Sivala Rami Naidu, Srikakulam V. THE ITO, Srikakulam

ITA 45/VIZ/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1120 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 27-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D MANOJ KUMAR
• Keywords: Unexplained investment
• Section: 68; 69

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NOS. 45/VIZAG/2015 ASSESSMENT YEAR: 2011-12 SHRI SIVALA RAMI NAIDU VS. THE ITO, WARD 1 SRIKAKULAM SRIKAKULAM (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI G V N HARI, ADV. REVENUE BY: SHRI D. MANOJ KUMAR, SR. DR DATE OF HEARING : 05.03.2015 DATE OF PRONOUNCEMENT : 22.05.2015 ORDER PER J.SUDHAKAR. REDDY : - THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS D IRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-2, VISAKHAP ATNAM DATED 23.12.2014 FOR THE A.Y. 2011-12. 2. FACTS IN BRIEF . THE ASSESSEE IS THE PROPRIETOR OF M/S NOOKAMBICA WINES AND CARRIES ON THE BUSINESS IN PURCHASE AND SALE O F INDIAN MADE FOREIGN LIQUOR IN SRIKAKULAM DISTRICT. FOR THE AY 2011-12 HE FILED R ETURN OF INCOME DECLARING AN INCOME OF RS.5,25,632/- THROUGH E-FILING ON 17.9.20 11. THE CASE WAS PICKED UP FOR SCRUTINY AND THE AO VIDE HIS ORDER DATED 21.02. 2014 DETERMINED TOTAL INCOME AT RS. 38,14,447/-, INTER-ALIA, MAKING THE FOLLOWIN G ADDITIONS: 1. ESTIMATION OF INCOME OF RS.24,09,211/- @ 20% OF THE STOCK PUT TO SALE; 2. UNEXPLAINED INVESTMENT OF RS. 13,86,672/-; 3. INTEREST ON FDR OF RS. 18,564/-. THE ASSESSEE CARRIED THE MATTER IN APPEAL. 3. THE FIRST APPELLATE AUTHORITY GRANTED PART RELIE F. FURTHER AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS: ITA NO.45/VIZAG/2015 2 1. THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CONTRARY TO THE FACTS AND ALSO THE LAW APPLICABLE T O THE FACTS OF THE CASE; 2. THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNT; 3. WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(APPEALS ) IS NOT JUSTIFIED IN ESTIMATING THE NET PROFIT @ 10% OF PURCHASE PRICE A S AGAINST NET PROFIT OF 5% OF COST OF GOODS SOLD; 4. THE LD. CIT(APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ADDITIONS OF RS. 8,00,000OUT OF TOTAL ADDITION OF RS.13,86,672 MA DE BY THE AO TOWARDS UNEXPLAINED INVESTMENT; 5. THE LD. CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ENTIRE INVESTMENT WAS RECORDED IN THE BOOKS OF ACCOUNT AND HENCE CANNOT BE TERMED AS UNEXPLAINED INVESTMENT. 6. WITHOUT PREJUDICE TO THE ABOVE, THE LD.CIT(A) OUGHT TO HAVE GRANTED BENEFIT OF TELESCOPING; 7. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF A PPEAL HEARING. 4. WE HAVE HEARD SHRI G V N HARI, LD. COUNSEL FOR T HE ASSESSEE AND SHRI D. MANOJ KUMAR, LD. DR ON BEHALF OF THE REVENUE. 5. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF T HE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS: 1. THERE ARE THREE ISSUES THAT ARE AGITATED BEFORE US. THESE ARE : A) ESTIMATION OF INCOME @ 20% OF THE STOCK PUT TO SALE RS.24,09,211/-; B) ADDITION OF UNEXPLAINED INVESTMENT OF RS.13,86,672/ - C) ADDITION OF RS. 18,564/- AS INTEREST ON FDR U/S 69 OF THE ACT, WHEN THE EXPENDITURE IN QUESTION HAS BEEN RECORDED IN TH E BOOKS OF ACCOUNT. 6. AS FAR AS ESTIMATION OF NET PROFIT IS CONCERNED THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF T. APPALASWAMY VS. ACIT (IT A NO. 65 & 66/VIZ/2012) ORDER DATED 3.3.2014 AT PARA 3 HELD AS FOLLOWS: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDER S OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. IT IS THE CONTENTION OF THE LD. AR THAT THE ESTIMATION OF PROFIT AT 16% IS HIGH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF PROFIT IN THIS LINE OF BUSINESS. WHEREAS, THE LD. DR SUPPORTED THE ORDER OF THE CIT(A). HAVING C ONSIDERED 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./2012 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 FORE IGN 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 ITA NO.45/VIZAG/2015 3 ORDER OF THE CIT(A) AND DIRECT THE AO TO ESTIMATE T HE PROFIT FROM THE WINE BUSINESS OF THE ASSESSEE BY APPLYING THE RATE OF 5% OF THE PURCHASES MADE NET OF ALL OTHER DEDUCTIONS. THE AO SHOULD ALSO BE AR IN MIND THAT IN NO CASE THE INCOME DETERMINED SHOULD BE BELOW THE INCO ME RETURNED. 7. THIS DECISION WAS FOLLOWED IN NUMBER OF CASES IN CLUDING ITA NO. 563/VIZ/2014 IN THE CASE OF U VENKATA NEELADRI RAJU VS. ITO, RAJAHMUNDRY ORDER DATED 26.09.2014. 8. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE DIREC T THE AO TO ESTIMATE THE PROFIT FROM IMFL BUSINESS BY ADOPTING THE RATE OF 5% ON THE COST OF SALES. 9. GROUND NOS. 4, 5 AND 6 RELATE TO UPHOLDING OF AN ADDITION OF RS.8,00,000/-, RS. 18,564/- AND RS.13,86,672/- MADE BY THE A.O. 10. SHRI GVN HARI, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADDITION IN QUESTION WAS MADE U/S 69 OF THE ACT AND AS THE A SSESSEE HAD MAINTAINED REGULAR BOOKS OF ACCOUNTS AND HAD RECORDED THE EXP ENDITURE IN ITS BOOKS, NO ADDITION CAN BE MADE U/S 69 OF THE ACT. 11. SRI D.MANOJ KUMAR, LD.SR.D.R. OPPOSED THE CONTE NTIONS OF THE ASSESSEE BY SUBMITTING THAT, THE AO HAS RECORDED THAT THE EXPE NDITURE IN QUESTION WAS INCURRED BEFORE THE COMMENCEMENT OF BUSINESS AND T HAT THE SAME WAS NOT RECORDED IN THE BOOKS OF ACCOUNTS. HE REFERRED TO THE ORDER OF THE FIRST APPELLATE AUTHORITY AND RELIED ON THE SAME AND SUBMITTED THAT THE ADDITION HAS TO BE SUSTAINED. 12. AFTER HEARING RIVAL CONTENTIONS WE FIND THAT T HE AO AT PARA 5.1 PAGE 4 OF THE ORDER HAS RECORDED THAT THE INTRODUCTION OF CASH I NTO THE CAPITAL ACCOUNT OF THE ASSESSEE WAS NOT PROVED BY HIM. HE FURTHER RECORDE D THAT THESE ENTRIES ARE NOT ROOTED THROUGH THE BOOKS OF ACCOUNTS AS THE EXPENDI TURE IN QUESTION WAS INCURRED PRIOR TO COMMENCEMENT OF BUSINESS. THE FIRST APPEL LATE AUTHORITY HAS AT PARA 5.3 HELD AS FOLLOWS. 