V.R.Bar & Restaurant, Hyderabad vs Assessee

M/s. V.R. Bar & Restaurant, The Income Tax Officer, Hyderabad. vs. Ward 8(3) PAN AADFV7852Q Hyderabad. (Appellant) (Respondent)

For Assessee : Mr. T. Chaitanya Kumar For Revenue : Mr. Rajat Mitra

Date of Hearing : 23.03.2015 Date of Pronouncement : 31.03.2015

ORDER

PER B. RAMAKOTAIAH, A.M.

This appeal by assessee is against the order of Ld. CIT(A)-III, Hyderabad dated 20th September, 2014.

2. Briefly stated, assessee firm is engaged in the business of running a Bar and Restaurant and filed its return of income declaring total income of Rs.1,64,647, after claiming interest on capital at Rs.3,34,138 and remuneration to its partners at Rs.2,32,000. There were survey proceedings in assessee's business premises on 08.02.2010 and in the course of survey, statement was recorded from one of the partners, who admitted net income at 5% on the sales and also amount of Rs. 24lakhs to "settle" and "to purchase peace with the department". The A.O. after rejecting the books of accounts in the assessment estimated the sale of empty bottles at Rs.50,000 as against Rs.32,945 shown by the assessee in P & 2 ITA.No.1744/Hyd/2014 M/s. V.R. Bar & Restaurant, Hyderabad

L account. On food sales of Rs.1,96,400 AO estimated profit at 20% and an amount of Rs.3,92,800 was considered as profit from the food business. Out of the stock put to sale in liquor business of Rs.67,82,480, A.O. estimated the profit at 5%. Instead of considering the amount of Rs.3,39,124, he has considered in the order at Rs.33,91,024, but while making addition in the computation at Rs.3,91,024. Further, on the basis of the statement on the day of survey, A.O. also brought an amount of Rs.24 lakhs as admitted income. In the course of assessment proceedings, assessee accepted estimation of income at 5%, but withdrew the admission of Rs.24 lakhs vide letter dated NIL stated to have been filed before the ITO, Ward 8(3).

3. The Ld. CIT(A) in appeal, however rejected the appeal on the reason that appeal does not lie against an assessment relating to addition where the assessment in that regard was made on agreed basis. Ld. CIT(A) took note of various decisions on the issue and after analyzing, vide paras 4 and 5 came to the conclusion that appeal does not lie where assessment was made on agreed basis, applying ratio of decision of Allahabad High Court in the case of Sterling Machine Tools vs. CIT 123 ITR 181.

4. Contesting the above order of the Ld. CIT(A), it was submitted by the Ld. Counsel for the assessee that CIT(A) has wrongly considered that additions were agreed, whereas assessee has not agreed for anything except for estimation of profit on sale of liquor at 5%. He referred to the letter filed before the ITO placed at page-7 of the paper book to submit that after the statement in the course of survey, assessee has withdrawn the admitted amounts and submitted that net profit 3 ITA.No.1744/Hyd/2014 M/s. V.R. Bar & Restaurant, Hyderabad

can be estimated on stock put to sale at 3%, based on the ITAT order in the case of Manjit Singh Bagga vs. ITO in ITA.No.371 and others dated 30.09.2010. Ld. Counsel further submitted that there is no need to reject the books of accounts and estimating the incomes. Since the order of Ld. CIT(A) is wrongly considered that the additions were agreed,as such Ld. Counsel submitted that issues can be decided on merits by the ITAT with reference to addition of amounts. Ld. Counsel relied on the following case law.

(i) CIT vs. Shri Ramdas Motor Transport 238 ITR 177 SRMT case

(ii) ACIT, Circle 7(1), Hyderabad vs. M/s. Surabhi Automobiles, Hyderabad Order dated 01.10.2014 in ITA.No.1006/Hyd/2013.

(iii) CIT vs. S. Khaderkhan & Son 352 ITR 480 (SC).

4.1. The Ld. Counsel relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Khaderkhan Son (supra) submitted that there is no basis for making the addition as nothing was found out in the survey and assessee's entire turnover during the year was only at Rs. 1 crore on which Rs.24 lakhs income could not be earned outside books of accounts.

