Sri Balusu Prasad, Rajahmundry V. The ITO, Rajahmundry

ITA 82/VIZ/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6676 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 23-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S ARAVINDAKSHAN
• Keywords: Rejection of books of accounts; Unexplained investment; Additional evidence
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 82 / VIZ /201 7 (ASST. YEAR : 20 11 - 1 2 ) BALUSU PRASAD, 80 - 17 - 3/1, SRI KALYANI ENCLAVE, A.V.A. ROAD, RAJAHMUNDRY. V S . IT O , WARD - 3 , RAJAHMUNDRY . PAN NO. AYDPB 1529 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C. SUBRAHMANYAM FC A. DEPARTMENT BY : SHRI R.S. ARAVINDAKSHAN SR. DR DATE OF HEARING : 1 4 / 0 9 /201 7 . DATE OF PRONOUNCEMENT : 21 / 0 9 /201 7 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), RAJAHMUNDRY, DATED 01 / 12 /201 6 FOR THE ASSESSMENT YEAR 2011 - 12. 2. GROUND NOS. 1.0 TO 1.2 ARE RELATING TO ESTIMATION OF PROFIT IN IMFL BUSINESS. 3 . FACTS ARE IN BRIEF THAT THE ASSESSEE IS AN INDIVIDUAL CARRYING ON BUSINESS OF PURCHASE AND SALE OF IMFL , FILED HIS RETURN OF INCOME BY DECLARING TOTAL INCOME OF 6,39,200/ - , WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'THE ACT'). LATER ON , 2 ITA NO. 82/VIZ/2017 ( BALUSU PRASAD ) CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY ESTIMATING PROFIT AT 20% OF THE STOCK PUT TO SALE. 4 . ON APPEAL, THE L D. 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. 5 . ON BEING AGGRIEV ED, ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE TRIBUNAL . AT THE TIME OF HEARING, THE L D. AUTHORIZED REPRESENTATIVE 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. 6 . ON THE OTHER HAND, THE L D. D.R. STRONGLY SUPPORTED THE ORDER S PASSED BY THE AUTHORITIES BELOW. 7 . WE 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 RESPECT, 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 O F IMFL BUSINESS 3 ITA NO. 82/VIZ/2017 ( BALUSU PRASAD ) 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 AUTHOR ITIES 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 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 T HE 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 STAT E 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 DIFFE RENT FACTS. THE A.P. HIGH COURT 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 UN DER 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 BENCH IN THE CASE OF T. APPALASWAMY VS. ACIT IN ITA NO.65 & 66/VIZAG/2012. WE HAVE GONE THROUGH THE CASE LAW S RELIED UPON BY THE ASSESSEE IN THE LIGHT 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 ORD ER 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 4 ITA NO. 82/VIZ/2017 ( BALUSU PRASAD ) 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 THAT THE ISSUE IS NO MORE RES INTEGRA IN VIEW OF A SERIES OF DECISIONS OF THE I TAT 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 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 COORDINATE 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 T HE 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. 8 . RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF TH IS TRIBUNAL, WE DIRECT THE A.O. TO RE - COMPUTE THE INCOME OF THE ASSESSEE AT 5% OF PURCHASE PRICE. ACCORDINGLY, THESE GROUND S OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 9. GROUND NOS. 1.3 & 1.4 ARE RELATING TO ADDITION IN RESPECT OF UNEXPLAINED INVESTM ENT OF 4,35,200/ - AND UNSECURED LOANS OF 19 LAKHS. 5 ITA NO. 82/VIZ/2017 ( BALUSU PRASAD ) 10 . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS N OTED THAT THE ASSESSEE HAD MADE INITIAL INVESTMENT TO THE TUNE OF 28,52,200/ - TOWARDS LICENCE FEE PRIOR TO THE COMMENCEMENT OF BUSINESS AND CALLED UPON THE ASSESSEE TO EXPLAIN THE SOURCE FOR THE SAID INVESTMENT. IN RESPONSE, ASSESSEE EXPLAINED WITH REFERENCE TO UNSECURED LOAN S OF 19 LAKHS AND OWN CAPITAL CONTRIBUTION OF 5 LAKHS. THE ASSESSING OFFICER ALLOWED CREDIT TO THE CLAIM OF CAPITAL CONTRIB U TION OF 5 LAKHS AND ADDED UNSECURED LOANS OF 19 LAKHS AS UNPROVED . THUS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS FAILED TO EXPLAIN THE SOURCE OF BALANCE AMOUNT OF 4,35,200/ - . ACCORDINGLY, HE MADE THE ADDITION OF 4,35,200/ - TOWARDS UNEXPLAINED INVESTMENT. 11 . ON APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT THE ASSESSEE HAS TAKEN LOAN FROM HIS FRIENDS AND RELATIVES AND THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER MAY BE DELETED. THE LD.CIT(A) BY OBSERVING THAT THE ASSESSEE HAS NOT FILED ANY INFORMATION WITH REGARD TO SOURCE OF IMPUGNED AMOUNT , DETAILS OF THE CREDITORS AND CONFIRMATION LETTERS , CONFIRMED THE ORDER OF THE ASSESSING OFFICER. EVEN BEFORE US , NO EVIDENCE IN RESPECT OF THE IMPUGNED ADDITION OF 4,35,200/ - IS FILED. THEREFORE, WE FIND NO INFIRMITY IN THE O RDER OF THE LD. CIT(A). THUS, THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 12 . WITH REGARD TO ADDITION OF 19 LAKHS, DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER HAS NOTED THAT THE ASSESSEE HAS CLAIMED UNSECURED LOANS TO THE TUNE OF 19 LAKHS AS 6 ITA NO. 82/VIZ/2017 ( BALUSU PRASAD ) SO U RCE FOR THE IMPUGNED INVESTMENT MADE. SINCE, ASSESSEE FAILED TO EXPLAIN TO SUBSTANTIATE ABOUT THE CLAIM OF UNSECURED LOANS, T HE ASSESSING OFFICER ADDED THE IMPUGNED AMOUNT AS UNEXPLAINED INCOME OF THE ASSESSEE. 13 . ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE IN THE FORM OF AFFIDAVITS WITH REGARD TO UNSECURED LOANS. THE LD. CIT(A) FORWARDED THE SA ME TO THE ASSESSING OFFICER FOR HIS COMMENTS . THE ASSESSING OFFICER , AS PER THE DIRECTION OF THE LD. CIT(A), HAS ISSUED A LETTER AND ASKED THE ASSESSEE TO PRODUCE THE UNSEC U RED LO A N CREDITORS. THEREFORE, ASSESSEE PRODUCED LO A N CREDITORS FOR VERIFICATION NAMELY ; SRI KESANGI SUBBA RAO 1,35,000/ - , SRI PANA MATI SRINIVASA RAO 1,35,000/ - , SRI MYNAM VENKATARATNAM 1,35,000/ - , SRI KOTA VENKATESWARA RAO 1,35,000/ - , SRI KARNIKA SRINIVASA RAO 1,35,000/ - , SRI BUDDIGA LAKSHMAYA 1,35,0 00/ - , SRI CHITIKINA NAGESWARA RA O 1,35,000/ - , SRI VEMULA SIRNIVASA RAO 1,35,000/ - , SRI MYNAM GOPAYYA AND SRI PANAMATI SUBBA RAO 1,35,000/ - . THE ASSESSING OFFICER BY CONSIDERING THE ABOVE LOAN CREDITORS , SUBMITTED HIS REPORT TO THE LD. CIT(A) THAT TO THE EXTENT OF 10 PERSONS APPEARED BEFORE HIM MAY BE CONSIDERED FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER SECTION 46A OF THE IT RULES, 1962 . HE FURTHER SUBMITTED THAT SINCE ASSESSEE FAILED TO PRODUCE FIVE PERSONS NAMELY , SRI BODASINGH SRINU 1,35, 000/ - , SRI REDDY KIRAN KUMAR 10,000/ - , SRI PULLURI PRASAD 1,35,000/ - , SRI MIDDE RAMA RAO 1,35,000/ - AND SRI MAINAM 7 ITA NO. 82/VIZ/2017 ( BALUSU PRASAD ) RAMBABU 1,35,000/ - , ADDITIONAL EVIDENCE MAY NOT BE CONSIDERED IN RESPECT TO THE ABOVE FIVE PERSONS. 14 . LEARNED CIT(A) AFTER CONSIDERING THE REMAND REPORT FORWARDED BY THE ASSESSING OFFICER OBSERVED THAT THE LOAN CREDITORS HAVE FAILED TO PROVE THE GENUINENESS OF THE TRANSACTIONS AND ALSO THEIR CREDITW O RTHINESS. APART FROM THAT, THE LD. CIT(A) HAS OBSERVED T HAT IT WAS CLAIM ED THAT THESE CREDIT TRANSACTION S WERE BY WAY OF DDS FROM THE ALLEGED CREDITORS, HOWEVER, NO EVIDENCE TO SHOW THAT THE ALLEGED CREDITORS HAVE TAKEN THE DDS . HE FURTHER OBSERVED THAT THERE WAS NO EVIDENCE TO SHOW THAT THE DDS WERE TAKEN OUT OF CHEQUE WITHDRAW A LS . THE SERIAL NUMBERS OF THE DDS AND THE MANNER , IN WHICH THE CASH DDS WERE TAKEN TO PAY THE LICENCE FEE ALSO RAISES DOUBTS AS TO THE GENUINENESS OF THESE CREDIT TRANSACTIONS WHICH WOULD BE ADDITIONAL REASON TO CONFIRM THE ABOVE ADDITIONS. 15 . BEFORE US, THE L EARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS NOT ABLE TO PRODUCE ANY EVIDENCE TO SHOW THAT THE TRANSACTIONS ARE GENUINE AND ALSO LOAN CREDITORS HAVE CREDITWORTHINESS. WE FIND THAT THE LD. CIT(A) HAS CONSIDERED ALL THE DETAILS ABOUT THE LOAN CRED I T O R S FROM PAGE NO. 8 TO 15 AND HELD THAT THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE TO SHOW THAT T HE TRANSACTION IS GENUINE. BEFORE US, THE ASSESSEE IS NOT ABLE TO FILE ANY EVIDENCE OR MATERIAL TO SHOW THAT THE ORDER PASSED BY THE LD. CIT(A) IS NOT CORRECT. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). 8 ITA NO. 82/VIZ/2017 ( BALUSU PRASAD ) 16 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED IN PART . ORDER PRONOUNCED IN THE OPEN COURT ON TH IS 2 1 S T DAY OF SEP . , 201 7 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : SEPTEMBER , 201 7 . VR/ - COPY TO: 1. THE ASSESSEE - BALUSU PRASAD, 80 - 17 - 3/1, SRI KALYANI ENCLAVE, A.V.A. ROAD, RAJAHMUNDRY. 2. THE REVENUE ITO, WARD - 3, RAJAHMUNDRY. 3. THE C CIT , VISAKHAPATNAM. 4. THE CIT(A) , RAJAHMUNDRY. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.