ITA No.349&351/Vizag/2015 Sri Mallidi Ramakrishna Reddy, Rajahmundry IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER I.T.A.Nos.349/Vizag/2015 (Assessment Year: 2011-12) Mallidi Ramakrishna Reddy, ITO, Ward-1(1), Rajahmundry Vs. Rajahmundry [PAN: AFMPM7629C] (Appellant) ( Respondent) I.T.A.Nos.351/Vizag/2015 (Assessment Year: 2011-12) ITO, Ward-1(1), Mallidi Ramakrishna Reddy, Rajahmundry Rajahmundry Vs. ( Appellant) ( Respondent) Appellant by : Shri G.V.N. Hari, AR Respondent by : Shri S. Ravisankar Narayan, DR Date of hearing : 28.09.2016 Date of Pronouncement : 30.09.2016 1 ITA No.349&351/Vizag/2015 Sri Mallidi Ramakrishna Reddy, Rajahmundry O R D E R PER G. MANJUNATHA, Accountant Member: These cross appeals filed by assessee, as well as revenue are directed against order of CIT(A), Rajahmundry dated 17.6.2015 and it pertains to assessment year 2011-12. Since, facts are identical and issues are common, they are clubbed, heard together and disposed-off by way of this common order for sake of convenience. 2. brief facts of case are that assessee is individual engaged in business of trading in IMFL filed his return of income for assessment year 2010-11 on 11.9.2011 declaring total income of ` 6,54,890/-. case has been selected for scrutiny and assessment was completed u/s 143(3) of Income Tax Act, 1961 (hereinafter called as 'the Act') on 15.3.2014 determining total income of ` 49,09,060/- by estimating income from business @ 20% of stock put to sale and further additions towards unexplained credit of ` 3,80,000/-, unaccounted interest income of ` 42,500/- and income from other sources of ` 4,276/-. 3. Aggrieved by assessment order, assessee preferred appeal before CIT(A). Before CIT(A), assessee has 2 ITA No.349&351/Vizag/2015 Sri Mallidi Ramakrishna Reddy, Rajahmundry submitted that A.O. was erred in rejection of books of accounts and estimation of income @ 20% of stock put to sale. assessee further submitted that net profit estimated by A.O. is quite high when compared to nature of business of assessee. As regards other additions being unexplained credit, unaccounted interest income and income from other sources, assessee submitted that A.O. should have telescoped additions against net profit estimated from business. CIT(A) after considering explanations of assessee, held that considering facts and circumstances of case, it is reasonable to estimate income of assessee at 10% of purchase price, accordingly, directed A.O. to re-compute income at 10% of purchase price. As regards additions towards unexplained credit income from other sources and interest income, CIT(A) confirmed additions made by A.O. Aggrieved by CIT(A) order, assessee as well as revenue are in appeal before us. 4. When this appeal is taken up for hearing, Ld. A.R. for assessee submitted that ITAT, Visakhapatnam bench in similar cases has directed A.O. to estimate net profit of 5% on stock put to sale net of all deductions. A.R. relied upon decision of ITAT, Visakhapatnam bench in case of Tangudu Jogisetty Vs. ITO in ITA 3 ITA No.349&351/Vizag/2015 Sri Mallidi Ramakrishna Reddy, Rajahmundry No.96/Vizag/2016 by order dated 2.6.2016 and submitted that coordinate bench, under similar circumstances has directed A.O. to estimate net profit of 5%. We find that coordinate bench of this Tribunal, under similar circumstances directed A.O. to estimate net profit of 5% on stock put to sale net of all deductions. relevant portion of order is reproduced hereunder: 8. We have heard both parties, perused materials available on record and gone through orders of authorities below. A.O. estimated net profit of 20% on stock put for sale. A.O. was of opinion that assessee has not maintained proper books of accounts and vouchers in support of purchases and sales. A.O. further observed that assessee has failed to maintain stock registers and books of accounts maintained by assessee are not susceptible for verification, therefore rejected books of accounts and estimated net profit of 20% by relying upon decision of Hon ble A.P. High Court. It is contention of assessee that net profit estimated by A.O. is quite high when compared to nature of business carried on by assessee. It is further submitted that case law relied upon by assessee is not applicable to facts of present case. case before Hon ble A.P. High Court was that assessee is into business of trading in arrack, whereas it is in business of dealing in IMFL. assessee further contended that IMFL trade was controlled by State Government through A.P. State Beverages Corporation Ltd. and prices of products are fixed by State Government. assessee being license holder of State Government cannot sell products over and above MRP fixed by State Government. We find force in arguments of assessee for reason that A.O. has estimated net profit by relying upon decision of A.P. High Court in case of CIT Vs. R. Narayana Rao in ITA No.3 of 2003 which is rendered under different facts. A.P. High Court has considered case of arrack dealer, whereas, assessee is into business of dealing in IMFL. Therefore, we are of view that A.O. was not justified in relying upon judgement, which was rendered under different facts to estimate net profit. On other hand, Ld. A.R. for assessee, relied upon decision of ITAT, Visakhapatnam bench in case of T. Appalaswamy Vs. ACIT in ITA No.65 & 66/Vizag/2012. We have gone through case laws relied upon by assessee in light of facts of present case and finds that coordinate bench of this Tribunal, under similar circumstances held that estimation of 5% net profit on purchases is reasonable. relevant portion of order is reproduced hereunder: 4 ITA No.349&351/Vizag/2015 Sri Mallidi Ramakrishna Reddy, Rajahmundry 3. We have heard parties, perused orders of revenue authorities as well as other materials on record. It is contention of Ld. A.R. that estimation of profit at 16% is high and excessive considering normal rate of profit in this line of business. Whereas, Ld. D.R. supported order of CIT(A). Having considered submissions of assessee, we are of view that issue is no more res integra in view of series of decisions of ITAT Hyderabad bench in similar cases. coordinate bench in case of ITA No.127/Hyd/12 and others dated 18.05.2012 as well as number of other cases have held that profit in case of business in Indian made foreign liquor has to be estimated at 5% of purchases made by assessee. Therefore, following decision of ITAT Hyderabad bench, we set aside order of CIT(A) and direct assessing officer to estimate profit from wine business of assessee by applying rate of 5% of purchases made net of all other deductions. assessing officer should also bear in mind that in no case income determined should be below income returned. 9. Considering facts and circumstances of this case and also respectfully following ratios of coordinate bench, we are of view that net profit estimated by A.O. by relying upon decision of Hon ble A.P. High Court (supra), which was rendered under different facts is quite high. On other hand, assessee relied upon decision of coordinate bench and coordinate bench under similar circumstances estimated net profit of 5% on total purchases net of all deductions. No contrary decision is placed on record by revenue to take any other view of matter than view so taken by coordinate bench. Therefore, we direct A.O. to estimate net profit of 5% on total purchases net of all deductions. Ordered accordingly. 5. Considering facts and circumstances of case and also respectfully following decision of coordinate bench of ITAT, Visakhapatnam in case of Tangudu Jogisetty Vs. ITO (supra), we direct A.O. to estimate net profit of 5% on total stock put for sale net of all deductions. 5 ITA No.349&351/Vizag/2015 Sri Mallidi Ramakrishna Reddy, Rajahmundry 6. In result, appeal filed by assessee is partly allowed and appeal filed by revenue is dismissed. above order was pronounced in open court on 30th Sept 16. Sd/- Sd/- (V. DURGA RAO) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Visakhapatnam: Dated : 30.09.2016 VG/SPS Copy of order forwarded to:- 1. Appellant ITO, Ward-1(1), Rajahmundry 2. Respondent Sri Mallidi Ramakrishna Reddy, D.No.36-25-36, Sappavari Street, Innespeta, Rajahmundry 3. CIT, Rajahmundry 4. CIT (A), Rajahmundry 5. DR, ITAT, Visakhapatnam 6. Guard file BY ORDER // True Copy // 1 2 . (Sr.Private Secretary) ITAT, VISAKHAPATNAM 6 Mallidi Ramakrishna Reddy v. ITO, Ward-1(1), Rajahmundry