K. Bala Venkata Srinivas, Visakhapatnam V. THE ITO, Visakhapatnam

ITA 342/VIZ/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2043 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 25-08-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SRINIVASA MURTHYDR
• Keywords: Application of stay

Judgement Text

ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.342/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) K. BALA VENKATA SRINIVAS VISAKHAPATNAM VS. ITO , WARD - 1(4) , VISAKHAPATNAM [PAN: AEPPK 6327R ] ( / APPELLANT) ( / RESPONDENT) S.P. NO.35/VIZAG/2015 (ARISING OUT OF I.T.A.NO.342/VIZAG/2015) ( / ASSESSMENT YEAR: 2011-12) K. BALA VENKATA SRINIVAS VISAKHAPATNAM VS. ITO WARD - 1(4) VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI P. SRINIVASA MURTHY,DR / DATE OF HEARING : 10.2.2016 / DATE OF PRONOUNCEMENT : 1 9 .2.2016 ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-1, VISAKHAPATNAM DATED 30.7.2015 AND IT PERTAINS TO THE ASSESSMENT YEAR 2011-12. 2. THE BRIEF FACTS OF THE CASE, ARE THAT THE ASSESS EE IS A PROPRIETOR OF M/S. SEKHAR ENTERPRISES INVOLVED IN THE BUSINESS OF RETAIL TRADE OF HOME APPLIANCES AND ELECTRONIC GOODS. THE ASSESSEE HAS FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 30.9.2011 DECLARING A TOTAL INCOME OF RS.7,28,620/-. THE CASE HAS BEEN SELECTE D FOR SCRUTINY AND ACCORDINGLY, NOTICE U/S 143(2) OF THE INCOME-TAX, 1 961 (HEREINAFTER CALLED AS THE ACT) WAS ISSUED. IN RESPONSE TO NO TICE, THE ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED AND FILED A LETT ER STATING THAT DUE TO ACCIDENTAL FIRE IN HIS SHOP, THE BOOKS OF ACCOUNTS AND OTHER RELATED DOCUMENTS WERE GUTTED IN FIRE, THEREFORE, THERE ARE NO BOOKS AND OTHER VOUCHERS AVAILABLE FOR THE YEAR UNDER CONSIDERATION . HOWEVER, THE ASSESSEE FILED A COMPARATIVE STATEMENT OF TOTAL TUR NOVER AND RELATED NET PROFIT DECLARED FOR THE EARLIER AND SUBSEQUENT YEAR S, WHEREIN NET PROFIT FROM HIS BUSINESS WAS RANGING FROM 1 TO 2%. AS THE ASSESSEE FAILED TO FURNISH THE BOOKS OF ACCOUNTS AND OTHER RELATED DOC UMENTS, THE A.O. ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 3 ISSUED A SHOW CAUSE NOTICE AND PROPOSED TO REJECT T HE BOOKS RESULTS AND ESTIMATE THE NET PROFIT @ 8% ON TOTAL SALES. IN RE SPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT HE IS NOT AGAIN ST THE ESTIMATION OF NET PROFIT, BUT WHILE ESTIMATING THE NET PROFIT FOR THE YEAR UNDER CONSIDERATION, REQUESTED TO TAKE THE PREVIOUS HISTO RY OF ASSESSEE AND ALSO COMPARABLE CASES IN THIS LINE OF BUSINESS AS A BASIS FOR ESTIMATION OF NET PROFIT. THE ASSESSEE FURTHER SUBMITTED THAT IN THIS LINE OF BUSINESS THE NET PROFIT IS RANGING FROM 1 TO 2% AND TO THIS EFFECT FILED A STATEMENT OF NET PROFIT DECLARED BY HIM IN THE PAST AND SUBSEQUENT ASSESSMENT YEARS. THE A.O., HOWEVER, AFTER CONSIDE RING THE EXPLANATIONS FURNISHED BY THE ASSESSEE REJECTED THE EXPLANATIONS AND RESORTED TO ESTIMATION OF NET PROFIT FROM THE BUSIN ESS. THE A.O. FURTHER HELD THAT THE ASSESSEE HAS NOT PRODUCED BOOKS, BILL S AND VOUCHERS IN SUPPORT OF EXPENSES CLAIMED UNDER VARIOUS HEADS OF EXPENDITURE, THEREFORE, ESTIMATED THE NET PROFIT @ 8% ON TOTAL R ECEIPTS. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER CONTENDED THAT THE A.O. WAS NOT JUSTIFIED IN ESTIMATING THE N ET PROFIT OF 8% ON TOTAL SALES, AS IN THIS LINE OF BUSINESS THE NET PROFIT V ARIES FROM 1 TO 2%. THE ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 4 ASSESSEE FURTHER SUBMITTED THAT HE IS NOT AGAINST T HE ESTIMATION OF NET PROFIT, BUT OPPOSED THE NET PROFIT ESTIMATED BY THE A.O. AS WHICH IS QUITE HIGH IN THIS LINE OF BUSINESS. THEREFORE, REQUESTE D TO SCALE DOWN THE NET PROFIT BASED ON THE ASSESSEES OWN RESULTS IN EARLI ER AND SUBSEQUENT ASSESSMENT YEARS. IN SUPPORT OF HIS CONTENTIONS, R ELIED UPON VARIOUS JUDGEMENTS AND SUBMITTED THAT THE JUDICIAL FORUMS I N THIS COUNTRY HAVE CONSISTENTLY HELD THAT WHEN THE ESTIMATION OF NET P ROFIT IS MADE, THE A.O. SHOULD MAKE A HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN THE BEST JUDGEMENT ASSESSMENT AND SHOULD NOT ACT ARBITR ARY. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. ALWAYS CAN HAVE A L OOK AT THE MARGIN RETURNED IN COMPARABLE CASES OR EVEN IN ASSESSEES OWN CASE IN THE PRECEDING YEARS TO MAKE AN ESTIMATION OF NET PROFIT . IN THIS REGARD RELIED UPON THE JUDGEMENTS OF HONBLE SUPREME COURT IN THE CASE OF KACHWALA GEMS VS. JCIT 288 ITR 10 (2007) AND HONBL E MADRAS HIGH COURT JUDGEMENT IN THE CASE OF GEMINI PICTURES LIMI TED VS. CIT (1958) 33 ITR 547 AND ALSO RELIED UPON THE ITAT DELHI BENC H DECISION IN THE CASE OF RAMA DIARY PRODUCTS VS. DEPARTMENT OF INCOM E TAX APPEAL NO.5185/DELHI/2010 (DELHI F BENCH). THE CIT(A) AF TER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSEE SCALED DOWN THE NET PROFIT FROM 8% TO 6% ON TOTAL SALES. WHILE DOING SO, THE CIT(A) HELD THAT THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNTS AND OTHE R RELEVANT ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 5 MATERIALS. THE NET PROFIT REPORTED BY THE ASSESSEE IN HIS OWN CASE IN EARLIER ASSESSMENT YEAR IS QUITE LESS, WHEN COMPARE D TO THIS LINE OF BUSINESS. THEREFORE, THE PROFIT MARGINS FOR THE ABO VE MENTIONED ASSESSMENT YEARS CANNOT BE TAKEN AS A BENCH MARK FO R MAKING THE ESTIMATE FOR THE CURRENT YEAR. AGGRIEVED BY THE CIT (A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. MADE ESTIMATION OF NET PROFIT OF 8% ON GROSS R ECEIPTS FOR THE REASON THAT THE ASSESSEE HAS NOT PRODUCED BOOKS OF ACCOUNTS AND RELEVANT BILLS & VOUCHERS IN SUPPORT OF EXPENDITURE CLAIMED. THE A.O. WAS OF THE OPINION THAT DESPITE REPEATED OPPORTUNIT IES; THE ASSESSEE HAS FAILED TO PRODUCE BOOKS OF ACCOUNTS, THEREFORE, LEF T WITH NO OPTION ESTIMATED NET PROFIT FROM THE BUSINESS. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE BOOKS OF ACCOUNTS WERE NOT AVAILA BLE, BECAUSE THERE WAS AN ACCIDENTAL FIRE HAPPENED IN HIS SHOP AND ALL THE BOOKS OF ACCOUNTS AND OTHER RELEVANT DOCUMENTS WERE GUTTED I N A FIRE. THEREFORE, HE WAS UNABLE TO PRODUCE BOOKS AND OTHER VOUCHERS B EFORE THE A.O. THE ASSESSEE FURTHER CONTENDED THAT HE IS NOT AGAIN ST THE ESTIMATION OF ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 6 NET PROFIT, BUT THE ESTIMATION OF NET PROFIT MADE B Y THE A.O. IS ARBITRARY AND QUITE HIGH WHEN COMPARED TO THIS LINE OF BUSINE SS. 5. WE HAVE GONE THROUGH THE SUBMISSIONS OF THE ASSES SEE AND ALSO ORDERS OF THE AUTHORITIES BELOW. THE A.O. ESTIMATED THE NET PROFIT OF 8% ON GROSS RECEIPTS, HOWEVER, DID NOT TAKEN ANY BASIS FOR HIS ESTIMATION. THE ASSESSEE CONTENDS THAT NET PROFIT IN THIS LINE OF BUSINESS IS 1 TO 2%, HOWEVER FAILED TO PRODUCE ANY COMPARABLE CASES IN T HIS LINE OF BUSINESS, WHEREIN THE NET PROFIT IS RANGING BETWEEN 1 TO 2%. THE A.O. CAN ESTIMATE THE NET PROFIT FROM THE BUSINESS, BUT THER E SHOULD BE A BASIS FOR ESTIMATION. IN THE INSTANT CASE, THE A.O. HAS ADOPT ED 8% NET PROFIT. THE ASSESSEE CONTENDS THAT THE NET PROFIT IN HIS BUSINE SS IS BETWEEN 1 TO 2%. ADMITTEDLY, THERE IS NO HARD AND FAST RULE FOR ESTIMATION OF NET PROFIT FROM THE BUSINESS. BUT, ANY ESTIMATION SHOUL D HAVE ITS OWN BASIS. THE ASSESSEE HAS REQUESTED FOR ADOPTION OF NET PROF IT OF 2% CONSIDERING HIS OWN PAST HISTORY. THE A.O. REJECTED ASSESSEE EX PLANATIONS FOR THE REASON THAT THE NET PROFIT REPORTED BY THE ASSESSEE IS QUITE LESS WHEN COMPARED TO HIS BUSINESS. WE DO AGREE WITH THE A.O. , WHEN ASSESSEE BOOKS RESULTS ARE REJECTED AS THE SAME ARE NOT RELI ABLE, THEN HIS PAST HISTORY AND RELATED NET PROFIT PERCENTAGE HAVE NO R ELEVANCE FOR ESTIMATION. ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 7 6. HAVING SAID THAT, LET US EXAMINE WHAT IS THE NE XT COURSE OF ACTION AVAILABLE FOR THE A.O. THE A.O., ONCE REJECTED ASSE SSEE BOOK RESULTS AND HIS PAST HISTORY, SHOULD HAVE ADOPTED COMPARABLE CA SES IN SIMILAR LINE OF BUSINESS FOR ESTIMATION OF NET PROFIT. BUT, THE A.O . HAS FAILED TO DO SO. THOUGH ASSESSEE CLAIMS THAT THE NET PROFIT IN THIS LINE OF BUSINESS IS BETWEEN 1 TO 2% FAILED TO BRING ON RECORD ANY COMPA RABLE CASES TO JUSTIFY HIS NET PROFIT MARGIN. NO DOUBT, THE JUDICI AL BODIES CONSISTENTLY HELD THAT THE NET PROFIT CANNOT BE ARBITRARILY ESTI MATED AND THERE SHOULD BE A BASIS FOR ESTIMATION OF NET PROFIT. IN SUCH SI TUATIONS, THE A.O. WAS JUSTIFIED, IF HE TAKES CLUE FROM THE PROVISIONS OF SECTION 44AF OF THE ACT. SECTION 44AF OF THE ACT PRESCRIBES ESTIMATION OF NE T PROFIT FROM RETAIL TRADE IN SPECIFIED CASES. SECTION 44AF OF THE ACT COVERS CASES, WHERE THE GROSS RECEIPTS FROM THE BUSINESS IS LESS THAN R S.40 LAKHS. OFCOURSE, THE ASSESSEE DOES NOT FALL WITHIN THE AMBIT OF SECT ION 44AF OF THE ACT, AS ITS TOTAL RECEIPTS FROM THE BUSINESS EXCEED RS.40 L AKHS. HOWEVER, THE PRESUMPTIVE RATE OF NET PROFIT @ 5% INCORPORATED IN SECTION 44AF REFLECTS LEGISLATIVE APPROVED RATE OF NET PROFIT, W HICH CAN BE CONSIDERED AS FAIR AND REASONABLE TO ESTIMATE INCOME FROM RETA IL TRADE. 7. IN THE PRESENT CASE ON HAND, ADMITTEDLY THE ASSE SSEE HAS NOT PRODUCED BOOKS OF ACCOUNTS. THE NET PROFIT REPORTED BY THE ASSESSEE IN ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 8 THE EARLIER ASSESSMENT YEARS IS MEAGER WHEN COMPARE D TO ITS GROSS RECEIPT FROM THE BUSINESS. SECTION 44AF OF THE ACT PRESCRIBES FOR ESTIMATION OF PROFIT @ 5%, IN CASES WHERE THE ASSES SEE INVOLVED IN RETAIL TRADE AND THE TURNOVER FROM HIS BUSINESS DOES NOT E XCEED RS.40 LAKHS. THOUGH, ASSESSEE CASE DO NOT FALL WITHIN THE AMBIT OF SECTION 44AF OF THE ACT, BY TAKING A CLUE FROM SECTION 44AF OF THE ACT, WE DEEM IT APPROPRIATE TO DIRECT THE A.O. TO ESTIMATE THE NET PROFIT @ 5% ON TOTAL TURNOVER. WE, ORDER ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 9. THE STAY APPLICATION IS PREFERRED BY THE ASSESSE E WITH A REQUEST TO STAY THE OUTSTANDING DEMAND TILL THE DISPOSAL OF TH E APPEAL. SINCE, THE APPEAL HAS ALREADY BEEN DISPOSED OFF, THIS STAY APP LICATION HAS BECOME INFRUCTUOUS. WE, ACCORDINGLY DISMISS THE SAME BEING INFRUCTUOUS. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE PARTLY ALLOWED AND THE STAY APPLICATION FILED BY THE ASSESSEE IS DISMI SSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 19 TH FEB16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 19.2.2016 VG/SPS ITA NO.342/VIZAG/2015 & SP NO.35/VIZAG/2015 K. BALA VENKATA SRINIVAS, VISAKHAPATNAM 9 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT K. BALA VENKATA SRINIVAS, D.NO.4 8-2-6/2, DASPALLA COMPLEX, VISAKHAPATNAM 2. / THE RESPONDENT ITO WARD-1(4), VISAKHAPATNAM 3. + / THE CIT-1, VISAKHAPATNAM 4. + ( ) / THE CIT (A), VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM