COMMR OF INCOMETAX RAJAHMUNDRY V. M/S.K.SRINIVASA RAO AND ORS

ITTA/128/2002

AI Insights

The appeals in question were filed by the Revenue under Section 260(A) of the Income Tax Act, 1961, challenging the orders of the Income Tax Appellate Tribunal, Visakhapatnam, for the assessment years 1992-93 and 1993-94. The primary legal issues revolved around the appropriateness of the Appellate Tribunal's decision to adopt the net profit at 1% of the total sale value and whether this decision was based on any material record. The court referenced a similar case, 'The Commissioner of Income Tax, Rajahmundry vs. M/s R.Narayanarao & others', to determine the reasonable profit margin in the arrack business, ultimately deciding to set aside the Tribunal's orders and adopt a higher profit estimation rate.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 718951 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 10-03-2014
• Assessment Year: misc
• Other Referred Cases: The Commissioner of Income Tax, Rajahmundry vs. M/s R.Narayanarao & others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Keywords: Arrack Business; Estimated sales; Income Tax; Net Profit; Purchase price
• Section: 260-A

Judgement Text

"HON’BLE SRI JUSTICE G.CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM ITTA Nos.106, 98, 105, 112, 114, 115, 116, 117, 118, 119, 120, 127, 128, 129, 130, 131, 132, 134, 135, 136, 137, 140, 141, 142, 147, 148, 149 & 152 of 2002 Date: 10.03.2014 ITTA No.106 of 2002: Between: The Commissioner of Income Tax, Rajahmundry … Applicant And: B. Krishna Murthy & others, rep. by Mg.Pr. Sri L.Apparao … Respondent HON’BLE SRI JUSTICE G.CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM ITTA Nos.106, 98, 105, 112, 114, 115, 116, 117, 118, 119, 120, 127, 128, 129, 130, 131, 132, 134, 135, 136, 137, 140, 141, 142, 147, 148, 149 & 152 of 2002 COMMON JUDGMENT: (Per Justice Challa Kodanda Ram) All these appeals are filed under Section 260(A) of the Income Tax Act, 1961 (for short “the Act”) by the Revenue challenging the orders dated 18.12.2001, 31.01.2002 and 21.02.2002, on the file of the Income Tax Appellate Tribunal, Visakhapatnam, for the assessment years 1992-93 and 1993-94 with an identical questions of law viz., (a) Whether on the facts and in the circumstances of the case, the Appellate Tribunal is justified in holding that the net profit shall be adopted at 1% of the total sale value? (b) Whether the finding of the Appellate Tribunal that net profit shall be adopted at 1% of the gross sale value is vitiated by perversity on the ground of the same not being based on any material on record? (c) Whether the Appellate Tribunal is justified in interfering in an appeal against best judgment assessment and substituting its opinion for estimation even in the absence of findings recorded by the assessing authority being termed as arbitrary or perverse? (d) Whether the Appellate Tribunal is justified in uniformly applying the same rate in all cases, irrespective of other relevant factors such as place, climate, potentiality for sales etc.? 2. The learned counsel appearing for the appellant-Revenue fairly states that in view of the judgment of this Court in ‘The Commissioner of Income Tax, Rajahmundry vs. M/s R.Narayanarao & others[1]’, these appeals are also squarely covered. The operative portion of the judgment reads as under: “…..As seen from the purchase price and sales recoveries, there is a wide variation. In some cases, it is more than nine (9) times and in some other cases less than seven (7) times. Given the fact that there is no price fixed by the Government for sale of arrack and it is generally a seller’s market, to assume that the gross profit would be at 1% of the estimated sales, in our considered view, low. Accepting the total sale price at eight (8) times of the purchase price, we feel it appropriate to hold that 2% of the estimated sale value, after considering all types of deductions mentioned hereinabove, would be reasonable. Indeed, the Division Bench of this Court in A.Sanyasi Raju found that in some cases the profit margin was higher in arrack business. Therefore estimating the net profit at 2% of the estimated sales or 16% of the purchase price (the Tribunal estimated at 8% of the purchase price) would not be unreasonable. In the result, for the above reasons, we set aside the orders of the Income Tax Appellate Tribunal impugned in these appeals directing that the net profit be estimated at 2% of the estimated sales or 16% of the purchase value whichever is higher. All the appeals shall stand disposed of accordingly. In the facts and circumstances of the case, we make no order as to costs.” 3. In view of the above referred judgment, result of these appeals also should follow the same. Accordingly we set aside the orders of the Income Tax Appellate Tribunal impugned in these appeals directing that the net profit be estimated at 2% of the estimated sales or 16% of the purchase value whichever is higher. 4. All the appeals are accordingly disposed of. No order as to costs. _______________ G. CHANDRAIAH, J _____________________ CHALLA KODANDARAM, J Date: 10.03.2014 BSS HON’BLE SRI JUSTICE G.CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM 82 ITTA Nos.106, 98, 105, 112, 114, 115, 116, 117, 118, 119, 120, 127, 128, 129, 130, 131, 132, 134, 135, 136, 137, 140, 141, 142, 147, 148, 149 & 152 of 2002 (Per Justice Challa Kodanda Ram) Date: 10.03.2014 BSS [1] 338 ITR 625 "