M. Suresh Kumar, Rajam V. THE ITO, Srikakulam

ITA 415/VIZ/2015

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9640 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 29-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Unexplained investment; Additional evidence; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 142(1); 143(2)

Judgement Text

ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 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.415/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) M. SURESH KUMAR, RAJAM VS. ITO, WARD - 1, SRIKAKULAM [PAN: ALMPM0335L ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI R.S. ARAVINDAKSHAN,DR / DATE OF HEARING : 14.12.2016 / DATE OF PRONOUNCEMENT : 23.12.2016 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-2, VISAKHAPATNAM DATED 26.10.2015 AND IT PER TAINS TO THE ASSESSMENT YEAR 2011-12. ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL INVOLVED IN THE BUSINESS OF PURCHASE AND SALE OF IM FL, FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 26.9.2011 DECLARING TOTAL INCOME OF ` 2,71,050/-, BESIDES AGRICULTURAL INCOME OF ` 4,74,000/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOT ICE U/S 143(2) & 142(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CAL LED AS 'THE ACT') ALONG WITH QUESTIONNAIRE WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF ACCOUNTS AND OTHER DETAILS C ALLED FOR. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, DET ERMINING THE TOTAL INCOME OF ` 66,05,655/-. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER REJECTED BOOKS OF ACCOUNTS U/S 14 5 OF THE ACT AND ESTIMATED NET PROFIT OF 20% ON TOTAL STOCK PUT TO S ALE. IN ADDITION TO ESTIMATION OF NET PROFIT, THE A.O. MADE ADDITIONS T OWARDS UNEXPLAINED INVESTMENTS AND ALSO UNPROVED, UNSECURED LOANS UNDE R THE PROVISIONS OF SECTION 68 OF THE ACT. AGGRIEVED BY ASSESSMENT ORD ER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) F OR THE DETAILED DISCUSSIONS IN HIS ORDER, SCALED DOWN ESTIMATION OF NET PROFIT FROM 20% TO 10% ON TOTAL STOCK PUT TO SALE. IN SO FAR AS AD DITIONS TOWARDS UNEXPLAINED CREDITS BEING UNPROVED, UNSECURED LOANS , THE CIT(A) CONFIRMED ADDITIONS OF ` 10,25,246/- AND BALANCE AMOUNT OF ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 3 ` 11,83,000/- IS DELETED. SIMILARLY, THE CIT(A) DEL ETED ADDITIONS TOWARDS UNEXPLAINED INVESTMENTS OF ` 9,13,951/- BY HOLDING THAT SOURCE IN THE FORM OF UNSECURED LOANS IS AVAILABLE TO EXPLAIN THE UNEXPLAINED INVESTMENT OF ` 9,31,951/-, ACCORDINGLY DIRECTED THE A.O. TO DELET E ADDITIONS TOWARDS UNEXPLAINED INVESTMENT. IN SO FA R AS ADDITIONS TOWARDS INTEREST INCOME, THE CIT(A) CONFIRMED ACTIO N OF THE A.O. IN BRINGING TO TAX INTEREST INCOME UNDER THE HEAD INC OME FROM OTHER SOURCES. AGGRIEVED BY THE CIT(A) ORDER, THE ASSES SEE IS IN APPEAL BEFORE US. 