Sri Nelli Ramakrishna, Srikakulam V. The ITO, Srikakulam

ITA 347/VIZ/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9022 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 12-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S ARAVINDAKSHN
• Assessee Lawyers: N V RAMANA MURTHY
• Keywords: Rejection of books of accounts
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER ITA NO. 347 / VIZ /201 6 (ASST. YEAR : 20 11 - 1 2 ) SRI NELLI RAMA KRISHNA, S/O MOHANA RAO, VUNGARADAMETTA VILLAGE, REGIDI AMADALAVALASA, SRIKAKULAM DISTRICT. VS. IT O , WARD - 1, SRIKAKULAM. PAN NO. ALKPN 6678 C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI N.V. RAMANA MURTHY C A. DEPARTMENT BY : SHRI R.S. ARAVINDAKSHN - SR. DR DATE OF HEARING : 24 / 0 3 /201 7 . DATE OF PRONOUNCEMENT : 12 / 04 /201 7 . O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 2 , GUNTUR , CAMP AT VISAKHAPATNAM , DATED 09/05 /201 6 . 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) IN SRIKAKULAM DISTRICT. THE ASSESSEE HAD FILED RETURN OF INCOME BY DECLARING TOTAL INCOME OF 2,76,836/ - . 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 DUE PROCEDURE, ASSESSMENT 2 ITA NO. 347 / VIZ /201 6 WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING NET PROFIT @ 20% OF TH E STOCK PUT TO SALE. 3. ON APPEAL, THE 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 ESTIMATE THE INCOME @ 10% OF PURCHASE PRICE. 4 . ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE LD. 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 TRIBUNAL HAS SCALED DOWN T HE 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. 5 . ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDER S PASSED BY THE AUTHORITIES BELOW. 6 . I HAVE HEARD BOTH THE PARTIES, PER USED 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 T RIBUNAL 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 - COMPUTE THE PROFIT OF THE AS SESSEE. 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. ESTIMATED NET PROFIT OF 20% ON STOCK PUT FOR SALE. THE A.O. WAS OF THE 3 ITA NO. 347 / VIZ /201 6 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 BOOKS 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 THE 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 COU RT 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 BEVERAGES 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 RE ASON 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 CONSIDERED THE CASE OF AN ARRACK DE ALER, 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 C ASE 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 O RDERS 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 LINE OF BUSINESS. WHEREAS, THE LD. D.R. S UPPORTED 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 CASES. THE COORDINATE BENCH IN CASE OF I TA NO.127/HYD/12 AND OTHERS DATED 18.05.2012 AS WELL AS A 4 ITA NO. 347 / VIZ /201 6 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 T HE 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 OFFICE R 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 COORDINATE BENCH AND THE COORDINATE BENCH UND ER 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 D IRECT THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. ORDERED ACCORDINGLY. 7 . IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, I DIRECT THE A.O. TO RE - COMPUTE THE INCOME OF THE ASSESSEE AT 5% OF PU RCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 8 . SO FAR AS ADDITION OF 1,22,000/ - ON ACCOUNT OF UNSECURED LOANS IS CONCERNED, IN THE ASSESSMENT ORDER , THE A.O. HAS OBSERVED THAT DURING THE YEAR, THE ASSESSEE FOUND TO HAVE ACCEPTED UNSECURED LOAN OF 1,22,000/ - . WHEN ASKED TO PROVE THE ABOVE UNSECURED LOAN WITH DOCUMENTARY EVIDENCE, ASSESSEE HAS FAILED TO FURNISH ANY INFORMATION. ACCORDINGLY , THE ASSESSING OFFICER ADDED THE ABOV E AMOUNT BY TREATING IT AS UNSECURED LOAN UNDER SECTION 68 OF THE ACT. 5 ITA NO. 347 / VIZ /201 6 9 . ON APPEAL , CIT(A) HAS CONFIRMED THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE IS NOT ABLE TO SUB STANTIATE HIS CASE FROM WHERE HE OBTAINED LOAN . 10. L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS ALREADY ADDED AN AMOUNT OF 11 , 53 , 178/ - AS UNEXPLAINED SOURCE AND AGAIN MAKING ADDITION SEPARATELY ON ACCOUNT OF UNPROVE D LOAN OF 1,22,000/ - IS NOT JUSTIFIED. 1 1 . ON THE OTHER HAND, LD. D.R. SUPPORTED THE ORDERS PASSED BY THE AUTHORITIES BELOW. 1 2 . I HAVE CONSIDERED THE ORDER OF THE ASSESSING OFFICER AS WELL AS CIT(A) AND ALSO ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE. I FIND THAT IN THE ASSESSMENT ORDER , THE ASSESSING OFFICER ALREADY MADE AN ADDITION OF 11,53,178/ - AS ASSESSEE S INVESTMENT MADE OUT OF UNEXPLAINED SOURCE AND THE SAME HAS BEEN ADDED AS INCOME FROM OTHER SOURCES. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER SPECIFICALLY MENTIONED THAT D URING THE ASSESSMENT YEAR, THE ASSESSEE FOUND TO HAVE BEEN ACCEPTED UNSECURED LOAN OF 1,22,000/ - . WHEN ASSESSING OFFICER HAS TREATED THE AMOUNT OF 11,53,178/ - AS UNEXPLAINED SOURCE AGAIN MAKING ADDITION OF 1,22,000/ - AS UNSECURED LOAN, IN MY OPINIO N, IS NOT JUSTIFIED. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF 1,22,000/ - MADE UNDER SECTION 68 OF THE ACT . THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 6 ITA NO. 347 / VIZ /201 6 1 3 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 1 2 T H DAY OF APRIL , 201 7 . S D / - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 1 2 T H APRIL , 201 7 . VR/ - COPY TO: 1 . THE ASSESSEE - SRI NELLI RAMA KRISHNA, S/O MOHANA RAO, VUNGARADAMETTA VILLAGE, REGIDI AMADALAVALASA, SRIKAKULAM DISTRICT. 2 . THE REVENUE ITO, WARD - 1, SRIKAKULAM. 3 . THE PR.CIT, VISAKHAPATNAM. 4 . THE CIT(A) , VISAKHAPATNAM. 5 . THE D.R . , VISAKHAPATNAM. 6 . GUARD FILE. BY ORDER