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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI GEORGE GEORGE K.
Per GEORGE GEORGE K.,JUDICIAL MEMBER:
These appeals at the instance of the assessee are directed against the
consolidated order of the CIT(A)-IV, Kochi dated 16/06/2016. The relevant
assessment years are 2008-09 to 2010-11.
Since common issues are raised in these appeals, they were heard together
and are disposed off by this consolidated order. Identical grounds are raised for
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all the assessment years except for variance in figures. Hence grounds relevant
to the assessment year 2008-09 are reproduced below:
1.The Assessing Officer has disallowed a sum of Rs.4,58,012/- on estimate basis stating that internal vouchers are only maintained. The CIT(A) has confirmed the finding without considering the facts and circumstances of the case.
The estimate of food sale, soda and cola and empties on the basis of liquor sale and then estimating the net profit on this was made without any basis. The CIT(A) has confirmed the findings of the officer ignoring the submissions of the assessee. The fact that there were no incriminating documents relating to this year was also ignored by the officer and CIT(Appeals).
Any other grounds that may be allowed at the time of hearing.
The brief facts of the case are as follows:
The assessee is a partnership firm having two partners. The firm is running
a bar attached hotel. There was a search in the premises of one of the partners.
Consequently, a survey u/s. 133A was done in the other business entities
connected with the assessee. During the course of survey, certain documents
relating to the assessee-firm were impounded which pertains to the assessment
year 2009-10. The documents impounded suggest an average margin of profit
on sale of liquor at the rate of 79.90%. The profit margin on sale of food, soda,
soft drinks and empty bottles was estimated at 13.68%, 4.62% and 5.6%
respectively. Based on the judgment of the Hon’ble Kerala High Court in the
case of Hotel Meriya vs. CIT, Kottayam in I.T.A. No. 551 of 2009, the Assessing
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Officer was of the view that the seized material of a single year could be utilized
for the other assessment years since the nature of the business is identical and
the assessee is not likely to maintain the complete evidence for all the
assessment years. Hence, notices u/s. 148 were issued for the assessment years
2008-09 to 2010-11 and the assessments were completed u/s. 143(3) r.w.s. 147
of the Act. The major additions made for the above assessment years are as
follows:
i) Estimation of the gross profit of liquor at 79.90%
ii) Estimation of sale of food at 13.68% of the liquor sale.
iii) Estimating the sale of soda and soft drinks at 4.62%of the liquor sale.
iv) Estimating the sale of empties at 5.7% of the liquor sale.
v) Disallowance of expenses
Aggrieved by the order of the assessments, the assessee preferred appeals
to the first appellate authority. The CIT(A) allowed the assessee’s claim
regarding gross profit on sale of liquor.
Aggrieved by the order of the CIT(A), the assessee has preferred the present
appeals before the Tribunal contesting the sustenance of addition with regard to
the estimation of gross profit on sale of food at 12% and disallowance of
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expenses. The Ld. Counsel for the assessee has filed a brief written submission
with regard to estimation of gross profit on food and disallowance of expenses.
The relevant potion reads as follows:
“Estimation of gross profit on food
The assessing officer has estimated the sale of food as a percentage of the liquor sales based on the statements impounded. But these documents have no evidence to show the gross profit percentage. The hotel is situated in a Panchayath and the food sales are very minimum. There are no walk in customers. The villagers have a drink and they had their food from their homes. The food for more than 30 staff is also provided from the hotel.
The rate of gross profit @ 12% of the estimated sales (the G.P. on liquor is taken on the purchase value) were adopted without any basis of evidence. As per the impounded documents for a few months in F.Y. 2008-09 the average gross profit on food sale is only 6.32%. The working is enclosed herewith. As the entire addition was based on this document the gross profit on food may please be taken at 6.32% against the estimate of 12%. The copy of the impounded statements is enclosed herewith.
Disallowance of expenses
The assessing officer in para 5 of the order states that the books of accounts are rejected only in respect of profits and the expenditure are found to be genuine and supported by vouchers. The assessing officer has disallowed a portion of the salary and incentive to staff amounting to Rs. 4,58,012/- stating that these expenses are supported only by internal vouchers. The fact that for salaries and incentives only internal evidences are available was ignored by the officer.
Estimating a huge income and not allowing the actual expenditure is against all norms of justice. The assessment was based on the revised profit and loss account and disallowing a portion of it stating that it was not claimed in the original return was against law and facts and hence these expenses are to be allowed.”
The Ld. DR has filed a brief written submission. The relevant portion reads
as follows:
“5. In fact inpage-2 of Assessment order (sub-para 6) for AY 2008-09, the Assessing Officer has mentioned that the correctness of expenditure as per original Profit& Loss Account is not doubted. The relevant para is reproduced as under. “His books though rejected on profit aspects give reasonable picture for expenditure aspects, most of his
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expenditures are found to be genuine and properly supported by vouchers etc. like there is no disputes or doubts on expenditure like purchase of liquor because it is from State body, Bar license fees, Bank charges and interest. Electricity charges, Insurance, P.F. Contribution, depreciation and Sales Tax payments. However, expenditure like Staff incentive, Salary are supported by internal vouchers only and totally reliable so a portion of them is disallowed and added back in total income. Addition = Rs.4,58,012/- only.”
Copy of order of Commercial Tax Officer, Angamaly dated15.03.2010 in order No: 24162809/07-08 is enclosed herewith to highlight that the firm (Green Park) was not keeping the true and correct accounts relating to their business transaction for 2007-08. The manger of Green Park Hotel has admitted the offence and has prayed for composition of offence before the Commercial Tax Department.
In the light of the above, the Assessing Officer has correctly taken the total expenses of the firm at Rs.81,45,850/- based on the original return and Profit & Loss account filed alongwith the original return.
It is therefore submitted that the Assessing Officer, has after taking into account the impounded materials, sworn statements, original return, order of Commercial Tax Officer, Angamally and other relevant material and finalized the assessment on 08/02/2013, adopting total expenses at Rs.81,45,850/- and the same be upheld.
The prayer of appellant that total expenses be taken at Rs.1,03,10,112/- before the Hon. ITAT, is nothing but an after thought to avoid payment of tax liability, especially as he has originally (vide letter dated 21/09/2012) accepted for total expenses available in original profit & loss account.”
I have heard the rival submissions and perused the material on record. I
shall adjudicate the issue raised as under:
Estimation of Gross Profit on sale of Food
The Assessing Officer has estimated the sale of food as a percentage of the
liquor sales. The learned AR had submitted that the hotel is situated in a
Panchayat where the food sales are very minimum. The villagers will have a
drink and the food will be taken in their home. The average gross profit on food
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sale is only 6.32% as per the impounded documents. The Assessing Officer on
the other hand had estimated the G.P. at 13.68% to 12% for various AY’s. The
CIT(Appeals) has not gone into the facts and has estimated gross profit rate of
12% on sale of food. The CIT(Appeals) compared with other group concerns on
identical business but has not considered the place where these concerns are
doing business. The place of business have major role in the food sales and
cannot be compared with concerns in different places. Moreover as mentioned
earlier, the impounded material clearly points out only G.P. of 6.32% on sale of
food. (Copy of G.P. on sale of food for the period April 2008 to November 2008
as per impounded documents is enclosed herewith). It is also to be noted that
liquor sales are the main sales and the food sales is only a secondary sale in all
the AY’s. Therefore the percentage adopted at 12% for food sales is erroneous
and addition on this count is deleted. It is ordered accordingly.
Disallowances of expenses
7.1 The Assessing Officer has disallowed certain expenses fully and some other
expenditure partially. But the Assessing Officer has admitted that books of
accounts have been rejected only in respect of profits and expenditures are
found to be genuine and supported by vouchers. The impounded statements
showing the expenses have been produced by the assessee’s representative,
which contain expenses on generator running, staff quarters rent, laundry
charges, travelling expenses etc. based on which the assessment was completed
7 I.T.A. Nos.399-401/Coch/2016
by the Assessing Officer. The assessee also stated that the assessment was
based on the revised profit and loss account and disallowing a portion of it
stating that it was not claimed in the original return is against law and facts. The
CIT(A) has also accepted the expenses but has stated that these expenses are
supported by internal vouchers only. The assessee has produced orders passed
by the CIT(A) in the connected group cases where the expenses have been fully
allowed. The learned DR has submitted a written submission in which it has
been stated that the revised return has been filed only on long after issue of
notice u/s. 148 of the Act. Subsequently, the Assessing Officer based on the
impounded material adopted the average margin for completing the assessment.
But the learned AR stated that since assessment was based on the revised profit
and loss account the expenses claimed has to be allowed.
7.2 I have gone through the arguments of both parties and perused the
material on record. The Assessing Officer disallowed the expenses for the
reason that the assessee could not produce external evidences for the expenses
disallowed. The contention of the assessee is that these expenses are recorded
in the monthly statements impounded from the assessee’s premises based on
which the assessment is completed was ignored by the Assessing Officer and the
CIT(A). Admittedly, the Assessing Officer has stated that the expenses are
genuine and supported by vouchers. In such a case the Assessing Officer could
not have disallowed the expenses. It is also noticed that the CIT(A) has also not
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correctly appreciated the facts of the present case. Considering the entire facts
and circumstances of the present case, I am of the view, that there was no
justification in making the disallowance of expenses. I therefore, delete the
disallowance of expenses made by the Assessing Officer and confirmed by the
CIT(A). It is ordered accordingly.
The other issue is with regard to wrong disallowance of expenses for AY
2008-09. This issue has been raised by way of additional ground which reads as
follows:
“The assessing officer has wrongly taken the total expenditure of the Profit and Loss account for the year ended on 31.03.2008 as Rs.81,45,850/- against the actual figure of Rs.1,03,10,112/-. The action of the assessing officer has increased the income by 21,64,262/- which is against the actual facts.”
8.1 With regard to the above issue, the contention of the assessee is as
follows:
“Wrong disallowance of expenses AY 2008-09 In the assessment order for 2008-09 while computing the income the assessing officer has wrongly deducted the total expenses as per P&L Rs.81,45,850/- instead of the actual figure of Rs.1,03,10,112/-. The figure deducted by the Assessing Officer is that of the original return. The assessment was completed based on the revised return and the disallowance of Rs.4,58,012/- was made from the revised profit and loss account. Hence the total expenses as per this P&L amounting to Rs.103,10,112/- is to be deducted from the estimated gross profit. The copy of the original and revised profit and loss account is enclosed herewith”
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8.2 On a perusal of the CIT(A)’s order, I notice that though the assessee has
raised this issue before him, the CIT(A) has not adjudicated the same. Therefore,
in the interest of justice and equity, this issue is restored to the file of the
CIT(A). The CIT(A) shall after affording a reasonable opportunity of hearing to
the assessee shall decide the matter in accordance with law as expeditiously as
possible. Therefore, the additional ground of the assessee is allowed for
statistical purposes. It is ordered accordingly.
In the result, the appeals of the assessee for the assessment years 2009-10
2010-11 are allowed whereas for AY 2008-09, it is partly allowed for statistical
purposes.
Pronounced in the open court on 2-02-2017.
sd/- (GEORGE GEORGE K.) JUDICIAL MEMBER
Place: Kochi Dated: 2nd February, 2017 GJ Copy to: 1. M/s. Hotel Green Park, 103A/103B/103C, M.C. Road, Kalady-683 574. 2. The Deputy Commissioner of Income-tax, Central Circle-1, Ernakulam. 3. The Commissioner of Income-tax(Appeals)-IV, Kochi.
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The Commissioner of Income-tax (Central), Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin