Income Tax Appellate Tribunal - Panji
P. Lakshman Rao,, Rajam vs The Ito,, Srikakulam on 21 September, 2017
ITA No271./Vizag/2015
Shri P. Lakshmana Rao, Rajam
आयकर अपील य अ धकरण, वशाखापटणम पीठ, वशाखापटणम
IN THE INCOME TAX APPELLATE TRIBUNAL,
VISAKHAPATNAM BENCH, VISAKHAPATNAM
ी वी. दग
ु ाराव, या यक सद य एवं
ी ड.एस. सु दर "संह, लेखा सद य के सम%
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER &
SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A.No.271/Vizag/2015
( नधारण वष / Assessment Year: 2011-12)
Shri P. Lakshmana Rao, ITO, Ward-1,
Rajam Srikakulam
[PAN No.ALMPP7058G]
(अपीलाथ' / Appellant) (()याथ' / Respondent)
अपीलाथ क ओर से / Appellant by : Shri G.V.N. Hari, AR
याथ क ओर से / Respondent by : Shri R.S. Aravindakshan,
DR
सुनवाई क तार ख / Date of hearing : 15.09.2017
घोषणा क तार ख / Date of Pronouncement : 21.09.2017
आदे श / O R D E R
PER D.S. SUNDER SINGH, Accountant Member:
This appeal filed by the assessee is directed against order of the Commissioner of Income Tax (Appeals)-2 {CIT(A)}, Visakhapatnam vide ITA No.103/2013-14/1243/ITO,W-1,SKL/2014-15 dated 30.3.2015 for the assessment year 2011-12.
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ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam
2. Ground Nos.1 & 7 are general in nature, which do not require specific adjudication. Ground No.2 is not pressed by the Ld. Counsel for the assessee. Hence ground no.2 is dismissed as not pressed.
3. Ground No.3 is estimation of income at 10% of the purchase price as against the income admitted by the assessee in his books of accounts. The assessee is carrying on business of Indian made foreign liquor (IMFL), had filed the return of income declaring total income of 2,62,404/-. The case of the assessee was selected for scrutiny and the A.O., did not accept the income declared by the assessee and estimated the profit from the business at 20% of the stock put to sale and accordingly computed the business income from IMFL at Rs.22,20,928/- on turnover of Rs.1,11,04,640/-. On appeal, the CIT(A) has scaled down the percentage of profit from 20% to 10% and directed the A.O. to re-compute the income at 10% of purchase price.
4. On being aggrieved, assessee carried the matter in appeal before the Tribunal. At the time of hearing, the Ld. Counsel for the assessee has submitted that the issue involved in this appeal is squarely covered in the case of Sri Vysyaraju Satyanarayana Raju, Srikakulam Dist. In ITA No.2/Vizag/2016, which is reproduced as under:
3. On being aggrieved, assessee carried matter in appeal before the 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 2 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam 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.
4. On the other hand, the Ld. D.R. strongly supported the order passed by the authorities below.
5. I have heard both the parties, perused the materials available on 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 3 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam 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."
9. Considering the facts and circumstances of this case and also respectfully following the ratios of coordinate bench, we are of the view that the net profit estimated by the A.O. by relying upon the decision of Hon'ble A.P. High Court (supra), which was rendered under different facts is quite high. On the other hand, the assessee relied upon the decision of coordinate bench and the coordinate bench under similar circumstances estimated the net profit of 5% on total purchases net of all deductions. No contrary decision is placed on record by the revenue to take any other view of the matter than the view so taken by the coordinate bench. Therefore, we direct the A.O. to estimate the net profit of 5% on total purchases net of all deductions. Ordered accordingly.
5. In view of the above decision of the coordinate bench of the Tribunal, 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 allowed.
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ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam
6. Ground No.4 is related to the addition of Rs.7,76,207/- confirmed by the Ld. CIT(A). During the appeal hearing, the Ld. A.R. submitted that the assessing officer did not make any such addition of Rs.7,96,207/- in the assessment order and there was no such was ground raised by the assessee before the Ld. CIT(A). The Ld. A.R. further submitted that while passing the order u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as 'the Act'), the A.O. made following observations in Para no.5 of the assessment order:
5. During the year the assessee found to have made total investment of Rs. 33,31,201/- towards 1st Installment of licence fee of Rs.
21,65,375/- ; FDR of Rs. 6,40,000/- BG Commission of Rs. 2,29,824/- and 1st purchase of Rs. 2,96,002/-. Thus, the assessee was required to explain the sources for the total investment of Rs33,31,201/-. The assessee's AR filed explanation stating as under:
"The FDRs of Rs. 6,40,000/- was made out of my circulating capital. I am an assessee since the year 2004-05, filing the return of income regularly. Any how I am herewith enclosing the copy of my cash book, bank book and journal extract confirming my sources of investment of your kind perusal.
Out of the total expenditure claimed, the first instalment of rd 1/3 licence fee is only Rs. 21,65,375/- lam an assessee since the year 2004-5, filing the return of income regularly. Any how I am herewith enclosing the copy of my cash book, bank book and journal extract confirming my sources of investment for your kind perusal. "
5. The assessee has not explained the sources for the above investment even affording sufficient opportunity. Except stating in a vague manner, he has not proved the investment with any documentary evidences. The entire investment has to be treated as unexplained. As seen from the audit report filed for the Asst. Year 2011- 12, there was a closing capital balance of Rs. 14,84,994/- as on 31.3.2010 after allowing credit for this capital and also after giving credit for the unsecured loans offered to tax of Rs. 10,50,000/-, (since the above offer is being considered separately as income from other sources, the same 5 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam would get telescoped benefit from out of the total investment claimed to have been made during the month of Jin6,2010 i.e., before the commencement of the business. It is also presumed that these unsecured loans which have been offered were accepted before the commencement of his business) thus, there remains an amount of Rs. 7,96,207/- to be explained. The assessee's AR contended that since the unsecured loans which were added as unproved would have to be allowed from this investment as funds available. Therefore, the amount of Rs. 7,96,207/- is treated as explained as separate addition towards unsecured loans is being made."
7. According to the Ld. A.O. the sources of investments made by the assessee were telescoped from the unsecured loans added back to the income. Hence, the amount of Rs.7,96,207/- is treated as explained and no separate addition is required to be made on account of investments. However, the Ld. CIT(A) misunderstood the unexplained investment of Rs.7,96,207/- and confirmed the same as unexplained income. The Ld. A.R. explained that Rs.7,96,207/- formed part of investment for which the source was telescoped from the addition made relating to the unsecured loans ,hence no separate addition is warranted. On the other hand, the Ld. D.R. relied on the order of the A.O.
8. We have heard both the parties and perused the materials placed on record. The A.O. has accepted in the assessment order that Rs.7,96,207/- represented the investments made by the assessee sourced from the capital account and the telescopic benefit is allowed from the additions of unsecured loans. Hence, the A.O. has given the findings that no addition is required to be made on account of 6 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam investments. We agree with the A.O. and hold that no separate addition is required to be made on the account of investments. Accordingly, we set aside the order of the Ld.CIT(A) and allow this ground of appeal of the assessee.
9. During the assessment proceedings, the A.O. found that the assessee has offered an amount of Rs.10,50,000/- being unsecured loan for want of strict proof and the said sum was credited to the capital account. The Ld CITA) confirmed the addition and the assessee is in appeal before us. During the appeal hearing, the assessee argued that once the income is estimated no addition is warranted on account of addition to capital account.
10. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The assessee did not establish that the amount of Rs.10,50,000/- was generated out of liquor business. It was credited to the capital account, and no evidence was furnished by the assessee evidencing income generated out of liquor business or the source of the same. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the same is confirmed.
11. Ground no.7 is related to the addition of Rs.8,90,000/- unsecured loans. The A.O. made the addition of Rs.8,90,000/- unsecured loans for 7 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam non-furnishing of confirmation letters. Before the CIT(A), the assessee filed the confirmations and Ld.CIT(A) has forwarded the confirmation letters to the A.O. and called for the remand report. In the remand report, the AO submitted that the creditors have confirmed the loans given to the assessee. Further, the A.O. observed that all the creditors are having no sources of income and daily wage earners and they are not capable of advancing amounts to the assessee. The A.O. further examined the branch manager, wherein it was found that all the 15 creditors have purchased the demand drafts or a banker's cheque from only one branch of APGV bank, Amudalavalasa on 3.2.2015 and on verification, it was found that the banker's cheques were purchased by third party. For the sake of clarity and convenience, we reproduce the relevant paragraph of the remand report as under:
"In respect of other 15 (fifteen) creditors, from the depositions, it came to understand that all of them are petty agriculturists, having sources of income from cultivation and daily labour in non season and they are not capable to advance any amount from their day to day earnings, which will not suffice for their livelihood. Identity of the creditors was proved and their agricultural land holdings are also produced in order to prove their creditworthiness. But, from the statements it has; been understood that either of these persons are having creditworthiness to Advance any amounts, because of their meager earning.
Further, all these 15 (fifteen) persons have stated that they have advance the loan amounts, to Shri P.Lakshman Rao, through APGVB, Amadalavalasa Branch, Demand draft I Banker Cheques, which were purchased by paying cash, whereas all these persons are residents of Vizianagaram District, if at all any loan was given, they might have paid it at their respective villages or they might have purchased Demand draft I Banker Cheques at nearest Bank to their Village or Mandalam, but in this case, typically, it was deposed that they purchased demand 8 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam drafts / Banker Cheques in Andhra Pradesh Grameena Visakha Bank, Amadalavasa, which is nearly 25 to 30 kms distance.
In order to verify the genuineness and correctness of the contentions brought on records by all these 15 (fifteen) creditors, about the purchase of Demand draft / Banker cheques, a letter u/s.133(6) was issued to the Branch Manager, A.P.G,V,Bank, Amadalavasa, on 3.2.2015, to confirm the purchase of DDs/Banker Cheques by these 15 persons. In compliance to this letter the Branch ,Manager, furnished the of the DDs/ Banker Cheques sold by their Branch on 29.5.2010, 31.5.2010, 1.6.2010 and 5.6.2010. On verification of the information furnished by the Banker, it is fully established and beyond doubt proved that neither any one of these persons nor Shri P.Lakshmana Rao has purchased any DD or Banker Cheque from this Branch on the dates specified by them in their respective petition as additional evidence and subsequent sworn depositions given by them before the undersigned.
In view of the foregoing findings, I request the learned C1T(Appeals) to confirm the unsecured loans amounting to Rs,8,90,000 (Rs,17,61,000 - Rs,8,71,000) as bogus."
12. The Ld. CIT(A) considered the remand report and the submissions made by the assessee and confirmed the addition holding that the credits are not genuine. For the sake of clarity and convenience we extract the relevant Page Nos.8 to 10 of CIT(A)'s order which reads as under:
"5.3.6 I have considered the submissions and details filed. I have also perused the assessment folder. With reference to the other 15 creditors, the assessee has filed confirmation letters along with details of agricultural land held by them. The AO also examined these persons and recorded sworn statements from them. In their depositions they have confirmed the advance of impugned amounts to the assessee and stated to be given out of their agricultural income and savings. But none of them could produce any evidence of their agricultural earnings or savings. They have also stated that the amount was given through DD taken on Visakha Grameena Bank. It is also seen that the AO had made the inquiries in AP Grameena Vikas Bank and has obtained copies of the counterfoils for making application to obtain DD and noted that none of these creditors have purchased the cash DO on the dates referred in the 9 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam sworn statements or confirmation letters. Therefore the AO disbelieved the creditworthiness and genuineness of the transactions.
