VENKATESHWAR NEMURI,HYDERABAD vs. ACIT., CIRCLE-4(1), IT TOWERS,

Brief facts of the case are that facts of the case are that the assessee is carrying on the business of retail trading in Indian made foreign liquor. He filed his return of income for the assessment year 2017-18 on 07/11/2017 declaring a total income of Rs. 23,93,390/-. During scrutiny assessment, learned Assessing Officer found that the assessee was maintaining the sales bills and therefore it was difficult to determine the profit. Learned Assessing Officer, therefore, followed the decision of the Tribunal in the case of Kanakadurga Wines vs. ITO in /Hyd/ 2011 wherein the estimate of net profit was done at the rate of 3% of the purchases, but subsequently, in the Miscellaneous Application, it was revised to 5% of the purchase or stock put for sale during the year, and estimated the income of the assessee at 5% of the stock put for sale and added a sum of Rs. 39,12,486/- towards business income. Learned Assessing Officer further added a sum of Rs. 1,04,79,650/- under section 68 of the Income Tax Act, 1961 (for short “the Act”) as unexplained cash credits.

In appeal, Ld. CIT(A) held that since the assessee has not been maintaining the cash memos for cash sales, learned Assessing Officer rightly followed the decision of the jurisdictional ITAT and estimated the income at 5% of the turnover, and there are no grounds to interfere with such estimate. He accordingly confirmed the addition on account of business income. Insofar as the addition on account of unexplained cash credits is concerned, assessee pleaded before the Ld. CIT(A) that the cash in specified banknotes deposited in bank was only Rs. 34,47,500/- and not Rs. 1,04,79,650/-. He further pleaded that in view of the decision of the Bangalore Bench of the Tribunal in the case of Sh. Arfin vs. ACIT in the unexplained bank deposits cannot be considered under section 68 of the Act and therefore, no addition could be made on that score. Ld. CIT(A), however referred to the decisions of the Hon'ble Apex Court in the cases of L.Hazari Mal Kuthiala vs. ITO (1961) 41 ITR 12 (SC) and ITO vs. Saghu Buchiah Setty (1964) 52 ITR 538 (SC) and repel the contention of the assessee holding that where the power to proceed is actually there, mere reference to a wrong section for authority to act, will not vitiate the action taken and such mere mentioning of wrong section by the learned Assessing Officer would not ipso facto render the entire addition is illegal. He, however, directed the learned Assessing Officer to verify whether the quantum of the deposited SBNs was Rs. 34,47,500/- and not Rs. 1,04,79,650/- and allowed relief accordingly.

Assessee, therefore, preferred this appeal contending that the rate of estimation of the net profit in liquor trade varies from case to case and there is no rule that 5% of the turnover shall invariably be fixed in liquor trade de hors the variation in facts. He submitted that there are also judgements of the Tribunal where the net profit was estimated at 3% of the turnover in the sale, and therefore keeping in view the levy of privileged fee from the year 2012, estimate of net profit at 3% would meet the ends of justice. It is further contended on behalf of the assessee that the bank statement cannot be considered as books of account of the assessee for the purpose of section 68 of the Act and therefore, the addition on that score is not sustainable.

Per contra, Ld. DR submitted that had the assessee maintained the sales bills, which are vital to arrive at the turnover of a businessman, the estimate has become imperative, and therefore, the best judgement exercised by the learned Assessing Officer by estimating the profit of the assessee at 5% of the turnover cannot be found fault with. He further submitted that as rightly pointed out by the Ld. CIT(A) the Hon'ble Supreme Court, various High Courts and Benches of the Tribunal held time and again that it is well settled that where the power to proceed is actually there, the mere reference to a wrong section for authority to act, will not vitiate the action taken. In this case if not section 68 of the Act is applicable, certainly the provisions of section 69A of the Act are applicable. Merely because the learned Assessing Officer quoted section 68 of the Act, instead of section 69A of the Act, the entire addition cannot be deleted.

We have gone through the record in the light of the submissions made on either side. Insofar as the estimate is concerned learned Assessing Officer placed reliance on the decision of the Tribunal rendered in the case of M/s. Kanakadurga Wines (supra) and other cases rendered in 2011 and 2012. As observed by the Hon'ble High Court, the profit percentage to be adopted differs from case to case. Apart from that fact, subsequently the privilege fees is introduced and according to the learned AR it reduced the profit margin. Having regard to the facts and circumstances of the case and taking a holistic view, we are of the considered opinion that the estimate of net profit of the assessee at 3% of the turnover would meet the ends of justice. We accordingly direct the learned Assessing Officer to recompute the income of the assessee.

Coming to the second issue of deposits in bank in the demonetization period, according to the learned Assessing Officer such deposits are to the tune of Rs. 1,04,79,650/- whereas according to the assessee those are only to the tune of Rs. 34,47,500/-. Ld. CIT(A), therefore, directed the learned Assessing Officer to verify this fact and act accordingly. Ld. CIT(A) relied on the decision of the Hon'ble Supreme Court to repel the contention of the assessee that the case of the assessee does not fall within the ambit of section 68 of the Act and therefore, the addition has to be deleted. Undisputedly, in the face of the allegations of the learned Assessing Officer, section 69A of the Act would be attracted. Mere quoting a wrong section of law will not vitiate the addition. We, therefore, confirmed the findings of the Ld. CIT(A). However, while computing the business income by estimating it at 3% on the turnover, learned Assessing Officer will consider the quantum of SBN deposited during the demonetization period and added separately. This means the learned Assessing Officer will estimate the business income of the assessee at 3% on the turnover reduced by the quantum of SBN deposited during the demonetization period.

In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on this the 28th day of June, 2024.