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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income Tax(Appeals) [CIT(A)]-2, Visakhapatnam vide ITA.No.182/2014-15/ITO/W-1/SKL/2015-16 dated 04.01.2016for the assessment year 2011-12.
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Ground Nos. 1.0 to 1.2 are related to the estimation of income at 8% of the purchase price.
Brief facts of the case are that the assessee is carrying on business of Indian made foreign liquor (IMFL) and rice has filed the return of income declaring total income of Rs.2,53,590/-. The case of the assessee was selected for scrutiny and the A.O. did not accept the income declared by the assessee and estimated the profit from liquor business at 20% of the stock put to sale. On appeal, the CIT(A) has scaled down the percentage of profit from 20% to 8% and directed the A.O. to re-compute the income at 8% of purchase price.
On being aggrieved, assessee carried the matter in appeal before the Tribunal. At the time of hearing, the Ld. Counsel for the assessee has submitted that the issue involved in this appeal is squarely covered in the case of Sri Vysyaraju Satyanarayana Raju, Srikakulam Dist. In ITA No.2/Vizag/2016, which is reproduced as under: 3. On being aggrieved, assessee carried matter in appeal before the Tribunal. At the time of hearing, the Ld. Counsel for the assessee has submitted that the issue involved in this appeal is squarely covered by the decision of the coordinate bench of this Tribunal where the Tribunal has scaled down the estimation of profit from 10% to 5% in the case of Tangudu Jogisetty in ITA No.96/Vizag/2016 by order dated 2.6.2016.
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On the other hand, the Ld. D.R. strongly supported the order passed by the authorities below. 5. I have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The only issue involved in this appeal is estimation of profit in respect of IMFL business carried by the assessee. In this respect, the coordinate bench of the Tribunal in the case of Tangudu Jogisetty (supra) has considered the profit level in the line of business and decided that 5% of purchase price is reasonable profit margin in the line of IMFL business and directed the A.O. to re-compute the profit of the assessee. The relevant portion of the order is extracted as under: 8. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. estimated net profit of 20% on stock put for sale. The A.O. was of the opinion that the assessee has not maintained proper books of accounts and vouchers in support of purchases and sales. The A.O. further observed that the assessee has failed to maintain stock registers and books of accounts maintained by the assessee are not susceptible for verification, therefore rejected the books of accounts and estimated net profit of 20% by relying upon the decision of Hon’ble A.P. High Court. It is the contention of the assessee that the net profit estimated by the A.O. is quite high when compared to the nature of business carried on by the assessee. It is further submitted that the case law relied upon by the assessee is not applicable to the facts of the present case. The case before the Hon’ble A.P. High Court was that the assessee is into the business of trading in arrack, whereas it is in the business of dealing in IMFL. The assessee further contended that IMFL trade was controlled by the State Government through A.P. State Beverages Corporation Ltd. and the prices of the products are fixed by the State Government. The assessee being a license holder of State Government cannot sell the products over and above the MRP fixed by the State Government. We find force in the arguments of the assessee for the reason that the A.O. has estimated the net profit by relying upon the decision of A.P. High Court in the case of CIT Vs. R. NarayanaRao in ITA No.3 of 2003 which is rendered under different facts. The A.P. High Court has considered the case of an arrack dealer, whereas, the assessee is into the business of dealing in IMFL. Therefore, we are of the view that the A.O. was not justified in relying upon the judgement, which was rendered under different facts to estimate the net profit. On the other hand, the Ld. A.R. for the assessee, relied upon the decision of ITAT, Visakhapatnam bench in the case of T. Appalaswamy Vs. ACIT in ITA No.65 & 66/Vizag/2012. We have gone through the case laws relied upon by the assessee in the light of the facts of the present case and finds that the coordinate bench of this Tribunal, under similar circumstances held that estimation of 5% net profit on purchases is reasonable. The relevant portion of the order is reproduced hereunder:
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“3. We have heard the parties, perused the orders of the revenue authorities as well as other materials on record. It is the contention of the Ld. A.R. that the estimation of profit at 16% is high and excessive considering the normal rate of profit in this line of business. Whereas, the Ld. D.R. supported the order of the CIT(A). Having considered the submissions of the assessee, we are of the view that the issue is no more res integra in view of a series of decisions of the ITAT Hyderabad bench in similar cases. The coordinate bench in case of ITA No.127/Hyd/12 and others dated 18.05.2012 as well as a number of other cases have held that profit in case of business in Indian made foreign liquor has to be estimated at 5% of the purchases made by the assessee. Therefore, following the decision of the ITAT Hyderabad bench, we set aside the order of the CIT(A) and direct the assessing officer to estimate the profit from the wine business of the assessee by applying the rate of 5% of the purchases made net of all other deductions. The assessing officer should also bear in mind that in no case the income determined should be below the income returned.” 9. Considering the facts and circumstances of this case and also respectfully following the ratios of coordinate bench, we are of the view that the net profit estimated by the A.O. by relying upon the decision of Hon’ble A.P. High Court (supra), which was rendered under different facts is quite high. On the other hand, the assessee relied upon the decision of coordinate bench and the coordinate bench under similar circumstances estimated the net profit of 5% on total purchases net of all deductions. No contrary decision is placed on record by the revenue to take any other view of the matter than the view so taken by the coordinate bench. Therefore, we direct the A.O. to estimate the net profit of 5% on total purchases net of all deductions. Ordered accordingly.
