SADA SRAVAN REDDY,SECUNDERABAD vs. ITO, WARD-10(2), HYDERABAD

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ITA 1794/HYD/2025Status: DisposedITAT Hyderabad07 August 2026AY 2017-189 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the AO was justified in rejecting the books of account due to lack of proper documentation and estimating profit. The addition of rental income was also considered correct as separate business receipts.

What were the facts?

The assessee, engaged in liquor trading, did not maintain proper books of account. The Assessing Officer (AO) estimated profit at 3% on stock and added rental income from advertising hoardings. The CIT(A) upheld these additions.

What were the issues?

Whether the AO was justified in rejecting the books of account and estimating business profit? Whether rental income from hoardings should be treated as separate business income?

Which sections of the Income-tax Act were involved?

Section 68,Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad “A” Bench, Hyderabad

आदेश / ORDER

PER MANJUNATHA G., A.M :

This appeal filed by the assessee is directed against the order of the learned Addl/Joint Commissioner of Income Tax (Appeals) – 2, Delhi, dated 28.08.2025, pertaining to the assessment year 2017-18.

2.

The assessee is engaged in the business of trading in liquor, filed its return of income for A.Y. 2017-18 on 31.03.2018, admitting total income of Rs. 56,57,443/-. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. issued a final show-cause notice on 11.12.2019 and called upon the assessee to file explanation/submissions in respect of admission of rental income as per Form 26AS statement and for estimation of income on cost of goods sold. In the absence of proper books of account maintained by the assessee, in response, the assessee submitted details of rental receipts from various parties for displaying IMFL products in the business premises and also the financial statements explaining the return of income filed for the year under consideration. The A.O., after considering the

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relevant submissions of the assessee, observed that the assessee firm did not maintain proper books of account. No stock registers were maintained. The assessee has also not furnished sale bills and vouchers for verification. In the absence of stock register and sale bills, the A.O. rejected the explanation of the assessee and profit is estimated at the rate of 3% on stock put to use and determined income from the business at Rs. 37,04,945/-. Further, the A.O. added rental receipts from Beam Global Spirits for Rs. 12,99,999/- and rental receipts from Prayag Enterprise for Rs. 6,75,000/- and finally determined the income from business at Rs. 56,79,944/-. Further, by taking into account income from house property as admitted in the return of income and income from other sources, the A.O. determined the total income at Rs. 67,60,229/-.

3.

The assessee, aggrieved by the order of the A.O., preferred an appeal before the Ld. CIT(A) and challenged the addition made by the A.O. in respect of estimation of 3% on cost of goods sold and further addition towards rental receipts, and argued that the assessee is in the business of trading in liquor and has received rental receipts from companies for putting hoardings in the

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business premises. Since there is a link between the business and receipt, the rent has been considered as business income and credited to the Profit & Loss Account. Therefore, the rejection of books of account by the A.O. and estimation of profit is incorrect. The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of the decision of the ITAT, Visakhapatnam, in the case of Chitti Nagabhushanam vs. ITO in ITA No. 105/VIZ/2015, dated 12.01.2017, upheld the estimation of 3% profit on stock put to use by holding that, as per the decision of the jurisdictional High Court and the ITAT, net profit has been estimated ranging from 3% to 5%. Therefore, the profit estimated by the A.O. at 3% on stock put to use is well within the limits. The Ld. CIT(A) further held that the display charges paid to the assessee are in the nature of rent for hiring space in the liquor shops and the same has been correctly treated as separate business receipts from the basic business operations of the assessee.

4.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

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5.

The learned counsel for the assessee, Shri K.A. Sai Prasad, C.A., submitted that the assessee has considered rental receipts for displaying hoardings in the business premises as business receipts and credited the same to the Profit & Loss Account. The assessee has reported net profit of Rs. 45,87,158/- on gross receipts of Rs. 13.5 crores, which works out to 3.396%. Further, if we exclude rental receipts, the net profit declared by the assessee from the core business of trading in liquor also works out to 2.12%, which is within the range accepted by the Department in a number of cases. Therefore, making a separate addition towards rental receipts by excluding the same from the Profit & Loss Account and estimating 3% profit on stock put to use, is incorrect. Therefore, he submitted that the addition made by the A.O. should be deleted.

6.

The learned Senior A.R. for the Revenue, Shri Mohan Babu, on the other hand, submitted that the assessee has reported net profit of Rs. 45.87 lakhs on a total turnover of Rs. 13.5 crores, and receipts for putting hoardings of Rs. 19,74,999/-, which is very less when compared to the profit percentage in this line of business, as held by the jurisdictional High Court of Andhra

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Pradesh and the ITAT. The assessee has not maintained proper books of account and has not submitted any details. Therefore, the A.O. has rightly rejected the books of account and estimated 3% profit on stock put to use, and made separate addition towards the rental receipts. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.

7.

We have heard both parties, perused the material available on record and have gone through the orders of the authorities below. The assessee is in the business of trading in liquor. The assessee has also received rental receipts from Beam Global Spirits & Wine (India) Pvt. Ltd. and Prayag Enterprises Pvt. Ltd. for displaying their product advertisements in the business premises. The assessee considered rental receipts from the business as indirect income and part of business receipts. The A.O. had also treated rental receipts as business receipts; however, the same were not considered in the business turnover for the purpose of estimation of profit, and further made separate addition on the ground that the book results of the assessee cannot be accepted in the absence of proper books of account and supporting bills and vouchers. We find that the assessee has declared total income of Rs.

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56,57,443/-, which includes income from house property of Rs. 10,02,238/-, income from business of Rs. 45,87,158/-, and income from other sources of Rs. 78,047/-. The A.O. assessed the total income at Rs. 67,50,229/-. The difference between income returned by the assessee and income assessed by the A.O. is at Rs. 10,92,789/-, which is on account of estimation of 3% profit on cost of goods sold. Further, the net profit declared by the assessee from its core activities of trading in liquor works out to 2.12% on cost of goods sold and 1.93% on total sales, which is very less when compared to profit in this line of business and also considered by the jurisdictional High Court of Andhra Pradesh and the ITAT, where the profit has been estimated ranging from 3% to 5% in a number of cases. Further, the assessee has also not substantiated its case by filing books of account and other supporting evidence, which is evident from the observation of the A.O. Thus, in our considered view, the action of the A.O. in making separate addition towards rental receipts is justified. Therefore, in our considered view, there is no error in the reasons given by the A.O. to reject the books of account and estimate 3% profit on stock put to use and further making addition towards

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rental income from various companies for displaying hoardings in its business premises under the head income from business. The Ld. CIT(A), after considering the relevant facts, has rightly rejected the explanation of the assessee and sustained the addition made by the A.O. Thus, we are inclined to uphold the order of the Ld. CIT(A) and dismiss the appeal filed by the assessee.

8.

In the result, the appeal filed by the assessee is dismissed.

Order pronounced in the Open Court on 7th August, 2026.

Sd/- Sd/- श्री विजय पाल राि (मंजूनाथ जी) (VIJAY PAL RAO) (MANJUNATHA G.) उपाध्यक्ष /VICE PRESIDENT लेखा सदस्य/ACCOUNTANT MEMBER

Hyderabad, dated 07.08.2026. TYNM/sps

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आदेशकी प्रतततिति अग्रेतषत/ Copy of the order forwarded to:- 1. तनर्ााररती/The Assessee : SADA SRAVAN REDDY C/O KATRAPATI & ASSOCIATES, 1-1-298/2/B/3, SOWBHAGYA AVENUE APTS, 1ST FLOOR, ASHOK NAGAR, STREET NO.1, HYDERABAD- 500020, TELANGANA 2. राजस्व/ The Revenue : ITO, WARD-10(2) O/O ITO, WARD-10(2), I.T.TOWER, A C GUARD, MASAB TANK, HYDERABAD-500004, TELANGANA 3. The Principal Commissioner of Income Tax, Hyderabad. 4. तवभागीयप्रतततनतर्, आयकर अिीिीय अतर्करण, हैदराबाद / DR, ITAT, Hyderabad 5. गार्ाफ़ाईि / Guard file

आदेशानुसार / BY ORDER TIRUPATI Digitally signed by TIRUPATI YAMINI NAGA YAMINI NAGA MALLESWARI Date: 2026.08.11 16:44:48 MALLESWARI +05'30' Assistant Registrar ITAT, Hyderabad

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