ITO, Hyderabad V. M/s Happy Wines, Hyderabad

ITA 466/HYD/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66125 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-06-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 09-04-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PHANI RAJU
• Keywords: Unexplained investment; Search and seizure
• Section: 147; 69; 148; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.466/HYD/2007 ASSESSMENT YEAR : 1998-99 INCOME-TAX OFFICAER, WARD-9(1),HYDERABAD. .... APPELLANT VS. M/S. HAPPY WINES, HYDERABAD. RESPONDENT APPELLANT BY : SHRI PHANI RAJU RESPONDENT BY : SHRI Y. RATNAKAR DATE OF HEARING : 05-06-2012 DATE OF PRONOUNCEMENT : 03-08-2012 ORDER PER SAKTIJIT DEY, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST ORDER DATED 25-1-2007 OF CIT (A)-V, HYDERABAD PASS ED IN ITA NO.0112/05-06 AND IT PERTAINS TO THE ASSESSMENT YEA R 1998-99. 2. THOUGH THE DEPARTMENT HAS RAISED AS MANY AS 12 G ROUNDS AT THE TIME OF HEARING, THE LEARNED DR HAS CONFINED HI S ARGUMENTS TO THE FOLLOWING THREE ISSUES:- 1. WHETHER ASSESSEE SHOULD BE ASSESSED IN THE STATUS O F AOP. 2. PROFIT ESTIMATED BY THE AO AT 5% OF THE PURCHASE S, WHICH WAS DELETED BY THE CIT (A) AND 2 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. 3. ADDITION OF RS.24,62,888/- AND RS.1,00,000 MADE U/S69 AND 69A OF THE ACT WHICH WAS DELETED BY THE CIT (A). 3 . SO FAR AS THE FIRST ISSUE IS CONCERNED, THE AO HAS TREATED THE STATUS OF THE ASSESSEE AS AOP IN ABSENCE OF ANY DEE D OF PARTNERSHIP PRODUCED BEFORE HIM. THE ASSESSEE HAS N OT RAISED ANY SPECIFIC GROUND CHALLENGING THIS ISSUE BEFORE THE C IT (A). THE CIT (A) THOUGH HAS NOT GIVEN ANY SPECIFIC FINDING ON TH E ISSUE, BUT AS IT APPEARS FROM HIS ORDER, THE CIT (A) HAS PASSED T HE ORDER BY ACCEPTING THE ASSESSEE AS A PARTNERSHIP FIRM. AS I T APPEARS A COPY OF THE PARTNERSHIP DEED WAS PRODUCED BEFORE TH E CIT (A). COPY OF THE PARTNERSHIP DEED WHICH IS AT PAGE 59 OF THE PAPER BOOK REVEALS THAT IT WAS EXECUTED ON 26-5-1997. SE CTION 184 OF THE ACT PROVIDES THAT A FIRM TO BE ASSESSED AS A FI RM SHOULD BE EVIDENCED BY AN INSTRUMENT AND A COPY OF THE INSTRU MENT CERTIFIED BY ALL THE PARTNERS MUST BE SUBMITTED ALONG WITH TH E RETURN OF INCOME. IN THE APPEAL BEFORE US ADMITTEDLY THE ASS ESSEE HAS NEITHER FILED ANY RETURN NOR HAS SUBMITTED CERTIFIE D COPY OF THE PARTNERSHIP DEED BEFORE THE AO. IN THESE CIRCUMSTA NCES, THE AO WAS JUSTIFIED IN TREATING THE STATUS OF THE FIRM AS AOP IN TERMS WITH THE PROVISION CONTAINED U/S 185 OF THE ACT AS IT STOOD AT THE RELEVANT TIME. THE AOS ORDER IN THIS RESPECT IS U PHELD. 4. BRIEFLY THE FACTS ARE A SEARCH AND SEIZURE OPERA TION WAS CONDUCTED U/S 132 IN CASE OF MAL REDDY RANGA REDDY GROUP. WHILE RECORDING STATEMENTS FROM SHRI BALREDDY, SHR I LAKSHMINARAYAN AND SHRI MALREDDY RAMREDDY IT CAME TO NOTICE THAT A PARTNERSHIP FIRM BY THE NAME M/S HAPPY WINES WAS 3 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. CONSTITUTED W.E.F. MAY, 1997 COMPRISING OF 10 PARTN ERS. THE FIRM CARRIED ON BUSINESS IN RUNNING TWO LIQUOR SHOPS AT MALAKPET AND OTHER AT PEDDA AMBERPET. ASSESSEE DURING THE RELEV ANT FINANCIAL YEARS HAD PURCHASED OF ABOUT 1.99 CRORES AND SALES OF RS.2.17 CRORES. THE ASSESSEE HOWEVER DID NOT FILE ANY RETU RN OF INCOME. THE AO THEREFORE INITIATED ACTION U/S 147 BY ISSUIN G A NOTICE U/S 148 OF THE ACT. NO RETURN WAS HOWEVER FILED BY THE ASSESSEE IN RESPONSE TO THE NOTICE ISSUED U/S 148. A PARTNER O F THE FIRM ALONG WITH HIS AR APPEARED BEFORE THE AO AND SUBMIT TED A STATEMENT GIVING DETAILS OF PURCHASES, LICENCE FEE PAYMENTS, EXPENDITURE ON ELECTRICAL, CONVEYANCE, TRANSPORTATI ON, SALES ETC. NO BOOKS OF ACCOUNTS WERE PRODUCED. THE ASSESSEE A LSO STATED THAT THEY HAVE NO EVIDENCE FOR RECEIPTS AND PAYMENT S. IT WAS ALSO ADMITTED BY THE ASSESSEE THAT ITS ACCOUNTS WERE NOT AUDITED U/S 44AB. THE ASSESSEE DID NOT SUBMIT A COPY OF THE PA RTNERSHIP DEED. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASS ESSEE PROPOSING TO ESTIMATE NET INCOME FROM BUSINESS AT 5 % OF THE PURCHASE OF RS.1.99 CRORES. THE AO FURTHER PROPOSE D TO ADD THE LICENCE FEE OF RS.24,62,888/- AND INVESTMENT MADE I N FURNITURE AND FIXTURE AMOUNTING TO RS.1,00,000/-. IN THE SHOW CAUSE NOTICE THE AO ALSO DISCLOSED HIS INTENTION TO COMPLETE THE ASSESSMENT IN THE STATUS OF AOP. NO COMPLIANCE WAS MADE TO THE A FORESAID SHOW CAUSE NOTICE IN SPITE OF GRANT OF OPPORTUNITY. THE AO THEREFORE COMPLETED THE ASSESSMENT BY MAKING THE PR OPOSED ADDITIONS AND DETERMINED THE TOTAL INCOME AT RS.35, 62,380.00. 5. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BY FILING AN APPEAL BEFORE THE CIT (A). BEFORE THE CIT (A), THE ASSESSEE CONTENDED THAT IF THE SALES OF LIQUOR OF RS.2,28,75 ,000 WHICH IS REFLECTED IN ASSESSEES BANK ACCOUNT AND THE PURCHA SES OF RS.1,99,89,865 AND LICENCE FEE PAID OF RS.28,86,076 ARE 4 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. CONSIDERED THERE WOULD HARDLY BE ANY PROFIT EVEN W ITHOUT CONSIDERING OTHER EXPENSES. EVEN THOUGH BOOKS OF ACCOUNTS ARE NOT AVAILABLE, FIGURES OF SALES, PURCHASES AND LICE NCE FEES PAID CLEARLY DEMONSTRATES THE FACT THAT THE ASSESSEE HAD NOT EARNED ANY PROFIT FOR THE ASSESSMENT YEAR UNDER DISPUTE. THE ASSESSEE CONTENDED THAT THERE IS NO OCCASION FOR ESTIMATING PROFIT AT 5%. THE CIT (A) TAKING INTO CONSIDERATION THE SALES DUR ING THE YEAR OF RS.2,28,75,000 AND PURCHASE OF RS.1.99 CRORES AND L ICENCE FEE PAID BY THE ASSESSEE OF RS.29,89,383 CAME TO A CONC LUSION THAT THE ASSESSEE WOULD BE HAVING A LOSS OF RS.1,04,248 BEFORE ALLOWING ANY EXPENDITURE. HE THEREFORE DELETED THE ADDITION OF RS.9,99,500/-. 6. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. EVEN THOUGH THE ASSESSEE DURING THE REL EVANT FINANCIAL YEAR HAD PURCHASES OF ABOUT 1.99 CRORES AND SALES OF RS.2.28 CRORES IT HAS NOT MAINTAINED ANY BOOKS OF A CCOUNT LEAVE ALONE GETTING THE BOOKS OF ACCOUNTS AUDITED THROUGH A CHARTERED ACCOUNTANT. CONSIDERING THE MAGNITUDE OF THE TURNO VER OF THE ASSESSEE IT IS NOT ACCEPTABLE THAT THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNTS AND GOT IT AUDITED AS PER SEC. 44AB. IN ABSENCE OF BOOKS OF ACCOUNTS IT WAS NOT P OSSIBLE TO ASCERTAIN THE CORRECT AMOUNT OF PROFIT EARNED BY TH E ASSESSEE. THE ASSESSEE ALSO DID NOT FURNISH ANY REPLY TO THE SHOW CAUSE NOTICE ISSUED BY THE APO WHILE PROPOSING TO ESTIMAT E THE PROFIT AT 5% OF THE PURCHASES. IN THESE CIRCUMSTANCES THE AO WAS NOT LEFT WITH ANY CHOICE OTHER THAN ESTIMATING THE PROFIT OF THE ASSESSEE. THE CIT (A) HAS ACCEPTED THE VERSION OF THE ASSESSE E WITHOUT CONSIDERING THE AFORESAID FACTS. WE THEREFORE DO N OT AGREE WITH THE FINDING OF THE CIT (A) IN THIS REGARD AND HOLD THAT THE AO WAS JUSTIFIED IN RESORTING TO ESTIMATION OF PROFIT AT 5 % OF THE 5 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. PURCHASES MADE. HENCE, THE GROUND RAISED BY THE REV ENUE IS ALLOWED. 7. THE THIRD ISSUE IS WITH REGARD TO ADDITION OF AN AMOUNT OF RS.25,62,888/- AS UNEXPLAINED INVESTMENT U/S 69 OF THE ACT. 8. IN COURSE OF THE ASSESSMENT PROCEEDING THE AO FR OM THE MATERIALS AVAILABLE BEFORE HIM FOUND THAT THE ASSES SEE HAD PAID AN AMOUNT OF RS.24,62,888/- TOWARDS LICENSE FEE AND INITIAL PURCHASE OF STOCKS FOR ITS TWO WINE SHOPS. THE AO ALSO WAS OF THE VIEW THAT THE ASSESSEE HAS MADE SOME INITIAL INVEST MENT IN FURNITURE AND FIXTURE FOR ESTABLISHING THE TWO SHOP S WHICH WAS ESTIMATED BY THE AO TO BE OF AN AMOUNT OF RS.1,00,0 00.00. HE THEREFORE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSE E PROPOSING TO ADD THESE TWO AMOUNTS SINCE THE ASSESSEE FAILED TO EXPLAIN THE SOURCE OF SUCH INVESTMENTS. SINCE THE ASSESSEE DID NOT COMPLY TO THE NOTICES, THE AO TREATED THE PAYMENT MADE TOWARD S LICENSE FEE AND INITIAL PURCHASE OF STOCK FOR AN AMOUNT OF RS. 24,62,888 AND ESTIMATED INVESTMENT IN FURNITURE AND FIXTURE AS UN EXPLAINED INVESTMENTS AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 9. THE ASSESSEE CHALLENGED THE ADDITIONS BEFORE THE CIT (A). IN COURSE OF HEARING OF APPEAL THE ASSESSEE FILED C ONFIRMATION LETTERS FROM 7 PARTNERS WHEREIN THEY STATED TO HA VE RAISED A TOTAL AMOUNT OF RS.19,50,300/- FROM VARIOUS SUB-DEA LERS AND PARTIES IN AND AROUND HYYAT NAGAR (MANDAL), RANGA R EDDY DISTRICT SINCE THE CONFIRMATION LETTERS WERE SUBMITTED FOR T HE FIRST TIME. THE CIT (A) REMANDED THE MATTER TO AO FOR EXAMINING THE GENUINENESS OF THE CONFIRMATIONS. THE AO EXAMINED SEVERAL PERSONS FROM WHOM MONEY WAS CLAIMED TO HAVE BEEN RE CEIVED BY THE PARTNERS. THE AO SUBMITTED HIS REPORT HOLDING THAT CREDITWORTHINESS OF THE PERSONS CLAIMED TO HAVE ADV ANCED THE MONEY AND GENUINENESS OF THE TRANSACTION WAS NOT PR OVED. THE 6 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. AO ALSO OBSERVED THAT IN SOME CASES SIGNATURE OF TH E PERSONS IN THE STATEMENT VARIED FROM THE SIGNATURES APPEARING IN THE CONFIRMATION LETTERS. IN THE REMAND REPORT THE AO FURTHER OBSERVED THAT IN CASE OF FIVE PERSONS THOUGH SUMMON S WERE ISSUED NEITHER THEY APPEARED NOR THE SUMMONS WERE R ETURNED. IN RESPECT OF SHRI N. JAGADISH THOUGH SUMMONS WAS SERV ED HE DID NOT RESPOND. SUMMONS IN RESPECT OF 8 PERSONS RETURN ED UN- SERVED BECAUSE EITHER THERE WAS NO SUCH PERSON IN T HE VILLAGE OR ADDRESS WAS NOT PROPER. ON THE AFORESAID OBSERVATI ON THE AO RECOMMENDED FOR TREATING THE AMOUNT AS UNEXPLAINED INVESTMENT OF THE FIRM. THE CIT (A) AFTER CONSIDERING THE SUB MISSIONS OF THE ASSESSEE AND THE REMAND REPORT ACCEPTED THE ASSESSE ES CONTENTION THAT THE ACTUAL INITIAL INVESTMENT TOWAR DS PAYMENT OF LICENSE FEE AND PURCHASE OF STOCK WAS RS.17,13,400. 00 AND NOT RS.24,62,888 AS FOUND BY THE AO. THE CIT (A) ALSO ACCEPTED THE ASSESSEES CONTENTION THAT THE FIRM HAVING COME TO EXISTENCE BY VIRTUE OF A DEED EXECUTED ON 26-5-1997 THE INVESTME NT MADE PRIOR TO IT IN PAYMENT OF LICENSE FEE, PURCHASE OF STOCK AND FURNITURE AND FIXTURES CANNOT BE TREATED AS UNEXPLA INED INVESTMENT OF THE FIRM. THE CIT (A) AFTER CONSIDERI NG THE MATERIALS RELATING TO EACH OF THE CREDITORS, AS CLA IMED BY THE ASSESSEE TO HAVE ADVANCED THE AMOUNT CAME TO A CONC LUSION THAT THE ASSESSEE HAS SUFFICIENTLY PROVED THE SOURCE OF INVESTMENT. THE CIT (A) ALSO HELD THAT THE HAVING DISCHARGED TH E ONUS OF PROVING THE SOURCE OF INVESTMENT CANNOT BE ASKED TO EXPLAIN THE SOURCE OF SOURCE. THE CIT (A) FURTHER HELD THAT TH E INVESTMENT HAVING BEEN MADE PRIOR TO THE COMING INTO EXISTENCE OF THE FIRM THE INITIAL INVESTMENT CANNOT BE TREATED AS UNEXPLA INED INVESTMENT OF THE FIRM. IF AT ALL IT IS TO BE TREAT ED AS UNEXPLAINED, IT SHOULD HAVE BEEN CONSIDERED IN THE HANDS OF THE PARTNERS. 7 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. 10. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. IT IS A FACT THAT THE ASSESSEE FIRM WAS CONSTITUTED BY VIRTUE OF A DEED OF PARTNERSHIP EXECUTED ON 26-5-19 97 THOUGH IT WAS NOT PRODUCED BEFORE THE AO. A COPY OF THE PARTN ERSHIP DEED IS AT PAGE 59 OF THE PAPER BOOK. THEREFORE, THE INV ESTMENTS MADE PRIOR TO COMING INTO EXISTENCE OF THE FIRM CANNOT B E TREATED AS UNEXPLAINED INVESTMENT OF THE FIRM. AFTER GOING TH ROUGH THE ORDER OF THE CIT (A) IT IS SEEN THAT MOST OF THE SU B-CREDITORS APPEARED BEFORE THE AO AND WERE EXAMINED. ALL OF T HEM STATED BEFORE THE AO THAT THEY HAVE ADVANCED THE AMOUNTS. THE AO HAS ALSO NOT BEEN ABLE TO DISPROVE THEIR CREDITWORTHINE SS. IN CASE OF SOME OTHER SUB-CREDITORS THOUGH THEY APPEARED BEFOR E THE AO, THE AO DID NOT EXAMINE THEM ON THE GROUND THAT SUMM ONS HAVE NOT BEEN ISSUED TO THEM. SUBSEQUENTLY WHEN THEY FA ILED TO APPEAR IN PURSUANCE TO SUMMONS ISSUED, ADVERSE VIEW WAS TAKEN BY THE AO. SIMILARLY IN THOSE CASES WHERE THE SUMMO NS RETURNED UN-SERVED THE AO HAD DRAWN ADVERSE INFERENCE WITHOU T AFFORDING FURTHER OPPORTUNITY. IN THESE CIRCUMSTANCES, WE AG REE WITH THE CIT (A) THAT THE ADDITIONS ON ACCOUNT OF UNEXPLAINE D INVESTMENT CANNOT BE SUSTAINED. WE ALSO AGREE WITH THE CONCLU SION OF THE CIT (A) THAT THE ASSESSEE CANNOT BE ASKED TO EXPLAI N THE SOURCE OF SOURCE. WE THEREFORE UPHOLD THE ORDER PASSED BY THE CIT (A) IN THIS RESPECT. 11 IN THE WRITTEN SUBMISSIONS SUBMITTED BEFORE US T HE LD. AR HAS SOUGHT TO RAISE A NEW ISSUE BY TAKING AID OF RU LE 27 OF ITAT RULES 1963. IT IS THE CONTENTION OF THE LD. AR THAT THE NOTICE U/S 148 WAS ISSUED IN THE NAME OF THE ASSESSEE I.E. M/S HAPPY WINES BY TREATING IT AS A PARTNERSHIP FIRM WHEREAS THE A O COMPLETED THE ASSESSMENT IN THE STATUS OF AOP. THE LD. AR RE LYING UPON A DECISION OF THE HONBLE AP HIGH COURT IN ITA NO.17 OF 2000 IN 8 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. CASE OF M/S GUPTA ANJANEYULU & CO., VS. CIT SUBMITT ED THAT SINCE NO NOTICE U/S 148 WAS ISSUED IN THE STATUS OF AOP H E ASSESSMENT MADE IN THE STATUS OF AOP IS INVALID IN LAW. THE L D. AR FURTHER SUBMITTED THAT THOUGH THIS ISSUE WAS ARGUED BEFORE THE CIT (A), THE ORDER PASSED BY THE CIT (A) WAS SILENT ON THE I SSUE. THEREFORE, WHEN A POINT IS NOT DECIDED, IT IS IMPLI ED THAT IT HAS BEEN DECIDED AGAINST THE ASSESSEE. THE LD. AR RELY ING UPON A DECISION OF THE HONBLE KERALA HIGH COURT REPORTED IN 227 ITR 779 SUBMITTED THAT THE RESPONDENT CAN SUPPORT THE ORDER ON ANY GROUND DECIDED AGAINST HIM AS PER RULE 27 OF THE IT AT RULES 1963. 12. IT IS SEEN FROM THE GROUND RAISED BEFORE THE CI T (A) THAT THE ASSESSEE HAD CHALLENGED THE VALIDITY OF NOTICE ISSU ED U/S 148 OF THE ACT IN GROUND NO.2 AND 3. THE CIT (A) WHILE DE CIDING THE APPEAL HAS OBSERVED THAT THE ASSESSEE HAS NOT ADVAN CED ANY ARGUMENT IN THIS REGARD AT THE TIME OF HEARING OF A PPEAL, HENCE THE GROUNDS WERE REJECTED. IF HE ASSESSEE WAS SERI OUS ABOUT CHALLENGING THIS ISSUE, IT SHOULD HAVE CHALLENGED T HE FINDING OF THE CIT (A) BY FILING AN APPEAL BEFORE THE TRIBUNAL. E VEN THE ASSESSEE COULD HAVE CHALLENGED IT BY FILING A CROSS OBJECTION AFTER RECEIVING THE MEMORANDUM OF APPEAL FILED BY THE DEP ARTMENT. THEREFORE, IT HAS TO BE HELD THAT THE ASSESSEE HAS ACCEPTED THE ORDER PASSED BY THE CIT (A) ON THIS ISSUE AND IT HA S REACHED FINALITY SO FAR AS THE ASSESSEE IS CONCERNED. THE ASSESSEE CANNOT THEREFORE BE PERMITTED TO RAISE THE ISSUE AGAIN WIT HOUT FILING AN APPEAL OR CROSS OBJECTION U/S 253 OF THE ACT WHICH CONFERS A RIGHT ON THE ASSESSEE OR THE DEPARTMENT TO CHALLENGE THE ORDER OF THE CIT (A) EITHER FILING AN APPEAL OR CROSS OBJECTION. RULE 27 OF ITAT RULES, 1963 IS SUBJECT TO THE SUBSTANTIVE PROVISION S CONTAINED U/S 9 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD.. 253 OF THE ACT. WE THEREFORE REJECT THE CONTENTION S RAISED BY LD. AR ON THIS ISSUE. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE COURT ON 3 - 8-2012. SD/- SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD, DATED THE 3 RD AUGUST, 2012. COPY TO:- 1)ITO, WARD-9(1), GAGAN VIHAR, GABDHI BHAVAN, HYDE RABAD. 2) M/S.HAPPY WINES, MALAKPET, HYDERABAD-500036. 3) THE CIT (A)-VI, HYDERABAD 4) THE CIT CONCERNED, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D. JMR* 10 ITA NO. 466 OF 2007 M/S. HAPPY WINES, HYD..