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Facts
The assessee, a liquor license holder, was assessed on business income estimated at 10% of liquor purchases, totaling Rs. 2,06,70,598. The assessee claimed these purchases were made for his son's bar business, "Yashraj Bar & Restaurant", and the income was already declared and taxed in his son's hands.
Held
The Tribunal held that the addition made by the AO and confirmed by the CIT(A) was incorrect. The income from the liquor business was earned and assessed in the hands of the assessee's son, Manoj Kumar, who operated the bar and accounted for the purchases and sales.
Key Issues
Whether the income from liquor business, represented by purchases made under the assessee's license but accounted for and earned by his son's business, could be added to the assessee's income.
Sections Cited
143(3), 143(3A), 143(3B), 44AD, 44AB, 133(6)
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Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
Date of hearing : 22.09.2025 Date of Pronouncement : 25.09.2025 O R D E R
This appeal is filed by Shri Kunhi Raman (the assessee/appellant) for the assessment year 2018-19 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 23.6.2025 wherein the appeal filed by the assessee against the assessment order passed u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Income- tax Act, 1961 [the Act] dated 8.4.2021 by the National e-assessment Centre, Delhi was dismissed.
The assessee is in appeal before us raising the following grounds:-
“ 1. The orders of the authorities below in so far as they are against the appellant, are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A]/NFAC is not justified in upholding the addition of Rs. 20,67,056/- as the business income of the appellant determined on estimate basis at 10% of the purchases of liquor amounting to Rs. 2,06,70,598/- from M/s. Karnataka State Beverages Corporation Ltd. under the facts and in the circumstances of the appellant's case. 2.1 The learned CIT[A] ought not to have rejected the explanation of the appellant that the income from liquor business was offered to tax by the appellant's son Sri Manoj Kumar, who owned and operated M/s Hotel Yashraj Bar & Restaurant from which income was declared and offered to tax under the facts and in the circumstances of the appellant's case. 2.2 The learned CIT[A] is not justified in rejecting the bonafide explanation of the appellant that was duly supported by documentary evidence on the slender ground that the license was in the name of the appellant under the facts and in the circumstances of the appellant's case.
3. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The brief facts of the case show that assessee is an individual, who filed his return of income on 31.7.2018 showing total income of Rs.12,42,580. As the return of income was picked up for scrutiny to verify the income from liquor business. Notice u/s. 143(2) dated 28.9.2019 was issued. The assessee was asked to explain that there is Tax Collection at Source [TCS] collected by Karnataka State Beverages Corporation Ltd. [KSBCL] under TAN: BLRK04237C amounting to Rs.2,38,292 and whether corresponding income thereof is offered for taxation. It was stated in the return of income by the assessee that Veenus Cold Bar is having annual turnover of Rs.16,68,546 on which the assessee has disclosed income @ 8% u/s. 44AD of the Act. The TCS amounting to Rs.2,04,684 is on account of purchases of Rs.2,04,65,914 on account of Yashraj Bar & Restaurant which was owned by Sri Manoj Kumar, who is the son of assessee having PAN: ACVPM 1467C, who has filed his return of income by furnishing the audit report u/s. 44AB of the Act where in the purchases are accounted for and corresponding income is shown. It was stated that the licence stands in the name of assessee for which TCS is made and the Yashraj Bar & Restaurant is run and owned by his son. Thus claim of the assessee is that TCS made by KSBCL in the TAN of assessee is in fact purchases of Yashraj Bar & Restaurant which was owned by his son, Sri Manoj Kumar and who has declared turnover of the Bar in his return of income. The ld. AO issued notice u/s. 133(6) to KSBCL asking for the details of purchases made by the assessee. KSBCL stated that there is a sum of Rs.2,04,65,914 in the name of buyer, K. Raman, having address of Yashraj Bar and TCS is of Rs.2,04,684. The ld. AO based on this information estimated 10% of the profit on the turnover and computed the total income of Rs.20,67,056 assessing total income of assessee at Rs.33,09,634 by passing an assessment order u/s. 143(3) r.w.s. 143(3A) & 143(3B) on 8.4.2021.
The assessee aggrieved with the same preferred appeal before the ld. CIT(A) wherein identical facts were stated, but the same were not accepted and the appeal of the assessee was dismissed.
The ld. AR, Shri V. Srinivasan, Advocate contesting the grounds of appeal furnished a paperbook of 142 pages. He reiterated the submissions made before the ld. lower authorities and submitted the copies of the return of income filed by the son of the assessee for the last several years, as proprietor of Yashraj Bar & Restaurant. It was stated that the purchase of liquor was made from KSBCL in the name of the assessee as he is having the licence, but purchases are made at the address of Yashraj Bar as confirmed by KSBCL. The total purchase consideration is shown by the sone of the assessee as purchases. The payments were also made by his son from his bank account with Canara Bank and PNB. To support his case, he submitted the ledger of KSBCL from the books of Yashraj Bar. Therefore it was submitted that the turnover of the Bar is income of Mr. Manoj Kumar, purchases of liquor is the expense of Mr. Manoj Kumar, both these items are shown in the income statement and annual accounts of Mr. Manoj Kumar. The ledger account of KSBCL and Bank account of Mr. Manoj Kumar shows that banking transaction are also made by him and not the assessee. He submits that merely because licence is in the name of assessee, TCS has been made in the name of the assessee, but actual transactions are carried out by Mr. Manoj Kumar, son of the assessee. Accordingly the addition made by the AO and confirmed by the ld. CIT (A) is not correct.
The ld. DR vehemently supported the order of the ld. lower authorities and submitted that assessee should have shown this turnover and offered the income in his hands. Information is obtained u/s. 133(6) of the Act and therefore there is no infirmity in the order of the ld. lower authorities.
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. We find that assessee is holder of licence of liquor. In his PAN and TAN there is transaction of purchase of liquor amounting to Rs.2,06,70,598 from KSBCL and TCS of Rs.2,04,684 was made. As this information was available in the return of income as assessee has claimed credit of TCS, but corresponding income was not shown in his return of income. The ld. AO made an enquiry by selecting the case of assessee in scrutiny. On scrutiny, it was found that son of the assessee, Mr. Manoj Kumar is running
business of Hotel Yashraj Bar & Restaurant wherein purchases are accounted of the liquor and sale is also made by him. He is separately assessed by ITO, Ward 1(4), Mangalore. He has got his accounts audited. From his audited accounts, all purchases are tallied. He has shown purchases of Rs.2,06,70,598 from KSBCL and further from his bank account, Manoj Kumar has made payment to KSBCL for purchase of liquor. Just because the licence is in the name of assessee, the ld. AO has made the addition by computing the profit @ 10% of total purchases. The income tax is chargeable in the hands of the person who has earned the income. In this case, income is earned by Manoj Kumar, son of the assessee, who has shown the purchases and also corresponding sales in his books of account. His accounts are audited and no discrepancies are found between the amount of sales shown by KSBCL in the name of assessee and purchases shown by Manoj Kumar in his books of account. Therefore, in substance, Manoj Kumar is assessable on the purchase of liquor from KSBCL. He has owned this sum and has also paid due tax on the same. Therefore making addition in the hands of the assessee on this count which has already been assessed in the hands of Manoj Kumar is not correct. Accordingly we direct the ld. AO to delete the addition of Rs.20,67,056 on this count. Accordingly ground No.2 of the appeal is allowed.
In the result, the appeal by the assessee is allowed.