ABHAY DATTATRAYA SHELKE,AHMEDNAGAR vs. ASSISTANT COMMISSIONER OF INCOME-TAX,

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

This appeal filed by the assessee is emanating out of the 1. order of Commissioner of Income Tax (A) – 2, Pune dt.31.08.2015 for the assessment year 2010-11.

Assessee is an individual stated to be engaged in the

business of running a restaurant and lodging business and

Proprietor of Hotel Siddhant and Hotel Moonlight. Assessee

electronically filed his return of income for A.Y. 2010-11 on

14.09.2010 declaring total income at Rs.1,36,39,060/-. The case

was selected for scrutiny and thereafter, notice u/s 143(2) of the

Act dt.26.08.2011 was issued and served on the assessee.

Thereafter, assessment was framed u/s 144 of the Act vide order

dt.13.03.2013 and the total income was determined at

Rs.3,10,53,262/-. Aggrieved by the order of AO, assessee carried

the matter before Ld.CIT(A), who vide order dt.31.08.2015 (in

appeal No.PN/CIT(A)-2/ACIT Cir./AN/71/2014-15) granted

partial relief to the assessee. Aggrieved by the order of Ld.CIT(A),

assessee is now in appeal before us and has raised the following

grounds :

“1. On the facts and in circumstances of the case and in law the Ld.CIT(A) erred in confirming the order of the assessing officer of rejecting the books of account of the assessee and enhancing the net profit by Rs.1,63,15,953/- without appreciating the facts and documents produced in support of the facts by the assessee. 2. On the facts and in circumstances of the case and in law the Ld.CIT(A) erred in confirming the disallowance made by the assessing officer amounting to Rs.7,50,000/- by restricting the said disallowance at 15% amounting to Rs.2,79,592/- on ad-hoc basis without establishing any cogent support in making such disallowance.”

accounts and enhancement of net profit.

3.1. During the course of assessment, AO noted that assessee is

the Proprietor of two hotels namely, Hotel Siddhant and Hotel

Moonlight. Hotel Moonlight is a non-veg restaurant and bar and

during the year the business of the hotel was run by the assessee

only from May 2009 to February 2010. On perusing the trading

account for Hotel Moonlight, AO noticed that the gross profit for

the “food business” and “liquor business” can be separated from

the consolidated trading account and accordingly he drew up a

separate trading account for food business and liquor business to

see the profits declared by the assessee. On the basis of the

separate trading account prepared by him, he noticed that profit

generated from liquor business to be very low and not

commensurate with the nature of business. The assessee was

therefore asked to produce the bills and invoices in respect of

sales and purchases. On analysis of the sale bills on random

basis, he noticed that assessee has recorded sales without any

corresponding purchases as per the purchase invoices (the bills

of which are tabulated by him at Para 4.2.1. of the assessment

order). He also noticed that since there was no opening and

closing stock of liquor during the year and all the purchases

made during the year has been sold out within the year itself, he

proceeded to make an analysis of gross profit margin that was

declared by the assessee. He thereafter made an analysis and

compared it with the sales recorded in the invoices. He noticed

that assessee had a gross profit margin of almost 40% in each

brand but assessee had only shown 17% as gross profit margin.

The analysis made by the AO is reproduced in tabular form at

4.2.2. of his order. He therefore concluded that assessee has not

been declaring his sales truly and correctly and there was

suppression of sales by recording sales at a reduced rate and

therefore profit declared by the assessee in respect of liquor

business cannot be relied upon. On the basis of his analysis, he

also concluded that assessee had recorded extremely low sale

price in his sale bills which was highly improbable as per the

prevailing market conditions. He therefore held the sale bills and

sale figures furnished by the assessee deserves to be rejected and

profit needs to be estimated. He thereafter rejected the books of

account as far as the liquor business is concerned for the reasons

as mentioned in Para 4.2.3 of his order. He thereafter concluded

that assessee had a huge margin profit ranging from 130% to

300%. He accordingly rejected the books of account of the

assessee. He thereafter proceeded to estimate the profits from

the liquor business at 125% of its purchase cost. He noticed that

purchase cost debited in the Profit and Loss account was

Rs.1,60,86,141/- and accordingly, the profit at 125% of the cost

purchases was worked out to Rs.2,01,07,676/. He thereafter

considering the gross profit from food business as worked out by

him, determining the net profit from Hotel Moonlight at

Rs.2,34,99,266/-. Aggrieved by the order of AO, assessee carried

the matter before Ld.CIT(A), who after considering the

submissions made by the assessee, upheld the order of AO by

observing as under :

“6. 2 I have gone through the additional evidence furnished, Assessing Officer's report as well as counter reply of the appellant. During the assessment proceedings, the appellant was provided sufficient opportunity to furnish details with regard to his sale and purchase transaction but they did not file any details before the Assessing Officer and therefore the assessment was completed by Assessing Officer to the best of his judgment. It is also noticed that the case of the appellant does not fall in any of the four exceptional clauses as mentioned in Rule 46A of the I T Rules (reproduced supra). Therefore, the additional evidence filed during the appellate proceedings is prima facie inadmissible.

6.2.1 During the assessment proceedings, the appellant did not produce the copy of the Menu card for the relevant period, so as to justify the rate of sale of various brands of liquors in its restaurant. Therefore, the Assessing Officer was left with no other alternative but to estimate the sale price on the basis of Menu available of the same restaurant of the subsequent year. The Assessing Officer while computing the profits, has given discount of 20% to the sale price in the subsequent years menu and accordingly computed the sale price. This forms a very reasona.ile and rational basis for computing profits of the business of the appellant. The appellant neither at the assessment proceedings nor at the appellate proceedings has been able to rebut the sale price computed by the Assessing Officer on the basis of subsequent years menu of the same hotel. No corroborative evidence has been provided to disprove the findings of the Assessing Officer, The claim of the appellant that it could not produce the menu card of the relevant year as it was lost does not discharge him of his onus. The appellant has further claimed that during the year it has sold only 180ml bottles of various Whisky, rum, gin etc. and there is no loose sale of 60ml/30ml. 60ml/30ml denotes sale of large peg or small peg. This is not true as because in almost every Restaurant & Bar sale of various drinks is mostly by way of pegs i.e. large peg (60ml) or small peg (30ml). Even the subsequent years menu of the Hotel clearly shows that the rates of various liquors and drinks of 60ml as well. The appellant has not been able to prove that in the previous year’s menu, there was no sale of liquor or drinks peg wise. Accordingly, this argument has no force. 6.2.2 It is further observed that the appellant has claimed to have sold various brands of liquors without having any stock. This fact which has been recorded by the Assessing Officer in the assessment order, which has been reproduced in the form of a table in Page No.6 of this order. In the case of "Fuel Vodka", the first purchase is on 01.08.2009, however the sales have been made rightly from 18.04.2009 onwards. Similarly in the case of "Magic Moment Green Apple Vodka", the first purchase has been shown on 17/12/2009, while sales had been reflected from 02.05.2009 itself. All these facts clearly point out that there are serious deficiencies and discrepancies in books of account maintained by the appellant. The appellant has not shown any opening stock and therefore it is not understandable as to how the sale has been made without having any stock or corresponding purchases. The entire account appears to be fudged one just to cover up the discrepancies and manipulations in the books of account.

6.2.3 Coming to the additional evidence produced during the appellate proceedings, it is seen that on the cover of the said Register neither license number is mentioned nor name of the licensee or the address mentioned and all these columns are blank. The Assessing Officer's Remand Report also clearly mentions that he found the original register without bearing any name or license number and therefore authenticity of such register is doubtful. Subsequent to Remand proceedings, one paper was filed claiming that the register pertains to the hotel Moonlight. It is not known as to why such paper was not furnished before the Assessing Officer when the matter was remanded to him. The veracity of such paper cannot be relied upon as the original register itself does not contain any name or

license number or address of the same. Accordingly the additional evidence is devoid of any merit and therefore rejected.

Thereafter, Ld.CIT(A) referred various decisions and finally held

that

6.2.8 In the light of the aforesaid discussion, the decisions cited supra and submissions made, I am of the considered opinion that the Assessing Officer was justified in rejecting the book results and estimating the profit. The Assessing Officer in the assessment order has estimated profits from the liquor business at 125% of the purchase cost. As per comparison given in the assessment order, it IS seen that the appellant has made profits in the range of 130% to 300% on the purchase cost of the various liquor brands. The Assessing Officer has already been reasonable in estimating the profits of the liquor business as 125% of purchased cost which is lesser than the profits earned as per the subsequent year menu. Accordingly, estimation of profit from liquor business at Rs. 2,01,07,676/-made by the AO is held in order and therefore confirmed. This ground of appeal is therefore decided against the appellant.”

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal

before us.

AO and Ld.CIT(A). Ld.A.R. further submitted that assessee had

been running the business of Hotel Moonlight and had purchased

the closing stock from the then conductor of business namely,

Mr. V.N. Shetty and the stock was valued at Rs.6,12,070/-

including liquor purchases of Rs.5,89,980/- and other materials.

He pointed to Pages 61 and 62 placed in Paper Book which

contains the details with respect to the stock of liquor purchased

by the assessee on 01.05.2009 along with its quantity and value.

He therefore submitted that the sales affected were out of the

purchases made from the erstwhile seller. He thereafter

submitted that with respect to the less gross profit margin shown

by the assessee, AO did not confront with the assessee with the

material in his possession. He further submitted that AO while

determining the low gross profit has considered the purchases

without including the tax. He submitted that if the tax is

included in purchases, the actual gross profit would work out to

17.55% and the details of which are placed at Page 80 of the

Paper Book. He further submitted that since the assessee was

also dealing the sale of liquor business, he is also required to file

the returns with Sales Tax and VAT authorities. He pointed to

the Sales Tax Returns filed during the period and submitted that

the sales have been accepted by the Sales Tax authorities and no

discrepancies have been found by them. He further submitted

that AO has rejected the books of account in part and that to

only with respect to liquor business and not with respect to food

business. He submitted that the rejection of books of account

cannot be made in part and that the books of account were

rejected on the basis of presumption and that the rejection of

books of account on presumptions is not permitted as per law.

He therefore submitted that the AO had wrongly rejected the

books of account and thereafter estimated the addition which is

uncalled for. As an alternative contention, he submitted that the

addition made by the AO is on higher side and if at all some

additions are required, the same may be made on reasonable

basis. Ld.D.R. on the other hand, supported the order of AO and

Ld.CIT(A).

material on record. The issue in the present ground is with

respect to the rejection of books of account with respect to liquor

business and thereafter estimating the profits from them. Before

us, Ld.A.R. objected to the rejection of books of accounts and

thereafter making addition on estimation basis. Before us,

Ld.A.R. has also raised an alternate contention that the addition

made by AO is on a higher side and that a reasonable amount be

disallowed. Considering the aforesaid alternate contention of

Ld.A.R. and the totality of the facts, we are of the view that in the

present case, if the additions made to the extent of

Rs.25,00,000/- would meet the ends of justice. We thus, direct

accordingly. Thus, the ground of the assessee is partly allowed.

6.1. During the course of assessment AO on perusing the Profit

and Loss account noticed that assessee had incurred various

expenses for Hotel Siddanth and Hotel Moonlight. He noticed

that the expenses were supported only by self-made vouchers

and therefore not fully verifiable. He also noticed that the major

purchases were made in cash. AO accordingly made ad-hoc

disallowance of Rs.7,50,000/-. Aggrieved by the order of AO,

assessee carried the matter before Ld.CIT(A), who granted partial

relief to assessee by observing as under :

“7.3.1 I have gone through the submission and discussion made by ,the Assessing Officer. It is seen that the appellant is running two hotels i.e. Hotel Siddhant and Hotel Moonlight. The Assessing Officer has rejected books of account pertaining to Hotel Moonlight where liquor sale is also carried on, while Assessing Officer has not disturbed the results of Hotel Siddanth. Accordingly, no addition is called for with regard to the expenses claimed in the Hotel Moonlight as because, the Assessing Officer has already rejected the books of account for the Hotel Moonlight and estimated the profit. However, with regard to Hotel Siddanth, the book results have not been disturbed. Considering the deficiencies pointed out by the Assessing Officer under various heads of expenses, I

hold that it will be fair and reasonable to restrict tie disallowance at 15% of the claim of hotel Sidhant i.e. 15% Rs. 18,63,944/- which comes to Rs. 2,79,592/-. Thus, the disallowance is restricted to Rs. 2,79,592/-. Accordingly, Ground of appeal No.2 is disposed of.”

Aggrieved by the order of Ld.CIT(A), assessee is now in appeal

before us.

on ad-hoc basis without bringing any material on record to

demonstrate that the expenses are bogus or are not for the

purpose of business. He further submitted that the books of the

assessee were audited and no discrepancies had been pointed out

by the Auditors. He therefore submitted that in such

circumstances, no ad-hoc disallowance is called for. Ld.D.R. on

the other hand, supported the order of AO.

material on record. The issue in the present ground is with

respect to disallowance of expenses on adhoc basis. AO made a

disallowance of Rs.7,50,000/- for the reason that expenses were

by self made vouchers and the purchases in case of food

business was made through cash. Ld.CIT(A) held that since the

AO had rejected the books of account pertaining to Hotel

Moonlight, no adhoc disallowance is called for. But as far as the

disallowance in respect of Hotel Siddanth is concerned, he

restricted the disallowance at 15% and thereafter upheld the

addition to the extent of Rs.2,79,592/-. We find that no specific

instance of the expenses of not being for the purpose of business

were pointed by AO more so when the books of accounts of

assessee are audited and no discrepancies are pointed out by the auditors. We therefore hold that no disallowance of expenses on ad-hoc basis is called for in the present case. Thus, the ground of the assessee is allowed.

Order pronounced on 6th day of July, 2018.

Sd/- Sd/-/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 6th July, 2018. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy //

व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.