J. Srinivasa Raju, Srikakulam V. THE ITO, Srikakulam

ITA 47/VIZ/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1123 (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; Corroborative evidences
• Section: 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. 47/VIZAG/2015 ASSESSMENT YEAR: 2011-12 SHRI J. SRINIVASA RAJU 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 NETHALAMMA 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.3,55,480/- 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. 32,50,904/-, INTER-ALIA, MAKING THE FOLLOWIN G ADDITIONS: 1. ESTIMATION OF INCOME OF RS.16,97,191/- @ 20% OF THE STOCK PUT TO SALE; 2. UNEXPLAINED INVESTMENT OF RS. 15,40,163/-; 3. INTEREST ON FDR OF RS. 13,550/-. 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.47/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. 15,40,163 MADE BY THE AO TOWARDS UNEXPLAINED IN VESTMENT; 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.16,97,191/-; B) ADDITION OF UNEXPLAINED INVESTMENT OF RS.15,40,163/ - C) INTEREST ON FDR OF RS. 13,550/- . 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 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 ITA NO.47/VIZAG/2015 3 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 ARE AGAINST ADDITION OF R S.15,40,163/- MADE BY AO TOWARDS UNEXPLAINED INVESTMENT. 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 EX PENDITURE IN ITS BOOKS, NO ADDITION CAN BE MADE U/ 69 OF THE ACT. 11. SRI D.MANOJ KUMAR, LD. SR. D.R. OPPOSED THE CON TENTIONS OF THE ASSESSEE BY SUBMITTING THAT, THE AO HAS RECORDED THAT THE EX PENDITURE 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 TH E AO HAS RECORDED IN PARA 5 PAGE 3 OF THE ASSESSMENT ORDER THAT THE EXPENDITURE IN QUESTION WAS INCURRED PRIOR TO COMMENCEMENT OF BUSINESS AND HAS NOT BEEN RECORD ED IN THE BOOKS OF ACCOUNTS. 12.1. THE FIRST APPELLATE AUTHORITY HAS CONFIRMED T HE ADDITION BY HOLDING AS FOLLOWS. 5.2 DURING THE APPEAL HEARING, THE AR REPRESENTED T HAT THE AO WAS NOT JUSTIFIED IN MAKING ADDITION OF RS.15,40,163/- TOWA RDS UNEXPLAINED INVESTMENT. IT WAS SUBMITTED THAT THE ASSESSEE FILE D EXPLANATION VIDE LETTER ITA NO.47/VIZAG/2015 4 DT. 18.1.2014, ACCORDING TO WHICH IT WAS EXPLAINED THAT THE EXPENDITURE WAS LNCURRED FROM LOANS BORROWED FROM G.VIJAY OF RS.4,7 5,OOO/- AND V.VENKATESWARA RAO OF RS.99,750/- AND CAPITAL CONTR IBUTION TO THE TUNE OF RS.4,OO,OOO/- FROM FAMILY MEMBERS AND CAPITAL INTRO DUCED BY THE ASSESSEE TO THE TUNE OF RS.7,00,000 LAKHS (RS.3 LAK HS IN CURRENT ACCOUNT AND RS.4,OO,OOO/- IN CAPITAL ACCOUNT). IN THIS REGARD I T WAS STATED THAT DURING THE FY 2008-09, THE ASSESSEE HAD A WINE SHOP IN THE NAME OF GOLDEN WINES WHICH WAS CLOSED DURING THE SAID YEAR. THE BALANCE AVAILABLE IN CAPITAL ACCOUNT WAS SAID TO BE RS.8,15,583/- OF WHICH RS.4, 00,000/- WAS THE CAPITAL ACCOUNT AND RS.3,00,000/- WAS INVESTED IN T HE CAPITAL ACCOUNT AND RS.3,00,000/- WAS INVESTED IN THE CURRENT ACCOUNT F OR THE NEW SHOP. THE AR CONTENDED THAT THE AO DID NOT GIVE CREDIT FOR THESE CLAIMS IN MAKING THE IMPUGNED ADDITIONS. A COPY OF THE RETURN OF INCOME FOR AY 2009-10 ALONG WITH PROFIT AND LOSS ACCOUNT AND BALANCE SHEET WAS FILED. AS PER THE BALANCE SHEET AS ON 31.3.2009, THE CAPITAL ACCOUNT WAS SHOW N AS FOLLOWS: OPENING BALANCE 7,85,513 LESS: DRAWINGS 8,15,583 NET PROFIT 1.44,359 1,14,289 ======= THE ASSESSEE HAS NOT FILED ANY RETURN FOR THE YEAR ENDED 31.3.2010 AND THE ASSESSEE ALSO DID NOT FILE ANY FINANCIAL STATEMENT FOR THE YEAR ENDED 31.3.2010. THE DRAWINGS OF RS.8,15,583J- WAS CLAIME D TO BE PARTLY UTILIZED FOR THE NEW BUSINESS TO THE TUNE OF RS.7,00,000/- BY WAY OF RS.4,00,000/- INTRODUCED IN CAPITAL ACCOUNT AND RS.3,OO,OOO/- - I NTRODUCED IN CURRENT ACCOUNT. HOWEVER, I FIND THERE IS NO SUPPORTING EVI DENCE FOR SUCH CLAIM. THE DRAWINGS MADE IN 2008-09 CLEARLY SHOW THAT THE AMOU NT WAS UTILIZED IN THAT YEAR ITSELF. THERE WAS NO EVIDENCE TO INDICATE THAT THE AMOUNT WAS KEPT AS CASH AND NOT UTILIZED. THEREFORE, NO CREDENCE C OULD BE GIVEN TO SUCH CLAIM. THE AO HAD ACCEPTED CREDITS TO THE TUNE OF R SA,75,000/- ONLY. THE SOURCE FOR BALANCE AMOUNT OF RS.15,40,163/- REMAIN UNEXPLAINED. THE ASSESSEE HAS NOT EXPLAINED SOURCE FOR AMOUNTS SAID TO BE RECEIVED FROM FAMILY MEMBERS WITH ANY SUPPORTING EVIDENCE. THEREF ORE THE AO IS JUSTIFIED IN MAKING THE IMPUGNED ADDITION. 5.3 THE AR ALSO RAISED A PLEA THAT THE AO WAS NOT J USTIFIED IN MAKING THE ADDITION U/S.69 OF THE ACT. I FIND SUCH A PLEA TO B E HYPER TECHNICAL AND IS NOT TENABLE AS THERE IS NO REFERENCE IN THE IMPUGNED OR DER THAT THE IMPUGNED ADDITION WAS MADE U/S.69. THE INDISPUTABLE FACT REM AINS THAT THE ASSESSEE COULD NOT SUBSTANTIATE THE CREDITS WITH REFERENCE T O WHICH EXPENDITURE TO THE TUNE OF RS.15,40,163/- WAS, SOUGHT TO BE EXPLAINED, AND THE SOURCE FOR SUCH EXPENDITURE REMAIN UNEXPLAINED. THEREFORE, I FIND T HAT IMPUGNED ADDITION MADE BY THE AO IS JUSTIFIED AND ACCORDINGLY CONFIRM ED. 13. THE ASSESSEE HAS NOT SUBSTANTIATED THE CREDITS CLAIMED BY IT. NO EVIDENCE OR ARGUMENTS ARE LAID BEFORE US ON MERITS. UNDER T HE CIRCUMSTANCES WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THESE GROUNDS OF THE ASSESSEE. ITA NO.47/VIZAG/2015 5 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