Sundarapu Neelakantaswamy, Anakapalle V. THE CIT(A) - 2, VISAKHAPATNAM, Anakapalle

ITA 412/VIZ/2015

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9949 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 17-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI SHANKAR NARAYAN
• Assessee Lawyers: K S S SARMA
• Keywords: Unexplained investment
• Section: 143(3)

Judgement Text

ITA NO.412/VIZAG/2015 SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER ./I.T.A.NO.412/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM VS. ITO, WARD - 1, ANAKAPALLE [PAN: CUNPS6404H ] ( / APPELLANT) ( ! / RESPONDENT) / APPELLANT BY : SHRI K.S.S. SARMA, AR / RESPONDENT BY : SHRI RAVI SHANKAR NARAYAN, DR / DATE OF HEARING : 01.08.2016 / DATE OF PRONOUNCEMENT : 12.08.2016 / 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 27.10.2015 FOR THE AS SESSMENT YEAR 2011-12. ITA NO.412/VIZAG/2015 SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIV IDUAL CARRYING ON THE BUSINESS OF PURCHASE AND SALE OF INDIAN MADE FOREIG N LIQUOR (IMFL) FILED A RETURN OF INCOME BY DECLARING TOTAL INCOME OF RS. 3,50,520/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143( 1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT') AND THEREAFTER THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSES SMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING THE P ROFIT FROM WINE BUSINESS OF THE ASSESSEE AT 20% OF STOCK PUT TO SAL E. ON APPEAL, CIT(A) SCALED DOWN THE SAME TO 10%. 3. ASSESSEE HAS CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL. 4. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED T HAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE DECISION OF COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TANGUDU JOGISE TTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016. 5. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER PASSED BY THE AUTHORITIES BELOW. 6. I HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIA LS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ESTIMATION OF PROF IT IN RESPECT OF IMFL ITA NO.412/VIZAG/2015 SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM 3 BUSINESS CARRIED BY THE ASSESSEE. IN THIS CONTEXT, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TANGUDU JOGISETTY (S UPRA) HAS CONSIDERED THE PROFIT LEVEL IN THE LINE OF THE BUSINESS AND DE CIDED THAT 5% OF THE PURCHASE PRICE IS REASONABLE PROFIT MARGIN IN THE L INE OF IMFL BUSINESS AND DIRECTED THE A.O. TO RE-COMPUTE THE PROFIT OF T HE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER : 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS 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. TH E A.O. FURTHER OBSERVED THAT THE ASSESSEE HAS FAILED TO MAINTAIN S TOCK REGISTERS AND BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NO T SUSCEPTIBLE FOR VERIFICATION, THEREFORE REJECTED THE BOOKS OF ACCOU NTS AND ESTIMATED NET PROFIT OF 20% BY RELYING UPON THE DECISION OF HONB LE A.P. HIGH COURT. IT IS THE CONTENTION OF THE ASSESSEE THAT THE NET PROF IT ESTIMATED BY THE A.O. IS QUITE HIGH WHEN COMPARED TO THE NATURE OF BUSINE SS 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 PRES ENT CASE. THE CASE BEFORE THE HONBLE A.P. HIGH COURT WAS THAT THE ASS ESSEE IS INTO THE BUSINESS OF TRADING IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURTHER CONTENDED THAT IMFL TRAD E WAS CONTROLLED BY THE STATE GOVERNMENT THROUGH A.P. STATE BEVERAGES C ORPORATION LTD. AND THE PRICES OF THE PRODUCTS ARE FIXED BY THE STATE G OVERNMENT. 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 REASON THAT THE A.O. HAS ESTIMATED THE NET PROFIT BY RELYING UPON THE DE CISION 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 COUR T 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 THA T 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 T HE ASSESSEE IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FINDS TH AT THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% ITA NO.412/VIZAG/2015 SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM 4 NET PROFIT ON PURCHASES IS REASONABLE. THE RELEVAN T PORTION OF THE ORDER IS REPRODUCED HEREUNDER: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS O F THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON R ECORD. IT IS THE CONTENTION OF THE LD. A.R. THAT THE ESTIMATION OF P ROFIT AT 16% IS HIGH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF P ROFIT IN THIS LINE OF BUSINESS. WHEREAS, THE LD. D.R. SUPPORTED THE O RDER OF THE CIT(A). HAVING CONSIDERED THE SUBMISSIONS OF THE A SSESSEE, WE ARE OF THE VIEW THAT THE ISSUE IS NO MORE RES INTEG RA 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 A ND OTHERS DATED 18.05.2012 AS WELL AS A NUMBER OF OTHER 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 ASS ESSEE. THEREFORE, FOLLOWING THE DECISION OF THE ITAT HYDER ABAD BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE AS SESSING OFFICER TO ESTIMATE THE PROFIT FROM THE WINE BUSINESS OF THE A SSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NET O F ALL OTHER DEDUCTIONS. THE ASSESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERMINED SHOULD BE BELOW THE I NCOME RETURNED. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THIS CASE AND ALSO RESPECTFULLY FOLLOWING THE RATIOS OF COORDINATE BEN CH, WE ARE OF THE VIEW THAT THE NET PROFIT ESTIMATED BY THE A.O. BY RELYIN G 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 REL IED UPON THE DECISION OF COORDINATE BENCH AND THE COORDINATE BENCH UNDER SIM ILAR CIRCUMSTANCES ESTIMATED THE NET PROFIT OF 5% ON TOTAL PURCHASES N ET OF ALL DEDUCTIONS. NO CONTRARY DECISION IS PLACED ON RECORD BY THE REV ENUE TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE CO ORDINATE BENCH. THEREFORE, WE DIRECT THE A.O. TO ESTIMATE THE NET P ROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. ORDERED ACCORDING LY. 7. IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, I DIRECT THE A.O. TO RE-COMPUTE THE INCOM E OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. ITA NO.412/VIZAG/2015 SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM 5 8. THE SECOND GROUND OF APPEAL RELATING TO UNEXPLAI NED INVESTMENT. IN THE ASSESSMENT ORDER, THE A.O. HAS NOTED THAT TH E ASSESSEE HAD MADE AN INITIAL PURCHASE TO THE TUNE OF ` 1,97,008/- AND PAID LICENSE FEES OF ` 21,16,678/- AGGREGATE TO ` 23,13,686/-. THE A.O. HAS ASKED THE ASSESSEE TO EXPLAIN THE SOURCES OF THE ABOVE IN VESTMENT. IT WAS SUBMITTED BEFORE THE A.O. BY THE ASSESSEE THAT THE ABOVE INVESTMENTS WERE MADE FROM THE AVAILABILITY OF FUNDS I.E. CAPIT AL OF ` 10,27,487/- AND UNSECURED LOAN OF ` 5,77,000/-. THE A.O. HAS CONSIDERED THE ABOVE EXPLANATION AND NOTED THAT AFTER GIVING CREDIT FROM THE CAPITAL BALANCE OF ` 10,27,487/- EXPENDITURE TO THE TUNE OF ` 7,09,200/- REMAINED UNEXPLAINED, FOR WHICH NO DOCUMENTARY PROOF WAS FUR NISHED. THEREFORE, THE A.O. HAS ADDED AN AMOUNT OF ` 7,09,200/- AS UNEXPLAINED INVESTMENT. ON APPEAL, THE LD. CIT(A) CONFIRMED TH E ORDER OF THE A.O. BEFORE ME, THE LD. COUNSEL FOR THE ASSESSEE FILED A PAPER BOOK AND SUBMITTED THAT THE ASSESSEE FAMILY HAS SOLD THE AGR ICULTURAL LAND AND THE CONSIDERATION RECEIVED FROM THE SALE OF AGRICULTURA L LAND IS THE SOURCE OF THE INVESTMENT. 9. ON THE OTHER HAND, THE LD. D.R. HAS SUBMITTED TH AT ASSESSEE HAS NOT RAISED THIS ISSUE NEITHER BEFORE THE A.O. NOR B EFORE THE CIT(A). ITA NO.412/VIZAG/2015 SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM 6 10. I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ONLY ISSUE BEFORE MY CONSIDERATION IS UNEXPLAINED INVEST MENT OF ` 7,09,200/-. WHEN THE A.O. HAS CALLED THE SOURCE OF THE ABOVE INV ESTMENT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE NEITHER BEFORE THE A.O. NOR BEFORE THE CIT(A). HOWEVER, BEFORE ME, HE FILED A PAPER B OOK AND SUBMITTED THAT THE SOURCE OF INVESTMENT IS THE SALE OF AGRICU LTURAL LAND. TO THAT EFFECT SALE DEEDS ARE ALSO FILED. UNDER THESE ABOV E FACTS AND CIRCUMSTANCES OF THE CASE, IN MY OPINION ONE MORE O PPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE. ACCORDINGLY, I SET ASIDE THE ORDER PASSED BY THE CIT(A) AND REMIT THE MATTER BACK TO THE CIT(A) TO CONSIDER THE SALE DEEDS FILED BY THE ASSESSEE IN RESPECT OF SALE OF A GRICULTURAL LAND AND DECIDE THE ISSUE DE-NOVO IN ACCORDANCE WITH LAW. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12 TH AUG16. SD/- ( . ) (V. DURGA RAO) /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 12.08.2016 VG/SPS ITA NO.412/VIZAG/2015 SUNDARAPU NEELA KANTASWAMY, VISAKHAPATNAM 7 '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SUNDARAPU NEELAKANTASWAMY, C/O K .S.S. SARMA, CHARTERED ACCOUNTANT, 12-5-25(A), NEW COLONY, ANAKA PALLE-531 001. 2. / THE RESPONDENT THE ITO, WARD-1, ANAKAPALLE 3. ) / THE CIT-2, VISAKHAPATNAM 4. ) ( ) / THE CIT(A), VISAKHAPATNAM 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM