GUDLA SRIRANGANADHAM,SRIKAKULAM vs. THE ITO, SRIKAKULAM

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.177/2014-15/ITO/W-1/SKL/2015-16 dated 01.01.2016 for the assessment year 2011-12.

of purchase price.

on business of purchase and sale of IMFL (Indian made Foreign Liquor) in

Srikakulam district. The assessee had e- filed the return of income by

declaring income of Rs.2,51,910/- on 29.09.2011 for the assessment year

2011-12. The return filed by the assessee was processed u/s 143(1) of the

Income Tax Act, 1961 (hereinafter called as 'the Act'). Later, assessment

was completed u/s 143(3) of the Act. In the assessment order, the

Assessing Officer (AO) has observed that the assessee has not maintained

any stock register and not produced sale bills, no quantitative details of

sale effected and therefore, estimated the net profit, clear of all expenses @

20% of the stock put to sale by invoking the provisions of Section 145 of I.T.

Act. On appeal, the Ld. CIT(A) granted the partial relief to the assessee by

scaling down the percentage of profit from 20% to 8% and directed the A.O.

to re-compute the income @ 8% of purchase price.

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.

by the authorities below.

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. Narayana Rao 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: “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.”

we direct the A.O. to re-compute the income of the assessee at 5% of

purchase price. Accordingly, this ground of appeal raised by the assessee is

partly allowed.

u/s 69 of I.T.Act. During the assessment proceedings, the AO found that the

assessee made investment of Rs.31,63,321/-, out of which the assessee

failed to explain and furnish any evidence in respect of the advances

amounting to Rs.8,50,165/-. Though the assessee stated to have received

advances, the assessee failed to submit the list of persons from whom the

advances were received. Therefore, the AO made the addition of

Rs.8,50,165/- as income from unexplained sources.

the CIT(A) and the Ld.CIT(A) confirmed the addition since the assessee failed to furnish any evidence before the CIT(A) also. During the appeal

hearing, the Ld.AR relied on the grounds of appeal and the Ld.DR relied on

the orders of the Ld.CIT(A).

record. The Ld.CIT(A) has confirmed the addition since the assessee failed

to establish the source of deposit, identity and genuineness of the creditor.

For the sake of clarity and convenience we extract relevant paragraphs of

the order from para No.5.2 to 5.3. which reads as under :

“5.2 During the appeal hearing also, the assessee could not furnish any details to explain the source for the impugned amount of Rs.8,50,165/- made prior to commencement of business. Hence, it is held that the AU is justified in making the impugned addition of Rs.8,50,165/-.

5.3. The assessee has raised a plea in the appeal papers that once the books of account are rejected, then the AU is not justThed in making addition to cash credits with reference to the same books of account. In support, the assessee relied on the decision of the Hon’ble AP High Court in the case or Maddi Sudarshanam Oil Mills Co. v. CIT(37 ITR 369) and Indwell Constructions v. CIT(232 ITR 776 AP). In this regard, it is relevant to note a similar issue as to whether addition u/s.68 or 69 could be made when the AO has estimated the income was dealt by the Hon’ble ITAT, Hyderabad in the case or Smt. Shoba Gupta(ITA No.461/Hyd/2013, dt.10.07.2013), wherein it was held that even if the income is estimated, the AO may invoke the provisions of Sec.68/69 of the Act The Hon'be Tribunal followed the decision in the case or PV.Sitaramaswamy Naidu in ITA No.26/Hyd/12 vide order dt.9.1.2013. The Hon'ble Tribunal took the view that unless the assessee, by independent and satisfactory evidence, establishes that these amounts relate or referable to the undisclosed income from known or disclosed sources, i.e. the business, whose income had already been estimated, the ITO is entitled to treat unexplained cash credit as income from undisclosed sources. The Hon'ble Tribunal placed reliance on the judgment of jurisdictional High Court in the case of CIT V. Maduri Rajaiahgari Kistaiah (120 ITR 294) and of the Apex Court in the case of Devi Prasad Viswanath Prasad 72 ITR 194. The Hon'ble Tribunal also referred to the observation of Supreme Court in the case of Kale Khan Mohammed Hanif Vs. CIT (50 ITR 1 SC), "It cannot be said that the tax authorities were precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appear in the books of a business whose income they had previously computed on a percentage basis" while rendering the above decision. Therefore, the ground raised in this regard is rejected. The addition made of Rs.8,50,165/- is confirmed.”

10.1. During the appeal hearing before us also, the assessee failed to

establish the source of credit, identity and credit worthiness of the creditor.

Since the assessee failed to establish any of the requirements, we do not

find any reason to interfere with the order of the Ld.CIT(A) and the same is

upheld. Appeal of the assessee on this ground is dismissed.

The above order was pronounced in the open court on 9th Mar 2018.

Sd/- Sd/- (वी. दुगा�राव) (!ड.एस. सु�दर #संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER वशाखापटणम /Visakhapatnam $दनांक /Dated : 09.03.2018 L.Rama, SPS

आदेश क� ��त&ल प अ'े षत /Copy of the order forwarded to:-

आदेशानुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, VISAKHAPATNAM