THE ITO, Rajahmundry V. Sri Mallidi Ramkrishna Reddy, Rajahmundry

ITA 351/VIZ/2015

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9846 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 03-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S RAVI SANKAR NARAYAN
• Keywords: Unexplained cash credit; Rejection of books of accounts
• Section: 143(3)

Judgement Text

ITA NO.349&351/VIZAG/2015 SRI MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY 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.NOS.349/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY VS. ITO, WARD - 1(1), RAJAHMUNDRY [PAN: AFMPM7629C ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NOS.351/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) ITO, WARD - 1(1), RAJAHMUNDRY VS. MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI S. RAVISANKAR NARAYAN, DR / DATE OF HEARING : 28.09.2016 / DATE OF PRONOUNCEMENT : 30.09.2016 ITA NO.349&351/VIZAG/2015 SRI MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE, AS WELL AS REVENUE ARE DIRECTED AGAINST ORDER OF THE CIT(A), R AJAHMUNDRY DATED 17.6.2015 AND IT PERTAINS TO THE ASSESSMENT YEAR 20 11-12. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED-OFF BY WAY OF THIS COMMON ORD ER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN IMFL FILED HI S RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 11.9.2011 DECLARING TOTAL INCOME OF ` 6,54,890/-. THE CASE HAS BEEN SELECTED FOR SCRUTIN Y AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER CALLED AS 'THE ACT') ON 15.3.2014 DETERMINING TOTAL INCOME OF ` 49,09,060/- BY ESTIMATING INCOME FROM BUSINESS @ 20 % OF THE STOCK PUT TO SALE AND FURTHER ADDITIONS TOWARDS UNEXPLAINED C REDIT OF ` 3,80,000/-, UNACCOUNTED INTEREST INCOME OF ` 42,500/- AND INCOME FROM OTHER SOURCES OF ` 4,276/-. 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE HAS ITA NO.349&351/VIZAG/2015 SRI MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY 3 SUBMITTED THAT THE A.O. WAS ERRED IN REJECTION OF B OOKS OF ACCOUNTS AND ESTIMATION OF INCOME @ 20% OF STOCK PUT TO SALE. T HE ASSESSEE FURTHER SUBMITTED THAT THE NET PROFIT ESTIMATED BY THE A.O. IS QUITE HIGH WHEN COMPARED TO THE NATURE OF BUSINESS OF THE ASSESSEE. AS REGARDS OTHER ADDITIONS BEING UNEXPLAINED CREDIT, UNACCOUNTED INT EREST INCOME AND INCOME FROM OTHER SOURCES, THE ASSESSEE SUBMITTED T HAT THE A.O. SHOULD HAVE TELESCOPED THE ADDITIONS AGAINST NET PROFIT ES TIMATED FROM THE BUSINESS. THE CIT(A) AFTER CONSIDERING THE EXPLANA TIONS OF THE ASSESSEE, HELD THAT CONSIDERING FACTS AND CIRCUMSTA NCES OF THE CASE, IT IS REASONABLE TO ESTIMATE THE INCOME OF THE ASSESSEE A T 10% OF PURCHASE PRICE, ACCORDINGLY, DIRECTED THE A.O. TO RE-COMPUTE THE INCOME AT 10% OF THE PURCHASE PRICE. AS REGARDS ADDITIONS TOWARD S UNEXPLAINED CREDIT INCOME FROM OTHER SOURCES AND INTEREST INCOME, THE CIT(A) CONFIRMED ADDITIONS MADE BY THE A.O. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE AS WELL AS REVENUE ARE IN APPEAL BEFORE US . 4. WHEN THIS APPEAL IS TAKEN UP FOR HEARING, THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE ITAT, VISAKHAPATNAM BEN CH IN SIMILAR CASES HAS DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 5% ON STOCK PUT TO SALE NET OF ALL DEDUCTIONS. THE A.R. RELIED UPON THE DE CISION OF ITAT, VISAKHAPATNAM BENCH IN THE CASE OF TANGUDU JOGISETT Y VS. ITO IN ITA ITA NO.349&351/VIZAG/2015 SRI MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY 4 NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016 AND SUBMIT TED THAT THE COORDINATE BENCH, UNDER SIMILAR CIRCUMSTANCES HAS D IRECTED THE A.O. TO ESTIMATE NET PROFIT OF 5%. WE FIND THAT THE COORDIN ATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 5% ON STOCK PUT TO SALE NET OF ALL DEDUCT IONS. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE A.O. 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 BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, THEREFORE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PR OFIT 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 TH E ASSESSEE. IT IS FURTHER SUBMITTED THAT THE CASE LAW RELIED UPON BY THE ASSE SSEE 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 TRADI NG IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURT HER CONTENDED THAT IMFL TRADE WAS CONTROLLED BY THE STATE GOVERNMENT THROUG H 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 FIX ED 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 RELYI NG UPON THE DECISION OF A.P. HIGH COURT IN THE CASE OF CIT VS. R. NARAYANA RAO I N ITA NO.3 OF 2003 WHICH IS RENDERED UNDER DIFFERENT FACTS. THE A.P. HIGH C OURT HAS CONSIDERED 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 U NDER 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 BEN CH 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 I N THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FINDS THAT THE COORDINATE BENC H OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% NE T PROFIT ON PURCHASES IS REASONABLE. THE RELEVANT PORTION OF THE ORDER IS R EPRODUCED HEREUNDER: ITA NO.349&351/VIZAG/2015 SRI MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY 5 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS O F 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 HI GH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF PROFIT IN THIS LINE 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 THA T 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 ITA NO.127/HYD/12 AND OTHERS DATED 18.05.2012 AS WELL AS A NUMBER OF OTHE R CASES HAVE HELD THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FOREI GN LIQUOR HAS TO BE ESTIMATED AT 5% OF THE PURCHASES MADE BY THE ASSESS EE. THEREFORE, FOLLOWING THE DECISION OF THE ITAT HYDERABAD BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R 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 AS SESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERM INED 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 I S QUITE HIGH. ON THE OTHER HAND, THE ASSESSEE RELIED UPON THE DECISION OF COOR DINATE BENCH AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMA TED THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. NO CONTR ARY 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 DIREC T THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDU CTIONS. ORDERED ACCORDINGLY. 5. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE C ASE AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF COORDINATE B ENCH OF ITAT, VISAKHAPATNAM IN THE CASE OF TANGUDU JOGISETTY VS. ITO (SUPRA), WE DIRECT THE A.O. TO ESTIMATE NET PROFIT OF 5% ON TOT AL STOCK PUT FOR SALE NET OF ALL DEDUCTIONS. ITA NO.349&351/VIZAG/2015 SRI MALLIDI RAMAKRISHNA REDDY, RAJAHMUNDRY 6 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND APPEAL FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 30 TH SEPT16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 30.09.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE ITO, WARD-1(1), RAJAHMUNDRY 2. / THE RESPONDENT SRI MALLIDI RAMAKRISHNA REDDY, D.NO.36-25-36, SAPPAVARI STREET, INNESPETA, RAJAHMUNDRY 3. + / THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), RAJAHMUNDRY 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM