Income Tax Appellate Tribunal - Hyderabad
M/S Prabhu Wines,, Hyderabad vs Department Of Income Tax on 23 October, 2013
1
ITA.No.1100/Hyd/2013
M/s. Prabhu Wines, Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "A" : HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT
MEMBER
AND
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA.No. 1100/Hyd/2013
Assessment Year 2010-2011
Income Tax Officer, M/s. Prabhu Wines
Ward 9 (3)Hyderabad Hyderabad
vs.
PAN AAKFP2838D
(Appellant) (Respondent)
For appellant : Ms. Haritha
For respondent : -None-
Date of Hearing : 23.10.2013
Date of pronouncement : 23.10.2013
ORDER
PER SMT. ASHA VIJAYARAGHAVAN, J.M.
This appeal was filed by the Revenue against the Order of the CIT(A)-VI, Hyderabad dated 20.5.2013 for the assessment year 2010-2011. The Revenue in its appeal has raised 7 grounds on two issues. The case is posted for hearing notice for which was sent through RPAD to assessee, but the assessee is not present. There is no request for adjournment also. Accordingly, after hearing the learned D.R. the case was decided ex-parte assessee.
2. Grounds No. 1 to 3 raised by the Revenue pertain to the determination of profits in the business of wines. The assessee firm is a retail trader in various 2 ITA.No.1100/Hyd/2013 M/s. Prabhu Wines, Hyderabad liquor products and filed the return of income declaring total income at Rs.6,72,200. The Assessing Officer noticing that the Government of Andhra Pradesh kept the retailers margin from 20% to 27% on various categories of liquor items, computed the profit at 24% by taking the average of medium and premium retailers margin. The cost of goods sold was worked out at Rs.4,79,40,450/- and the gross sales have worked out at Rs.5,94,46,154/-. Since the assessee declared gross sales at Rs.5,40,63,708/- the difference of Rs.53,82,450/- was added as surplus sales of the assessee and brought them to tax. The learned CIT(A) considering the coordinate Bench decisions on the issue, directed the Assessing Officer to estimate the net profit at 5% on the purchases or stock put for sale during the year whichever is more. The relevant portion of the order of the learned CIT(A) is as under :
"5.2 The appellant objected to such estimation on blanket note, when the products are offering different margins, even as per G.O. issued by the APBCL. The appellant also contended that the A.O erred in not following the decision of jurisdictional ITAT on similar facts. It was contended that the appellant is operating its business in city limit where there is continuous Excise Department checks and it cannot sell at the rates as estimated by the assessing officer and it was stated that after meeting out the day to day expenditure and also after meeting out the excise license fee paid, the net profit margin would be around 3 to 5% of the turn over and that in support of this the appellant had filed the stock details and the brand dealt by it during the above financial year. The AR had filed a copy of the order of the jurisdictional ITAT in the case of M/s. Kanaka Durga Wines in ITA No. 591/Hyd./2011 dt.3 ITA.No.1100/Hyd/2013
M/s. Prabhu Wines, Hyderabad 28.7.2011 and ITO W-9(2) Vs. Amaravathi Wine Shop in ITA No. 1196/Hyd/2011, dt. 8.11.2012, wherein the facts of the case are akin to that of the appellant, and the Tribunal directed to estimate the net profit of the assessee at 3% and 5% of the purchases or stock put for sale during the year, in the respective cases. The appellant further stated that the assessing officer is not correct to ignore the income returned figure of Rs.6,72,200/-.
5.2 Observations of the A.O and submissions of the appellant perused. Though the appellant questioned the decision of the A.O, on rejection of books on account of not furnishing the sale bills, the same was not raised in the grounds of appeal. Further, based on the facts of the case that required information was not furnished before the A.O., and as such the rejection of books is justified. Thus, the rejection of books lead to the estimation of profit. However, while estimating, the Assessing Officer ignored to take note of the relevant decisions of the jurisdictional ITAT on the similar issue and facts. It is an established fact that where books are not reliable, the estimation may be resorted but such estimation should be based on reasonable and comparable basis. The appellant brought the decision of the Hon'ble ITAT, Hyderabad in the case of Kanaka Durga Wines, to the notice, where in, the net profit on stocks I purchase is estimated at 3% as indicated. However, identical issue has been examined in appeal by the jurisdictional ITAT in a more recent decision, in the case of M/s.
Amaravathi Wine Shop, in ITA No. 1196/Hyd/2011 dt. 08.06.2012. The Hon'ble ITAT "B" Bench, Hyderabad, in the case have held as under:
"........we set aside the order of the CIT(Appeals) and directed the Assessing Officer to estimate the net profit at 5% of the purchase or stock put for sale during the year subject to the assessed income not less than 4 ITA.No.1100/Hyd/2013 M/s. Prabhu Wines, Hyderabad the returned income. "
5.3 On the similarity of the facts of the case under appeal to the decision of Hon'ble ITAT's latest decision in the case of M/s. Amaravathi Wines, as referred above, I am of the considered opinion that the profits at the rate of 5 0 /0 on purchases or stocks put for sale during the year is justified. Respectfully following the decision of the ITAT, the Assessing Officer is directed to estimate the net profit at 5 0 /0 on the purchases or stock put for sale during the year, whichever is more. Further, in estimating the profits, the income already offered by the appellant on such sales, may be taken into consideration, to avoid the duplication of income. In the result, ground Nos. 1 is partly allowed."
3. After considering the arguments of the learned D.R. we do not find any reason to interfere with the order of the CIT(A) who in-turn, followed the decisions of the coordinate Bench as stated above. The Coordinate Bench of this Tribunal is uniformly accepting the 5% as net profits and in the case of ITO, Warangal vs. Shri P. Ramaiah and others in ITA.No.1739/Hyd/2012 dated 21.03.2013 held as follows :
"4. We have heard the parties present and perused the material on record in the light of the impugned orders of the CIT(A). We find that the issue involved in the present appeal is squarely covered by the consistent view taken by the coordinate benches of this Tribunal in similar matters, as in the case of ITO V/s. Shri Pittala Yakaiah, Nalgonda & Ors. in ITA No. 2191/Hyd/2011 & Ors., wherein this Tribunal vide dated 13 th April, 2012, held that income of the assessees in the line of liquor business has to be estimated at 5% cost of sales made by them. In fact, the CIT(A) directed the Assessing Officer to determine the profit @ 5% of the cost of the goods sold relying on 5 ITA.No.1100/Hyd/2013 M/s. Prabhu Wines, Hyderabad the order of the Tribunal in the case of M/s. Amaravati Wine Shop, in ITA No. 1196/Hyd/2011 dated 8.6.2012. Since the impugned order of the CIT(A) is in consonance with the consistent vie w taken by the coordinate benches of the Tribunal in similar matters, we do not find any infirmity in the impugned orders of the CIT(A). We accordingly uphold the same, rejecting the grounds of the Revenue in these appeals".
4. Respectfully following the same, we dismiss grounds No.1 to 3 of the revenue.
5. Grounds No.4 to 6 pertain to the deletion of addition under section 68 of the I.T. Act, which are as under :
"4. The CIT(A) erred in deleting the addition u/s.
68 of I.T. Act.
5. The CIT(A) ought to have appreciated the f act that the Assessing Off icer is not precluded from making addition u/s. 68 of I.T. Act even estimation of prof it is adopted.
6. The CIT(A) ought to have appreciated the addition u/s. 68 of I.T. Act is independent from estimation of prof it as held by Hon'ble Supreme Court in the case of Kale Khan Mohammed Hanif vs. CIT (1963) 50 ITR 1 and CIT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194, 196".
6. The Assessing Officer noticed from the balance sheet that the partners have made additions to the capital totalling to Rs.14,40,000/- during the financial year under consideration. As assessee could not explain the source along with the documentary evidence, the Assessing Officer brought the amount to tax as unexplained cash credit under section 68 of the I.T. Act. The assessee objected to the same before the CIT(A) and relied on the decisions of the jurisdictional High Court in 6 ITA.No.1100/Hyd/2013 M/s. Prabhu Wines, Hyderabad the case of Indwell Constructions vs. CIT (232 ITR 776) and Maddi Sudarshanam Oil Co. Vs. CIT (1959) 37 ITR 369 (AP). The learned CIT(A) while holding that on merits there is no error in treating the said amounts as unexplained credits of the firm, deleted the addition relying on the above two decisions relied upon by the assessee. The order of the learned CIT(A) is as under:
"6.3. I have gone through the submissions of the appellant. It is a fact that the credits were made in the names of the partners, in the books of the appellant and the appellant failed to furnish the details, before the Assessing Officer, at the stage of the assessment proceedings. As such there is no grave error in treating the said amounts as unexplained credits of the firm. But, in the instant case the profits are estimated at higher rate by rejecting the books of account, and the ratio of the decision of jurisdictional High Court, in the case of Indwell Construction Vs. CIT ( 232 ITR
776) which has further relied upon it's own decision in the case of Maddi Sudarshanam Oil Mills Co. Vs. CIT (37 ITR 369), support the view/stand of the appellant that once the income-tax authorities have rejected the books, they cannot have it both ways, namely,.
Adopting flat rate to compute profits as well as rely on the books for the purpose of adding the unexplained cash credits, which were part of the accounts. The facts of this case are similar to the facts of the case of judicial decision and the ratio of the decision support the argument of the appellant. Under the circumstances, I am of the considered opinion that there is no justification for making the separate addition of Rs.14,40,000/- representing the credits in the capital accounts of the partners of 7 ITA.No.1100/Hyd/2013 M/s. Prabhu Wines, Hyderabad the firm, in the books of the firm, where the profits were already estimated, by rejecting the books. Accordingly, the addition of Rs.14,40,000/- held to be unsustainable. This ground of appeal is treated as allowed.
7. The learned D.R. submitted that the decision of Indwell Constructions (supra) is applicable only to the computation of income under the head "Business" and does not apply to the additions made under section 68 of the Act which have been taxed under the head "Other Sources". The decision of Maddi Sudarshanam Oil Co. (supra) stands reversed by the decision of the Hon'ble Supreme Court in the case of Kale Khan Mohammed Hanif vs. CIT (1963) 50 ITR 1 which, inturn, was followed by the Hon'ble Supreme Court in the case of CIT vs. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194,as stated in grounds.
8. After considering the submissions of the learned D.R. we agree with the Revenue grounds. The learned CIT(A) wrongly applied the principles laid down in the case of Indwell Constructions vs. CIT 232 ITR 776 of the jurisdictional High Court. The issue before the jurisdictional High Court was with reference to disallowance under section 40b and the Hon'ble jurisdictional High Court has analysed the computation of income under the head "Business" from sections 28 to 44D. Therefore, the principles laid down in the said decision are to be applied only to the extent of computation of income under the head "Business". However, as far as the addition of cash credits under section 68 and 69 are concerned, the Hon'ble Supreme 8 ITA.No.1100/Hyd/2013 M/s. Prabhu Wines, Hyderabad Court is very clear on this issue. In fact, the principles laid down by the Hon'ble Supreme Court in the case of CIT Vs. Devi Prasad Vishwanath Prasad, 72 ITR 194(SC) are as under:
"There is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credit, the nature and source of which is not satisfactorily explained, and the business income estimated by him under section 13 of the Indian Income-tax Act, 1922, af ter rejecting the books of account of the assessee as unreliable.
Where there is an unexplained credit, it is open to the ITO to hold that it is income of the assessee, and no further burden lies on the ITO to show that that income is from any particular source. It is for the assessee to prove that, even if the cash credit represents income, it is income from a source which has already been taxed."
Kale Khan Mohammad Hanif V. CIT [1963] 50 ITR 1 (SC) followed.
The Hon'ble Supreme Court reversed the decision of the Hon'ble Allahabad High Court wherein the Hon'ble Allahabad High Court held that additions cannot be made. The Hon'ble Supreme Court has followed its earlier decision in case of Kale Khan Mohammed Hanif Vs. CIT, 50 ITR 1 wherein the apex court held as under:
"It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to sho w either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the IT Act. In the absence of such proof, the ITO is entitled to treat it as taxable income. (A Govindarajulu Mudaliar V. CIT [1958] 34 ITR 807 (SC) followed.9 ITA.No.1100/Hyd/2013
M/s. Prabhu Wines, Hyderabad In the original assessments for the assessment years 1945-46 and 1947-48 the assessee's accounts were not found complete and reliable and his income from his two businesses was computed by estimating his total sales and assessing the gross prof its on the basis of certain percentages. Certain cash credits in the accounts of the assessee which had been overlooked in the original assessments were detected. In reassessment proceedings under section 34 of the Indian Income-tax Act, 1922, the assessee's explanation that they did not represent income was rejected and they were brought to tax, as representing income from undisclosed sources, in addition to the income which had been estimated in the original assessments:
Held, that the amounts of the cash credits could be assessed to tax as income from undisclosed sources in addition to the business income computed by estimate. The taxing authorities were not precluded from treating the amounts of the credit entries as income from undisclosed sources simply because the entries appeared in the books of a business whose income they had previously computed on a percentage basis.
An inference drawn by the Appellate Tribunal may be either one of fact or one law. If it is an inference of fact, no question with regard to it can be inf erred to the High Court. If it is one of law, then a question whether the inference can in law be drawn might be referred to the High Court. But the question whether an inference drawn by the Tribunal is one of law or of fact is not a question which can arise out of the decision of the Tribunal and a question in that form cannot be referred to the High Court u/s 66 of the Indian Income-tax Act, 1922."
(Emphasis supplied)
9. As can be seen from the above ratio laid down by the Hon'ble Supreme Court, the AO was not precluded from adding any unexplained cash credit as undisclosed income of the business and it is for Assessee to adduce evidence that the same is not taxable. Therefore, we are not in agreement with the decision of the Ld.CIT(A).
10 ITA.No.1100/Hyd/2013M/s. Prabhu Wines, Hyderabad
10. Accordingly, since the issue is covered in favour of the Revenue by the Order of the Hon'ble Supreme Court in the cases relied in the grounds (supra), we have no hesitation in setting aside the Order of the CIT(A). However, we are of the opinion that assessee should be given one more opportunity in explaining the credits in the capital accounts of the partners of the firm. Therefore, to the extent of addition under section 68 of the Act made by the Assessing Officer the issue is restored to the file of the Assessing Officer for giving one more opportunity to the assessee to explain the source and if they have not properly explained, Assessing Officer is at liberty to make the addition under section 68 as per the facts of the case. Therefore, these grounds of the Revenue are considered allowed.
11. In the result, appeal of the revenue is partly allowed for statistical purposes.
Order pronounced in the open Court on 23 rd October, 2013.
Sd/- Sd/- (B. RAMAKOTAIAH) (SMT.ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, Dated 23 r d October, 2013. VBP/-
Copy to
1. Income Tax Officer, Ward 9 (3)Hyderabad
2. M/s. Prabhu Wines, 11-4-152/1, Near Srinivasa Colony, Hyderabad. PAN AAKFP2838D
3. CIT(A)-VI, Hyderabad
4. CIT(A)-I, Hyderabad
5. CIT-VI, Hyderabad
6. D.R."A" Bench, I.T.A.T. Hyderabad