RAJ PAVAN CHINNI ,HYDERABAD vs INCOME TAX OFFICER, WARD-15(2), HYDERABAD

Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD

Before: SMT. P. MADHAVI DEVI & SHRI S. RIFAUR RAHMAN

Hearing: 08.05.2019Pronounced: 29.05.2019

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A”, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.1803/Hyd/2018 Assessment Year: 2015-16 Sri Raj Pavan Chinni, Vs. ITO, Prop. M/s. Raja Ward-15(2), Rajeswari Wines, Hyderabad. Hyderabad. PAN: ADXPC 7791 C (Appellant) (Respondent) Assessee by: Sri A. Srinivas Revenue by: Sri Dinesh Paduchuri, DR Date of hearing: 08.05.2019 Date of pronouncement: 29.05.2019 ORDER PER Smt. P. Madhavi Devi, J.M.:

This is assessee’s appeal for the assessment year 2015-16 filed against the order of the CIT(A)-7, Hyderabad dated 06/07/2018. In this appeal, the assessee is aggrieved with the estimation of income from liquor business @ 4% of cost of goods sold as opposed to the income offered by the assessee.

Brief facts of the case are that the assessee, an individual, engaged in the business of trading in liquor filed the return of income for the A.Y. 2015-16 on 29/08/2015 declaring an income of Rs. 11,86,430/-.

The assessee’s case was selected for scrutiny under CASS. During the assessment proceedings assessee was asked to produce the books of account, vouchers for the expenses claimed under different heads as per the Profit & Loss Account. In response, assessee could not furnish the details required by the A.O. Accordingly, A.O. proceeded to estimate the income of the assessee @ 5% on the purchases and completed the assessment u/s 143(3) of the Act determining the assessed income at Rs. 39,58,590/-.

Aggrieved, assessee carried the matter in appeal before the CIT(A). On appeal, the CIT(A) considered the submissions of the assessee and directed the A.O. to estimate the net income from liquor business @ 4% of the cost of goods sold and partly allowed the appeal. Aggrieved by the decision of the CIT(A), the assessee is in appeal before us.

At the time of hearing, Learned Counsel for the Assessee submitted that the issue involved in this appeal is covered in favour of the assessee by the decisions of this Tribunal in a number of cases, wherein the Tribunal has estimated the profit from sale of liquor @ 3% of the stock put to sale. A copy of the order of the Tribunal in the case of Sri Manne Baswa Reddy vs. ITO (ITA No. 1873/Hyd/2017, dated 08/06/2018) is produced before us. He therefore prayed that similar direction may be given to the A.O.

Learned Departmental Representative, however, supported the orders of the authorities below.

Having regard to the rival contentions and the material on record, we find that the assessee is involved in retail business of liquor and is not maintaining any books of account. Therefore, A.O. has estimated the income @ 5% of the cost of goods put to sale and the CIT(A) restricted the same to 4%. In similar circumstances, this Tribunal, in the case of Sri Manne Baswa Reddy vs. ITO (ITA No. 1873/Hyd/2017, dated 08/06/2018) wherein one of us (JM) is a signatory to the said order, directed the A.O. to consider 3% of the cost of stock put to sale as income of the assessee. For the sake of convenience and ready reference, relevant paras from the Tribunal’s order are reproduced as under:

“5. After considering the rival contentions, we are of the opinion that income can be estimated at 3% on cost of goods sold on the basis of Co-ordinate Bench decision in the case of Shri Sridhar Ramagiri Vs. ITO (supra), where in it was held as under: 5. Having regard to the rival contentions and the material on record, we find that this Tribunal, in the case of Secunderabad Wine s (supra) vide orders dated 20.07.2016 (to which both of us are signatories) have held 3% of the cost of goods put to sale to be reasonable estimation of income. For the sake of clarity and ready reference, relevant paragraphs are reproduced hereunder: (2). Brief facts of the case are that the assessee-firm which is in the business of wholesale and retail sale of liquor, filed its return of income for the AY. 2011-2012 on 28.09.2011 admitting income of Rs. 52,25,566. The assessment proceedings under section 143(3) read with section 147 of the Act were initiated and during the said assessment proceedings after verification of various details filed by the assessee, the A O. found that the assessee has offered low gross

profit of 11.01% as against the gross profit margin of retail at 24% as per the G.O.Ms. issued by the Government of AP. The assessee submitted that the gross profit margin of 24% as per G.O. of Government of AP. is absolutely on the higher side. The Ld. AR. contended that in majority of the similar liquor cases, the 1 TAT, Hyderabad Bench has been taking the totality of the facts into consideration and holding that the total income of the assessee shall be 3 to 5% of the goods put to sale and that the same has been upheld by the Hon'ble High Court of AP. The A.O. however, observed that the Hon'ble AP. High Court in the case of CIT vs. Kamlekar Shankar Lal in ITTANo.21 of 2013 dated 23.07.2013 has estimated the net profit at 5% of the purchase or stock put to sale. He therefore, estimated the income at 5% of the goods put to sale and brought it to tax. Similarly, he also made an addition of miscellaneous receipts of Rs.3,39,064. Aggrieved, assessee preferred an appeal before the CIT(A) who confirmed the order of the A.O. and the assessee is in second appeal before us. 3. At the time of hearing, Ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of 'A' Bench of this Tribunal in the case of Sri Venkateswara Wines in ITA No. 1206/Hyd/2015 dated 27.11.2015 for the AY. 2011-2012 wherein after taking into consideration similar circumstances the Tribunal has upheld the estimation of income at 3% of the cost of the goods sold. Respectfully following the same, to which both of us are signatories, we direct the A.O. to adopt 3% of the cost of goods sold as the income of the assessee. The Ld. Counsel for the assessee did not argue ground Nos. 4 and 5 and therefore, the same are rejected as not pressed". 5.1. Respectfully following the same, we direct the AO to consider 3% of the income of assessee subject to the above amount not being less than the profit already disclosed by assessee. In that event, the income disclosed by assessee should be accepted.”

Respectfully following the decision of the Coordinate Bench, the AO is directed to estimate the net profit at 3% of the cost of goods put to sale. 8. In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 29th May 2019.

Sd/- Sd/- (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 29th May, 2019.

OKK Copy to:-

1) Sri Raj Pavan Chinni, Prop. M/s. Raja Rajeswari Wines, H.No.3-1- 109, F.No. 217, Sai Bhavani Kamshetty Enclave, Road No.3, Ganesh Nagar, Ramanthpur, Hyderabd – 500 013. 2) Income Tax Officer, Ward-15(2), Income Tax Towers, Hyderabad. 3) The CIT(A)-7, Hyderabad 4) The Pr. CIT-7, Hyderabad 5) The DR, ITAT, Hyderabad 6) Guard File

RAJ PAVAN CHINNI ,HYDERABAD vs. INCOME TAX OFFICER, WARD-15(2), HYDERABAD