IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ‘A‘Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
and Shri B. Ramakotaiah, Accountant Member

ITA No.761/Hyd/2015 (Assessment year: 2008-09)

Income Tax Officer (Appellant) vs Shri Banda Mallesh (Respondent)
Date of Hearing : 07.09.2015 Date of Pronouncement : 18.09.2015

ORDER

Per Smt.P. Madhavi Devi, J.M. This is Revenue’s appeal for the A.Y 2008-09. In this appeal, the Revenue’s grievence is that the CIT (A) has erred in giving relief to the assessee on estimation of the income at a certain percentage of turnover without appreciating that the actual issue involved is determination of ‘suppression of the sale’.

2. Brief facts of the case are that the assessee, an individual, who is in the business of purchase and sale of liquor, filed his return of income for the relevant A.Y 2008-09 on 1.4.2009 declaring income of Rs.5,75,280 which was processed u/s 143(1) of the Act. Subsequently, AO observed that as per the Govt. of A.P, Revenue (Excise-II) Deptt. order in GOMS No.184 dated 7.02.2005, the retailers margin i.e the gross profit is 27% on sale of ordinary liquor products, 20% on sale of medium and premium branded Indian Liquor and 25% on sale of Beers and based on this G.O, the sales should be at a margin of 24% of cost of goods sold. Therefore, AO was of the opinion that the income of the assessee chargeable to tax has escaped assessment. He, therefore, issued notice u/s 148 of the Act and reopened the assessment. During the assessment proceedings u/s 143(3) r.w.s. 147 of the I.T. Act, the AO required the assessee to produce the books of accounts, bills and vouchers for the expenses debited to the P&L A/c. However, the assessee failed to furnish the necessary details but filed a reply stating that the books of accounts were lost and hence could not be produced for verification. AO, therefore, issued a show cause notice requiring the assessee to explain as to why sales amount should not be taken at Rs.5,07,24,503 being is 124% of the purchases or cost of goods sold and why an estimation of 5% on the sales of Rs.5,07,24,503 could not be taken for computing the tax. In reply to the above show cause notice, assessee submitted that his business premises is located in a slum/inside the road and hence assessee could only sell the products at low margin ranging from 1 to 2% with the intention to close the business due to local disturbances. It was further requested that the profits may be estimated at 2% of the turnover as the books of accounts are not available. AO, however, was not satisfied with the assessee’s contention and held that the assessee has not made any objection for considering the sales at Rs.5,07,24,503 but has raised objection for estimating the profit at 5% only, as the shop is allegedly located in a slum area. He held that the assessee is not correct in stating that the shop is located in a slum area, as the shop was located in Road No.12, Banjara Hills, Hyderabad which is a prime locality in Hyderabad. He observed that in the State of Andhra Pradesh, the liquor shops are allotted by the State Govt. on auction basis and on perusal of the purchases made by the assessee during the year, it is seen that the wine shop is running in good condition and made a total turnover of Rs.4,75,90,534. He therefore, held that the assessee’s explanation is not acceptable and there appears to be no mitigating factors to deserve any consideration to take a lenient view. He therefore, adopted the figure of Rs.5,07,24,503 as the turnover of the assessee. Further, he brought the difference in the turnover estimated by the AO and the turnover reported by the assessee (i.e.Rs.5,07,24,503–Rs.4,75,90,534) = Rs.31,33,969) to tax by adding the same to the income returned by the assessee. Aggrieved, assessee preferred an appeal before the CIT(A), who allowed the same and the Revenue is in appeal before us. While the learned DR supported the orders of the AO, none appeared on behalf of the assessee. It is noticed that the notice for hearing to the assessee was dispatched by the Registry of ITAT, but no acknowledgement is yet received. Therefore, it is presumed to have been served to the assessee.

3. On consideration of the facts on record, we find that the assessee has requested to estimate his income at 1 or 2% of his turnover, while AO has estimated the income at 24% of the cost of goods sold. The assessee had raised an objection before the CIT (A) stating that the AO has erred in resorting to estimation of sales at 124% of the value of stock put to sale during the year and making the addition of Rs.31,33,969 on the basis of such estimated sales and in estimating the value of sales. During the course of the hearing of the appeal, assessee submitted that the AO’s estimation of sales at 124% of the cost of goods is on the higher side and is not practical. It was further submitted that, as held by the Hon'ble High Court of Andhra Pradesh in the case of CIT vs. Mekala Bal Reddy in ITTA No.28 & 29 of 2013, dated 30.07.2013, the reasonable profit rate to be adopted is 5% of the goods put to sale. The CIT (A) has considered this submission of the assessee to hold that the income of the assessee is to be estimated at 5% of Rs.4,75,90,534 i.e. the sale reported by the assessee. We find that the AO has estimated the sales to be at 124% of the cost of goods sold and therefore, has arrived at a figure of Rs. 5,07,24,503 as the turnover of the assessee. The Hon'ble High Court of Andhra Pradesh in the case of CIT vs. Mekala Bal Reddy (Supra) in a similar set of facts has held that the income of the assessee is to be estimated at 5% of the goods put to sale. The assessee has reported an actual sale of Rs.4,75,90,534, whereas the figure of Rs.5,07,24,503 is the estimated turnover at 124% of the cost of goods sold. In both the cases, the issue is of estimation of turnover by adopting different rates of gross profit. The AO has not determined the suppression of sales as alleged in the ground of appeal of the Revenue. It is the case of actual sale plus gross profit @ 5% thereon vs. estimated sale by adopting 24% G.P. on cost of goods sold. Therefore, we do not find any error in the order of the CIT (A) wherein he has directed the AO to estimate the profit at 5% of the sales reported by the assessee which is consonance with the directions of the Hon'ble High Court in similarly placed assessees. In view of the same, we do not see any reason to interfere with the order of the CIT (A) and the Revenue appeal is dismissed. 4. In the result, Revenue appeal is dismissed. Order pronounced in the Open Court on 18th September, 2015.

Sd/-                                                     Sd/-                                                    
(B. Ramakotaiah)                   (P. Madhavi Devi)
Accountant Member               Judicial Member
Hyderabad, dated 18th September, 2015.