5.3.7 As regards the creditworthiness of these creditors, the AO noted that they are petty agriculturists or agricultural labourers having meager income. I have perused the sworn statements and also supporting details filed before the AO. The above creditors have deposed that they have substantial agricultural income and also income from sale of vegetables, milk etc but no evidence was filed in this regard. Their household cards filed before the AO shows that their income was in the range of Rs.10,000/-, Rs.12,000/- or Rs.15,000/- per annum. The same is tabulated hereunder:
S.No. Name Loan Income Income as
Amount claimed per
Household
Card
1 Bonthu Appamma, 49,875 96000+42000 15,000
Uddavolu
2 Gedala Annapoornamma, 59,875 1lakh+60000 12,000
Uddavolu
3 Kadagala Satyam, 99,750 125000+82000 15,000
Uddavolu
4 Kadagala Thata Appala 99,750 84000+24000 12,000
Naidu, Uddavolu
5 Kadagala Thaviti Naidu, 49,875 70000+48000 12,000
Uddavolu
6 Maradana Anantha Rao, 99,750 65000+24000 --
Uddavolu
7 Maradana Gowramma, 49,875 72000+54000 10,000
Uddavolu
8 Peddireddy Kurminaidu, 49,875 75000+48000 15,000
Uddavolu
9 Potnuru 49,875 1lakh+30000 10,000
Appalanarayanamma,
Uddavolu
10 Thadela Venkata Ramana 17,000 96000+30000 18,000
Murthy, Rottavalasa
11 Uddavolu Jagan Mohan 49,875 96000+60000 32,000
Rao, Uddavolu
12 Yelamala Ramesh 99,750 120000+60000 28,000
13 Yegireddy Anantha 49,875 41000+15000 --
Rao,Uddavolu
14 Yegireddy Venku Naidu, 49,875 85000+48000 12,000
Uddavolu
15 Terli Adinarayana, Udavolu 15,125 96000+42000 15,000
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ITA No271./Vizag/2015
Shri P. Lakshmana Rao, Rajam
Thus it is very apparent they did not have creditworthiness to make the impugned advances.
5.3.8 The perusal of the copies of the application for DD purchased also show that the DDs were not purchased by any of these creditors. The names of the applicants were totally different and the address given was at Amadalavalasa. The addresses of the creditors as given during the sworn statement was Vuddavolu Village, Vizianagaram. These discrepancies definitely raise doubt on the genuineness of the transactions. There is no nexus to the DDs taken and the amounts said to be advanced. All the DDs were purchased in cash for amounts less than Rs.50,000/-. All these facts raise doubt on the genuineness of the loan transactions and gives an indication that the impugned credits are being owned by the alleged creditors by way of afterthought. Therefore, I find that the AO is justified in disbelieving creditworthiness of these creditors and the genuineness of the credit transactions. As a result, the additions to the tune of Rs.8,71,000/is confirmed.
13. From the order of the Ld. CIT(A), it is evident that the creditors are residing in different places and the address was given as Vuddavolu village, Vizianagaram. The DDs were purchased by the creditors from A.P. Government Vikas Bank, Amudalavalasa located at different place. The DDs purchased shows that the they were not purchased by any of the creditors and the names of applicants were different and the address of the purchasers was given as Amudalavalasa. All the DDs were purchased in cash for amounts less than Rs.50,000/-. The assessee required to establish the identity, genuineness and creditworthiness of the creditors. Though assessee has furnished the names and addresses, the house hold card revealed that the creditors are having no means or meager means and no capacity to advance the 11 ITA No271./Vizag/2015 Shri P. Lakshmana Rao, Rajam amounts to the assessee. The house hold card and the purchase of DDs by third party in all cases at Amudalavalasa establish that the creditors are not genuine and the creditors had no means to give the loans to the assessee. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and the same is confirmed.
14. Ground no.8 is related to the addition of Rs.58,584/-, which was not argued by the Ld. A.R. Therefore, this ground is dismissed as not pressed.
15. In the result, the appeal filed by the assessee is partly allowed. The above order was pronounced in the open court on 21st Sept'17.
Sd/- Sd/-
(वी. दग
ु ा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 : 21.09.2017 VG/SPS आदे श क त)ल#प अ*े#षत/Copy of the order forwarded to:-
1. अपीलाथ / The Appellant - Shri P. Lakshmana Rao, Maruthi Nagar, Near Vidya Junior College, Dolapet, Rajam, Srikakulam Dist.
2. याथ / The Respondent - The ITO, Ward-1, Srikakulam
3. आयकर आय+ ु त / The CIT-2, Visakhapatnam
4. आयकर आय+ ु त (अपील) / The CIT (A)-2, Visakhapatnam
5. #वभागीय त न.ध, आय कर अपील य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam
6. गाड फ़ाईल / Guard file आदे शानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 12