Sri Mamidi Rama Rao, Srikakulam V. The ITO, Srikakulam

ITA 416/VIZ/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3823 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 10-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V APPALA RAJU
• Assessee Lawyers: N V RAMANA MURTHY
• Keywords: Rejection of books of accounts; Additional evidence; Set aside
• Section: 143(3); 143(1); 68

Judgement Text

, , 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. 416 /VIZ/ 201 6 ( / ASSESSMENT YEAR: 20 11 - 1 2 ) SRI MAMIDI RAMA RAO S/O APPALA SURAPU NAIDU VANDRANGI VILLAGE G.SIGADAM SRIKAKULAM DIST. [PAN : ALVPM0602J ] VS. ITO WARD - 1 SRIKAKULAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI N.V.RAMANA MURTHY , AR / RESPONDENT BY : SHRI V.APPALA RAJU , DR / DATE OF HEARING : 2 5 . 04. 201 8 / DATE OF PRONOUNCEMENT : 04 . 0 5 .201 8 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME - TAX ( APPEALS) [CIT(A)] - 2 , GUNTUR VIDE ITA NO. 117/14 - 15 DATED 04.05.2016 FOR THE ASSESSMENT YEAR 20 11 - 1 2 . 2 ITA NO .416 /VIZ/201 6 MAMIDI RAMA RAO , SRIKAKULAM 2. GROUND NO.1 AND 4 ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 3. GROUND NO. 2 IS RELATED TO ESTIMATION OF INCOME FROM THE BUSINESS OF IMFL BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) IN SRIKAKULAM DISTRICT. THE ASSESSEE HAD FILED R ETURN OF INCOME DECLARING TOTAL INCOME OF RS.3,95,393 / - ON 13/0 9/2011 . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). LATER, THE ASSESSMENT WAS C OMPLETED U/S 143(3) OF THE ACT AND I N THE ASSESSMENT ORDER, THE A.O. HAS OBSERVED THAT THE ASSESS EE HAS NOT MAINTAINED ANY STOCK REGISTER AND NOT PRODUCED SALE BILLS, NO QUANTITATIVE DETAILS OF SALE EFFECTED AND THEREFORE, HE HAS ESTIMATED THE NET PROFIT, CLEAR OF ALL EXPENSES AT 20% OF THE STOCK PUT TO SALE. ON APPEAL, THE LD. CIT(A) GRANTED A PARTI AL RELIEF TO THE ASSESSEE BY SCALING DOWN THE PERCENTAGE OF PROFIT FROM 20% TO 10% AND DIRECTED THE A.O. TO RE - COMPUTE THE INCOME AT 10% OF PURCHASE PRICE. 4. ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE 3 ITA NO .416 /VIZ/201 6 MAMIDI RAMA RAO , SRIKAKULAM DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL WHERE THE TRIBUNAL HAS SCALED DOWN THE ESTIMATION OF PROFIT FROM 10% TO 5% IN THE CA SE OF TANGUDU JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016. 5 . ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORTED THE ORDER PASSED BY THE AUTHORITIES BELOW. 6 . WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE INVOLVED IN THIS APPEAL IS ESTIMATION OF PROFIT IN RESPECT OF IMFL BUSINESS CARRIED BY THE ASSESSEE. IN THIS RESPECT, T HE C OORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF TANGUDU JOGISETTY (SUPRA) HAS CONSIDERED THE PROFIT LEVEL IN THE LINE OF BUSINESS AND DECIDED THAT 5% OF PURCHASE PRICE IS REASONABLE PROFIT MARGIN IN THE LINE OF IMFL BUSINESS AND DIRECTED THE A.O. TO RE - COMPUTE THE PROFIT OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES 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 PROFIT 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 THE ASSESSEE. IT IS FURTHER SUBMITTED THAT THE CASE LAW RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO THE FACTS OF THE PRESENT 4 ITA NO .416 /VIZ/201 6 MAMIDI RAMA RAO , SRIKAKULAM CASE. THE CASE BEF ORE THE HONBLE A.P. HIGH COURT WAS THAT THE ASSESSEE IS INTO THE BUSINESS OF TRADING IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURTHER CONTENDED THAT IMFL TRADE WAS CONTROLLED BY THE STATE GOVERNMENT THROUGH A.P. STATE BE VERAGES 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 FIXED BY THE STATE GOVERNMENT. WE FIND FORCE IN THE ARGUMEN TS OF THE ASSESSEE FOR THE REASON THAT THE A.O. HAS ESTIMATED THE NET PROFIT BY RELYING UPON THE DECISION 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 COURT HAS CONSID ERED 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 UNDER DIFFERENT FACTS TO ESTIMATE THE NET PRO FIT. 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 THE ASSESSEE IN THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FINDS THAT THE COORDINATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% NET PROFIT ON PURCHASES IS REASONABLE. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUNDER: 3. WE HAVE HE ARD THE PARTIES, PERUSED THE ORDERS OF 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 HIGH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF PROFIT IN THIS LINE OF BUSI NESS. WHEREAS, THE LD. D.R. SUPPORTED THE ORDER OF THE CIT(A). HAVING CONSIDERED THE SUBMISSIONS OF THE ASSESSEE, WE ARE OF THE VIEW THAT 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 OTHER CASES HAVE HELD THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FOREIGN LIQUOR HAS TO BE ESTIMATED AT 5% OF THE PURCHASES MADE BY THE ASSESSEE. THEREFOR E, FOLLOWING THE DECISION OF THE ITAT HYDERABAD BENCH, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER 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 DED UCTIONS. THE ASSESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERMINED 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 IS QUITE HIGH. ON THE OTHER HAND, THE ASSESSEE RELIED UPON THE DECISION OF COORDINATE BENC H AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMATED THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. NO CONTRARY DECISION IS PLACED ON RECORD BY THE REVENUE TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE COOR DINATE BENCH. THEREFORE, WE DIRECT THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. ORDERED ACCORDINGLY. 5 ITA NO .416 /VIZ/201 6 MAMIDI RAMA RAO , SRIKAKULAM 7 . IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE DIRECT THE A.O. TO RE - COMPUTE THE INCOME OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 8. GROUND NO.3 IS RELATED TO THE ADDITION OF RS.5,33,890/ - ON ACCOUNT OF UNPROVED CREDITORS. DURING THE ASSESSMENT PROCEEDINGS, TH E AO FOUND THAT THE ASSESSEE HAS RECEIVED UNSECURED LOANS OF RS. 2,28,000/ - AND THERE WERE UNSECURED CREDITORS OF RS.3,05,890/ - AGGREGATING TO RS.5,33,890/ - . T HE AO REQUESTED TO FURNISH THE P ROOF OF CREDITS AND ALSO CONFIRMAT ION FROM THE UNSECURED CREDITORS. THE ASSESSEE DID NOT FURNISH ANY EVIDENCE INSPITE OF GIVING REPEATED OPPORTUNITIES AND THE SHOW CAUSE NOTICE . . SINCE THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF THE LOANS, THE AO MADE ADDITION U/S 68 OF I.T.ACT. 9. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A). INITIALLY, THE ASSESSEE FILED ADDITIONAL EVIDENCE BEFORE THE CIT(A) BY WAY OF MOU STATING THAT THE 4 PARTNERS CONTRIBUTED RS.20 LAKHS TO ASSIST THE ASSESSEE IN THE BUSINESS WHICH INCLUDES THE UNSECURED LOANS OF RS.5,33,890/ - . SUBSEQUENTLY, THE ASSESSEE HAS WITHDRAWN THE ADDITIONAL 6 ITA NO .416 /VIZ/201 6 MAMIDI RAMA RAO , SRIKAKULAM EVIDENCE. FURTHER WITH REGARD TO THE SUNDRY CREDITORS, THE ASSESSEE DID NOT FURNISH CONFIRMATION LETTERS NOT EVEN THE NAMES AND ADDRESSES OF THE UNSECURED CREDITORS OR LOANS EITHER BEFORE THE AO OR BEFORE THE CIT(A), HENCE, THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO. 10. AGGRIEVED BY THE ORDER OF THE CIT(A), THE AS SESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.AR ARGUED THAT THE SUM OF RS.5,33,890/ - WAS INCLUDED IN THE SUM OF RS.20,53,921/ - INITIAL INVESTMENT. THE ASSESSEE SUBMITTED TH AT THE SUM OF RS.5,33,890/ - IS THE SOURCE AND ITS APPLICATION WAS TO WARDS INITIAL INVESTMENT. BY MAKING THE ADDITION OF INVESTMENTS AS WELL AS THE CREDITORS THE SAME INCOME IS ADDED TWICE WHICH AMOUNTS TO DOUBLE ADDITION. HENCE REQUESTED TO DELETE THE ADDITION OF RS.5,33,890/ - . 11. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE LD.CIT(A). 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. IN THIS CASE , THE TOTAL INVESTMENT MADE IN THE MONTH OF JUNE 2010 WAS RS.31,15,300/ - AND BROUGHT FORWARD CAPITAL WAS RS.10,61,379/ - . THE ASSESSING OFFICER HAS ALLOWED THE CREDIT FOR BROUGHT FORWARD CAPITAL AND THE 7 ITA NO .416 /VIZ/201 6 MAMIDI RAMA RAO , SRIKAKULAM DIFFERENCE OF THE IN VE STMENT AT THE BEGINNING OF YEAR AMOUNTING TO RS.20,53,921/ - WAS ADDED BY THE AO AS INCOME FROM OTHER SOURCES. AS AT THE END OF TH E YEAR, THE TOTAL INVESTMENTS OUTSTANDING WERE AT RS.18,00,288/ - CONSISTING OF CURRENT ASSETS AND CLOSING STOCK. THE AO MADE THE ADDITION RELATING TO SUNDRY CREDITORS AND THE UNSECURED LOANS ALSO AGGREGATING TO RS.5,33,890/ - WHICH WAS OUTSTANDING AS AT THE END OF THE YEAR. FROM THE BALANCE SHEET IT IS EVIDENT THAT THE ADDITION OF RS.20,53,921/ - INCLUDES THE SOURCE CONSISTING OF SUNDRY CRED ITORS AND THE UNSECURED LOANS . WHILE THE SUNDRY CREDITORS AND THE UNSECURED LOANS ARE THE SOURCE FOR INVESTMENT , THE INVESTMENT MADE BY THE ASSESSEE IS APPLICATION OF FUNDS. THE AO HAS NOT BROUGHT ON RECORD ANY ASSET OR EXPENDITURE OVER AND ABOVE THE TOTAL INVESTMENTS OUTSTANDING OF RS.18,00,288/ - AS AT THE END OF THE YEAR. THEREFORE, THE ADDITION REP RESENTING U NSECURED CREDITORS AND THE UNSECURED LOANS AMOUNTS TO TAXING THE SAME SOURCE TWICE WHICH AMOUNTS TO DOUBLE ADDITION. THEREFORE WE FIND MERIT IN THE ARGUMENT OF THE LD.AR THAT HAVING BROUGHT THE INVESTMENT TO TAX , THE LIABILITIES REPRESENTING THE INVESTMEN TS SHOULD NOT BE TREATED AS INCOME ONCE AGAIN. THEREFORE, WE HOLD THAT THE THE UNSECURED LOANS AND THE UNSECURED CREDITORS AMOUNTING TO RS.5,33,890/ - REQUIRED TO BE GIVEN TELESCOPIC BENEFIT FROM THE ADDITION MADE ON ACCOUNT OF 8 ITA NO .416 /VIZ/201 6 MAMIDI RAMA RAO , SRIKAKULAM INVESTMENTS. ACCORDINGLY, W E SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DELETE THE ADDITION. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 4 TH MAY , 20 1 8 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 04 .0 5 .2018 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1. / THE APPELLANT - SRI MAMIDI RAMA RAO , S/O APPALA SURAPU NAIDU VANDRANGI VILLAGE, G.SIGADAM, SRIKAKULAM DIST. 2 . / ITO, WARD - 1 , SRIKAKULAM 3 . THE PR. COMMISSIONER OF INCOME TAX - 2 , VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME - TAX(APPEALS) - 2 , GUNTUR , CAMP:VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6. / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM