Vakada Narayana Rao, Srikakulam V. THE ITO, Srikakulam

ITA 57/VIZ/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6527 (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; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM SMC BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER ITA NO. 57 / VIZ /201 5 (ASST. YEAR : 20 11 - 1 2 ) SRI VAKADA NARAYANA RAO, PROP. SRI SAI DURGA WINES, D.NO. 4 - 145, SAMBANA STREET, TEKKALI, SRIKAKULAM DISTRICT. V . ITO, WARD - 2, SRIKAKULAM. PAN NO. ADZPV 7429 A (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 / 02 /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 HAD CARRIED ON BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) IN SRIKAKULAM DISTRICT. THE ASSESSEE HAD FILED HIS RETURN OF INCOME BY DECLARING TOTAL INCOME OF 2,92,510/ - , 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 143(3) OF THE ACT BY ESTIMATING INCOME @ 20% OF THE STOCK PUT TO SALE. 2 ITA NO. 57/VIZ/2015 3. ON APPEAL, THE LD. CIT(A) GRANTED A PARTIAL RELIEF TO THE ASSESSEE BY SCALING 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 WH ERE 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 S PASSED BY THE AUTHORITIES BELOW. 6 . I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD 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 RESP ECT, THE COORDINATE BENCH 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 PR OFIT 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 REGISTER S AND BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, 3 ITA NO. 57/VIZ/2015 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 CAS E 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. STA TE 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 AR GUMENTS 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 C ONSIDERED 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 NE T PROFIT. 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 L IGHT 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 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 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 4 ITA NO. 57/VIZ/2015 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 - COMP UTE 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 REL A TING TO SUSTENANCE OF ADDITION OF 4,35,000/ - AS UNSECURED LOANS. IN THE ASSESSMENT ORDER , THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAD CLAIMED UNSECURED LOANS TO THE TUNE OF 4,35,000/ - AND SUBMITTED CONFIRMATION LETTER ALONG WITH AGRICULTURAL LAND HOLDING S , BUT NOT PRODUCED ANY SUPPORTING EVIDENCE . THE ASSESSING OFFICER CALL ED THE ASSESSEE TO EXPLAIN THE SOURCE OF THE AMOUNT OF 4,35,000/ - . THE ASSESSEE HA D SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE CREDITOR WAS HAVING AN AGRICULTURAL LAND AND HE WAS ALSO SALARIED EMPLOYEE , THE SAME MAY BE TREATED AS INCOME OF THE CREDITOR AND NOT INCOME OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION GIVEN BY THE 5 ITA NO. 57/VIZ/2015 ASSESSEE AND THE AMOUNT OF 4,35,000/ - HAS BEEN TREATED AS UNEXPLAINED INCOME OF THE ASSESSEE AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9 . ON APPEAL , COMMISSIONER OF INCOME TAX (APPEALS) HAD CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE HAS NOT FILED ANY SUPPORTIVE EVIDENCE TO SUBSTANTIATE THE CRED ITWORTHINESS OF THE CREDITOR . 10 . ON BEING AGGRIEVED , ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL . 11 . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CREDITOR SHRI B. MOHAN RAO WAS WORKING IN A PANCHAYAT RAJ DEPARTMENT AND HIS MONTHLY SALARY WAS OF 27,000/ - . APART FROM THIS, HE WAS HAVING AN AGRICULTURAL LAND TO THE EXTENT OF 10 ACRES AND SUBMITTED THAT THE LOWER AUTHORITIES WITHOUT PROPER EXAMIN ATION, SIMPLY ADDED THE AMOUNT OF 4,35,000/ - IN THE HAND S OF THE ASSESSEE . HE ALSO FILED A PAPER BOOK AND SUBMI TTED TH A T THE ISSUE MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION IN THE LIGHT OF THE VARIOUS DETAILS FILED BY THE ASSESSEE IN RESPECT OF LOAN CREDITOR. 12. ON THE OTHER HAND, DEPARTMENTAL REPRESENTATIVE HAD NOT RAISED ANY OBJECTION. 13. I HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW . 14. THE CASE OF THE ASSESSING OFFICER IS THAT THE ASSESSEE HAD BORROWED A SUM OF 4,35,000/ - . HE HAS ONLY FILED A CONFIRMATION LETTER 6 ITA NO. 57/VIZ/2015 AND NO T FILED ANY OTHER DETAILS IN RESPECT OF AGRICULTURAL LAND AND SOURCE OF INCOME. BEFORE ME, LEARNED COUNSEL FOR THE ASSESSEE FILED A PAPER BOOK AND POINTED OUT AT PAGE NO. 22 , WHEREIN IT HAS BEEN CLEARLY M E N TIONED THAT THE LOAN CREDITOR IS WORKING AS A JUNIOR ASSISTANT IN DISTRICT PANCHAYAT RAJ , SRIKAKULAM AND H IS MONTHLY SALARY IS 27,000/ - . IN THIS LETTER , HE FURTHER SUBMITTED THAT HE HAS HAVING AN AGRICULTURAL LAND TO THE EXTENT OF AC. 10.50 CENTS . KEEPING IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO IN THE INTEREST OF JUSTICE , I AM OF THE OPINION THAT ONE MORE OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE . ACCORDINGLY, I SET ASIDE THE ORDER PASSED BY THE COMMISSIONER OF INCOME TA X (APPEALS) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO RE CONSIDER THE SALARY OF THE CREDITOR AND ALSO AGRICULTURAL HOLDING OF THE CREDITOR AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. I ALSO DIRECT THE ASSESSEE TO FILE BANK A CCOUNT OF THE LOAN CREDITOR AND THE DETAILS OF THE AGRICULTURAL HOLDINGS, SUCH AS, PATTADAAR PASSBOOK, FORM NO. 10(1) , ADANGAL AND THE DETAIL S OF THE CROP CULTIVATED BY THE CREDITOR. THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 1 5 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 1 0 T H DAY OF FEBRUARY , 201 7 . S D / - ( V. DURGA RAO ) JUDICIAL MEMBER DATED : 1 0 T H FEBRUARY , 201 7 . 7 ITA NO. 57/VIZ/2015 VR/ - COPY TO: 1 . THE ASSESSEE. SRI VAKADA NARAYANA RAO, PROP. SRI SAI DURGA WINES, D.NO. 4 - 145, SAMBANA STREET, TEKKALI, SRIKAKULAM DISTRICT. 2 . THE REVENUE ITO, WARD - 2, 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