORE SAME IS HEREBY DISMISSED. OUR ORDER HAS NO EFFECT ON THE MERITS OF THIS CASE.' IN VIEW OF THIS AND KEEPING IN MIND THE PRINCIPLES LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF DALMIA CEMENT (BHARAT) LTD., WE ARE OF THE OPINION THAT SURCHARGE AND EDUCATION CESS SHOULD NOT BE INCLUDED WHILE CALCULATING THE TAX EFFECT. SINCE THE TAX THEREON IS RS. 9 LAKHS, WHICH IS LESS THAN RS. 10 LAKHS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE MA FILED BY THE REVENUE. 6 . RESPECTFULLY FOLLOWING THE DECISION S OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF GUDAPATI NAGESWARA RAO (SUPRA) AND P. PRASEN KUMAR (SUPRA), THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 149/VIZ/2016 7 . FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) IN SRIKAKULAM DISTRICT. THE ASSESSEE HA S FILED RETURN OF INCOME BY DECLARING TOTAL I NCOME OF 4,96,200/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). LATER, AFTER FOLLOWING THE DUE PROCEDURE, 5 ITA NO. 34 & 149 /VIZ/2014 ( J. VIJAYA KUMARI ) ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMAT ING NET PROFIT AT 20% OF THE STOCK PUT TO SALE. 8 . ON APPEAL, LD. CIT(A) GRANTED A PARTIAL RELIEF TO THE ASSESSEE BY SCALING DOWN THE PERCENTAGE FROM 20% TO 10% AND DIRECTED THE A.O. TO RE - COMPUTE THE INCOME AT 10% OF PURCHASE PRICE. 9 . ON BEING AGGRIEVED, A SSESSEE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE L D. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL WHERE THE TRIB UNAL HAS SCALED DOWN THE ESTIMATION OF PROFIT FROM 10% TO 5% IN THE CASE OF TANGUDU JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016. 10 . ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDER S PASSED BY THE AUTHORITIES BELOW. 11 . WE HAVE HE ARD 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 ESTIMATION OF PROFIT IN RESPECT OF IMFL BUSINESS CARRIED BY THE ASSESSEE. IN THIS RESPECT, THE COORDINATE BENCH OF THE 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 A.O. TO RE - COM PUTE 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. 6 ITA NO. 34 & 149 /VIZ/2014 ( J. VIJAYA KUMARI ) ESTIMATED NET PROFIT OF 20% ON STOCK PUT FOR SALE. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT MAINTAINED PROPER 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 BO OKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, THEREFORE REJECTED 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 TH E NET PROFIT ESTIMATED BY THE A.O. IS QUITE HIGH WHEN COMPARED TO THE NATURE OF BUSINESS CARRIED 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, WHEREAS 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 BEVER AGES CORPORATION LTD. AND THE PRICES OF THE PRODUCTS ARE FIXED BY THE STATE GOVERNMENT. THE ASSESSEE BEING A LICENSE 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 DECISION 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 CONSIDERE D 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, VISAKHAPATNAM 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 SIMILAR 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 LI NE 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 C ASES. THE 7 ITA NO. 34 & 149 /VIZ/2014 ( J. VIJAYA KUMARI ) COORDINATE BENCH IN CASE OF ITA NO.127/HYD/12 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 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 DIRECT 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 SHOULD 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 COORDI NATE BENCH AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMATED THE NET PROFIT OF 5% ON TOTAL PURCHASES 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. 12 . IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE DIRECT THE A.O. TO RE - COMPU TE THE INCOME OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THIS APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . 13 . IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED AND THAT OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 2 5 T H DAY OF OCTOBER , 201 7 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 5 T H OCTOBER , 201 7 . 8 ITA NO. 34 & 149 /VIZ/2014 ( J. VIJAYA KUMARI ) VR/ - COPY TO: 1. THE ASSESSEE - SMT. JARUGULLA VIJAYA KUMARI, PROP: SRI BHASKARA BEER & WINES, KESAVARAOPETA VILLAGE, ETCHERLA MANDAL, SRIKAKULAM DISTRICT. 2. THE REVENUE ITO, WARD - 1, SRIKAKULAM. 3. THE P CIT - 2 , VISAKHAPATNAM . 4. THE CIT(A) - 2, GUNTUR. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.