Surada Sathibabu, Srikakulam V. THE ITO, Srikakulam

ITA 56/VIZ/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6526 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 04-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M N M NAIK
• Keywords: Rejection of books of accounts; Unexplained investment
• Section: 143(3); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER ITA NO. 56 / VIZ /201 5 (ASST. YEAR : 20 11 - 1 2 ) SURADA SATHIBABU, S/O RAJA RAO, D.NO. 13 - 53 - 261/A, KOTHA DAMMALA VEEDHI, SRIKAKULAM DISTRICT . V . ITO, WARD - 1, SRIKAKULAM. PAN NO. BGNPS 2663 BUSINESS (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI M.N.M. NAIK - ADDL. CIT DATE OF HEARING : 2 7 / 01 /201 7 . DATE OF PRONOUNCEMENT : 10 / 0 2 /201 7 . O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 2 , VISAKHAPATNAM , DATED 07 /0 1 /201 5 FOR THE ASSESSMENT YEAR 2011 - 12 . 2. FACTS ARE IN BRIEF 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 A RETURN OF INCOME BY DECLARING TOTAL INCOME OF 2,61,480/ - , WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). LATER, AFTER FOLLOWING THE DUE PROCEDURE, ASSESSMENT WAS COMPLETED U/S 2 ITA NO. 56/VIZ/2015 143(3) OF THE ACT ESTIMATING THE INCOME AT 20% OF THE STOCK PUT TO SALE. 3. ON APPEAL, THE LD. CIT(A) SCAL ED DOWN THE PERCENTAGE 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 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 DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL WHERE THE TRIBUNAL HAS SCALED DOWN THE ESTIMATION OF PROFIT FROM 10% TO 5% IN THE CASE 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 . I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECOR D AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ESTIMATION OF PROFIT IN RESPECT OF IMFL BUSINESS CARRIED BY THE ASSESSEE. IN THIS RESPECT, THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TANGUDU JOGISE TTY (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: 3 ITA NO. 56/VIZ/2015 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 TH E 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 CASE. THE CASE BEFORE 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 BEVERAGES 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 ARGUMENTS 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 CONSIDERED THE CASE OF AN ARRACK DEALER, WHEREAS, THE ASSESSEE IS INTO T HE 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 PROFIT. ON THE OTHER HAND, THE LD. A.R. FOR THE ASSESSEE, RELIED UPO N 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 BEN CH 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 HEARD 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 LI NE 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 THAT THE ISSUE IS NO MORE RES INTEGRA IN VIEW OF A 4 ITA NO. 56/VIZ/2015 SERIES OF DECISIONS OF THE ITAT HYDERABAD BENCH IN SIMILAR C ASES. 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. THEREFORE, 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 DEDUCTIONS. 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 COORDI NATE BENCH 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 COORDINATE BENCH. THEREFORE, WE DIRECT THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. ORDERED ACCORDINGLY. 7 . IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF TH IS TRIBUNAL, I DIRECT THE A.O. TO RE - COMPU TE THE INCOME OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 8 . THE NEXT GROUND OF APPEAL RELATING TO ADDITION IN RESPECT OF 6,50,000/ - . THE CASE OF THE ASSESSEE IS THAT HE BORROWED AN AMOUNT OF 2 LAC. FROM G. SATYANARAYANA, 3 LAC. FROM D. RAMESH AND 1.50 LAC. FROM ANNAPOORNA . INSOFAR AS THE AMOUNT BORROWED FROM G.SATYANARAYANA IS CONCERNED , HE ONLY FILED A CONFIRMATION LETTER , BUT NOT FILED ANY OTHER DETAILS. THE ASSESSING OFFICER ADDED THE AMOUNT OF 5 ITA NO. 56/VIZ/2015 2 LAC AS UNEXPLAINED INVESTMENT IN THE HANDS OF THE ASSESSEE. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 9 . INSOFAR AS AMOUNT BOR ROWED FROM D. RAMESH IS CONCERNED, IT WAS SUBMITTED THAT ASSESSEE ONLY FILED A CONFIRMATION LETTER BEFORE THE ASSESSING OFFICER. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), IT WAS SUBMITTED THAT HIS MOTHER WAS RECEIVED A RETIREMENT BENEFIT AND ALSO HAVING INCOME FROM TAILORING ACTIVITY. NO OTHER EVIDENCE FILED NEITHER BEFORE ASSESSING OFFICER NOR COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSING OFFICER ADDED THE SAME AS INCOME UNDER SECTION 68 OF THE AC T, WHICH WAS CONFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS). 10 . INSOFAR AS THE AMOUNT RECEIVED FROM ANNAPOORNA IS CONCERNED, HE FILED ONLY A CONFIRMATION LETTER, BUT NOT FILED ANY OTHER DETAILS . WHEN THE ASSESSING OFFICER ASKED THE ASSESSEE TO FILE SUPPORTIVE EVIDENCE TO SUBSTANTIATE HIS CASE, NO DETAILS WERE FILED. 11. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 12. BEFORE ME, LEARNED COUNSEL FOR THE ASSESSEE FILED A PAPER BOOK CONSISTING OF VARIOUS DETAILS , SUCH AS , COPY OF RETURN OF INCOME AND COMPUTATION OF INCOME , COPY OF FINANCIAL STATEMENT , COPY OF LEDGER ACCOUNTS , COPY OF LETTER DATED 23/10/2013 , COPY OF LICENCE FEE DETAILS 6 ITA NO. 56/VIZ/2015 AND COPY OF CONFIRMATION LETTERS AND SUBMITTED THAT ONE MORE OP PORTUNITY MAY BE GIVEN TO THE ASSESSEE. 13. ON THE OTHER HAND, DEPARTMENTAL REPRESENTATIVE HAD NOT RAISED ANY OBJECTION. 14. KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO IN THE INTEREST OF JUSTICE , WE ARE OF THE OPINION THAT ONE MORE OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE . THUS, THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS SET ASIDE AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE PAPER BOOK FILED BY THE ASSESSEE AND PASS ORDERS IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HE A RING TO THE ASSESSEE. 1 5 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 0 T H DAY OF FEBRUARY , 2 0 1 7 . S D / - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 1 0 T H FEBRUARY , 201 7 . VR/ - 7 ITA NO. 56/VIZ/2015 COPY TO: 1 . THE ASSESSEE SURADA SATHIBABU, S/O RAJA RAO, D.NO. 13 - 53 - 261/A, KOTHA DAMMALA VEEDHI, SRIKAKULAM DISTRICT. 2 . THE REVENUE. ITO, WARD - 1, SRIKAKULAM. 3 . THE CIT - 2 , VISAKHAPATNAM. 4 . THE CIT(A) - 1, VISAKHAPATNAM. 5 . THE D.R. 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR , I.T.A.T., VISAKHAPATNAM