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS ESTIMATION OF NET PROFIT FROM THE BUSINESS. THE A.O. ESTIMATED N ET PROFIT OF 20% ON TOTAL STOCK PUT TO SALE. THE A.O. WAS OF THE OPINI ON THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPT IBLE FOR VERIFICATION AND ALSO THE ASSESSEE FAILS TO SUBSTANTIATE EXPENDI TURE DEBITED TO THE PROFIT & LOSS ACCOUNT. THE A.O. FURTHER WAS OF THE OPINION THAT THE ASSESSEE COULD NOT PRODUCE STOCK REGISTERS AND ALSO FAILED TO FURNISH QUANTITATIVE DETAILS RELATING TO SALES AND CLOSING STOCK. THEREFORE, REJECTED BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT OF 20% ON TOTAL STOCK PUT FOR SALE. IT IS THE CONTENTION OF THE AS SESSEE THAT NET PROFIT ESTIMATED BY THE A.O. IS VERY MUCH ON HIGHER SIDE. THE ASSESSEE ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 4 FURTHER CONTENDED THAT UNDER SIMILAR FACTS AND CIRC UMSTANCES AND SIMILAR NATURE OF BUSINESSES, ITAT, VISAKHAPATNAM IN SEVERA L CASES HAS DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 5% ON TOTAL STOC K PUT TO SALE. IN THIS REGARD, RELIED UPON THE DECISION OF ITAT, VISAKHAPA TNAM IN THE CASE OF K. HEMA SUNDAR RAO AND OTHERS IN ITA NO.616/VIZAG/2 014 DATED 23.6.2016. 4. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IAL ON RECORD, WE FIND THAT THE COORDINATE BENCH OF THIS TRIBUNAL UNDER SIMILAR SET OF FACTS, DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 5% ON TOTAL STOCK PUT TO SALE NET OF ALL DEDUCTIONS. THE RELEVANT PORTION O F 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 ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 5 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% 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 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 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. ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 6 5. IN THIS VIEW OF THE MATTER AND ALSO RESPECTFULLY FOLLOWING THE RATIO OF COORDINATE BENCH, IN THE CASE OF K. HEMA SUNDAR RAO VS. ITO (SUPRA), WE DIRECT THE A.O. TO ESTIMATE NET PROFIT OF 5% ON TOTAL STOCK PUT TO SALE NET OF ALL DEDUCTIONS. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N IS ADDITION TOWARDS UNPROVED, UNSECURED LOANS U/S 68 OF THE ACT . THE A.O. MADE ADDITION TOWARDS UNSECURED LOANS FOR THE REASON THA T THE ASSESSEE FAILED TO PROVE THE IDENTITY, GENUINENESS OF THE TRANSACTI ONS AND CREDITWORTHINESS OF THE PARTIES. IT IS THE CONTENT ION OF THE ASSESSEE THAT HE HAD FURNISHED CONFIRMATION LETTERS FROM LOAN CRE DITORS AND ALSO PROVED THE GENUINENESS OF THE TRANSACTIONS AND CRED ITWORTHINESS OF THE PARTIES. THE ASSESSEE FURTHER CONTENDED THAT THE C REDITORS HAVE SOURCE OF INCOME TO PROVE THE CREDITWORTHINESS AND ALSO FU RNISHED PROOF OF INCOME TAX RETURNS FILED FOR THE ASSESSMENT YEAR 20 08-09 TO JUSTIFY LOANS GIVEN TO THE PARTIES. THE ASSESSEE FURTHER CONTEND ED THAT LOANS WERE ACCEPTED THROUGH PROPER BANKING CHANNELS AND ALSO F ILED NECESSARY PROOF OF IDENTITY, CREDITWORTHINESS OF THE PARTIES, THEREFORE, THE A.O. WAS INCORRECT IN MAKING ADDITIONS TOWARDS UNSECURED LOA NS. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATER IALS AVAILABLE ON RECORD, WE FIND THAT THE A.O. HAS MADE ADDITIONS OF ` 22,08,240/- U/S 68 ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 7 OF THE ACT TOWARDS UNEXPLAINED, UNSECURED LOANS. D URING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAS FILED ADDIT IONAL EVIDENCES IN THE FORM OF CONFIRMATION LETTERS ALONG WITH PROOF OF IN COME TAX RETURNS FILED BY THE CREDITORS. THE CIT(A) FORWARDED ADDITIONAL EVIDENCES FILED BY THE ASSESSEE TO THE ASSESSING OFFICER FOR HIS COMMENTS. THE A.O. VIDE HIS REMAND REPORT DATED 12.6.2015, HAS COMMENTED ON ADD ITIONS MADE BY THE A.O. TOWARDS UNSECURED LOANS. THE CIT(A) AFTER CONSIDERING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE AND ALSO TAKEN INTO ACCOUNT THE REMAND REPORT OF THE A.O., HAS DELETED ADDITION TOWARDS 5 UNSECURED LOANS OUT OF 8 UNSECURED LOANS ACCEPTED B Y THE ASSESSEE. IN SO FAR AS, SRI G. NARAYANA SWAMY, G. VEERA SWAMY AN D K. RAMA RAO, THE CIT(A) OBSERVED THAT ALTHOUGH THE CREDITORS HAV E FILED CONFIRMATION LETTERS, FAILED TO PROVE THE SOURCES OF LOANS GIVEN TO THE ASSESSEE. THE CIT(A) FURTHER HELD THAT THE CREDITORS HAVE DEPOSIT ED CASH INTO THEIR BANK ACCOUNTS BEFORE TRANSFERRING LOANS TO ASSESSEE S ACCOUNTS. THEREFORE, OPINED THAT GENUINENESS OF THE TRANSACTI ONS HAS NOT BEEN PROVED. 8. WE DO NOT FIND ANY MERITS IN THE FINDINGS OF THE CIT(A), FOR THE REASON THAT THE ASSESSEE HAS FILED CONFIRMATION LET TERS FROM G. NARAYANA SWAMY AND K. RAMA RAO ALONG WITH BANK STATEMENTS AN D INCOME TAX ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 8 RETURNS FILED FOR THE YEAR 2009-10. ON PERUSAL OF THE DETAILS FILED BY THE ASSESSEE, WE FIND THAT THE CREDITORS HAVE ACCEPTED THAT THEY HAD GIVEN LOANS TO THE ASSESSEE BY WAY OF DEMAND DRAFTS. THE CREDITORS ALSO FILED NECESSARY EVIDENCES TO PROVE THE GENUINENESS OF THE TRANSACTIONS AND CREDITWORTHINESS. ONCE THE INITIAL ONUS IS DISCHAR GED BY FILING CONFIRMATION LETTERS ALONG WITH PROOF OF INCOME, TH E A.O. WAS INCORRECT IN MAKING ADDITIONS U/S 68 OF THE ACT. IF AT ALL, THE A.O. IS HAVING ANY DOUBT WITH REGARD TO THE SOURCE OF INCOME OF THE CR EDITORS, HE IS AT LIBERTY TO INITIATE PROCEEDINGS AGAINST THE CREDITO RS UNDER THE PROVISIONS OF THE ACT, BUT, HE COULD NOT MAKE ADDITIONS IN THE HANDS OF THE ASSESSEE. 9. IN THIS CASE, THE ASSESSEE HAS FILED CONFIRMATIO N LETTERS AND ALSO FILED BANK ACCOUNT COPY OF THE CREDITORS ALONG WITH THEIR INCOME TAX RETURN. THE CREDITORS HAVE ENOUGH SOURCE OF INCOM E TO EXPLAIN THE LOANS GIVEN TO THE ASSESSEE. THEREFORE, WE ARE OF THE VIEW THAT A.O. WAS INCORRECT IN MAKING ADDITIONS U/S 68 OF THE ACT . THE CIT(A) WITHOUT APPRECIATING THE FACTS SIMPLY CONFIRMED ADDITIONS M ADE BY THE A.O. HENCE, WE DIRECT THE A.O. TO DELETE ADDITIONS MADE TOWARDS UNSECURED LOANS RECEIVED FROM G. NARAYANA SWAMY AND K. RAMA R AO. IN SO FAR AS UNSECURED LOANS RECEIVED FROM G. VEERA SWAMY, THE A SSESSEE FAILED TO ITA NO.415/VIZAG/2015 M. SURESH KUMAR, RAJAM 9 PROVE THE CREDIT BY FILING NECESSARY IDENTITY, CRED ITWORTHINESS AND GENUINENESS OF THE TRANSACTIONS. EVEN BEFORE US, T HE ASSESSEE FAILED TO FILE ANY DETAILS WITH REGARD TO THE UNSECURED LOANS ACCEPTED FROM G. VEERA SWAMY. THEREFORE, WE ARE OF THE VIEW THAT TH E A.O. HAS RIGHTLY MADE ADDITIONS TOWARDS UNSECURED LOANS RECEIVED FRO M G. VEERA SWAMY, ACCORDINGLY, ADDITIONS MADE BY THE A.O. ARE UPHELD. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 23 RD DEC16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 23.12.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT M. SURESH KUMAR, S/O M.V. APPA R AO, 8 TH LANE, MALLIKARJUNA COLONY, RAJAM, SRIKAKULAM DIST. 2. / THE RESPONDENT THE ITO, WARD-1, SRIKAKULAM 3. + / THE CIT-2, VISAKHAPATNAM 4. + ( ) / THE CIT (A)-2, VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM