Chigurinta Narsimha Reddy, Hyderabad V. Dy. Commissioner of Income Tax , Circle-9(1), Hyderabad

ITA 62/Hyd/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6102 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 05-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B K VISHNU PRIYA
• Assessee Lawyers: A SHANTHI
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 62/HYD/2018 ASSESSMENT YEAR: 2013-14 SHRI CHIGURINTA NARSIMHA REDDY, PROPRIETOR SRI BALAJI WINES, HYDERABAD PAN AEVPC7209J VS. DY. CIT, CIRCLE-9(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SMT. A. SHANTHI REVENUE BY : SMT. B.K. VISHNU PRIYA DATE OF HEARING : 04-06-2018 DATE OF PRONOUNCEMENT : 04-06-2018 ORDER PER D. MANMOHAN, VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY CIT(A)-7, HYDERABAD AND ITS PERTAINS TO A.Y 2013-14. THOUGH THE ASSESSEE RAISED SEVERAL GROUNDS, IN HIS GROUNDS OF APPEAL, THE MAIN ISSUE IS WITH REGARD TO THE CORRECTNESS OF ESTIMATION OF NET PROFIT FROM PURCHASE AND SALE OF LIQUOR. 2. BREIF FACTS, NECESSARY FOR DISPOSAL OF THE APPEAL, ARE SET OUT HERE. THE ASSESSEE CARRIED ON BUSINESS IN THE NAME AND STYLE OF SRI BALAJI WINES, AT JILLELLAGUDA VILLAGE, SAROORNAGAR MANDAL, RR DISTRICT. EXCISE LICENCE WAS OBTAINED ON 16.07.2012 FOR THE PERIOD 01.07.2012 TO 30.06.2013. WE ARE CONCERNED WITH THE PREVIOUS YEAR FROM 2 ITA NO. 62/HYD/2018 SHIR CH. NARASIMHA REDDY, HYD . 01.04.2012 TO 31.03.2013. THE ASSESSEE PAID LICENCE FEE FOR 12 MONTHS, TO THE TUNE OF RS. 1,04,00,000/-. ACCORDING TO THE ASSESSEE, THERE ARE RESTRICTIONS ON PURCHASE OF GOODS I.E HE CAN PURCHASE ONLY TO THE EXTENT OF SIX TIMES OF THE EXCISE LICENCE FEE; AS AND WHEN THE PURCHASE VALUE INCREASES HE HAS TO PAY A PRIVILEGE FEE OF 14.50%. ASSESSEE FILED AN E-RETURN DECLARING TOTAL INCOME OF RS. 42,04,700/- FOR THE YEAR UNDER CONSIDERATION. THE CASE HAVING BEEN SELECTED FOR SCRUTINY, THE ASSESSEE WAS CALLED UPON TO FURNISH INFORMATION SUCH AS SALES INVOICES ON DAY TO DAY BASIS. THE ASSESSEE COULD NOT FURNISH COMPLETE DETAILS BUT STATED THAT HE HAS MAINTAINED BOOKS OF ACCOUNTS I.E DAILY SALES REGISTER, CASH BOOK, BANK BOOK, PURCHASE REGISTER ETC. ALL THESE DETAILS WERE FURNISHED BEFORE THE A.O. IT WAS ALSO STATED THAT IN RETAIL LIQUOR TRADE IT IS NOT POSSIBLE TO WRITE THE BILLS FOR EVERY SALE OF THE BOTTLE, MORE PARTICULARLY WHERE THE SALES TURNOVER IS RS. 1,503.90 LAKHS PER ANNUM. ON AN AVERAGE LIQUOR SALE TURNOVER IS RS. 4.30 LAKHS. 3. A.O OBSERVED THAT IN ORDER TO VERIFY THE CORRECTNESS OF THE GROSS PROFIT DECLARED, PRODUCTION OF SALES BILLS IS ESSENTIAL. IN THE ABSENCE OF INDEPENDENT SALE BILLS THE BOOK RESULTS CANNOT BE ACCEPTED. HE THEREFORE SOUGHT TO ESTIMATE THE INCOME ON THE SALE OF LIQUOR. IN THIS REGARD HE OBSERVED THAT THE A.P BEVERAGES ALLOWS MARGIN AT 27% TO 30%. HE ALSO RELIED UPON THE DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF M/S PAL WINES AND IN THE CASE OF M/S DEVI WINES TO COME TO A CONCLUSION THAT 3 ITA NO. 62/HYD/2018 SHIR CH. NARASIMHA REDDY, HYD . ESTIMATION OF INCOME AT 5% OF COST OF GOODS WOULD MEET THE ENDS OF JUSTICE AND ACCORDINGLY HE ESTIMATED THE INCOME AT RS. 62,59,390/-. 4. LD. CIT(A) HAVING CONFIRMED THE ACTION OF THE A.O, ASSESSEE IS IN APPEAL BEFORE US. 5. LD. COUNSEL SUBMITTED THAT THE ESTIMATE OF INCOME @ 5% OF THE COST OF GOODS SOLD IS EXCESSIVE IN THE PECULIAR CIRCUMSTANCES OF THE CASE AND THE ITAT HYDERABAD BENCHES CONSIDERED IN NUMBER OF CASES WHEREIN IT WAS HELD THAT UNIFORM PROFIT RATE CANNOT BE ADOPTED IN EACH AND EVERY CASE AND THE ESTIMATE OF PROFIT DEPENDS ON THE PLACE OF NATURE OF PRODUCT SOLD. LD. CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. FURTHER AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. LD. COUNSEL SUBMITS THAT THE CASE LAW RELIED UPON BY THE LD. CIT(A) PERTAINS TO THE EARLIER YEARS WHEREAS FOR THE YEAR UNDER CONSIDERATION THERE WAS CHANGE IN EXCISE POLICY WHEREBY THE FEE IS INCREASED AND THERE IS RESTRICTION WITH REGARD TO PURCHASE OF GOODS, APART FROM COLLECTING A PRIVILEGE FEE OVER AND ABOVE CERTAIN LIMIT OF PURCHASE. LD. COUNSEL ALSO RELIED UPON THE DECISION OF THE ITAT HYDERABAD BENCH IN THE CASE OF MANJEET SINGH BAGGA (ITA NOS. 371 & 391/HYD/2009 DATED 30.09.2010) WHEREIN THE TRIBUNAL ACCEPTED ESTIMATE OF NET PROFIT @ 3%. 4 ITA NO. 62/HYD/2018 SHIR CH. NARASIMHA REDDY, HYD . 7. ADVERTING OUR ATTENTION TO THE STATEMENT OF FACTS FILED BEFORE THE TRIBUNAL, LD. COUNSEL REFERRED TO VARIOUS CASE LAW, WHEREIN THE BENCH ACCEPTED 3% PROFIT AS REASONABLE, HAVING REGARD TO THE CHANGES IN THE EXCISE LICENCE POLICY (I.E INCREASE IN THE EXCISE LICENCE FEE). IT WAS ALSO SUBMITTED THAT THE A.O AS WELL AS CIT(A) HAVE TAKEN A STANDARD POLICY OF ESTIMATION OF INCOME @ 5% OVERLOOKING THE FACT THAT THE LOW GROSS PROFIT EARNED BY THE ASSESSEE WAS ON ACCOUNT OF SEVERAL FACTORS SUCH AS THE PLACE / LOCATION OF THE BUSINESS WHERE THE ASSESSEE CANNOT AFFORD TO SELL HIGH VALUE LIQUOR BOTTLES. IN THE INSTANT CASE, THE SHOP IS LOCATED IN A LOWER MIDDLE CLASS AREA AND HENCE CHEAP AND MEDIUM LIQUORS ARE SOLD IN THE SHOP THEREBY ASSESSEE CANNOT BE EXPECTED TO EARN HIGHER GROSS PROFIT. 8. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS PASSED BY THE TAX AUTHORITIES. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IT IS WELL SETTLED THAT THE ESTIMATE OF PROFIT DEPENDS ON VARIOUS FACTORS SUCH AS EXCISE LICENCE FEE, WHICH IS EFFECTIVE FOR THE YEAR UNDER CONSIDERATION, AND ALSO THE ADDITIONAL LEVY I.E EXCESS LIFTING FEE COLLECTED BY THE EXCISE DEPARTMENT. THE PLACE WHERE THE SHOP IS LOCATED ALSO NEEDS TO BE TAKEN INTO CONSIDERATION. THE TRIBUNAL, IN A NUMBER CASES, CITED BY THE LD. COUNSEL, HAD OBSERVED THAT ESTIMATE OF PROFIT BETWEEN 2.5% TO 3.5% IS REASONABLE IF THERE IS SUFFICIENT EVIDENCE TO SHOW THAT THE SHOP IS 5 ITA NO. 62/HYD/2018 SHIR CH. NARASIMHA REDDY, HYD . LOCATED IN AN AREA WHERE ONE CANNOT EXPECT TO SELL COSTLY LIQUORS. 10. HAVING REGARD TO RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT ESTIMATE OF NET PROFIT AT 3% OF THE COST OF GOODS SOLD WOULD MEET THE ENDS OF JUSTICE AND WE DIRECT THE A.O ACCORDINGLY. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 04 TH JUNE, 2018. SD/- SD/- (B. RAMAKOTAIAH) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED: 04 TH JUNE 2018. KRK 1 SHRI CH. NARSIMHA REDDY C/O T. SRINIVASA MURTHY, ADV, 3-5-1107, 4 TH FLOOR, NARAYANGUDA, HYDERABAD 29. 2 THE DY. CIT, CIRCLE 9(1), HYDERABAD. 3 CIT(A)-7, HYDERABAD. 4 THE PR. CIT-7, HYDERABAD. 5 THE DR, ITAT HYDERABAD 6 GUARD FILE