ITO, WARD-2(1), BEGUSARAI vs. SMT. SATAYABATI DEVI, KHAGARIA

The Revenue has taken the following grounds of appeal:- (i) On the facts and in the circumstances of the case, the Ltd. CIT(A) erred in restricting the estimation of net profit to 3% of gross turnover in place of 12% as estimated by AO, by ignoring the fact that the assessee failed to produce books of accounts to establish the veracity of expenses claimed in P&L Account. (ii) On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 97,65,430/- and to observe that the amount represents expenses on account of license fees which is part of trading account, thus ignoring the fact that AO has not disallowed as such but has added the mount because of having been paid towards this expense out of undisclosed sources of income. (iii) Any other grounds that may be urged at the time of hearing. 2

On receipt of notice, the assessee has filed Cross Objection bearing No.6/PAT/2022. In the Cross Objection, the assessee is aggrieved with estimation of profit at 3% of the total turnover. According to the assessee, it should not be more than 1.5% as was declared in earlier year.

Brief facts of the case are that the assessee has filed her return of income on 22.04.2016 declaring total income of Rs.11,66,480/-. The case of the assessee was selected for scrutiny assessment and a notice under section 143(3) was issued and served upon the assessee. During the course of assessment proceedings, the ld. Assessing Officer has made enquiries from the assessee but the assessee submitted that all her papers have been misplaced and she does not have anything. She had handed over these papers to her Advocate Shri Subodh Kumar, who died and she could not locate the books of account and other details, therefore, ld. Assessing Officer has estimated the income of the assessee. He estimated profit at 12% of the total turnover. Similarly he disallowed the license fee of Rs.97,65,430/-.

(A.Y.: 2015-2016) & C.O. No. 06/PAT/2022 (in A.Y.: 2015-2016 Smt. Satayabati Devi , Khagaria 5. On appeal, ld. 1st Appellate Authority re-appreciated the facts and circumstances and partly allowed the appeal. The finding of the ld. CIT(Appeals) reads as under:- “I have considered the facts of the case and also gone through the Assessment Order as well as grounds of' appeal. The appellant has raised total 7 grounds, most of which are general in nature, hence not separately adjudicated and the sole ground of the appeal stands on different amounts of additions made during the assessment proceedings amounting to Rs.93,90,561/- taken as 12% of the gross receipt of Rs.7,82,54,678/- and addition of Rs.97,65,430/- as license fee, which has been added as unexplained income. During the appeal proceedings the AR of the assessee appeared and filed paper books in support of his arguments which is placed on records. The AR argued that the AO has called for the purchase of wine amounting to Rs.6,35,00,116.92/- from the period April 2014 to March 2015 from M/s. Bihar State Beverage Corporation Limited who is government unit to supply of liquor and the assessee has shown sales Rs.7,82,54,678/- G.P. 3.8% and N.P. 1.54% which is as per audited Trading A/c, Profit & Loss A/c & balance sheet of the assessee. He explained during the appeal proceedings that licence fee is a part of trading expenses which cannot be added as profit. In this line of business licence fee has been fixed by the Government and the assessee doing business since long and earlier year data has also been obtained by the AO. The A cannot made addition of any expenses which is part of his Trading and P & L Account of the assessee. The submission of the AR is seems genuine, hence the AO is directed to delete the addition amounting to Rs.97,65,430/- made under the head license fee. It has been further mentioned that license fee is paid to the government on the contract. He also submitted that the sale price of the liquor has been fixed by Bihar State Beverage Corporation Limited, which is a government of Bihar undertaking. Other traders of same line of business have also shown their N.P. between 1.5% to 3%. Considering the facts, the AO is directed to compute the income of the assessee on 3% of the total turnover of Rs.7,82,54,678/- . The grounds are partly allowed. In the result, the appeal of the appellant is partly allowed”.

We have duly considered the rival contentions and gone through the record carefully. It is pertinent to note that income of the assessee has been computed by the ld. Assessing Officer on an adhoc basis. In other words, her income has been estimated and whenever there is an estimation of income, then guess work is always involved. The estimated opinion of one authority has already been replaced by the higher appellate authority. The assessee was not possessing any details after looking to the circumstances of the assessee the nature of her business, income has been determined. Now assessee wants to persuade us to reduce such an estimation further but neither the assessee has placed on record copy of similar traders in liquor in this assessment year. The assessee has just drew our attention towards the gross profit shown by it in 2014-15, which has been noticed by the ld. CIT(Appeals) as well as of the ld. Assessing Officer. However, after going through these details and alleged audited accounts placed in the paper book, we are of the view that no details are available with the ld. Assessing Officer, which can support the audit report and audit report would only be taken into consideration if base documents are being possessed by the assessee. Therefore, the authenticity of the audited accounts cannot be cross verified and income of the (A.Y.: 2015-2016) & C.O. No. 06/PAT/2022 (in A.Y.: 2015-2016 Smt. Satayabati Devi , Khagaria assessee has to be determined only on the basis of estimation. The estimation has already been made by the ld. CIT(Appeals), which is a reasonable one and no interference is called for at the end of the second appellate authority. It is also pertinent to note that the ld. Assessing Officer has disallowed the payment of license fees but that is the statutory payment and once income is to be estimated on the basis of the business structure of the assessee, then such license fees cannot be disallowed because the assessee is in such a business i.e. trading in liquor, where license fees is must. The ld. 1st Appellate Authority has appreciated this contention and allowed the license fees to the assessee. Therefore, we do not wish to interfere either of the Grounds, i.e. Ground No.1 or Ground No. 2 of the Revenue’s appeal. Consequently we do not find merit in the Cross Objection filed by the assessee.

In the result, the appeal of the Revenue as well as the Cross Objection by the assessee both are dismissed. Order pronounced in the open Court on 23.05.2023.