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Income Tax Appellate Tribunal, HYDERABAD BENCH “B”, HYDERABAD
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) – 7, Hyderabad dated 13/11/2017 for AY 2014-15.
Briefly the facts of the case are, the assessee filed his return of income for AY 2014-15 on 30/11/2014 declaring total income of Rs. 6,84,110/-. As the case was selected for scrutiny, statutory notices were issued u/s 143(2) and 142(1) of the Income-tax Act, 1961 (in short ‘the Act’) and in response the assessee submitted the necessary information.
2.1 Since there were deficiencies noticed in the books of account maintained by the assessee, the AO rejected the books of account and estimated the net profit @ 5% of the cost of purchases put for sale from the business of income relying on the decision of the ITAT in the case of ITO Vs. Sri Amaravathi Wine Shop vide ITA No. 1196/Hyd/2011, dated 08/06/2012.
2 ITA No. 92/Hyd/18 Jonnalagadda Sravanth 2.2 In the case of Ramakrishna Bar & Restaurant estimated the net profit at 10% of the cost of sales put to use following the decision of the ITAT in the case of Mallkharjuna Bar & Restaurent Vs. ITO in ITA No. 186/Hyd/2012 dated 28/06/2012.
2.3 The AO observed that from the trading, P&L A/c, it was noticed that assessee has shown receipts from restaurant food sales of Rs. 1,29,441/-. When asked to produced bills/vouchers, the assessee failed to produce the same. The AO, therefore, estimated the net profit sale of restaurant food items at 25% on the total sales reported of Rs. 1,29,441/-, which worked out to Rs. 32,360/-.
When the assessee preferred an appeal before the CIT(A) against the order of AO, the CIT(A) confirmed the order of AO.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising the following grounds of appeal: “1. The Appellate order of the td. commissioner of Income Tax (Appeals) is erroneous and bad both on facts and in law. 2. On the facts and in the circumstances of the case, the ld. Commissioner of Income Tax (appeals) has erred in sustaining the Assessment order rejecting Books of Accounts maintained by the appellant and estimation of income. 3. On the facts in the circumstances of the case, the ld. Commissioner of Income Tax (appeals) has erred in sustaining the estimating income from liquor shop at 5% and Bar and Restaurant Business @10% on the cost of sales respectively. He ought to have considered the facts that the appellant was in this line of business for the last few years and the rate of profit earned in those years was not considered in the estimation for the present Assessment year. 4. On the facts and in the circumstances of the case, the Ld. commissioner erred in sustaining the estimation of income from sale of food items in the restaurant at a very high rate @25% of the food sales. He ought to have considered that the Appellant has correctly declared the income from food sales.
3 ITA No. 92/Hyd/18 Jonnalagadda Sravanth 5. Such other ground/grounds that may be raised during the hearing of the appeal.”
Ground Nos. 1 & 5 are general in nature, hence, need no adjudication.
As regards ground Nos. 2, 3 & 4, the ld. AR submits that the AO rejected the books of account of the assessee on the ground that the majority of the expenditure claimed under the heads freight and hamali, printing and stationery breakage etc. were not supported by proper vouchers and which were not amenable to verification and also the assessee had not produced sale bill, books and vouchers etc. to some extent. The expenditure incurred on the said heads are as under: 1. Freight & hamali Rs. 2,09,989/- 2. Printing & Sationery Rs. 8,125/- 3. Breakages Rs. 45,971/- Total Rs. 2,64,085 =========== Further, ld. AR submitted that the gross income shown by the assessee at Rs. 90,13,643/- and gross sales at Rs. 5.08 crores. The above expenditure incurred was Rs. 2,64,085/- which comes to 0.5% of the gross income. Therefore, the AO should not have rejected the books of account and estimated the net profit of the assessee, instead, he could have accepted the books of account of the assessee.
6.1 However, ld. AR submitted that with regard to estimation of income of liquor business and estimation of income on food items sold at Bar & Restaurant, relied on the following cases of ITAT, Hyderabad: 1. ITA No. 1515/Hyd/2017 in the case of Badri Srinivas, Hyderabad. 2. ITA No. 1206/Hyd/2015 in the case of M/s Sri Venkateswara Wines, Hyd.
4 ITA No. 92/Hyd/18 Jonnalagadda Sravanth 3. ITA No. 1744/Hyd/2014 in the case of M/s V.R. Bar & Restaurant, Hyd. 7. Ld. DR relied on the orders of revenue authorities. 8. Considered the rival submissions and perused the material on record., the coordinate benches of this Tribunal consistently taking a 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.
8.1 As regards the estimation of income on liquor sales at Bar & Restaurant, the AO estimated the same at 10%, which is reasonable and the same is hereby upheld, which is inline with the precedents.
5 ITA No. 92/Hyd/18 Jonnalagadda Sravanth
8.2 As regards the estimation of on income on food items sold at Bar & Restaurant, the AO estimated the same at 25%. The coordinate bench of this Tribunal in the case of M/s V.R. Bar restaurant (supra), directed the AO to estimate the same at 10% as against 20% adopted by the AO. Therefore, following the said decision, we direct the AO to estimate the income on food items at 10%.
8.3 Accordingly, grounds raised by the assessee in this regard are partly allowed. 9. In the result, appeal of the assessee is partly allowed. Pronounced in the open Court on 15th November, 2018.
Sd/- Sd/- (P. MADHAVI DEVI) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 15th November, 2018 kv Copy to:- 1) Jonnalagadda Sravanth, C/o M. Chandramouleswara Rao, C-3, Skylark Apartments, Near Sky Line Theatre, Basheerbagh, Hyderabad – 500 029. 2) ITO, Ward – 3, Khammam 3) CIT(A) – 7 Hyderabad. 4) Pr. CIT - 7, Hyd. 5) The Departmental Representative, I.T.A.T., Hyderabad. 6) Guard File