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Income Tax Appellate Tribunal, HYDERABAD BENCH “A”, HYDERABAD
Before: SHRI A. MOHAN ALANKAMONY & SHRI S.S. GODARA
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH “A”, HYDERABAD (Through Virtual Hearing) BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER Assessment Year: 2014-15 P. Chandra Vardhan Reddy, Vs. Income Tax Officer, Hyderabad. Ward-15(4), PAN: AHTPR 2096 P Hyderabad. (Appellant) (Respondent) Assessee by: Smt. S. Sandhya Revenue by: Shri Sunil Gowtham, Sr. DR Date of hearing: 10/02/2022 Date of pronouncement: 15/02/2022 ORDER PER A. MOHAN ALANKAMONY, AM.:
This appeal is filed by the assessee against the order of the Ld. CIT (A)-7, Hyderabad passed in appeal No.0416/2016-17, dated 3/10/2017 U/s.143(3) r.w.s 250(6) of the Act for the AY 2014-15.
At the outset, the Ld. AR submitted before us that there is a delay of 11 days in filing the appeal before the Tribunal. In this regard Ld. Counsel submitted that due to unavoidable circumstances, the assessee was prevented in filing the appeal within the prescribed time limit. Though the submission of the Ld.AR is not very convincing however, taking a lenient view and by relying on the decision of the Hon’ble Supreme Court in the case of Collector, Land Acquisition vs. MST. Katiji & Ors (167 ITR 471) (SC), in the interest of justice, We hereby condone the delay of 11 days in filing the appeal before the Tribunal and proceed to adjudicate the appeal on merits.
The assessee has raised three grounds in his appeal however, the crux of the issue is that:
The ld. CIT (A) has erred in upholding the order of the Ld. AO who has estimated the profit of the assessee arbitrarily @ 5% on cost of liquor and wine purchased by him.
The brief facts of the case are that the assessee is an individual engaged in retail trade of liquor and wine filed his return of income for the AY 2014-15 on 28/11/2014 admitting income of Rs. 18,57,170/-. Thereafter the case was selected for scrutiny and the assessment was completed U/s. 143(3) of the Act vide order dated 5/12/2016 wherein the Ld. AO estimated the income of the assessee @ 5% on cost of goods sold which works out to Rs. 45,35,731/- and thereby made addition of Rs. 28,35,498/- being the difference between the estimated income and the income declared by the assessee. The Ld. AO had estimated the income of the assessee because the assessee had neither produced his books of accounts nor bills and vouchers to justify the income declared by him. On appeal, the Ld. CIT (A) confirmed the order of the Ld. AO by observing as follows:
“5. I have considered the submissions of the appellant and findings of the Assessing Officer carefully. The Assessing Officer estimated the profits of the business of the appellant at 5% of the cost of goods sold due to defective nature of the books of account, vouchers etc. during the course of appellate proceedings, the AR of the appellant relied upon various decisions of the ITAT wherein the net profit was estimated at 3% of cost of goods sold in liquor trade. In view of the unverifiable book results and huge difference between declared gross profit and average gross profit as per MRP rates, the plea of the appellant to accept the net profit at 3% of the cost of goods sold cannot be accepted. Thus, the appellant could not demonstrate the low gross profit earned vis-à-vis the gross profit margin as per MRP rates fixed by government. The contention of the AR of the appellant that there could be discounts on sales was also not demonstrated. The jurisdictional ITAT has taken stand in number of cases that uniform profit cannot be adopted in each and every case of similar business. The ratio of various decisions cited by AR of the appellant is also not applicable, as each year is different, and margin of profit varies each year depending upon the nature of products sold. The following cases decided by Hon’ble ITAT, Hyderabad support the stand of the AO that the net profit at the rate of 5% of cost of goods sold is the reasonable profit that can be determined in the absence of proper books of accounts. (i) ITO vs. Suryapet vs. Sri Beeravelli Venkat Reddy & Others to 177/Hyd/2012, dated 7/5/2012. (ii) P. Narsing Rao vs. ITO, ITA No. 110/Hyd/2012, dated 18/05/2012. (iii) Kanaka Durga Wines vs. ITO, Ward-9(3), Hyderabad in MA No. 217/Hyd/2011 (In ITA No. 462/Hyd/2011), dated 18/05/2012. (iv) ITO, Ward-2, Hyderabad vs. Amaravathi Wine Shop, Hyderabad in ITA No.1196/Hyd/2011, Date 8/6/2012. (v) ITO, Ward-1, Nalgonda vs. Sri Prasad Bandaru in ITA No. 329/Hyd/2013 dated 3/10/2013.” 5.1 The business of the appellant is situated in very crowded municipal city limits of Hyderabad wherein huge demand is existed for liquor products dealt by the appellant. Under the facts and circumstances of the case like location of the business, volume of trade done by the appellant, I consider the net profit of the appellant at 5% of the cost of the goods sold as reasonable and confirm the addition made by the Assessing Officer.”
Before us, the Ld. AR argued by stating that the addition made by the Ld. AO was arbitrary and without any basis and therefore the addition may be deleted. On the other hand, the Ld. DR argued in support of the orders of the Ld. Revenue Authorities.
We have heard the rival submissions and carefully perused the materials on record. At the outset, We fail to understand as to why the assessee is unable to maintain his books of records when the nature of the business is quite simple. It is apparent that the assessee is procuring liquor and wine products from Government owned institutions for which they will receive proper invoices. The margin of profit to the retailers are also assigned to them. The MRP prices of the liquor is mentioned in the products sold and the assessee is bound to sell the stock only at the MRP prices. With respect to sale of liquor there is no scope for offering discount to the customers because sales promotion of liquor and wine is not permitted by law. Hence, from the margin of gross profit derived from sale of liquor and wine the assessee incurs expenditure only with respect to the operational cost of the retail outlet which is nominal. Therefore, there is no scope to justify the irresponsible conduct of the assessee for not maintaining proper books of accounts and bills and vouchers. Further, since the margin of gross profit is known in advance, estimation of the expenditure such as salary, rent, electricity charges, accounting charges, printing and stationery, transportation cost, if any, and certain miscellaneous expenditures can be estimated prudently and thereby the net profit derived by the assessee can be arrived at in a reasonable manner when the assessee had failed to maintain proper books of accounts and bills & vouchers.. The Revenue has failed to do this exercise during the proceedings before them. Therefore, in the interest of justice We hereby remit the entire matter back to the file of the Ld. AO in order to estimate the income of the assessee keeping in view of the observations made by us herein above. Needless to mention that the net profit estimated by the Ld. AO earlier which was further confirmed by the Ld. CIT (A) shall not have any bearing on the Ld. AO while estimating the income of the assessee afresh in the manner We have stated herein above.
In the result, appeal of the assessee is allowed for statistical purposes as indicated herein above.
Pronounced in the open Court on the 15th February, 2022.