S.Srinivasa Rao, Srikakulam V. THE ITO, Srikakulam

ITA 41/VIZ/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8834 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 23-12-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 20-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Unexplained cash credit; Rejection of books of accounts; Unexplained investment; Business income; Income from undisclosed sources; Additional evidence
• Section: 68; 69

Judgement Text

ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.41/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) S. SRINIVASA RAO, SRIKAKULAM ITO, WARD - 2, SRIKAKULAM [PAN NO. CVTPS0988K ] ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI M.K. SETHI, DR / DATE OF HEARING : 29.06.2017 / DATE OF PRONOUNCEMENT : 26.07.2 017 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) (CIT-A), V ISAKHAPATNAM IN ITA NO.1053/2013-14/ITO W-2, SLKM/2014-15 DATED 13. 11.2014 FOR THE ASSESSMENT YEAR 2011-12. 2. GROUND NO.1 TO 4 ARE RELATED TO THE ESTIMATION O F INCOME. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LIQUOR TRADE AND FOR THE ASSESSMENT YEAR 2011-12 THE ASSESSING OFFICER ESTIM ATED THE INCOME @ ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 2 20% ON TOTAL SALES OF ` 2,09,71,765/- AND DETERMINED THE NET PROFIT OF ` 41,42,987/-. THE ASSESSEE WENT ON APPEAL BEFORE T HE CIT(A) AND THE CIT(A) RESTRICTED THE NET PROFIT @ 10% ON TOTAL SAL ES. 3. ON BEING AGGRIEVED ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE TRIBUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT THE COORDINATE BENCH OF THE TRIBUNAL IN THE SIMILAR LIN ES OF THE BUSINESS CONSIDERED THE VERY SIMILAR ISSUE AND RESTRICTED TH E ESTIMATION AT 5% OF THE PURCHASE PRICE, IN ITA NOS.65&66/VIZAG/2012 DAT ED 3.3.2014 IN THE CASE OF T. APPALASWAMY AND SUBMITTED THAT THE SAME MAY BE FOLLOWED. 5. THE LD. D.R. HAS SUPPORTED THE ORDER PASSED BY T HE AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. 7. THE VERY SAME ISSUE OF ESTIMATION OF PROFIT IN T HE TRADE OF IMFL WAS CONSIDERED BY THE COORDINATE BENCH OF THE TRIBU NAL 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 ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 3 OF ALL DEDUCTIONS. THE RELEVANT PORTION OF THE ORD ER IS EXTRACTED AS UNDER: 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 ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 4 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. 8. WE RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY T HE LD. CIT(A) AND DIRECT THE A.O. TO ESTIMATE THE PROFIT FROM THE BUS INESS OF THE ASSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NE T OF ALL OTHER DEDUCTIONS. 9. GROUND NOS.5 & 6 ARE RELATED TO THE UNEXPLAINED INVESTMENT OF ` 32,31,704/-. DURING THE ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER FOUND ON THE OPENING DAY OF BUSINESS, THE ASSESSEE MADE THE INVESTMENT OF ` 58,68,804/- AND EXPLAINED THE SOURCE TO THE EXTENT OF ` 26,36,900/- AND THE BALANCE AMOUNT OF ` 32,31,704/- WAS NOT EXPLAINED. THOUGH THE ASSESSEE EXPLAINED THAT SOUR CE WAS FROM THE ADVANCES RECEIVED FROM THE PROSPECTIVE CUSTOMERS RA NGING FROM ` ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 5 2,000/- TO ` 2,500/- FROM EACH PERSON, THE ASSESSEE DID NOT FUR NISH EVEN THE NAMES OF THE PERSONS FROM WHOM THE ADVANCES WER E RECEIVED. THEREFORE, THE ASSESSING OFFICER MADE THE ADDITION OF ` 32,37,704/-. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE WE NT ON APPEAL BEFORE THE CIT(A) AND THE CIT(A) CONFIRMED THE ADDITION MA DE BY THE A.O. AS PER PARAGRAPH NO.5.3.4 AS UNDER: 5.3.4 A PLEA WAS ALSO RAISED THAT ONCE THE BOOKS O F ACCOUNT ARE REJECTED, THEN THE AO IS NOT JUSTIFIED IN MAKING ADDITION TO CASH CREDITS WITH REFERENCE TO THE SAME BOOKS OF ACCOUNT. IN SUPPORT , THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE AP HIGH COURT IN THE CASE OF MADDI SADARSHANAM OIL MILLS CO. V. CIT (37 ITR 369) AND IN DWELL CONSTRUCTIONS V. CIT (232 ITR 776 AP). IN THIS REGARD, IT IS REL EVANT TO NOTE A SIMILAR ISSUE AS TO WHETHER ADDITION U/S 68 OR 69 COULD BE MADE WHEN THE AO HAS ESTIMATED THE INCOME WAS DEALT BY THE HONBLE ITAT, HYDERABAD IN THE CASE OF SMT. SHOBA GUPTA (ITA NO.461/HYD/2013, DT.1 0.7.2013), WHEREIN IT WAS HELD THAT EVEN IF THE INCOME IS ESTIMATED, T HE AO MAY INVOKE THE PROVISIONS OF SEC. 68/69 OF THE ACT. THE HONBLE T RIBUNAL FOLLOWED THE DECISION IN THE CASE OF P.V. SITARAMASWAMY NAIDU IN ITA NO.26/HYD/12 VIDE ORDER DT.9.1.2013. THE HONBLE TRIBUNAL TOOK THE VIEW THAT UNLESS THE ASSESSEE, BY INDEPENDENT AND SATISFACTORY EVIDE NCE, ESTABLISHES THAT THESE AMOUNTS RELATE OR REFERABLE TO THE UNDISCLOSE D INCOME FROM KNOWN OR DISCLOSED SOURCES, I.E. THE BUSINESS, WHOSE INCO ME HAD ALREADY BEEN ESTIMATED, THE ITO IS ENTITLED TO TREAT UNEXPLAINED CASH CREDIT AS INCOME FROM UNDISCLOSED SOURCES. THE HONBLE TRIBUNAL PLA CED RELIANCE ON THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. MADHURI RAJAIAHGARI KISTAIAH (120 ITR 294) AND OF THE APEX COURT IN THE CASE OF DEVI PRASAD VISWANATH PRASAD 72 ITR 194. THE HONB LE TRIBUNAL ALSO REFERRED TO THE OBSERVATION OF SUPREME COURT IN THE CASE OF KALEKHAN MOHAMMAD HANIF V. CIT (50 ITR 1)(SC), IT CANNOT BE SAID THAT THE TAX AUTHORITIES WERE PRECLUDED FROM TREATING THE AMOUNT S OF THE CREDIT ENTRIES AS INCOME FROM UNDISCLOSED SOURCES SIMPLY BECAUSE T HE ENTRIES APPEAR IN THE BOOKS OF A BUSINESS WHOSE INCOME THEY HAD PREVI OUSLY COMPUTED ON A PERCENTAGE BASIS WHILE RENDERING THE ABOVE DECISIO N. THEREFORE, I DO NOT FIND ANY MERIT IN THE CONTENTIONS RAISED. ACCORDIN GLY, IT IS HELD THAT THE AO IS JUSTIFIED IN MAKING THE IMPUGNED ADDITIONS OF ` 5,00,000/-, ` 32,31,704/- & ` 56,577/-. ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 6 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE FILED APPEAL BEFORE US AND SUBMITTED THE CONFIRMATIONS RECEIVED FROM VARIOUS PARTIES I.E. 43 IN NUMBER BEFORE US. THE LD. A.R. EXPLAINED THAT THE ASSESSEE COULD NOT FURNISH CONFIRMATION LETTERS BEF ORE THE CIT(A) DUE TO THE REASONS BEYOND HIS CONTROL AND NEITHER INTEN TIONAL NOR DELIBERATE. WE HAVE GONE THROUGH THE REASONS IN THE PETITION FOR ADMISSION OF ADDITIONAL EVIDENCES AND THE CONFIRMAT IONS FILED BY ASSESSEE TO SUPPORT THE SOURCE OF UNEXPLAINED INVES TMENT. ALL THE ADVANCES WERE TAKEN FROM THE PARTIES RESIDING IN TH E NEARBY VILLAGES AND NEAR AND DEAR. ALL THE LOANS WERE SUPPOSED TO BE TAKEN IN CASH. THE LD. A.R. COULD NOT EXPLAIN THE REASONS FOR NON- SUBMISSION OF CONFIRMATIONS BEFORE THE ASSESSING OFFICER AS WELL AS THE CIT(A), WHEN THE LOANS WERE TAKEN FROM THE CREDITORS RESIDI NG IN NEARBY VILLAGES. THE REASON OF THE ASSESSEE THAT THE CONF IRMATIONS COULD NOT BE OBTAINED DUE TO THE CIRCUMSTANCES BEYOND THE CON TROL IS NOT ACCEPTABLE AND APPEARS TO BE AFTER THOUGHT. THE TI ME LIMIT FOR COMPLETION OF THE ASSESSMENT WAS 2 YEARS FROM THE E ND OF THE RELEVANT ASSESSMENT YEAR AND THE ASSESSEE MUST SUBM IT THE EVIDENCES WITHIN THE TIME LIMIT TO SUPPORT THE CLAI M. IN THIS CASE, BOTH THE A.O. AND THE CIT(A) HAVE GIVEN SUFFICIENT OPPORTUNITIES BUT THE ASSESSEE FAILED TO FURNISH THE CONFIRMATIONS BE FORE THE ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 7 A.O./CIT(A). HENCE, WE HOLD THAT THERE IS NO REASO NABLE CAUSE FOR NON-SUBMISSION OF THE CONFIRMATIONS BEFORE THE A.O. AND THE CIT(A), ACCORDINGLY, THE PETITION FOR ADMISSION OF ADDITION AL EVIDENCE IS REJECTED. THE ASSESSEE HAS NOT EVEN FURNISHED THE NAMES AND ADDRESSES OF THE PERSONS FROM WHOM ADVANCES WERE TA KEN AT THE TIME OF ASSESSMENT PROCEEDINGS AS WELL AS THE CIT(A ) AND FAILED TO ESTABLISH IDENTITY, CREDITWORTHINESS AND THE GENUIN ENESS OF THE CREDITORS. THEREFORE, THE CIT(A) HAS RIGHTLY CONFI RMED THE ADDITION MADE BY THE A.O. AND THE SAME IS UPHELD. THE ASSES SEES APPEAL ON THIS GROUND IS DISMISSED. 11. GROUND NO.7 IS RELATED TO THE ADDITION OF ` 5 LAKHS MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED INVESTMENT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE A SSESSEE HAS RECEIVED A SUM OF ` 5 LAKHS FROM CH. KRISHNA MURTHY. HE HAS GIVEN ` 3 LAKHS BY PAY ORDER DRAWN ON ANDHRA BANK, SRIKAKUL AM AND A SUM OF ` 2 LAKHS FROM SHRI B. KRISHNA RAO. THE ASSESSEE DI D NOT FURNISH ANY EVIDENCES IN SUPPORT OF THE LOANS TAKEN FROM TH E ABOVE CREDITORS I.E. SHRI KRISHNA MURTHY AND KRISHNA RAO. THEREFOR E, THE ASSESSING OFFICER MADE ADDITION OF ` 5 LAKHS TO THE RETURNED INCOME AND THE CIT(A) CONFIRMED THE ADDITION. ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 8 12. DURING THE APPEAL HEARING, THE LD. A.R. ARGUED THAT THE AMOUNTS RECEIVED FROM KRISHNA RAO AND KRISHNA MURTH Y WERE GENUINE AND THE AMOUNTS RECEIVED THROUGH PAY ORDER AND BANKERS CHEQUE, THEREFORE, THE SAME SHOULD BE ACCEPTED. 13. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THOUGH ASSESSEE CLAIMED TO HAVE RECEIVED THE AMOUNTS FROM SHRI KRISHNA RAO AND SHRI KRISHNA MURTHY, THE ASSES SEE HAS NOT EVEN FURNISHED THE CONFIRMATION LETTERS, ADDRESSES OF TH E PERSONS, PAN NUMBERS AND HIS CREDITWORTHINESS OF THE CREDITORS. EVEN AT THE TIME OF APPEAL HEARING, THE ASSESSEE DID NOT FURNISH ANY SUCH DETAILS. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R. THE LD. CIT(A) AND THE SAME IS UPHELD. 14. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 26 TH JUL17. SD/- SD/- ( . ) ( . . ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM: /DATED : 26.07.2017 VG/SPS ITA NO.41/VIZAG/2015 S. SRINIVASA RAO, SRIKAKULAM 9 /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SHRI S. SRINIVASA RAO, PROP: KRI SHNA BEER & WINES, D.NO.12-1-67, MANDALA STREET, SRIKAKULAM. 2. / THE RESPONDENT THE ITO, WARD-2, SRIKAKULAM 3. / THE CIT-2, VISAKHAPATNAM 4. ( ) / THE CIT (A), VISAKHAPATNAM 5. , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM