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Income Tax Appellate Tribunal, HYDERABAD BENCH “A(SMC
Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the assessee is directed against the order of CIT(A) - 10, Hyderabad, dated 06/07/2018 for AY 2004-05.
Brief facts of the case are, the assessee-firm, engaged in retail trading of alcoholic liquor, filed its return of income for the AY 2004- 05 on 26/10/2004 declaring a total income of Rs. 85,880/-, which was processed u/s 143(1) of the Income-tax Act, 1961 ( in short ‘the Act’). Subsequently, the case was selected for scrutiny and accordingly notice u/s 143(2) was served on the assessee on 03/10/2006. In response to the said notice, the AR of the assessee filed the required information called for, namely, books of account such as purchase book, cash book, ledger, salary vouchers, sales vouchers and expenditure vouchers.
2.1 As per the information received from the APBCL, the AO noted that the MRP was fixed at 30% for retailers on the issue price, hence
2 ITA No. 1640/Hyd/18 Bhawani Wines, Hyderabad. the sales should be 30% over and above the purchases i.e. gross profit percentage should be 30% as against the gross profit 7.25% was shown by the assessee-firm. Therefore, the AO asked the assessee to explain the reasons for low gross profit as compared to last year 8.29%. Vide its letter dated 10/10/2006, the assessee relied that during this year there is lot of competition in this line of business and almost its sales are whole sale to belt shop, hence, sold liquor as per competitive rates to maintain and reach expenses like licence fee, salaries, travelling, carry bag etc. Hence, there is low gross profit.
2.2 The AO observed that since the cash sales were not subject to verification, trading results cannot be relied upon and, hence, applying the provisions of section 145 of the Act, he estimated the gross profit at 9% as against 7.25% declared by the assessee. Accordingly, an addition of Rs. 5,81,936/- was made.
When the assessee preferred an appeal before the CIT(A), the CIT(A) directed the AO to estimate the income at 5% on cost of goods put to sale. However, he directed the AO to keep in mind that the estimated income does not fall below the profit declared by the assessee, in which case, the profit declared by the assessee should be accepted.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: “1. The order of the Appellate Commissioner is contrary to law, facts & circumstances of the case. 2. The Appellate Commissioner ought not to have confirmed the estimation of net income @ 5% of the cost of the goods sold. 3. Any other grounds which the appellant may urge either at or before the date of hearing.”
Considered the rival submissions and perused the material on record. The coordinate benches of this Tribunal consistently taking a
3 ITA No. 1640/Hyd/18 Bhawani Wines, Hyderabad. view that estimation of income at 3% of the cost of the goods sold is reasonable in this line of business. In the case of Sri Venkateswara Wines in ITA No. 1206/Hyd/2015, dated 27/11/2015 for AY 2011-12, the coordinate bench has held as under:
“5. Having regard to the rival contentions and the material on record, we find that the assessee has not maintained any books of account and therefore, the estimation of income is justified. It is only the rate at which the income is to be estimated is before us. A.O. has estimated the income at 5% of the cost of goods sold, while the assessee is seeking the estimation at 3% of the cost of goods sold. We find that in the case of Venkateswara Wines, Nizamabad (supra), the Coordinate Bench of this Tribunal has taken note of the decision of Hon'ble High Court of Telangana and Andhra Pradesh in ITA.No.1198/Hyd/2015 Sai Venkateswara Wines, Secunderabad the case of CIT vs. Kamlekar Shankar Lal (supra) to hold as under : "6. Having regard to the rival contentions and the material on record, we find that the AO has called for books of account of the assessee but the assessee had failed to produce the same. Therefore, AO had estimated the income of the' assessee at 2.5% of the turnover. The CIT wants the same to be estimated at 5% of the total turnover because the Tribunal in the case of an assessee carrying on the same business of sale of IMFL has estimated the income at 5% of the turnover. This, in our view, is not justified as held by the Coordinate Bench of this Tribunal. The uniform net profit cannot be adopted in each and every case of similar business. Estimation of net profit must be on the basis of facts involved in each and every case. Therefore, in our view, there is no error committed by the AU in estimating the profit at 2.5% of the total turnover. Thus grounds of appeal No.2 & 3 are allowed." Therefore, we direct the AO to adopt 3% of the cost of goods of liquor sold as the income of the assessee. Accordingly, grounds raised by the assessee on this issue are partly allowed.
In the result, appeal of the assessee is allowed. Pronounced in the open Court on 5th July, 2019.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 5th July, 2019 Kv
4 ITA No. 1640/Hyd/18 Bhawani Wines, Hyderabad.
Copy to:-
M/s Bhawani Wines, C/o Mr. T. Shanker, Advocate & Tax Consultant, 3-5-574, Flat No. 101, City Homes Apartments, Vittalwadi, Narayanaguda, Hyd. 2. DCIT, Circle – 7(1), Hyderabad. 3. CIT(A) – 10, Hyderabad 4. Pr. CIT – 3, Hyderabad 5. The DR, ITAT, Hyderabad 6. Guard file