5.3. I HAVE CONSIDERED THE SUBMISSIONS AND DETAILS FILED IN THE PAPER BOOK. IT IS SEEN THAT THE ASSESSEE HAS FILED LETTER DATED 18 .1.2014 BEFORE THE AO IN WHICH HE HAS EXPLAINED THAT THE LICENSE FEE AND BANK GUAR ANTEE AMOUNT WAS PAID OUT OF BALANCE AVAILABLE IN HIS REGULAR BOOKS OF ACCOUNT. IT WAS ALSO CLARIFIED THAT HE WAS ITA NO.45/VIZAG/2015 4 ASSESSED TO TAX FROM AY 2008-09 AND THAT THERE WAS NO FRESH CREDITOR DURING THE YEAR. AT THE OUTSET, THERE ARE CERTAIN DISCREPANCI ES IN THE AOS ORDER. THE OPENING CAPITAL AS ON 1.4.2010 WAS RS.10,07,775/-, BUT THE AO HAS TAKEN IT AT RS.6,54,724/- (EXCLUDING THE PROFIT FOR THE YEAR 20 09-10) OF RS.3,53,051/-. THE EXCISE LICENSE PAID IN JUNE, 2010 WAS RS.14,80,000/ - BUT THE AO HAS INCLUDED THE ADVANCE LICENSE FEE OF RS.4,16,582/- AND ARRIVED AT THE AMOUNT OF RS.18,03,306/-. THE UNSECURED LOAN CREDITOR AS ON 31.3.2010 AND 31. 3.2011 WAS OF RS.5,65,000/- RELATING TO B.SATYANARAYANA AS PER BALANCE SHEETS F OR THESE YEARS. BUT THE AO HAS TREATED AS IF IT REPRESENT UNSECURED LOAN RECEIVED DURING 2010-11. THE IMPUGNED EXPENDITURE WOULD BE ONLY RS.22,78,090/- (I.E. LICE NSE FEE 14,80,000, BG COMMISSION RS.43,790, FDR RS.5,00,000, FIRST PURCHASE RS.1,54, 300). THE PERUSAL OF THE CASH BOOK WOULD SHOW THAT THESE EXPENSES WERE INCURRED F ROM THE OPENING CASH BALANCE OF RS.4,97,791/-, AND SALES OUT OF OPENING STOCK OF RS.5,28,675/- AND INTRODUCTION OF CAPITAL OF RS.8,00,000/- ON 10.5.2010. THE ASSE SSEE HAS NOT GIVEN ANY EXPLANATION FOR THE SOURCE OF CAPITAL INTRODUCED OF RS.8,00,000/- ON 10.5.2010. THE CLAIM OF OPENING CASH BALANCE AND OPENING STOCK OF LIQUOR IS SUPPORTED BY THE BALANCE SHEET FILED FOR THE YEAR ENDED 31.3.2010. THE SALES DURING THE MONTHS OF APRIL TO JUNE CANNOT BE RULED OUT, AND IT WOULD BE FAIR AND APPROPRIATE, IN THE FACTS OF THE CASE, TO CONSIDER SUCH SALE PROCEEDS AS AVAI LABLE TO MEET SOME OF THE IMPUGNED EXPENSES. THE ONLY OTHER CREDIT ENTRY DUR ING THE SAID PERIOD WAS THE CAPITAL INTRODUCED OF RS.8 LAKHS, IN RESPECT OF WHI CH THE ASSESSEE FAILED TO EXPLAIN THE SOURCE. THEREFORE, THE AMOUNT OF RS.8 LAKHS MA Y BE SUBJECTED TO ASSESSMENT U/S 68 OF THE ACT. ACCORDINGLY THE AO IS DIRECTED T O MAKE THE ADDITION OF RS.8 LAKHS U/S 68 OF THE ACT IN PLACE OF THE IMPUGNED ADDITION . 5.3.1. AS REGARDS THE ADDITION MADE OF RS.18,564/-, IT IS NOT IN DISPUTE THAT THE SOURCE FOR THE SAID INCOME IS FROM THE BANK DEPOSI TS AND NOT FROM ANY BUSINESS ACTIVITY. THEREFORE IT CANNOT BE CONSTRUED AS BUSI NESS INCOME. THE PROVISIONS OF THE ACT CLEARLY STIPULATE THAT SUCH RECEIPTS ARE T O BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, IT IS HELD THAT THE AO IS JUSTIFIED IN MAKING THE IMPUGNED ADDITION OF RS.18,564/- UNDER T HE HEAD INCOME FROM OTHER SOURCES. ITA NO.45/VIZAG/2015 5 13. AS THE ASSESSEE COULD NOT EXPLAIN THE CREDITS W ITH REFERENCE TO THE EXPENDITURE INCURRED THE ADDITION HAS BEEN CONFIRMED BY THE LD. CIT(A). THUS, THE ARGUMENTS OF THE LD.COUNSEL FOR THE ASSESSEE IS DEVOID OF MERIT. IN THE RESULT WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS GROUND NOS. 5 AND 6 OF THE ASSESSEE. 14. GROUND NO.7 IS GENERAL IN NATURE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED IN PART. PRONOUNCED IN THE OPEN COURT ON 22.05.2015. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:22 ND MAY, 2015 MANGA COPY TO 1 APPELLANT 2 RESPONDENT 3 THE CIT, VISAKHAPATNAM 4 THE CIT(A), VISAKHAPATNAM. 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER ASSISTANT REGISTRAR