4.1. In view of the above decision of the coordinate bench of the Tribunal, the AO is directed to re-compute the income of the assessee at 5% of purchase price. Accordingly, this ground of appeal raised by the assessee is allowed.
Ground Nos.1.3 and 1.4. are related to the addition of Rs.3,86,809/- towards unexplained expenditure. During the year the assessee claimed to
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have incurred the expenditure of Rs.15,99,309/- consisting the first instalment of licence fee of Rs.9,25,000/-, bank guarantee expenditure of Rs.99,876/-, first purchase of liquor Rs.2,96,433/- and FDR of Rs.2,78,000/. The assessee had explained the sources for Rs.12,13,000/- but failed to explain the source for the remaining balance of Rs.3,86,309/-. Therefore, the Assessing Officer (AO) treated the balance amount of Rs.3,86,309/- as expenditure made out of unexplained sources and added back to the income under the head ‘income from other sources’.
Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the addition made by the AO.
Against the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that out of the total expenditure of Rs.15,99,309/-, the assessee had explained the sources for Rs.12,13,000/- before the AO and the remaining Rs.3,86,309/- was added back to the income. The Ld.AR submitted that the AO had inadvertently adopted the figure of Rs.2,96,433/- as first purchase of liquor instead of correct amount of Rs.1,47,711/- which resulted in enhancement of addition of Rs.1,48,722/- by adopting the wrong figure. Therefore,
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requested to consider the issue and remit the matter back to the file of the AO to reconsider the facts afresh.
On the other hand, the Ld.DR supported the orders of the lower authorities.
We have heard both the parties and perused the material placed on record. As per para No.5 and 5.1. of the assessment order, the assessee had incurred the expenditure of Rs.15,99,309/- for setting up the wine business and out of which the AO accepted the sources for Rs.12,13,000/- and made the addition of Rs.3,86,309/- representing the balance amount. The AO considered the sum of Rs.2,96,433/- as first purchase which was incurred without source. As per the ledger account copy placed before us, the first purchase was Rs.1,44,711/- but not Rs.2,96,433/-. This fact was not pleaded before the lower authorities, thus, the issue needs further verification at the end of the AO. Therefore, in the interest of justice, we remit the matter back to the file of the AO to verify the correct amount of initial expenditure and the sources thereon and to redo the assessment afresh on merits. Accordingly, this issue is set aside and remitted back to the file of the AO denovo for fresh consideration. The appeal of the assessee on this ground is allowed for statistical purpose.
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Ground No.1.5 is related to the telescopic benefit for the addition of Rs.3,86,309/-. Since the issue with regard to the addition of Rs.3,86,309/- is remitted back to the file of the AO for fresh consideration, Ground No.1.5 is also remitted back to the file of the AO for fresh consideration and to decide the issue afresh on merits and this ground is also allowed for statistical purpose.
Ground No.1.6 is related to the addition of Rs.4,59,470/- relating to the trade creditors and Rs.4,48,915/- related to unsecured loans. During the appeal hearing, the assessee filed petition for admission of additional evidence on this issue. The assessee explained in the petition for admission of additional evidence, that the confirmations could not be produced before the lower authorities as the parties from whom the confirmations are to be received were ignorant of the provisions and did not respond promptly. The AR explained that due to the circumstances explained , the assessee could not produce the confirmations within the prescribed time to substantiate the case. Hence requested to admit the additional evidence which are very important to substantiate the case of the assessee as otherwise the assessee would be put to lot of hardship. On the other hand the Ld.DR opposed the admission of the additional evidence.
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We have considered the submissions made by the assessee for admission of additional evidence. According to the assessee the parties giving the confirmations are ignorant of the importance of the evidences, hence did not respond promptly. Though the lenders are ignorant, the assessee is regular assessee on the rolls, carrying on the business of rice trading as well as wine business and assisted by the Chartered Accountant and the case is audited by the qualified accountant and the assessee is aware of the consequences of non-furnishing of the evidences. It is obligation on the part of the assessee to make known the provisions of Income tax and comply with the statutory requirements. In this case the assessee failed to furnish the evidences before the AO as well as the Ld.CIT(A) and we do not find valid reason for non submission of the evidences before the lower authorities. There should be an end for litigation and the assessee should file the necessary evidence before the AO within the time limit allowed for completion of assessment. In the instant case, the assessee did not furnish the evidences not only before the AO but also before the Ld.CIT(A). The assessee also did not submit valid reason for non submission of the details/evidence. Therefore, there is no merit in the argument of the assessee that the lenders are ignorant, hence did not
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respond promptly. It is obligation of the assessee to obtain the confirmations and collect the details at the time of taking the loans and subsequently comply with the statutory requirements. The assessee has not placed any evidence or furnished any details either before the AO or before the Ld.CIT(A). Therefore, we do not find any merit in the petition filed by the assessee for admission of additional evidence, hence the petition filed by the assessee for admission of additional evidence is rejected.
12.1. The assessee has accepted the loans of Rs.4,48,915/- from unsecured creditors. At the time of assessment, the assessee did not furnish the details and has not filed the confirmation letters. The AO has given sufficient opportunity but the assessee failed to respond to the opportunities given by the AO. For ready reference, we extract relevant part of the order of the AO in respect of trade creditors, which is made available in page No.4 para No.6 of the assessment order.
“6. As seen from the balance sheet filed for the year ending 31.3.2011 the assesseehas shown to have taken unsecured loans of Rs. 4,48,915/- and sundry creditors of Rs. 4,59,470/-. During the course of hearing held on25.10.2012, the assessee's AR was specifically asked to prove the sundry creditors and unsecured loans with necessary documentary evidences. Since he has not furnished any information, vide the questionnaire issued along with notice u/s 142(1) on 13.9.2013, the assessee was again asked to prove the above liabilities. In response, the
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assessee filed a letter on 17.10.2013 stating that he has maintained regular books of account and the licence fees was paid out of his capital fund and unsecured loans of Rs. 4,48,915/- for which confirmation letters are being submitted. Except stating so he has not furnished confirmation letters or details of unsecured loans taken, names and addresses of persons from whom taken etc., Even after affording sufficient time, the assessee has not furnished even the names of persons from whom he has accepted loans. Therefore, it is proved beyond doubt that the assessee has no evidences to prove these Jeans. Accordingly, the entire amount of unsecured loans of Rs. 4,48,915/- have to be treated as unproved. In this connection, it is pertinent to mention here that the assessee while explaining the source for meeting the licence fee paid, he claimed to have taken above loans. Therefore, the above unsecured loans have no nexus between the investment made before the commencement of the wine business and accordingly, it is assumed that these loans were taken during the subsequent period of investment made towards licence fee. Therefore, the entire amount of Rs. 4,48,915/- is treated as unproved and added u/s 68 of the Act.” 12.2. Before the Ld.CIT(A) also the assessee failed to furnish any evidence to prove the genuineness of the outstanding unsecured loans. Therefore, we do not find infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeal of the assessee on this ground is dismissed.
Ground No.1.7 is related to the unsecured trade creditors. Before the AO, the assessee failed to furnish any documentary evidence to substantiate the outstanding balance of sundry creditors. The assessee neither furnished the confirmation letters nor furnished the names and addresses of the persons with relevant information. Therefore, the AO made the addition of Rs.4,59,470/- u/s 68 of the Act. During he appeal hearing before the Ld.CIT(A) also, the assessee failed to furnish any
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information relating to the impugned credits. Even the assessee failed to establish that the amount was relating to the trade creditors. Hence the Ld.CIT(A) confirmed the addition.
During the appeal hearing, the Ld.AR requested for admission of additional evidence in the form of confirmation. As per para No.12 of this order, we have rejected the admission of additional evidence. In the instant case, the assessee failed to submit the confirmation and the details before both the lower authorities to establish the genuineness and correctness of the unsecured trade creditors. Even the assessee failed to furnish the names of the creditors. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeal of the assessee on this ground is dismissed.
Ground No.1.8 is general in nature which does not require specific adjudication.
In the result, appeal of the assessee is partly allowed.
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The above order was pronounced in the open court on 12th Sep, 2018.
Sd/- Sd./- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated :12.09.2018 L.Rama, SPS
आदेश की प्रधिधलधप अग्रेधर्ि/Copy of the order forwarded to:- 1. ननर्ााररती/ The Assessee- Bhupati Ananda Rao, Ghanasara Village & Post Bhamini Mandal, Srikakulam 2. राजस्व/ The Revenue – The Income Tax Officer, Ward-1, Srikakulam 3. The Commissioner of Income Tax-2, Visakhapatnam 4. The Commissioner of Income-Tax(Appeals)-2, Visakhapatnam 5. धिभागीयप्रधिधिधि, आयकरअपीलीयअधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6.गाडाफ़ाईल / Guard file आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM