Pentagolusula Vennkatesh, Anakapalle V. THE CIT(A) - 2, Anakapalle

ITA 387/VIZ/2015

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9971 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K S S SARMA
• Keywords: Rejection of books of accounts

Judgement Text

ITA NO.387/VIZAG/2015 PENTAGOLUSULA VENKATESH, S. RAYAVARAM MANDALAM, VSK P 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.387/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) PENTAGOLUSULA VENKATESH S. RAYAVARAM MANDALAM, VISAKHAPATNAM DIST. VS. ITO, WARD - 1, ANAKAPALLE [PAN: ARNPP3469L ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI K.S.S. SARMA, AR / RESPONDENT BY : SHRI M.N. MURTHY NAIK, DR / DATE OF HEARING : 29 .07.2016 / DATE OF PRONOUNCEMENT : 09.08. 2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-2, VISAKHAPATNAM DATED 14.8.2015 FOR THE ASS ESSMENT YEAR 2011-12. ITA NO.387/VIZAG/2015 PENTAGOLUSULA VENKATESH, S. RAYAVARAM MANDALAM, VSK P 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE HAS CARRIED ON BUSINESS IN IMFL DURING THE YEAR 2010-11 AND FILED RETURN OF INCOME ON 30.9.2011 DECLARING TOTAL INCOME OF ` 3,69,817/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 196 1 (HEREINAFTER CALLED AS 'THE ACT') AND AFTER FOLLOWING THE DUE PR OCESS, THE A.O. HAS COMPLETED THE ASSESSMENT BY ESTIMATING PROFIT FROM WINE BUSINESS AT 20% OF STOCK PUT ON SALE AND WORKED OUT ` 24,88,816/- AND DETERMINED THE TOTAL INCOME OF ASSESSEE AT 34,96,703/-. THE A SSESSEE HAS CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND SUBM ITTED THAT THE A.O. HAS ADOPTED NET PROFIT OF 20% OF STOCK PUT ON SALE WHICH IS ON THE HIGHER SIDE. IN THIS LINE OF BUSINESS, PROFIT MARG IN WILL BE AT 5% AND PRAYED TO ADOPT THE SAME. THE LD. CIT(A) AFTER CON SIDERING THE EXPLANATION OF THE ASSESSEE HE HAS ESTIMATED PROFIT OF THE ASSESSEE AT 10% OF PURCHASE PRICE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 4.3.1 THE AR SUBMITTED THAT THE ESTIMATE OF INCOME FROM IMFL TRADE AT 3 TO 5% OF PURCHASE PRICE OR STOCK PUT FOR SALE WAS F OUND TO BE REASONABLE BY THE HON'BLE ITAT, VISAKHAPATNAM AND RELIED ON TH E DECISIONS REFERRED ABOVE. THE APBCL IS THE BODY CORPORATE WHICH REGULA TES WHOLESALE LIQUOR DISTRIBUTION IN AP PROVIDES MARGIN IN THE RANGE OF 25 TO 30% ON PURCHASES TO RETAIL TRADERS. ASSUMING THAT THE SALES ARE MADE AT THE FIXED MRP PRICE, (OF ALLOWING 25 - 300/O MARGIN) THEN THE PROFIT ON PURCHASES WOULD BE EFFECTIVELY 6.5% (130 X 5%) WHICH DEARLY SHOW THAT THE ESTIMATE OF INCOME AT 3-5% OF PURCHASES IS TOO LOW. IF THE RAMP ANT PRACTICE OF SELLING ABOVE MRP AND SALE OF NON-DUTY LIQUOR ARE TAKEN INT O ACCOUNT, THEN THE PROFIT MARGIN WOULD BE STILL HIGHER. THEREFORE, CON SIDERING THE FACT THAT THE RETAIL TRADERS SELL LIQUOR AT 30- 40% HIGHER THAN T HE MRP AND ALSO RESORT TO ITA NO.387/VIZAG/2015 PENTAGOLUSULA VENKATESH, S. RAYAVARAM MANDALAM, VSK P 3 LOOSE SALE OF LIQUOR, SALE OF NON-DUTY PAID LIQUOR AND OTHER FACTS AND CIRCUMSTANCES OF THE CASE, I CONSIDER IT REASONABLE TO ESTIMATE THE INCOME OF THE ASSESSEE @10% OF PURCHASE PRICE. ACCORDINGLY , THE AO IS DIRECTED TO RECOMPUTE THE INCOME AT 10/O OF THE PURCHASE PR ICE. 3. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN A PPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT VERY SIMILAR ISSUE HAS BEEN CONSIDER ED BY THE COORDINATE BENCH OF THE TRIBUNAL AND ESTIMATED INCOME OF THE A SSESSEE AT 5% OF THE PURCHASE AND PRAYED THAT THE SAME MAY BE FOLLOW ED. 4. ON THE OTHER HAND, THE LD. D.R. HAS SUPPORTED TH E ORDER OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE VERY SAME ISSUE OF ESTIMATION OF PROFIT IN THE TRAD E OF IMFL WAS CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TANGUDU JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016 AND HELD THAT ESTIMATION OF 5% NET PROFIT ON PURCHASE I S REASONABLE AND DIRECTED THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. THE RELEVANT PORTION OF THE ORD ER IS EXTRACTED AS UNDER: ITA NO.387/VIZAG/2015 PENTAGOLUSULA VENKATESH, S. RAYAVARAM MANDALAM, VSK P 4 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: 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 ITA NO.387/VIZAG/2015 PENTAGOLUSULA VENKATESH, S. RAYAVARAM MANDALAM, VSK P 5 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. 6. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE CO ORDINATE BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND DIRECT THE A.O. TO ESTIMATE THE PROFIT FROM THE BUSINESS O F THE ASSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NET O F ALL OTHER DEDUCTIONS. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9 TH AUG16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 9 TH AUG16 VG/SPS ITA NO.387/VIZAG/2015 PENTAGOLUSULA VENKATESH, S. RAYAVARAM MANDALAM, VSK P 6 '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT PENTAGOLUSULA VENKATESH, PROP: S RI VENKATESWARA WINES, S. RAYAVARAM MANDALAM, VISAKHAPATNAM DIST. 2. / THE RESPONDENT THE ITO, WARD-1, ANAKAPALLE 3. ) / THE CIT-2, VISAKHAPATNAM 4. ) ( ) / THE CIT(A)-2, VISAKHAPATNAM, 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM