D Lokanadham, Srikakulam V. THE ITO, Srikakulam

ITA 77/VIZ/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6422 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 20-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T SATYANANDAM
• Keywords: Unexplained cash credit; Rejection of books of accounts; Unexplained investment
• Section: 143(3)

Judgement Text

ITA NO.77/VIZAG/2015 D. LOKANADHAM, AMADALAVALASA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.77/VIZAG/2015 ( / ASSESSMENT YEAR:2011-12) D. LOKANADHAM, AMADALAVALASA ITO, WARD - 1, SRIKAKULAM [PAN NO. ASLPD5734B ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI T. SATYANANDAM, DR / DATE OF HEARING : 09.03.2017 / DATE OF PRONOUNCEMENT : 28.03.2017 / O R D E R PER SHRI MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST ORDER OF THE CIT(A)-2, VISAKHAPATNAM DATED 30.01.2015 FOR TH E ASSESSMENT YEAR 2011-12. ITA NO.77/VIZAG/2015 D. LOKANADHAM, AMADALAVALASA 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIV IDUAL CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL (INDIAN MADE FOREIGN LIQUOR) IN SRIKAKULAM DISTRICT. THE ASSESSEE HAD FILED RETURN OF INCOME BY DECLARING A TOTAL INCOME OF ` 1,49,304/-. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). LATER, AFTER FO LLOWING THE DUE PROCEDURE, ASSESSMENT WAS COMPLETED U/S 143(3) OF T HE ACT. IN THE ASSESSMENT ORDER, THE A.O. HAS OBSERVED THAT THE AS SESSEE HAS NOT MAINTAINED ANY STOCK REGISTER AND NOT PRODUCED SALE BILLS, NO QUANTITATIVE DETAILS OF SALE EFFECTED AND THEREFORE , HE HAS ESTIMATED THE NET PROFIT, CLEAR OF ALL EXPENSES AT 20% OF THE STO CK PUT TO SALE. ON APPEAL, THE LD. CIT(A) GRANTED A PARTIAL RELIEF TO THE ASSESSEE BY SCALING DOWN THE PERCENTAGE FROM 20% TO 10% AND DIRECTED TH E A.O. TO RE- COMPUTE THE INCOME AT 10% OF PURCHASE PRICE. 3. ON BEING AGGRIEVED, ASSESSEE CARRIED MATTER IN A PPEAL 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 TRIBUN AL, IN THE CASE OF TANGUDU JOGISETTY IN ITA NO.96/VIZAG/2016 BY ORDER DATED 2.6.2016, ITA NO.77/VIZAG/2015 D. LOKANADHAM, AMADALAVALASA 3 WHEREIN THE TRIBUNAL HAS DIRECTED THE A.O. TO ESTIM ATE NET PROFIT OF 5% ON TOTAL STOCK PUT TO SALE. 4. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER PASSED BY THE AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ESTIMATION OF PROFIT IN RESPECT OF IMFL BUSINESS CARRIED BY THE ASSESSEE. WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF TANGUDU JOGIS ETTY (SUPRA) HAS CONSIDERED SIMILAR ISSUE AND CONSIDERING FACTS OF T HE CASE, DIRECTED THE A.O. TO ESTIMATE NET PROFIT OF 5% ON TOTAL STOCK PU T TO SALE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER : 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE A.O. ESTIMATED NET PROFIT 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 REGISTERS AND BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE NOT SUSCEPTIBLE FOR VERIFICATION, THEREFORE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PR OFIT 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 TH E ASSESSEE. IT IS FURTHER SUBMITTED THAT THE CASE LAW RELIED UPON BY THE ASSE SSEE 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 TRADI NG IN ARRACK, WHEREAS IT IS IN THE BUSINESS OF DEALING IN IMFL. THE ASSESSEE FURT HER CONTENDED THAT IMFL TRADE WAS CONTROLLED BY THE STATE GOVERNMENT THROUG H A.P. STATE BEVERAGES CORPORATION LTD. AND THE PRICES OF THE PRODUCTS ARE FIXED BY THE STATE ITA NO.77/VIZAG/2015 D. LOKANADHAM, AMADALAVALASA 4 GOVERNMENT. THE ASSESSEE BEING A LICENSE HOLDER OF STATE GOVERNMENT CANNOT SELL THE PRODUCTS OVER AND ABOVE THE MRP FIX ED 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 RELYI NG UPON THE DECISION OF A.P. HIGH COURT IN THE CASE OF CIT VS. R. NARAYANA RAO I N ITA NO.3 OF 2003 WHICH IS RENDERED UNDER DIFFERENT FACTS. THE A.P. HIGH C OURT HAS CONSIDERED 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 U NDER DIFFERENT FACTS TO ESTIMATE THE NET PROFIT. ON THE OTHER HAND, THE LD . A.R. FOR THE ASSESSEE, RELIED UPON THE DECISION OF ITAT, VISAKHAPATNAM BEN CH 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 I N THE LIGHT OF THE FACTS OF THE PRESENT CASE AND FINDS THAT THE COORDINATE BENC H OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ESTIMATION OF 5% NE T PROFIT ON PURCHASES IS REASONABLE. THE RELEVANT PORTION OF THE ORDER IS R EPRODUCED HEREUNDER: 3. WE HAVE HEARD THE PARTIES, PERUSED THE ORDERS O F 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 HI GH AND EXCESSIVE CONSIDERING THE NORMAL RATE OF PROFIT IN THIS LINE 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 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/12 AND OTHERS DATED 18.05.2012 AS WELL AS A NUMBER OF OTHE R CASES HAVE HELD THAT PROFIT IN CASE OF BUSINESS IN INDIAN MADE FOREI GN 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 ASSESSING OFFICE R 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 AS SESSING OFFICER SHOULD ALSO BEAR IN MIND THAT IN NO CASE THE INCOME DETERM INED 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 I S QUITE HIGH. ON THE OTHER HAND, THE ASSESSEE RELIED UPON THE DECISION OF COOR DINATE BENCH AND THE COORDINATE BENCH UNDER SIMILAR CIRCUMSTANCES ESTIMA TED THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDUCTIONS. NO CONTR ARY 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 DIREC T THE A.O. TO ESTIMATE THE NET PROFIT OF 5% ON TOTAL PURCHASES NET OF ALL DEDU CTIONS. ORDERED ACCORDINGLY. ITA NO.77/VIZAG/2015 D. LOKANADHAM, AMADALAVALASA 5 6. IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE DIRECT THE A.O. TO RE-COMPUTE THE INCO ME OF THE ASSESSEE AT 5% OF STOCK PUT TO SALE. ACCORDINGLY, THIS GROU ND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED. 7. THE NEXT ISSUE WITH REGARD TO THE ADDITIONS TOWA RDS UNEXPLAINED INVESTMENT OF ` 35,18,307/- IN RESPECT OF EXPENDITURE INCURRED FOR LICENSE FEE, BANK GUARANTEE COMMISSION, PURCHASE OF STOCK AND FD BEFORE COMMENCEMENT OF THE BUSINESS. THE A.O. CALL ED UPON THE ASSESSEE TO PROVE THE SOURCES FOR THE ABOVE EXPENDI TURE. IN RESPONSE, THE ASSESSEE HAS CLAIMED THAT THE EXPENDITURE WAS I NCURRED FROM THE FUNDS AVAILABLE IN THE BOOKS OF ACCOUNTS AND FROM L OAN CREDITORS. THE A.O. ALLOWED CREDIT FOR THE UNSECURED LOAN OF ` 4,43,000/- OUT OF THE TOTAL UNSECURED LOANS OF ` 24,24,575/- AND FOR THE REMAINING AMOUNT, THE A.O. HELD THAT THE ASSESSEE FAILS TO PROVE THE GENUINENESS AND CREDITWORTHINESS OF THE CREDITORS AND HENCE, MADE A DDITIONS OF ` 35,18,307/- AS UNEXPLAINED CREDITS. THE FACTS REMA IN SAME. THE ASSESSEE FAILS TO BRING ON RECORD ANY EVIDENCE TO P ROVE THE UNSECURED LOANS AND TO EXPLAIN THE SOURCES FOR INITIAL EXPEND ITURE OF ` 39,61,307/-. THE ASSESSEE CLAIMS THAT IT HAS FILED CONFIRMATION LETTERS. ON VERIFICATION OF DETAILS FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE NEITHER FILED ITA NO.77/VIZAG/2015 D. LOKANADHAM, AMADALAVALASA 6 CONFIRMATION LETTERS NOR EXPLAINED THE CREDITS WITH NECESSARY EVIDENCES. THE CIT(A) AFTER CONSIDERING THE RELEVANT DETAILS H AS RIGHTLY UPHELD ADDITIONS MADE BY THE A.O. TOWARDS UNEXPLAINED INVE STMENT. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). HEN CE, WE INCLINED TO UPHOLD CIT(A) ORDER AND REJECT THE GROUND RAISED BY THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 TH MAR17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 28.03.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT D. LOKANADHAM, PROP: KORLAKOTA V ILLAGE, AMADALAVALASA, SRIKAKULAM. 2. / THE RESPONDENT THE ITO, WARD-1, SRIKAKULAM 3. + / THE CIT-2, VISAKHAPATNAM 4. + ( ) / THE CIT (A)-2, VISAKHAPATNAM 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM