ITO, Ward-9(3), Hyderabad v. M/s. Kanaka Durga Wines,, Hyderabad

ITA 591/HYD/2011 | 2004-2005
Pronouncement Date: 28-07-2011 | Result: Dismissed

Appeal Details

RSA Number 59122514 RSA 2011
Assessee PAN AAEFK6595Q
Bench Hyderabad
Appeal Number ITA 591/HYD/2011
Duration Of Justice 3 month(s) 19 day(s)
Appellant ITO, Ward-9(3), Hyderabad
Respondent M/s. Kanaka Durga Wines,, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 28-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-07-2011
Assessment Year 2004-2005
Appeal Filed On 08-04-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B HYDERABAD BEFORE SHRI G.C.GUPTA VICE PRESIDENT AND SHRI AKBER BASHA ACCOUNTANT MEMBER ITA NO.591/HYD/2011 : ASSESSMENT YEAR 2004- 05 ITO WARD-9(3) HYDERABAD. -V- (APPELLANT) M/S. KANAKA DURGA WINES HYDERABAD. (PAN AAEFK 6595 Q) (RESPONDENT) C.O. NO.40/HYD/2011 (IN ITA NO.591/HYD/2011) : M/S. KANAKA DURGA WINES - HYDERABAD. (PAN AAEFK 6595 Q) (APPELLANT) ASSESSMENT YEAR 2004-05 ITO WARD-9(3) HYDERABAD. (RESPONDENT) DEPARTMENT BY: SHRI. B.V. PRASAD R EDDY ASSESSEE BY: SHRI. M.V. RAJA SEKH AR RAO O R D E R PER AKBER BASHA AM:- THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT (A)-VI HYDERABAD DATED 30-11-2010 AND THEY PERTAIN TO THE ASSESSMENT YEA R 2004-05. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FIRM FIL ED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATI ON ON 29-10- 2004 ADMITTING A TOTAL INCOME OF RS.20 370/- AND THE SAME WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 2-5-2005. S UBSEQUENTLY IT WAS NOTICED THAT THERE WAS UNDERSTATEMENT OF SALES TO TH E TUNE OF ITA NO.591 OF 2011 & CO 40 OF 2011 KANAKA DURGA WINES HYD. ============================ 2 RS.93 65 993/- AND THEREFORE THE ASSESSMENT WAS REOPENED UNDER SECTION 147 BY ISSUE OF NOTICE UNDER SECTION 148 OF THE A CT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE LICENSE FOR CARRYING OUT THE LIQUOR BUSINESS WAS ISSUE D IN FAVOUR OF SRI M. RAM REDDY IN HIS INDIVIDUAL CAPACITY WHEREAS TH E BUSINESS WAS CARRIED ON IN THE NAME AND STYLE OF M/S KANAKA DURGA W INES AS PARTNERSHIP FIRM. THE BUSINESS WAS CARRIED OUT BY WAY OF PARTNERSHIP FIRM EXECUTING A PARTNERSHIP DEED DATED 1-4-1998 WITH THE TOTAL NUMBER OF THREE PARTNERS INCLUDING SRI M. RAM REDDY (LICENSE H OLDER). IT WAS OBSERVED BY THE ASSESSING OFFICER ON PERUSAL OF THE LICEN SES ISSUED BY THE PROHIBITION DEPARTMENT THAT THE LICENSE IS NOT TR ANSFERABLE AS PER THE CLAUSE NO.8 OF THE CERTIFICATE. HENCE RELYING ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF M/S BIHARILAL JAISWAL VS. C IT REPORTED IN 139 CTR 143 (1996) (SC) WHEREIN IT WAS HELD THAT TH E BENEFITS OF THE REGISTRATION UNDER THE ACT CANNOT BE EXTENDED TO PERSON WHO HAVE FORMED A PARTNERSHIP PROHIBITED BY LAW ESPECIALLY PROH IBITING THE LICENSE HOLDER ENTERING INTO PARTNERSHIP WITH OTHERS WITHOUT PREVIOUS PERMISSION OF THE LICENSING AUTHORITY AND THE REGISTRATION RIGHTL Y REFUSED ON THE GROUND THAT ITS CONSTITUTION WAS ILLEGAL AND HENCE THE ASSESSING OFFICER HELD THAT THE STATUS OF THE ASSESSEE AS AOP. IT WAS ALSO MENTIONED IN THE ASSESSMENT ORDER THAT EACH ASSESSMENT PROCEEDING IS INDE PENDENT PROCEEDING UNDER THE ACT AND THUS ASSESSED THE ASSESSEE AS AOP AND DISALLOWED THE CLAIM UNDER SECTION 40(B) BEING THE REM UNERATION OF RS.60 000/- PAID TO PARTNER SRI M. RAM REDDY. THE AS SESSING OFFICER ASKED THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE TO PR ODUCE THE BOOKS OF ACCOUNT AND ON VERIFICATION HE OBSERVED THAT T HE ASSESSEE IS ENTERING THE SALE RECEIPTS ON LUMP SUM MANNER EVERY DAY AND WHEN THE DETAILS WERE CALLED FOR THE ASSESSEE STATED THAT THE SALE FIGURES SHOWN ITA NO.591 OF 2011 & CO 40 OF 2011 KANAKA DURGA WINES HYD. ============================ 3 IN THE BOOKS ARE ACTUALLY BASED ON THE SALES SHEETS OF THE DAY. FURTHER IN THE ANSWER TO SHOW CAUSE NOTICE IT WAS EXPLAINED THA T IT WAS NOT PRACTICABLE FOR THE FIRM TO MAINTAIN CASH SALE BILLS IN THIS LINE OF BUSINESS. THE ASSESSING OFFICER FELT THAT IN THE ABSENCE OF SALE BIL LS THE SALE PROCEEDS ENTERED IN THE DAY BOOK ON DAILY BASIS WERE NO T TO BE RELIED UPON SINCE THERE IS NO DOCUMENTARY EVIDENCE TO SUPPORT THE CORRECTNESS OF THE FIGURES SHOWN IN THE DAY BOOK AS WELL A S IN THE PROFIT AND LOSS ACCOUNT. THEREFORE THE ASSESSING OFFICER PROCEEDED TO REJECT THE BOOKS OF ACCOUNT AND ACCORDINGLY AN OPPORTUNITY WAS GIVEN TO THE ASSESSEE BY WAY OF ISSUE OF SHOW CAUSE NOTICE DATED 7-12-2009 AND THE SAME DISCREPANCY WAS ALSO PUT TO THE ALLEGED PARTNER OF THE ASSESSEE WHILE RECORDING A STATEMENT ON OATH FROM HIM. REJECT ING THE SUBMISSION BEING NOT CONVINCING AND ALSO THE SALE FIGURES A RE NOT SUPPORTED BY ANY SALE BILLS/RECEIPTS AND THEREFORE TH E BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED UNDER THE PROVISIONS OF SECTIO N 145 OF THE ACT. THE ASSESSING OFFICER FURTHER STATED IN THE ASSESSMENT O RDER THAT AS PER APBCL MEMORANDUM DATED 4-8-2000 THE MAXIMUM R ETAIL PRICE OF THE LIQUOR PRODUCTS ARE FIXED AT 30% OVER THE COST PRI CE OF THE LIQUOR PRODUCTS. IN VIEW OF THE NON-VERIFIABLENESS OF THE SALE S FIGURES ADMITTED IN THE PROFIT AND LOSS ACCOUNT AND NON MAINTENANCE OF SAL E BILLS/ RECEIPTS IT WAS PROPOSED TO ESTIMATE THE PROFIT AT THE RATE OF 30% ON THE COST OF GOODS SOLD. IN THIS CONNECTION A SHOW CAUSE NO TICE WAS ISSUED TO THE ASSESSEE ON 7-12-2009. THE ASSESSING OFFICER REJECTING THE CLAIM OF THE ASSESSEE STATED THAT IN THE ABSENCE OF SALE BILLS AND ALSO THE DOCUMENTARY EVIDENCE IN SUPPORT OF THE GROSS SALES ADM ITTED ON THE DAY TO DAY BASIS WRITTEN IN THE BOOKS OF ACCOUNT THE P ERCENTAGE OF PROFIT ON THE COST OF GOODS SOLD WAS ADOPTED @ 30% ON T HE TOTAL ITEMS OF LIQUOR ITEMS SOLD AND THUS ARRIVED AT RS.93 65 993/ - BEING THE ITA NO.591 OF 2011 & CO 40 OF 2011 KANAKA DURGA WINES HYD. ============================ 4 UNDERSTATEMENT OF SALES AND ADDED THE SAME TO THE RETUR NED INCOME. THE ASSESSING OFFICER FINALLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS.94 86 870/- AFTER MAKING TWO OTHER SMALL ADDITI ONS. AGGRIEVED AGAINST THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE WEN T IN APPEAL BEFORE THE CIT (A). ON APPEAL THE CIT (A) BY FOLL OWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RANGILA RA M THE TREATMENT OF STATUS AS AOP HELD BY THE ASSESSING OFFICER WA S UPHELD AND THE REMUNERATION TO THE PARTNER OF RS.60 000/- WAS DI SALLOWED BY THE ASSESSING OFFICER IS ALSO UPHELD. REGARDING ESTIMATION OF PROFIT AND REJECTION OF BOOKS OF ACCOUNT AFTER DISCUSSING THE POINTS A T ISSUE IN HIS ORDER UPHELD THE DECISION OF THE ASSESSING OFFICER IN REJE CTING THE BOOKS OF ACCOUNTS. AS FAR AS NET PROFIT IS CONCERNED HE ESTIMATED THE NET PROFIT AT 5% ON THE PURCHASES OR STOCK PUT FOR SALE DURING THE Y EAR UNDER CONSIDERATION AND THE CIT (A) DIRECTED THE ASSESSING OFFICE R TO RE- COMPUTE THE TAXABLE INCOME ACCORDINGLY. AGGRIEVED BY T HE FINDINGS OF THE CIT (A) THE REVENUE IS IN APPEAL BEFORE US ON TH E ISSUE OF ESTIMATION OF INCOME AT 5% OF PURCHASES WHEREAS THE ASSESSE E HAS FILED A CROSS OBJECTION CHALLENGING THE FINDINGS OF THE CIT (A) THAT ONCE THE DEPARTMENT HAS ESTIMATED THE INCOME THERE SHOULD NOT ANY FURTHER ADDITION TO BE MADE OF ANY SUM DEBITED TO PROFIT & L OSS A/C. THE ASSESSEE ALSO RAISED A GROUND IN CROSS OBJECTION CONTENDING T HAT THE ESTIMATION OF INCOME MADE BY THE CIT (A) AT 5% IS ON H IGHER SIDE. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE CIT (A) SHOULD HAVE UPHELD THE ORDER OF THE ASSESSING OF FICER THAT THE UNDERSTATEMENT OF SALES DETERMINED BASED ON THE ESTIMATI ON OF GROSS SALES BY FOLLOWING THE APBCL MEMORANDUM IN THE ABSENCE OF SALE BILLS IN SUPPORT OF THE GROSS SALES ADMITTED IN THE RETURN OF INCO ME. HE SHOULD ITA NO.591 OF 2011 & CO 40 OF 2011 KANAKA DURGA WINES HYD. ============================ 5 HAVE UPHELD THE ACTION OF THE ASSESSING OFFICER IN MAKIN G ADDITION TOWARDS UNDERSTATEMENT OF SALES INSTEAD OF ESTIMATING THE NET PROFIT. WHEN THE ASSESSEE IS NOT MAINTAINING ANY PROPER BOOKS OF ACCOUNTS EVEN IN THE EARLIER YEARS COMPARISON OF PROFIT RATIO OF THE ASSESSEE WITH THAT OF EARLIER YEARS IS BASE LESS. HENCE IT IS PRAYED TH AT THE ORDER OF THE ASSESSING OFFICER IS TO BE RESTORED. 4. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED THE PROFIT BY MEANS OF WORKING OUT THE UNDERSTATEMENT OF SALES BASED ON THE HIGHEST GROSS MARGINS PRESCRIBED BY THE A PBCL. EVEN AFTER REJECTING THE BOOKS OF ACCOUNT AND ESTIMATING THE NET PROFIT THE ASSESSING OFFICER MADE FURTHER ADDITIONS OF RS.1 00 5 07/- TOWARDS OTHER HEADS OF EXPENDITURE DEBITED TO PROFIT & LOSS A/ C. IT IS SUBMITTED THAT ONCE THE ESTIMATION OF INCOME RESORTED BY THE LOWE R AUTHORITIES BY REJECTING THE BOOKS OF ACCOUNT THE AUTHORITIES CANNOT R ELY ON THE SAME BOOKS OF ACCOUNTS FOR OTHER ADDITIONS. HENCE IT IS SUBMIT TED BY THE ASSESSING OFFICER AT RS.1 00 507/- IS TO BE DELETED. IT IS ALSO SUBMITTED THAT THE ESTIMATION OF INCOME MADE BY THE CIT (A) IS N OT JUSTIFIED AND THE SAME DOES NOT CONFIRM TO THE PREVAILING TRADE PRAC TICES AND THE GUIDELINES. HE RELIED ON THE ORDER OF THIS BENCH IN TH E CASE OF MANJIT SINGH BAGGA VS. ITO IN ITA NO.371 AND OTHERS FOR TH E PROPOSITION THAT THE ESTIMATION OF THE PROFIT AT 3% WOULD BE APPROPRI ATE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PAR TIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS AN A DMITTED FACT THAT THE MAXIMUM RETAIL PRICE OF THE LIQUOR PRODUCTS IS FIXED A T 30% OVER THE COST PRICE OF THE ASSESSEE AS PER THE UNDERSTANDING WITH APBCL. IT IS ALSO ITA NO.591 OF 2011 & CO 40 OF 2011 KANAKA DURGA WINES HYD. ============================ 6 AN ADMITTED FACT ABOUT ITS INABILITY TO MAINTAIN THE CASH SALES BILLS AND ACCORDINGLY THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE CANNOT BE RELIED UPON. UNDER THESE CIRCUMSTANCES WE ARE OF THE CON SIDERED VIEW THAT THE LOWER AUTHORITIES ARE CORRECT AND JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNTS UNDER SECTION 145 OF THE ACT. WE FIND THAT T HE ASSESSING OFFICER HAS RIGHTLY ADOPTED THE SALE PRICE AT 30% OVER THE COST OF PURCHASE TO ARRIVE AT THE UNDERSTATEMENT OF SALES OF RS.9 3 65 993/- BY THE ASSESSEE. BUT AT THE SAME TIME THE ENTIRE UNDERSTA TEMENT OF SALES CANNOT BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. IT IS WELL SETTLED LAW THAT THE BEST GUIDE FOR ESTIMATION OF INCOME AFTER REJECTING THE BOOKS OF ACCOUNT S IS EITHER PAST HISTORY OF THE ASSESSEE OR ANY OTHER COMPARABLE CASES. THE L EARNED COUNSEL FOR THE ASSESSEE CLEARLY DEMONSTRATED BEFORE US THAT THE ASSESSEES NET PROFIT IN THE PAST IS BETWEEN 0.12% TO 0.28 % OF SALES. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF MA NJIT SINGH BAGGA VS. ITO IN ITA NO.371 AND OTHERS DATED 30 TH SEPT. 2010 HELD THAT THE ESTIMATION OF NET PROFIT AT 3% IS REASONABLE. IN VI EW OF THIS MATTER ENDS OF JUSTICE WOULD BE MET IF WE ESTIMATE THE NET PRO FIT OF THE ASSESSEE AT 3% OF THE PURCHASES OR STOCK PUT FOR SALE DURING THE YEAR UNDER CONSIDERATION AS AGAINST THE ESTIMATION OF 5% MADE BY THE CIT (A). ACCORDINGLY THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS REJECTED AND CROSS OBJECTION FILED BY THE ASSESSEE ON THIS I SSUE IS ALLOWED. 6. NOW COMING TO THE ISSUE WITH REGARD TO THE ADDITIO N OF RS.1 00 507/- MADE BY THE ASSESSING OFFICER TOWARDS OTHER HEADS OF EXPENDITURE DEBITED TO THE PROFIT AND LOSS A/C. WE FI ND THAT ONCE THE BOOKS OF ACCOUNTS WERE REJECTED THE VERY SAME BOOKS OF A CCOUNTS ITA NO.591 OF 2011 & CO 40 OF 2011 KANAKA DURGA WINES HYD. ============================ 7 CANNOT BE A BASIS FOR MAKING ANY ADDITION AS HELD BY TH E JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CI T REPORTED IN 232 ITR 776. MOREOVER WHEN THE PROFIT IS ESTIMATE D BY REJECTING THE BOOKS OF ACCOUNT ALL THE EXPENDITURE INCLUDING OTHER H EADS OF EXPENDITURE DEEM TO BE ALLOWED. THEREFORE ONCE THE PROFIT IS ESTIMATED THERE SHOULD NOT BE ANY FURTHER ADDITION ON THIS COUNT . IN VIEW OF THIS MATTER THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IN ITS CROSS OBJECTION IS ACCORDINGLY ALLOWED. 7. IN THE RESULT THE APPEAL FILED BY THE REVENUE ST ANDS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE STANDS ALL OWED. ORDER WAS PRONOUNCED IN THE COURT ON 28- 07-2 011. SD/- ( G.C. GUPTA) SD/- (AKBER BASHA) VICE PRESIDENT ACCOUNTANT MEMBER DT. 28-07-2011. JMR* COPY FORWARDED TO: 1. 2. 3. 4. 5. ITO WARD-9(3) HYDERABAD. M/S KANAKA DURGA WINES 2-42/8 & 9 SAI NAGAR CHAITANYAPURI HYDERABAD. CIT (A)-VI HYDERABAD. CIT AP HYDERABAD. THE DR ITAT HYDERABAD. ITA NO.591 OF 2011 & CO 40 OF 2011 KANAKA DURGA WINES HYD. ============================ 8