IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ‘B‘ Bench, Hyderabad

ITA No.725/Hyd/2015
(Assessment year: 2010-11)

Venkateswara Wines (Appellant) vs Income Tax Officer (Respondent)
Date of Order: 04-09-2015

ORDER

Per Smt.P. Madhavi Devi, J.M.
This is assessee’s appeal for A.Y 2010-11. In this appeal, the assessee is aggrieved by the order of the CIT u/s 263 of the I.T. Act.

2. Brief facts of the case are that the assessee, which is engaged in the business of sale of Indian Made Foreign Liquor, filed its return of income for the relevant A.Y on 15.10.2010 admitting total income of Rs.4,77,090. During the assessment proceedings u/s 143(3) of the I.T. Act, the AO required the assessee to produce its books of account. Assessee, however, did not produce the books of accounts and took the plea that the books are maintained on computer and that no daily sale bills are maintained. The AO informed the assessee that in case of failure to produce the books, assessment will be completed based on the material available on record by estimating the income at 2.50% of the turnover. Assessee, however, failed to produce the books of accounts, bills and vouchers. Therefore, AO proceeded to estimate the income at 2.50% of the turnover and brought it to tax.

3. Subsequently, on perusal of the record, the CIT found that the AO has estimated the income of the assessee at 2.5% of the turnover, while the Tribunal in the case of M/s. Mayuru Wines & Others (ITA No.148 to 177/Hyd/2012) had estimated the income of the assessee therein from retail liquor business at 5% of the total turnover. Therefore, he was of the opinion that there is short computation of income by Rs.7,37,950 in the case of the assessee. He further observed that in the return of income, assessee had claimed to be a registered firm, whereas in the Audit report, the status of the assessee was claimed as AOP. He observed that as per the provisions of section 167B of the Act, the AOP attracts the maximum marginal rate and since the AO has failed to verify the correct status of the assessee, he was of the opinion that the assessment made by the AO is both erroneous as well as prejudicial to the interests of the Revenue.

He therefore, issued a notice u/s 263 of the I.T. Act. After giving the assessee an opportunity of being heard, the CIT concluded that the net profit from the busienss of the assessee should be at 5% of the turnover and the status of the assessee also should be determined. He, therefore, directed the AO to redo the assessment afresh after giving the assessee a reasonable opportunity of being heard and after proper examination of the facts.

4. Aggrieved by the said order of the CIT u/s 263, the assessee is in appeal before us. The learned Counsel for the assessee submitted that the AO has estimated the net profit from the IMFL business of the assessee @ 2.5% of the turnover on the ground that the assessee has failed to produce its books of account and the bills and vouchers. He submitted that the AO has adopted one of the possible views while the CIT has relied upon the decision of this Tribunal in the case of Mayuru Wines & Others (Supra) to estimate the profit at 5% of the total turnover. He submitted that the estimation of income depends on case to case and a uniform profit rate cannot be adopted in each and every case. In support of this contention, he placed reliance on the decision of the B Bench of this Tribunal in the case of Sri Govindarajulu Pujari vs. Income Tax Officer (ITA No.935/Hyd/2014) dated 6.2.2015) and also the decision of the Hon'ble High Court of Telengana and Andhra Pradesh in the case of CIT vs. Shri Kamlekar Shankar Lal vide ITTA No.21 of 2013 dated 23.07.2013. Copies of the same are also filed berfore us.

5. The learned DR however, supported the orders of the CIT.

6. Having regard to the rival contentions and the material on record, we find that the AO has called for books of account of the assessee but the assessee had failed to produce the same.

Therefore, AO had estimated the income of the assessee at 2.5% of the turnover. The CIT wants the same to be estimated at 5% of the total turnover because the Tribunal in the case of an assessee carrying on the same business of sale of IMFL has estimated the income at 5% of the turnover. This, in our view, is not justified as held by the Coordinate Bench of this Tribunal. The uniform net profit cannot be adopted in each and every case of similar business. Estimation of net profit must be on the basis of facts involved in each and every case. Therefore, in our view, there is no error committed by the AO in estimating the profit at 2.5% of the total turnover.  Thus grounds of appeal No. 2 & 3 are allowed.

7. As regards the status of the assessee being AOP or a firm, the learned Counsel for the assessee fairly admitted that the same has not been verified by the AO during the assessment proceedings. Therefore, according to him, the assessment order is erroneous to that extent. As rightly pointed out by the CIT, the AOP attracts the maximum marginal rate of tax and therefore, non verification of the same also makes the assessment order erroneous as well as prejudicial to the interests of the Revenue.

In view of the same, we reject the ground of appeal No.4.

8. In the result, assessee’s appeal is treated as partly allowed. Order pronounced in the Open Court on 4th September, 2015.

Sd/-                                                     Sd/-
(B. Ramakotaiah)                   (P. Madhavi Devi)
Accountant Member   Judicial Member
Hyderabad, dated 4th September, 2015.