Sri Papi Reddy Beereddy, Hyderabad vs Department Of Income Tax

The Income Tax Officer Mr. Papi Reddy Beereddy Ward-2, Aayakar Bhavan vs. Warangal Warangal. PAN AIEPB0235C (Appellant) (Respondent)

For Revenue : Mr. Rajat Mitra For Assessee : Mr. S. Rama Rao

Date of Hearing : 14.05.2015 Date of Pronouncement : 03.06.2015

ORDER

PER P.M. JAGTAP, A.M.

This appeal is preferred by the Revenue against the Order of the Ld. CIT(A)-VI, Hyderabad dated 29.03.2013.

2. The assessee in the present appeal is an individual who is engaged in the business of trading of liquor on retail basis under the name and style of his proprietary concern 'M/s. Janata Wines'. The return of income for the year under consideration was filed by him on 29.09.2009 declaring total income of Rs.1,36,634. During the course of assessment proceedings, the assessee failed to produce the books of accounts as well as supporting bills and vouchers for the verification of the A.O. The A.O. therefore proposed to estimate the income of the assessee from the business of trading in wines by applying G.P. rate of 25% to the purchase value of total sales. The assessee objected to this proposal of the A.O. 2 ITA.No.982/Hyd/2013 Mr. Papi Reddy Beereddy, Warangal.

by relying on the decision of the Tribunal in the case of Kanakadurga Wines rendered vide its order dated 28.07.2011 in ITA.No.591/Hyd/2011 wherein the net profit rate of 5% was applied by the Tribunal to estimate the income of the assessee engaged in similar line of business. According to the A.O., the said decision of the Tribunal however was not accepted by the department and an appeal was preferred against the order of the Tribunal before the Hon'ble High Court of Andhra Pradesh. He therefore proceeded to estimate the income of the assessee from the business of trading in wines at Rs.6,13,061 by applying G.P. rate of 25% on purchase value of total sales which resulted in substantial trading addition.

3. During the course of assessment proceedings, savings bank account maintained with Andhra Bank at Fatimanagar Branch, Warangal was furnished by the assessee. From the perusal of the statement of the said bank account, the A.O. noticed that there were hardly any payments made against the supply of wines to APBC Limited. He also found that the said bank account was not reflected in the balance sheet of the assessee. As there was no explanation forthcoming from the assessee regarding the credits appearing in the said account, total credits found in the said bank account aggregating to Rs.31,89,457 were treated by the A.O. as unexplained and the said amount was also added by him to the total income of the assessee in the assessment completed under section 143(3) vide order dated 30.12.2011.

4. Against the Order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) who found that the income of the assessee from the business of retail trading in wine estimated by the A.O. by 3 ITA.No.982/Hyd/2013 Mr. Papi Reddy Beereddy, Warangal.

applying G.P. rate of 25% on the cost of purchase was on the higher side and relying inter alia on the decision of the Tribunal in the case of Amaravathi Wines, he directed the A.O. to estimate the income of the assessee by applying the net profit rate of 5% to the cost of sales of Rs.38,48,185.

5. As regards the credit entries appearing in the savings bank account with another bank at Fathimanagar Branch, Warangal, the Ld. CIT(A) found that the said bank account was not reflected in the balance sheet of the assessee. He also agreed with the A.O. that the credits in the said bank account represented unexplained credits for the year under consideration. He however held that the entire credits could not be considered as income of the assessee and since there were withdrawals made from the said account at regular intervals, he directed the A.O. to work out the peak credit for determining the quantum of unexplained credits liable to be added to the total income of the assessee.

6. Aggrieved by the Order of the Ld. CIT(A), the Revenue has preferred this appeal before the Tribunal on the following grounds :

1. "The order of the CIT(A) is erroneous on the facts of the case.

2. The CIT(A) ought to have upheld the understatement of sales determined according to the estimating of gross sales by following the APBCL memorandum in the absence of sale bills on the gross sales admitted in the return of income and the same could not be produced by the assessee during the course of scrutiny assessment.

4 ITA.No.982/Hyd/2013 Mr. Papi Reddy Beereddy, Warangal.

3. The CIT(A)-VI ought to have upheld the addition of Rs.31,89,457 made by the A.O. in the absence of information/evidence furnished by the appellant explaining the sources for cash deposits into the said bank account.

4. The CIT(A)-VI erred in adopting the peak credit method in the absence of any evidence or information furnished by the appellant explaining the sources for cash deposits into the said bank account.

5. Any other ground that may be urged at the time of hearing of the appeal."

7. We have heard the arguments of both the sides and also perused the relevant material on record. Ground Nos. 1 and 5 raised by the Revenue in this appeal are general which do not require any specific adjudication. As regards the issue involved in Ground No.2 relating to the estimation of income of the assessee from the business of retail trading of wines, the learned Representatives of both the sides have agreed that this issue is squarely covered by the various decisions of the Tribunal wherein a consistent stand has been taken by the Tribunal that the income of the assessee from the business of retail trading in wines can reasonably he estimated by applying the net profit rate of 5%. Respectfully follow the said decision of the Tribunal, we uphold the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue and dismiss ground No.2 of the Revenue's appeal.

8. As regards the common issue involved in Ground Nos. 3 and 4 relating to the addition made on account of credits appearing in the bank account of the assessee with Andhra Bank, Fatimanagar Branch, Warangal, it is observed 5 ITA.No.982/Hyd/2013 Mr. Papi Reddy Beereddy, Warangal.

that the Ld. CIT(A) in his impugned order has agreed with the A.O. that the said bank account was not reflected in the balance sheet of the assessee. He also agreed with the view of the A.O. that the credits in the said bank account represented unexplained cash credits for the year under consideration for the purpose of computing the income of the assessee. He however held that the entire credits could not be treated as the income of the assessee and directed the A.O. in view the withdrawals found to be made by the assessee from the said account on regular intervals to workout the peak credit and sustain the addition to the extent of such peak credit. After considering the submissions made by both the sides and perusing the relevant material on record, we are unable to fully subscribe to the view of the Ld. CIT(A) on this issue. In our opinion, the peak credit theory can be applied where there are withdrawals and deposits in cash. But where there are credits in the bank account of the assessee other than the deposits made in cash, the onus is on the assessee to explain the said credits. The deposits made in cash can always be explained by the assessee with the help of withdrawals if any, made from the said account and even if there is no such explanation forthcoming from the assessee, the A.O. himself can consider the withdrawals and deposits in chronological manner in order to workout the peak credit for the purpose of making addition to the total income of the assessee. In so far as other creditors in the bank account are concerned, the onus is on the assessee to offer his explanation in terms of section 68 of the Act and the A.O. has to examine the same in accordance with law. We therefore modify the direction given by the Ld. CIT(A) on this issue and direct the A.O. to consider and decide this issue afresh keeping in view our discussion made hereinabove.

6 ITA.No.982/Hyd/2013 Mr. Papi Reddy Beereddy, Warangal.

Ground Nos. 3 and 4 of the Revenue's appeal are accordingly treated as partly allowed for statistical purposes.

8. In the result, appeal of the Revenue is treated as partly allowed for statistical purposes.

Order pronounced in the open Court on 03.06.2015.

Sd/- Sd/- (SAKTIJIT DEY) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER

Hyderabad, Dated 03rd June, 2015.

VBP/-

Copy to

1. The Income Tax Officer, Ward-2, Aayakar Bhavan, Station Road, Warangal.

2. Mr. Papi Reddy Beereddy,H.No.1-1-1743/2, Siddarthanagtar, Kazipet, Warangal.

3. Commissioner of Income Tax (Appeals)-VI, Hyderabad.

4. Commissioner of Income Tax-VI, Hyderabad.

5. D.R. I.T.A.T. "B" Bench, Hyderabad.

6. Guard File