5. Learned D.R. while admitting that there is a mistake in estimation of 5% of the income on the liquor sales however, submitted that estimation of income was correctly done by the A.O. as the books of accounts are not reliable. He further submitted that assessee has voluntarily admitted higher income and therefore, was prevented in enquiring in other matters.

4 ITA.No.1744/Hyd/2014 M/s. V.R. Bar & Restaurant, Hyderabad

6. We have considered the issue and examined the statements placed on record as well as the P & L account and other documents. As seen from the orders, except admitting income at 5% on the liquor sales there was no other agreed addition as stated by the Ld. CIT(A) in the order. Even though assessee has contested the income on sale of liquor at 5%, we are of the opinion that this estimation is reasonable considering the facts of the case. However, the A.O. is directed to correct the arithmetic error that occurred in the order.

7. Coming to the estimation of income on food items at 20%, we are of the opinion that A.O. has not given any comparable cases to arrive at the profit of 20% on food sales. He simply estimated at 20% without there being any basis. Considering the facts of the business and location of the appellant Bar and Restaurant in Hyderabad, we are of the opinion that income can be estimated at 10% of the food sales. Accordingly, assessee has gets relief. A.O. is directed to adopt income of Rs.1,96,400 as against Rs.3,92,800 added by him in the order.

8. As to the addition of Rs. 24 lakhs as income offered from Bar and Restaurant by the assessee's partner, except the statement given by the partner during the course of survey, there is no other evidence establishing that assessee could earn that much income from the business. During the survey no incriminating material was found nor any excess stock was found. Even though books of accounts were rejected that does not mean the declaration given by the partner in the course of survey has any relevance for the business activity of the assessee. There was no evidence brought on record by the Revenue either in the form of excess stock found during the 5 ITA.No.1744/Hyd/2014 M/s. V.R. Bar & Restaurant, Hyderabad

survey or excess cash available with the assessee or any other incriminating material to establish that assessee is earning unaccounted incomes. As can be seen from the statement also after enquiring about assessee's business activities, various investments, turnovers etc., and after conclusion of statement, last question was asked in the 11 page of the statement asking the assessee whether he want to state any thing further. At that point of time, assessee's partner seems to have declared additional Rs. 24 lakhs in order to "settle" with the Income Tax Department. As can be seen from the statement recorded, there is no indication that this additional income is because of any investment/profits of the business. Moreover, as pointed out by the Ld. Counsel, assessee did retract statement immediately after the survey and so statement cannot be considered as a basis for making the addition. It was an established law that addition cannot be made solely on the basis of statement given by the partner of a firm. Hon'ble Supreme Court in the case of CIT vs. Khaderkhan & Son 352 ITR 480 has upheld the High Court view that in view of the scope and ambit of the materials collected during the course of survey, the action under section 133A would not have any evidentiary value and that it could not be said solely on the basis of the statement given by one of the partners of the firm that the disclosed income was assessable as lawful income of the assessee. The statement given by the partner has no rational linking to the issues being enquired nor for the incomes of the business. Therefore, the same cannot be considered as a basis for making the addition. Under these circumstances, we are of the opinion that there is no basis for making an addition of Rs. 24 lakhs solely on the basis of statement. In view of this, we have no hesitation in deleting the 6 ITA.No.1744/Hyd/2014 M/s. V.R. Bar & Restaurant, Hyderabad

same. A.O. is directed to re-work out the incomes accordingly. The grounds are allowed partly.

9. In the result, appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 31.03.2015.

Sd/- Sd/- (SAKJIT DEY) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER

Hyderabad, Dated 31st March, 2015

VBP/-

Copy to :

1. M/s. V.R. Bar & Restaurant, Hyderabad C/o. Mr. T. Chaitanya Kumar, Advocate, Flat No.409, Metroresidency, Raj Bhavan Road, Somajiguda, Hyderabad.

2. The Income Tax Officer, Ward 8(3), Hyderabad

3. CIT(A)-III, Hyderabad

4. CIT-II, Hyderabad

5. D.R. ITAT "B" Bench, Hyderabad

6. Guard File