M/s Kaveri Wines (AOP), Kolluru., Visakhapatnam v. The ITO, Ward-1,, Tenali

1 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH: VISAKHAPATNAM BEFORE: SRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SRI B.R. BASKARAN ACCOUNTANT MEMBER CASE NO. A.Y PAN NO APPELLANTS RESPONDENTS ITA NO. 290/V/05 2000-01 AAHFK 2983 R KAVERI WINES KOLLURU ITO WARD-1 TENALI ITA NO. 303/ V/05 2000-01 AACFK 4542 K ITO WARD-1 TENALI KAVERI WINES (AOP) KOLLURU ITA NO. 289/V/05 1999- 2000 AAHFK 2983 R KAVERI WINES KOLLURU ITO WARD-1 TENALI ITA NO. 302/V/05 1999- 2000 AACFK 4542 K ITO WARD-1 TENALI KAVERI WINES (AOP) KOLLURU APPELLANT BY: S/SHRI P.GOPI KRISHNA C. SUBRAMANYA M MSR PRASAD K. THIRUMALA RAO S. PULLA RAO RESPONDENT BY: SHRI SUBRATA SARKAR AN D SHRI G.S.S. GOPINATH DR O R D E R PER B.R. BASKARAN ACCOUNTANT MEMBER : 1. THE CROSS APPEALS ARE DIRECTED AGAINST THE SE PARATE ORDERS DATED 22.3.2005 PASSED BY LD CIT(A) GUNTUR AND THEY RELATE TO THE ASSESSMENT YEAR 1999-2000 & 2000-01. SINCE ALL THE APPEALS WERE HEARD TOGETH ER AND SOME ISSUES ARE COMMON IN NATURE IN BOTH THE YEARS WE ARE DISPOSIN G OFF THESE APPEALS BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FOR THE ASSESSMENT YEAR 1999-2000 THE ASSES SEE IS IN APPEAL BEFORE US ON THE FOLLOWING ISSUES:- A. VALIDITY OF NOTICE ISSUED U/S 148 OF THE ACT. B. ESTIMATION OF INCOME FROM LIQUOR BUSINESS FOR THE P ERIOD FROM 1.4.98 TO 1.7.98 C. ADDITION OF RS.3 20 000/- RELATING TO THE INITIAL CAPITAL BROUGHT IN BY THE PARTNERS. D. DETERMINATION OF SHARE OF THE ASSESSEE IN THE AOP A T 20%. E. CHARGEABILITY OF INTEREST U/S 234B OF THE ACT. 2 AT THE TIME OF HEARING THE LD AR DID NOT PRE SS THE GROUND RELATING TO THE DETERMINATION OF SHARE OF THE ASSESSEE IN THE AOP. ACCORDINGLY THE SAID GROUND IS DISMISSED AS WITHDRAWN. 2.1 FOR THE ASSESSMENT YEAR 2000-01 THE AS SESSEE IS CONTESTING FOLLOWING ISSUES: A. VALIDITY OF REOPENING OF ASSESSMENT. B. NON DEDUCTION OF EXPENSES CLAIMED BY THE ASSE SSEE. B. TAXABILITY OF SHARE INCOME FROM AOP. 3. FOR BOTH THE YEARS THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) IN DELETING THE PROTECTIVE ASSESSMENT MADE IN THE HAND S OF THE ASSESSEE RELATING TO THE SHARE INCOME FROM AOP. 4. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE ASSESSEE HEREIN IS A PARTNERSHIP FIRM CONSISTING OF TWO PARTNERS. IT IS CARRYING ON LIQUOR BUSINESS IN THE NAME OF KAVERI WINES. CONSEQUENT TO A SURVEY OPERATION CONDUCTED BY THE DEPARTMENT IT WAS NOTICED THAT THE ASSESSEE HEREIN HAS JOINED AN UNOFFICIAL SYNDICATE OF LIQUOR DEALERS OPERATING IN THE KOLLUR U AREA WITH EFFECT FROM 2.7.1998. AFTER CONSIDERING VARIOUS MATERIALS ALL THE SHOPS WERE BROUGHT UNDER A COMMON UMBRELLA IN THE STATUS OF ASSOCIATION OF PER SONS (LARGER AOP) BY TREATING THE LICENSE HOLDERS OF THE SHOPS AS ITS MEMBERS BY ASSIGNING THE NAME KOLLURU LIQUOR SYNDICATE. CONSEQUENT THERE TO THE AO ISS UED NOTICE U/S 148 OF THE ACT TO THE ASSESSEE FOR THE TWO YEARS UNDER CONSIDERATI ON AS THE ASSESSEE HAD NOT FILED ITS RETURN OF INCOME FOR BOTH THE ASSESSMENT YEARS EARLIER. THE ASSESSEE FILED ITS RETURN OF INCOME IN THE STATUS OF PARTNE RSHIP FIRM DECLARING A LOSS OF RS.1 97 869/- FOR THE ASSESSMENT YEAR 1999-2000. F OR THE ASSESSMENT YEAR 2000-01 RETURN OF INCOME WAS FILED DECLARING NIL I NCOME. HOWEVER THE PARTNERSHIP DEED FILED ALONG WITH THE RETURN OF INC OME WAS SIGNED BY ONLY ONE OF THE PARTNERS. SINCE IT WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT THE AO TREATED THE STATUS OF THE FIRM AS ASSOCIATION O F PERSONS. THE AO COMPLETED THE ASSESSMENT FOR THE ASSESSMENT YEAR 1999-2000 AS UNDER: INCOME FROM LIQUOR BUSINESS FOR THE PERIOD FROM 1.4.1998 TO 1.7.1998 - 1 28 790 3 INITIAL CAPITAL BROUGHT IN BY THE PARTNERS NOT EXPLAINED - 3 20 000 SHARE INCOME FROM AOP (PROTECTIVE BASIS) - 1 46 400 ------------- 5 95 190 ====== FOR THE ASSESSMENT YEAR 2000-01 THE AO ASSESSED TH E SHARE INCOME FROM AOP AMOUNTING TO RS.5 77 280/- ON PROTECTIVE BASIS. 4.1 IN THE APPEAL FILED BY THE ASSESSEE LD CIT (A) DELETED IN BOTH THE YEARS THE ADDITION RELATING TO SHARE INCOME FROM THE AOP WHICH WAS ADDED ON PROTECTIVE BASIS. LD CIT(A) CONFIRMED OTHER TWO AD DITIONS MADE IN THE ASSESSMENT YEAR 1999-2000. AGGRIEVED BOTH THE PAR TIES ARE IN APPEAL BEFORE US FOR BOTH THE YEARS. 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE RECORD. THE FIRST COMMON ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO THE VALIDITY OF NOTICE ISSUED U/S 148 OF THE ACT. WE NOTICE THAT THE LD CIT(A) IN HIS ORDER FOR THE ASSESSMENT YEAR 1999-2000 HAS UPHELD THE VALIDIT Y OF THE NOTICE AFTER DUE VERIFICATION OF THE ASSESSMENT RECORD. BEFORE US THE ASSESSEE DID NOT FILE ANY MATERIAL TO CONTRADICT THE FINDINGS GIVEN BY THE LD CIT(A). FURTHER IT IS ON RECORD THAT THE ASSESSEE DID NOT FURNISH THE RETURN OF INC OME FOR BOTH THE YEARS. IN VIEW OF THE ABOVE WE ARE OF THE VIEW THAT THE NOTI CE U/S 148 WAS ISSUED PROPERLY IN BOTH THE YEARS AND ACCORDINGLY REJECT THE GROUND RELATING TO THE VALIDITY OF NOTICE U/S 148 OF THE ACT IN BOTH THE YEARS . 5.1 THE NEXT ISSUE IN THE APPEAL OF THE ASSESSE E FOR THE ASSESSMENT YEAR 1999-2000 RELATES TO THE ESTIMATION OF INCOME FROM LIQUOR BUSINESS FOR THE PERIOD FROM 1.4.1998 TO 1.7.1998. THE ASSESSEE JOINED THE UNOFFICIAL SYNDICATE ONLY FROM 1.7.1998 AND ACCORDINGLY THE INCOME AFTER THAT DATE WAS ASSESSED IN THE HANDS OF THE SYNDICATE IN THE STATUS OF AOP. THE I NCOME PERTAINING TO THE EARLIER PERIOD WAS ASSESSED IN THE HANDS OF THE ASSESSEE. SINCE THE ASSESSEE DID NOT FURNISH SALES BILLS AND FURTHER THE VOUCHERS SUPPOR TING OTHER EXPENDITURE WERE FOUND TO BE DEFECTIVE THE AO RESORTED TO ESTIMATE THE GROSS PROFIT ON THE SALE OF RS.5 95 956/- MADE DURING THE PERIOD FROM 1.4.98 TO 1.7.98. THE GROSS PROFIT 4 RATE WAS FOUND TO BE 29% TO 30% AS PER THE MATERIA LS IMPOUNDED DURING THE COURSE OF SURVEY. ACCORDINGLY THE AO ESTIMATED THE GROSS PROFIT AT RS.1 78 780/- ON THE SALE AMOUNT OF RS.5 95 956/-. FROM THE SAID GROSS PROFIT THE AO ALLOWED A DEDUCTION OF RS.50 000/- TOWARDS VARIOUS EXPENSES . THUS THE NET PROFIT WAS DETERMINED AT RS.1 28 790/-. SINCE THE ASSESSEE HER EIN A PARTNERSHIP FIRM WAS ASSESSED IN THE STATUS OF AOP THE AO DID NOT ALL OW THE INTEREST PAID TO THE PARTNERS. SIMILARLY THE EXPENDITURE ON LICENSE FE E WAS ALLOWED WHILE COMPUTING THE INCOME OF SYNDICATE AOP THE SAME WAS NOT CONSI DERED HERE. LD CIT(A) CONFIRMED THE ESTIMATION MADE BY THE AO. 5.2 ON DUE CONSIDERATION OF RECORD WE NOTICE THAT THE LD CIT(A) HAS CONFIRMED THIS ADDITION SINCE THE AO HAD FOLLOWED A SYSTEMATIC BASIS TO ESTIMATE THE INCOME ON THE BASIS OF IMPOUNDED MATERIAL. HEN CE WE DO NOT AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THERE WAS NO BASIS FOR ADOPTING THE RATE OF GROSS PROFIT AT 30%. THE AO HAS ALSO EXPLAINED THE REASO NS FOR NOT ALLOWING THE LICENSE FEE AND THE EXPENDITURE RELATING TO THE INT EREST ON CAPITAL. THE AO HAS ALSO ALLOWED DEDUCTION OF OTHER EXPENSES ON A REASO NABLE BASIS. IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) IN CONFIRMING THE ESTIMATE OF PROFIT MADE BY THE AO. 5.3 THE NEXT ISSUE IN THE APPEAL OF THE ASSESSE E FOR THE ASSESSMENT YEAR 1999-2000 RELATES TO THE ADDITION OF CAPITAL INTROD UCED BY THE PARTNERS. THE AO IS ON RECORD THAT THE PARTNERSHIP FIRM HAS COMMENCE D BUSINESS ONLY DURING THE YEAR UNDER CONSIDERATION. IN THAT CASE THE PARTNE RSHIP FIRM COULD NOT HAVE GENERATED FUNDS EQUAL TO THE AMOUNT OF CAPITAL BROU GHT IN BY THE PARTNERS DURING THE INITIAL PERIOD OF COMMENCEMENT OF BUSINESS. IT IS NOW WELL SETTLED THAT NO ADDITION COULD BE MADE IN THE HANDS OF THE PARTNERS HIP FIRM WITH REGARD TO THE AMOUNT OF CAPITAL BROUGHT IN BY THE PARTNERS DURING THE INITIAL DAYS OF INCEPTION OF THE PARTNERSHIP FIRM AND THE NECESSARY ENQUIRY IN T HAT CONNECTION HAS TO BE MADE IN THE HANDS OF THE PARTNERS. IN VIEW OF THE ABOVE WE REVERSE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DEL ETE THE ADDITION OF RS.3 20 000/- RELATING TO THE CAPITAL BROUGHT IN BY THE PARTNERS. 5 5.4 THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1999- 2000 RELATES TO THE CHARGEABILITY OF INTEREST U/S 2 34B OF THE ACT. THE LEVY OF INTEREST IS CONSEQUENTIAL IN NATURE AND FURTHER THE ASSESSEE COULD NOT PLACE ANY MATERIAL TO SUBSTANTIATE DELETION OF INTEREST CHARG ED U/S 234B. ACCORDINGLY THIS GROUND IS DISMISSED. 6. IN THE APPEAL OF THE ASSESSEE RELATING TO THE ASSESSMENT YEAR 2000-01 TWO ISSUES ARE CONTESTED ON MERITS VIZ. NON-DEDUCTION OF INTEREST ON CAPITAL AND TAXABILITY OF SHARE INCOME FROM AOP. THE FIRST ISS UE RELATES TO THE DEDUCTION OF INTEREST ON CAPITAL. AS NOTED EARLIER THE ASSESSE E HAS FILED RETURN OF INCOME DECLARING NIL INCOME. HENCE WE ARE UNABLE TO UNDER STAND HOW THE QUESTION OF DEDUCTION OF ANY EXPENDITURE ARISES. WE ALSO DO NO T FIND ANY EXPENDITURE CLAIM MADE BY THE ASSESSEE ON READING OF THE ASSESSMENT O RDER. HENCE THIS GROUND OF THE ASSESSEE IS REJECTED. 6.1 THE NEXT ISSUE RELATES TO THE TAXABILITY OF SHARE INCOME FROM THE SYNDICATE-AOP. IT MAY BE NOTED THAT THE ASSESSMENT OF SHARE INCOME FROM AOP IS GOVERNED BY THE PROVISIONS OF SECTION 86 OF THE ACT. WE FURTHER NOTICE THAT THE LD CIT(A) DELETED THE PROTECTIVE ASSESSMENT OF SHARE INCOME FROM AOP SINCE HE HAD CONFIRMED THE ASSESSMENT OF INCOME IN THE HANDS OF AOP. HENCE THE ASSESSEE SHOULD NOT HAVE GRIEVANCE ON THIS COUN T. WE MAY ALSO MENTION HERE THAT WHILE DEALING WITH THE APPEAL FILED BY TH E ASSESSEE FOR THE ASSESSMENT YEAR 1999-2000 THE LD AR DID NOT PRESS SIMILAR GRO UND RELATING TO THE ASSESSMENT OF SHARE INCOME FROM AOP. IN VIEW OF TH E ABOVE WE DO NOT FIND ANY MERIT ON THE GROUND RAISED BY THE ASSESSEE AND ACCO RDINGLY REJECT THE SAME. 7. NOW WE SHALL TURN INTO THE APPEALS FILED BY THE DEPARTMENT. THE ONLY ISSUE IN BOTH THE APPEALS RELATES TO THE DELETION OF PROT ECTIVE ASSESSMENT OF SHARE INCOME FROM AOP. AS STATED EARLIER THE ASSESSME NT OF SHARE INCOME FROM THE AOP IS GOVERNED BY SECTION 86 OF THE ACT. WE MAY M ENTION HERE THAT THE ORDER OF THE LD CIT(A) PASSED IN THE HANDS OF KOLLURU LIQ UOR SYNDICATE AOP HAS BEEN CONFIRMED BY THE TRIBUNAL IN ITS EX-PARTE ORDER DAT ED 30-1-2008. HOWEVER THE LD CIT(A) HAS DELETED THE PROTECTIVE ADDITION OF SH ARE INCOME FROM AOP WITHOUT 6 CONSIDERING THE PROVISIONS OF SECTION 86 OF THE ACT . IN VIEW OF THE ABOVE WE REVERSE THE ORDER OF LD CIT(A) AND SET ASIDE THIS I SSUE TO THE FILE OF AO WITH A DIRECTION TO DECIDE THE ISSUE OF ASSESSMENT OF SHAR E INCOME FROM AOP IN ACCORDANCE WITH SECTION 86 OF THE ACT. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE FO R THE ASSESSMENT YEAR 1999- 2000 IS PARTLY ALLOWED. THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2000-01 IS DISMISSED. THE APPEALS OF THE REVENUE FOR BOTH THE YEARS ARE TREATED AS ALLOWED. PRONOUNCED ACCORDINGLY ON 29 TH APRIL 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE : 29-4-2010. A COPY OF THIS ORDER IS FORWARDED TO : 01 M/S KAVERI WINES KOLLURU C/O C.SUBRAMANYAM CA G-2 RAMRAJ TOWERS REDNAM GARDENS VISAKHAPATNAM 530 002 02 THE ITO WARD-1 TENALI 03 THE CIT (A) GUNTUR 04 THE CIT GUNTUR 0 5 DR ITAT VISAKHAPA TNAM 06 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT VISAKHAPATNAM BENCH