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Income Tax Appellate Tribunal, BANGALORE BENCH “ C ”
Before: SHRI VIJAY PAL RAO
Per Shri Vijay Pal Rao, J.M. : This appeal by the assessee is directed against the order dt.16.12.2016 of the Commissioner of Income Tax (Appeals), Gulbarga for the Assessment Years 2009-10.
The assessee has raised the following grounds :
3. Ground No.1 is general in nature and does not require any specific adjudication.
4. Ground Nos. 2, 2.1 & 2.2 are regarding assessment of income in the hand of assessee-individual instead of HUF. The assessee is an individual and Govindaswamy was earlier the proprietor of this business during his life time.
Late Shri P.G. Govindaswamy also running retail outlet M/s. Pisale Wines at Davangere which was considered and treated as business of HUF comprising of himself, his wife (the assessee) and 4 sons as members of HUF. After the demise of her husband, the assessee was filing returns of income in two status as a de facto Karta of HUF of which the assessee continue to be a member in respect of income of M/s. Pisale Wines and secondly as an individual being proprietrix of M/s. Five Star Liquor Shop. The assessee filed two returns of income, one in the status of HUF and the other in the status of individual for the assessment year 2009-10. Subsequently, the Assessing Officer noticed that the income from liquor business standing in the name of M/s. Pisale Wines admitted in the hand of HUF should have been shown as individual income of the assessee. Accordingly, in view of the decision of Hon'ble Supreme Court in the case of Biharilal Jaiswal Vs. CIT 217 ITR 746 (SC) as well as in the case of CIT Vs. Rangila Ram & Others 254 ITR 230 (SC), the Assessing Officer held that the income arising from the liquor trading offered in the hands of HUF requires to be clubbed in the hand of individual and accordingly assessed. The assessee could not succeed.
Before the Tribunal, the learned Authorised Representative of the assessee has reiterated its contention as raised before the authorities below.
The submissions of the assessee has been reproduced by the Assessing Officer in para 5.1 as under :
Thus the learned Authorised Representative has submitted that in view of the decision of Hon'ble jurisdictional High Court in the case of CIT & Another Vs. S.
B. Pannalkar & Co. 61 DTR 296 the income offered in the hand of HUF cannot be assessed in the hand of the individual-assessee. He has further contended that the Hon'ble jurisdictional High Court after considering the decision of Hon'ble Supreme Court in the case of Biharilal Jaiswal Vs. CIT (supra) as well as decisions are not applicable to the facts of the said case.
On the other hand, the learned Departmental Representative has submitted that the assessee has offered the income as a Karta of HUF however the assessee cannot be a Karta of HUF. Therefore the income from the business of retail trading in liquor has to be assessed in the individual hand of the assessee. He has relied upon the orders of the authorities below.
Having considered the rival submissions as well as the relevant material on record, it is noted that the assessee was allocated these licenses by the Excise Department by virtue of the law of succession on demise of her husband.
The other family members of the assessee gave the consent for transfers of the licenses from the name of the deceased husband to the name of the assessee.
It is also undisputed fact that during his lifetime Shri P. V. Govindaswamy was assessed to tax in two statuses i.e. individual being proprietor as well as HUF being Karta of HUF. Thus on the death of the husband of assessee, the assessee acquired these licenses as a successor and legal heir of Sri P.V.
Govindaswamy. The status of P.V. Govindaswamy was not disputed being Karta of HUF then there is no impediment in succession of the assessee as a Karta of HUF. The authorities below are relied upon the decisions of Hon'ble Rangila Ram & Others (supra) wherein the Hon'ble Supreme Court has held that a license issued in the name of individual cannot be transferred to a partnership firm and therefore the income from business of liquor has to be assessed in the hand of the individual who is license holder. In the case on hand there is no transfer of the license by the holder but the license in the name of the late husband of the assessee was transferred in the name of the assessee by the authorities because of the law of succession and it was not the transfer by the holder itself. The Hon'ble jurisdictional High Court in the case of CIT Vs. S B Pannalkar and Co. (supra) having considered and understood the decisions of Hon'ble Supreme Court in the case of Biharilal Jaiswal Vs. CIT (supra) as well as in the case of CIT Vs. Rangila Ram & Others (supra) has observed and held in paras 8 & 13 as under :
“ 8. Therefore, ultimately it is the intention of the parties as gathered from the facts of the case which would determine the eligibility for deduction. No person can carry on liquor business without a licence or permission. Such licence granted is not transferable. Even if transferable, it would be subject to conditions. A partnership firm to carry on business needs a licence or permission from the authority under the Excise Act. If an individual transfers the said licence to a partnership firm, it has to be in accordance with law. Otherwise the transfer would be contrary to section 23 of the Indian Contract Act, and is void. However, if a partnership firm chooses to obtain a licence in the name of one of its partner and the licence granted to such partner is treated as the partnership asset expressly in the partnership deed even before acquiring such licence and the partnership firm pays the fee for obtaining such licence, the said licence granted is a partnership asset and is not the personal property of such partner. No transfer is involved in such a transaction. It is not a case of a person who has obtained a liquor licence is inducted into a partnership as a partner, who brings in the said licence as his capital contribution and makes available the licence to the partnership firm to carry on liquor business and thus circumvent the law prohibiting transfer of such licence. Thus the 9 partnership should acquire the licence to carry on liquor business in a manner known to law to be eligible for deductions under the heading business expenditure under section 37 of the Income-tax Act, 1961.” 9.. 10….. 11….. 12…. “ 13. Therefore, it is clear that there is no intention on behalf of these partners to contravene the law. It is not camouflaged to contravene the law. Therefore the appellate authority as well as the Tribunal were justified in holding that the aforesaid judgments of the Apex Court has no application to the facts of this case. It is a case of genuine partnership carrying on business in liquor after obtaining licence in the name of one of the partners, treating the said licence as partnership asset. No transfer is involved.”
Similarly in the case on hand when no transfer of license by the holder of the licensee is involved then the decisions of Hon'ble Supreme Court as relied upon by the authorities below are not applicable in the case of the assessee. In view of the above discussion, the orders of the authorities below qua this issue are set aside and the claim of the assessee is allowed to the extent that the income offered in the hand of the HUF cannot be assessed in the hand of the individual-assessee.
Ground No.3 is regarding Gross Profit (GP) addition. The Assessing Officer noted that the assessee has declared very low GP in comparison to the GP worked out at 17.11% on the data made available by M/s. Karnatka State Beverages Corporation Limited (KSBCL). The assessee challenged the action of the Assessing Officer before the CIT (Appeals). The CIT (Appeals) granted part relief and directed the Assessing Officer to adopt GP at 14%. submitted that when the assessee itself has shown GP at 11.43% then making addition by taking an estimate of GP at 14% is not justified. He further submitted that the authorities below have not brought on record any specific reason for not accepting the GP shown by the assessee and contended that the CIT (Appeals) is not justified in directing the Assessing Officer to adopt GP at 14% & GP at 11.43% be retained.
On the other hand, the learned Departmental Representative has submitted that the Assessing Officer has considered the data made available by the KSBCL and therefore the rate adopted by the CIT (Appeals) is justified.
Having considered the rival submissions as well as the relevant material on record, it is noted that for the year under consideration the assessee has offered the income which is equal to GP at 11.43%. Accordingly when the assessee itself has shown GP at 11.43% then making addition by taking an estimate of GP at 14% is not justified as there is no significant difference. Even otherwise, the authorities below have not brought on record any specific reason for not accepting the GP shown by the assessee. The only reason by the Assessing Officer is the direction obtained from ACIT under Section 144A of the Act regarding assessment to be made in the hand of the assessee-individual. there is always a scope of tolerance range of fluctuation of GP of individual cases and if the assessee’s GP is falling within the reasonable range of fluctuation of GP then no addition can be made by taking GP on estimate basis.
Hence the GP addition made by the authorities below is deleted.
Ground No.4 is regarding addition made on account of difference between the sales shown in VAT return and regular books of accounts.
I have heard the learned Authorised Representative as well as learned Departmental Representative and considered the material on record. The Assessing Officer has made the addition of Rs.66,950 on account of difference of sales shown in the VAT Return and books of accounts. The learned Authorised Representative of the assessee has submitted that the sales shown in the VAT Return was erroneous whereas the sales shown in the books of accounts is correct figure and therefore no addition is called for. Alternatively, he has submitted that the entire difference cannot be treated as income and only GP addition of differential amount of sales can be added as income of the assessee.
On the other hand, the learned Departmental Representative has relied upon the orders of the authorities below. on record, it is noted that the difference of sales as per the VAT Return and books of accounts has not been disputed by the assessee therefore the sales shown in the VAT Return cannot be ignored. However the entire sale cannot be treated as income of the assessee and therefore only GP addition of such excess sale as per the VAT Return has to be added as income of the assessee.
The Assessing Officer is directed to make the addition by taking the GP as declared by the assessee.
In the result, the assessee's appeal is partly allowed.
Order pronounced in the open court on 2nd June, 2017.