GOOD TIMES LIQUOR STORE WINES,HYDERABAD vs. ACIT CENTRAL CIRCLE-1(1), HYDERABAD, HYDERABAD

The brief facts of the case are that, the assessee is a partnership firm engaged in retail trade of liquor business, filed its return of income for AY 2022-23 on 23.09.2022 by declaring total income of Rs. 1,07,50,770/-. The case was selected for scrutiny and the assessment has been completed under Section 143(3) r.w.s. 144B of the Income Tax Act, 1961 dated 15.03.2024 and determined total income of Rs.1,72,89,747/- by inter alia making addition towards income from business and profession of Rs. 11,99,000/-, ad hoc disallowance of 50% of various expenditure and addition of Rs. 25,89,977/- and addition of Rs. 27,50,000/- towards license fee charges paid to State Prohibition and Excise Department on 18.03.2021 and claimed for assessment year under consideration.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A) and challenged additions made by the A.O. towards income from business and profession, 50% ad hoc disallowance of various expenses and disallowance of license fee. The Ld. CIT(A) after considering submissions of the assessee and also taking note of various facts, rejected the explanation of assessee and sustained addition made by the A.O. towards income

The first issue that came up for our consideration from ground Nos. 2 and 3 of assessee's appeal is ad hoc disallowance of 50% of expenditure.

The learned counsel for the assessee, Shri C. Maheswhwar Reddy, C.A., referring to various expenditures, submitted that going by the business turnover of the assessee and expenditure incurred under Depot Transport, Hamali charges, Change Commission, Salary expenses, Repairs and Maintenance, which works out to 0.06% to 0.37% and is minimal in nature, but the A.O. without assigning any reasons and without rejecting the books of accounts, made ad hoc disallowance of 50% of said expenditure. Therefore, he submitted that the disallowance made by the A.O. should be deleted.

The learned Senior A.R. for the Revenue, Dr. Sachin Kumar, on the other hand, supporting the order of the Ld. CIT(A), submitted that the assessee could not furnish relevant supporting bills and vouchers in respect of various expenditures and in the absence of supporting evidence, the A.O. has rightly disallowed 50% of the said expenditure. Therefore, he submitted that the addition made by the A.O. should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below.

The next issue that came up for our consideration from Ground No. 5 to 7 of assessee's appeal is disallowance of Rs. 27,50,000/- towards licence fees charges paid on 18.03.2021. The A.O. disallowed licence fee charges on the ground that payment of Rs. 27,50,000/- made on 18.03.2021 pertains to financial year 2020-21. Hence, the assessee cannot claim deduction for the F.Y. 2021-22 relevant to the assessment year under consideration. It was the explanation of the assessee that the licence issued by the District Prohibition and Excise Officer is for the period from 01.11.2019 to 31.10.2021 and the amount paid on 18.03.2021 is with respect to the two financial years and therefore, the assessee

We have heard both parties and considered the arguments of the learned counsel for the assessee and counter arguments of learned Sr.A.R. for the Revenue. The A.O. disallowed licence fee charges paid to the District Prohibition and Excise Officer for Rs. 27,50,000/- on 18.03.2021 only on the ground that the above amount pertains to Financial Year 2020-21. The learned counsel for the assessee furnished the relevant evidence, including the licence issued by the authority and proved that the licence issued by the authority is for the period from 01.11.2019 to 31.10.2021 and the assessee is required to make advance payment for every three months. Further, payment made on 18.03.2021 pertains to the period from 01.04.2021 to 30.06.2021. Since the payment made by the assessee pertains to Financial Year 2021-22 relevant to the assessment year 2022-23, in our considered view, the assessee has rightly claimed deduction for the year under consideration which is further supported by the necessary licence issued by the authority and challans. The A.O. and the Ld. CIT(A)

Insofar as the alternative argument of the learned counsel for the assessee in light of certain judicial precedents, including the decision of ITAT Hyderabad in the case of ITO Vs. M/s. Kanaka Durga Wines in ITA No. 591/Hyd/2011 dated 28.07.2011 that the A.O., in the alternative, rejected books of accounts and estimated 3% net profit on the cost of goods, because the Tribunal has already accepted the estimation of profit @ 3% in similar cases, in our considered view, although the issue has now been settled by the decision of ITAT, Hyderabad in various cases with regard to the estimation of profit on cost of goods sold and depending upon the cases, the Tribunal upheld the estimation of profit ranging from 3% to 5%, but in our considered view, the above arguments of the learned counsel for the assessee is not relevant for deciding the issues on hand, because the issues before us is ad hoc disallowance of various expenses and the license fee charges paid by the assessee and not on estimation of net profit on the cost of goods sold. Therefore, in our considered view, the alternative

In this view of the matter and considering the relevant facts and evidences, we direct the A.O. to delete the addition of Rs.27,50,000/- made towards licence fee paid on 18.03.2021. 13. The next issue that came up for our consideration from Ground No. 10 of assessee's appeal is addition of Rs. 11,99,000/- under the head business and profession.

The A.O. made addition of Rs. 11,99,000/- towards incentives received by the assessee from certain parties for displaying various brands in front of its shop. The A.O. made addition of Rs. 11,99,000/- on the ground that the assessee has received incentives on which TDS u/s 194C of the Act, has been deducted and the same has not been accounted in the books of accounts of the assessee. It was the argument of the assessee before the A.O. that the incentives received by the assessee has been accounted in the books of accounts under the head “Sales and Incentives” and the same has been offered to tax and further,

We have heard both parties, perused the material available on record, and had gone through the orders of the authorities below. The assessee furnished the relevant evidence including sales registers for the period from 01.04.2021 to 31.03.2022 which includes sales and incentives received by the assessee from various parties for display of brands in front of the shop on which the TDS u/s 194C of the Act has been deducted. Further, the assessee has also considered the TDS deducted by the payer as reflected in the return of income filed for the assessment year under consideration. Since the assessee has already considered the incentives under the head “Sales and Incentives”, in our considered view, the further addition made by the A.O. of Rs. 11,99,000/- cannot be upheld. Thus, we direct the A.O. to delete the addition made towards incentives received for Rs. 11,99,000/- under the head ‘income from business and profession’.

The Principal Commissioner of Income Tax (Central), Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file