M/s. Kaveri Bar & Restaurant, Mangalore V. The Income tax Officer, ward- 1(3), Mangalore

ITA 631/BANG/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 6464 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 02-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: STDG. COUNSEL DEPT
• Keywords: Unexplained cash credit
• Section: 68; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC - A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT ITA NO. 631/BANG/2019 ASSESSMENT YEAR : 2015 - 16 M/S. KAVERI BAR & RESTAURANT, NO.7-5-628/8, BOLOOR, MANGALORE. P AN: AAFFK 6227M VS. THE INCOME TAX OFFICER, WARD 1(3), MANGALORE. APP ELLANT RESPONDENT APP ELLANT BY : SHRI NARENDRA SHARMA, ADVOCATE RESPONDENT BY : SHRI GANESH R. GHALE, AD VOCATE & STDG. COU NSEL FOR DEPT. DATE O F HEARING : 14 . 1 0 .2019 DATE OF PRONOUNCEMENT : 16 .10 .2019 O R D E R THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORD ER DATED 20.02.2019 OF THE CIT(APPEALS), MANGALURU RELATING TO ASSESSM ENT YEAR 2015-16. 2. IN GROUND NOS.2 & 3, THE ASSESSEE HAS CHALLENGE D THE ADDITION ON ACCOUNT OF GROSS PROFIT (GP) IN THE BUSINESS OF SAL E OF FOOD BY THE ASSESSEE AND THE BUSINESS OF LIQUOR BY THE ASSESSEE . 3. THE ASSESSEE IS A PARTNERSHIP FIRM. IT IS ENGAG ED IN THE BUSINESS OF RUNNING A BAR AND RESTAURANT. FOR THE AY 2015-16, THE ASSESSEE FILED A RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.4,5 2,180. THE AO NOTICED THAT THE GP DECLARED BY THE ASSESSEE FOR THE AY 201 5-16 WAS RS.24,00,940 ON TURNOVER OF RS.2,71,87,495 WHICH WA S ONLY 8.83% ITA NO. 631/BANG/2019 PAGE 2 OF 7 COMPARED TO THE GP DECLARED BY THE ASSESSEE OF 17.8 1% IN THE IMMEDIATELY PRECEDING AY VIZ., AY 2014-15. THE AO WAS OF THE VIEW THAT BOOKS OF ACCOUNTS WERE FULL OF INCONSISTENCIES. TH E AO NOTICED THAT APART FROM SELLING LIQUOR, THE ASSESSEE STARTED SELLING F OOD ALSO IN A MAJOR WAY DURING THE RELEVANT PREVIOUS YEAR AND THEREFORE THE GP MARGIN OUGHT TO HAVE BEEN MUCH HIGHER THAN 17.81% THAT WAS DECLARED IN AY 2014-15. THEREAFTER, THE AO PREPARED A SEGMENTAL PROFIT & LO SS ACCOUNT FOR SOFT DRINKS, FOOD AND LIQUOR SEGMENTS. THE FOLLOWING CH ART GIVES THE SEGMENTAL RESULTS:- SOFT DRINKS OPENING STOCK 0 SALES 274207 PURCHASES 223890 CLOSING STOCK 0 GROSS PROFIT 50317 18.35% 274207 274207 FOOD OPENING STOCK 0 SALES 274207 PURCHASES 223890 CLOSING STOCK 0 GROSS PROFIT 50317 18.35% 274207 274207 LIQUOR OPENING STOCK 442815 SALES 24044057 PURCHASES 23593404 CLOSING STOCK 2030850 GROSS PROFIT 2038688 8.47% 26074907 26074907 4. FROM THE ABOVE TABLE, THE AO FIRSTLY NOTICED THA T THE GP IN SALE OF LIQUOR WAS UNDER-STATED. THE AO ALSO NOTICED THAT I N THE FOOD SEGMENTS, THERE WERE FOOD SALES, BUT THERE WERE NO CORRESPOND ING PURCHASE OF CHICKEN, FISH, GROCERY OR VEGETABLE. FOLLOWING CHA RT WAS GIVEN BY THE AO IN THIS REGARD:- ITA NO. 631/BANG/2019 PAGE 3 OF 7 MONTH FOOD SALES PURCHASES OF CHICKEN PURCHASES OF FISH, MUTTON AND EGGS PURCHASES OF GROCERY PURCHASES OF VEGETABLE APRIL 9410 2746 0 7359 0 MAY 11291 0 0 0 JUNE 8023 0 0 260 0 JULY 3474 86 0 0 0 0 5. THE CONCLUSION OF THE AO WAS THAT THE BOOKS OF A CCOUNT MAINTAINED BY THE ASSESSEE WERE NOT CORRECT AND COMPLETE. THE AO ALSO WAS OF THE VIEW THAT NORMAL MARGIN IN FOOD INDUSTRY WAS ABOUT 30% AND THE MARGIN OF 10.87% GP DECLARED BY THE ASSESSEE WAS VERY LOW. F OR THE ABOVE REASONS, THE AO REJECTED THE BOOKS OF ACCOUNT AND E STIMATED THE PROFITS OF THE ASSESSEE AS FOLLOWS:- FOOD SEGMENT HOWEVER, FOR THE PURPOSE OF THE PRESENT ASSESSM ENT, IT IS PROPOSED TO ESTIMATE THE GROSS PROFIT AT 30% OF THE RECORDED SALES AT 8,60,769. SINCE YOU HAVE DECLARED G.P OF RS.3,1 1,937 THE DIFFERENCE OF RS.5,48,832 IS LIABLE TO BE ADDED TO YOUR INCOME AND NO FURTHER DEDUCTION IS ADMISSIBLE. LIQUOR SEGMENT AS REGARD THE LIQUOR SEGMENT IT IS SEEN THAT THE G.P OF RS.20,38,688 DECLARED ON GROSS SALES OF RS.2,40,44, 057 IS BELOW THE MARGIN OF 10 TO 12% AT WHICH THE PRODUCTS RETAI L IN WINE SHOPS. IN THE PREVIOUS YEAR, THE G.P DECLARED BY YOU ON LIQUOR SALES WAS 17.81%. APPLYING THE SAME RATIO FOR THE C URRENT YEAR GIVES G.P. ON SALES OF 2,40,44,0457 : RS.42,82,247 LESS: DECLARED IN RETURN : RS.20,38,688 ----------------- DEFICIT RS.22,43,559 ----------------- ITA NO. 631/BANG/2019 PAGE 4 OF 7 THE ABOVE ESTIMATE IS AS PER YOUR OWN FINANCIAL STA TEMENTS AND IS QUITE LOW AS THE MARGINS IN THE RESTAURANT B USINESS ARE NOT LESS THAN 25%. HOWEVER, FOR THE PURPOSE OF THE PR ESENT ARRANGEMENT, IT IS PROPOSED TO BRING TO TAX THE ABO VE SUM OF RS.22,43,559 AS BEING THE INCOME ARISING ON ACCOUNT OF SUPPRESSION OF GROSS PROFIT. 6. AGGRIEVED BY THE AFORESAID ADDITIONS MADE TO THE TOTAL INCOME, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). THE ASSESSEE REITERATED ITS PLEA BEFORE THE CIT(APPEALS) THAT TH E ASSESSEE HAD IN JULY, 2014 SHIFTED THE BAR & RESTAURANT FROM SULTHAN BATH ERY ROAD TO URWA- MARIGUDI ROAD, ASHOKNAGAR, A NEW LOCATION WHICH WAS A RESIDENTIAL AND LABOUR CLASS DOMINATED AREA WITH STIFF COMPETITION FROM OTHER OPERATORS SELLING THEIR PRODUCTS AT COMPETITIVE RATES. THE A SSESSEE HAD TO SELL ITS PRODUCTS AT A DISCOUNT. 7. THE ASSESSEE ALSO SUBMITTED THAT THE AO WAS NOT RIGHT IN ASSUMING THAT THE ASSESSEE CANNOT SELL BELOW THE MRP PRICES FIXED BY THE GOVT. FOR LIQUOR SOLD BY IT. THE ASSESSEE ALSO PLEADED BEFOR E THE CIT(A) THAT CONSUMPTION OF LPG IS A FACTOR CONSIDERED BY THE AO IN ESTIMATING PROFITS OF THE FOOD BUSINESS. THE ASSESSEE HAD PLEADED BEF ORE THE CIT(A) THAT THERE WAS PILFERAGE IN LPG AND THAT SHOULD NOT BE T HE BASIS ON WHICH ADDITION CAN BE MADE IN THE FOOD SEGMENT. THE CIT( APPEALS), HOWEVER, CONFIRMED THE ACTION OF THE AO FOR THE FOLLOWING RE ASONS:- 5.8 THE AR SUBMITTED COPY OF THE PRICE CHART (MENU ) OF THE NEW LOCATION WHICH HAS ONLY THE PRICES OF FOOD ITEM S. THE MENU DID NOT CONTAIN THE PRICES OF LIQUOR ITEMS. THE AR DID NOT SUBMIT THE MENU OF THE OLD LOCATION. FURTHER NO EVIDENCE W AS SUBMITTED IN SUPPORT OF THE CLAIM THAT THE LIQUOR AND FOOD WA S SOLD AT LESS THAN MRP PRICES. THE AR ALSO FAILED TO SUBMIT ANY CIRCULAR/INSTRUCTION/ COMMUNICATION IN SUPPORT OF T HE CLAIM THAT THE STATE EXCISE DEPARTMENT FIXES MONTHLY TARGET FO R LITRES OF LIQUOR TO BE PURCHASED OR ELSE A HEFTY PENALTY WOUL D BE LEVIED AND ITA NO. 631/BANG/2019 PAGE 5 OF 7 ALSO SUBJECT TO CANCELLATION OF EXCISE LICENSE. THE AR HAS NOT SUBMITTED EVEN THE NAMES OF THE BAR & RESTAURANTS I N THE SAME LOCALITY NOT TO TALK OF THE FINANCIALS OF THE COMPA RABLES. THE AR SUBMITTED THAT THERE ARE NO COMPARABLE HOTELS IN TH E NEARBY VICINITY OF URWA-MARIGUDI ROAD, ASHOKNAGAR SO AS TO MAKE A REASONABLE ANALYSIS OF THE TURNOVER. HOWEVER IN THE EARLIER SUBMISSION, THE AR SUBMITTED THAT THE APPELLANT IS FORCED TO SELL AT DISCOUNTED PRICES, IN VIEW OF THE STIFF COMPETIT ION IN THE LOCALITY WHICH GOES AGAINST THE EARLIER SUBMISSION. THE APPELLANT FAILED TO SUBSTANTIATE ITS CLAIM THAT LIQUOR WAS SO LD AT LESS THAN MRP PRICE. THEREFORE, THERE IS NO MERIT IN THE SUBM ISSION OF THE APPELLANT/AR. THE ASSESSING OFFICER HAS ADOPTED GP RATIO OF THE APPELLANT IN THE EARLIER YEAR (17.81%). THERE IS NO DISPUTE WITH REGARD TO THE GP WORKING MADE BY THE ASSESSING OFFI CER FOR THE LIQUOR RETAIL AT 9 TO 14%. TAKING INTO CONSIDERATIO N, THE FACT THAT THE APPELLANT IS IN BAR BUSINESS WHERE THE LIQUOR I S SOLD IN PEGS, THE GP OF 17.81% IS VERY REASONABLE. THE ADDITION M ADE IS HEREBY CONFIRMED. 5.9 REGARDING THE FOOD SEGMENT, IT IS SUBMITTED THA T AFTER THE SHIFT OF THE OUTLET, THERE WAS MISMANAGEMENT WITH R EGARD TO OVERALL PROCUREMENT. ESPECIALLY WITH REGARD TO LPG GAS AND NO COMPLAINTS WERE MADE SINCE IT WAS PRACTICALLY TIME BARRED AND THE MANAGEMENT FELT ANY LEGAL PROCESS WOULD BE FUTILE E XERCISE SINCE THERE WAS NO WRITTEN MANAGERIAL AGREEMENT. THE AR H AS NOT EVEN MENTIONED THE NAMES OF THE EMPLOYEES WHO INDULGED I N MISMANAGEMENT. THE SUBMISSION IS SELF-SERVING IN NA TURE AND THERE IS NO MERIT IN THE CONTENTION OF THE AR. THE AR HAS NOT SUBMITTED EVEN THE NAMES OF THE BAR & RESTAURANTS I N THE SAME LOCALITY NOT TO TALK OF THE FINANCIALS OF THE COMPA RABLES TO WORK OUT THE REASONABLE GP. THE ASSESSING OFFICER ADOPTE D GROSS PROFIT AT 30% AND ARRIVED AT THE GP OF RS.8,60,769/- ON TH E RECORDED FOOD SALES OF RS. 28.69 231 /-, WHICH IN MY VIEW IS QUITE REASONABLE FOR THE FOOD INDUSTRY. THEREFORE, THE A DDITION MADE IS HEREBY CONFIRMED. 8. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE HAS RAISED GROUND NOS.2 & 3 BEFORE THE TRIBUNAL. ITA NO. 631/BANG/2019 PAGE 6 OF 7 9. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(APPEALS). THE LD. DR RELIED ON THE ORDER OF CIT(APPEALS). 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM O F THE VIEW THAT THE ADDITION MADE IN THE LIQUOR SEGMENT AS WELL AS IN T HE FOOD SEGMENT WERE JUSTIFIED FOR THE VARIOUS DISCREPANCIES POINTED OUT BY THE AO. HOWEVER, I AM OF THE VIEW THAT THE QUANTUM OF ADDITION MADE BY THE AO WAS EXCESSIVE. IN THIS REGARD, AS FAR AS LIQUOR SEGMENT IS CONCERNED, I FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE SHIFTED ITS B AR & RESTAURANT LOCATION FROM SULTHAN BATHERY ROAD TO URWA-MARIGUDI ROAD, AS HOKNAGAR. THE ADMITTED POSITION IS THAT THE NEW PLACE OF BUSINESS WAS NOT AN UP-MARKET COMPARED TO THE EARLIER PLACE AND MARGINS HAD TO BE COMPROMISED FOR GETTING THE BUSINESS. THE ASSESSEE HAS SHIFTED ITS BUSINESS IN THE MONTH OF JULY, 2014 TO THE NEW PLACE. THESE FACTS WOULD HAVE HAD SOME IMPACT ON THE PROFIT MARGINS AND THE EARLIER YEARS PROFIT MARGIN CANNOT BE COMPARED. I AM OF THE VIEW THAT THE GP RATE OF 12. 5 % SHOULD BE APPLIED AND THE ADDITION MADE BY THE AO IS RESTRICTED ACCOR DINGLY. 11. AS FAR AS FOOD SEGMENT IS CONCERNED, I FIND THA T THE ASSESSEE HAS NOT BEEN IN A POSITION TO GIVE PROPER EXPLANATION. THERE WAS NO FOOD SALES REPORTED COMMENSURATE WITH THE USAGE OF LPG. THE M ARGIN SHOWN BY THE ASSESSEE WAS EXTREMELY LOW. THE BOOKS OF ACCOUNT O F FOOD BUSINESS WERE FOUND TO BE NOT RELIABLE INASMUCH AS THERE WAS NO P URCHASE SHOWN, BUT SALES RECORDED WHICH IS NOT POSSIBLE IN A FOOD INDU STRY. I AM, HOWEVER, OF THE VIEW THAT THE GP RATE OF 30% ADOPTED BY THE AO WAS EXCESSIVE. IN MY VIEW, THE GP RATE OF 20% WOULD MEET THE ENDS OF JUS TICE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE. I HOLD ACCORDINGLY. 12. THE OTHER ADDITION CHALLENGED IN GROUND NO.4 IS THE ADDITION OF RS.2 LAKHS AS UNEXPLAINED CASH CREDIT. THIS GROUND WAS NOT PRESSED BEFORE THE CIT(APPEALS) AND THEREFORE WAS DISMISSED AS NOT PRE SSED. BEFORE US, THE ITA NO. 631/BANG/2019 PAGE 7 OF 7 LD. COUNSEL FOR THE ASSESSEE SOUGHT TO PLEAD THAT IN GROUND NO.5, HE HAS ASKED FOR TELESCOPING THE ADDITION ON ACCOUNT OF GP WITH THE UNEXPLAINED CASH CREDIT ADDED U/S. 68 OF THE ACT. I AM OF THE VIEW THAT THE REQUEST FOR TELESCOPING HAS TO BE ACCEPTED AND THE AO IS DIRECT ED TO GIVE TELESCOPING EFFECT WHILE GIVING EFFECT TO THIS ORDER, SUBJECT T O THE QUANTUM OF ADDITION THAT MAY REMAIN AFTER THE DIRECTIONS IN THIS ORDER ON GROUND NOS.2 & 3. 13. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF OCTOBER, 2019. SD/- ( N.V. VASUDEVAN ) VICE PRESIDENT BANGALORE, DATED, THE 16 TH OCTOBER, 2019. / D ESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, I TAT, BANGALORE. 6. GUAR D FIL E BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.