Case Law Details
Shri Srinivasa Reddy Yenumula Vs ITO (ITAT Hyderabad)
As regards the addition of Rs.18.00 lakhs towards unexplained investment is concerned, the learned Counsel for the assessee placed reliance on the judgment of the Hon’ble Supreme Court of India in the case of CIT vs. Bharat Engg. & Construction Co. reported in (1972) 83 ITR 0187 wherein the Hon’ble Supreme Court held that the unexplained cash credit entries in the first year of its business represents capital receipts and could not be its income.
Admittedly, this is the first year of operation of the assessee and the assessee could start the business only after obtaining license from the Govt. and by making payment of the license fee. The assessee has made the payment of Rs.18.00 lakhs towards the first instalment of the license fee and therefore, such an amount cannot be treated as unexplained income from the business of the assessee. This is the capital introduced by him and if at all, it can only be the income from the earlier years and not from the relevant previous year. Therefore, respectfully following the judgment of the Hon’ble Supreme Court, we delete the addition of Rs.18.00 lakhs.
FULL TEXT OF THE ITAT JUDGMENT
This is assessee’s appeal for the A.Y 2009-10 against the order of the CIT (A)-2, Hyderabad, dated 31.03.2016. The assessee has raised the following grounds of appeal:
“1. The order of the learned CIT (A) is erroneous to the extent it is prejudicial to the appellant.
2. The learned CIT (A) erred in confirming the action of the AO in estimating the income by rejecting the books of account and further erred in estimating the income at 3%.
3. The learned CIT (A) ought to have considered the circumstances explained and held that the estimation at 3% is excessive on the facts of the appellant’s case.
4. The learned CIT (A) erred in confirming the action of the AO in treating the investment of Rs.18,0,000 towards capital as the income for the A.Y under consideration without considering the sources for investment.
5. The learned CIT (A) erred in confirming levy of interest u/s 234B of the I.T. Act.
6. Any other ground that may be urged at the time of hearing”.
2. Brief facts of the case are that the assessee, an individual and running a wine shop, filed his return of income for the A.Y 2009-10 declaring income of Rs.3,05,150/-. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the relevant A.Y is the first year of the business of the assessee and from the balance sheet, it was observed that the assessee has introduced a capital of Rs.21,05,152/-. A survey u/s 133A was conducted in the business premises of the assessee on 25.03.2010, during the course of which, the assessee gave a statement that the initial investment in the business is Rs.18.00 lakhs towards the first instalment of license fee and lifting of stock from the Beverage Corporation and sources for such investment is from agricultural operations of the family. The assessee was asked to furnish the details of the land holdings along with the details of the crops produced, proof of sale of the agricultural produce etc., The assessee could not produce the relevant details, but ultimately on 11.10.2011, the assessee produced the books of account and copies of the agricultural land holdings, cash flow statement from 1996-97 to 2008-09. The assessee submitted that the capital introduced in the business was Rs.18.00 lakhs only and the capital as on 31.03.2009 including the current years profit amounted to Rs.21,05,152/-.
3. The AO also asked the assessee to explain the basis for recording the sale in the books of account and asked him to produce the relevant details. The assessee submitted that in this type of business, it is not possible to maintain the bills and therefore, the AO estimated the net profit of the sale of beverages at 3% of the goods put to sale. With regard to the sources for investment, since the AO was not satisfied with the assessee’s contention, as regards the sources, he treated the sum of Rs.18.00 lakhs as unexplained investment and along with two other small additions brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) who granted partial relief to the assessee by deleting the small additions. Against the order of the CIT (A), the assessee is in appeal before us.
4. The learned Counsel for the assessee reiterated the submissions made before the authorities below. As regards Grounds 2 and 3, he submitted that this issue is covered by various decisions of this Tribunal wherein the income from the sale of liquor has been estimated at 3% of the cost of the goods put to sale and therefore, he has no grievance against the assessment order to this extent is confirmed. As regards the addition of Rs.18.00 lakhs towards unexplained investment is concerned, the learned Counsel for the assessee placed reliance on the judgment of the Hon’ble Supreme Court of India in the case of CIT vs. Bharat Engg. & Construction Co. reported in (1972) 83 ITR 0187 wherein the Hon’ble Supreme Court held that the unexplained cash credit entries in the first year of its business represents capital receipts and could not be its income.
5. The learned DR, on the other hand, supported the orders of the AO and placed reliance upon the decision of the Coordinate Bench of this Tribunal in the case of ACIT vs. M/s. Pennar Aqua Exports Pvt. Ltd in ITA No.1946/Hyd/2011 for the A.Y 1994-95 wherein the Coordinate Bench of this Tribunal has held that the assessee fails to prove the genuineness and creditworthiness of persons making cash credits, the additions has to be sustained.
6. Having regard to the rival contentions and the material on record, we find that admittedly, this is the first year of operation of the assessee and the assessee could start the business only after obtaining license from the Govt. and by making payment of the license fee. The assessee has made the payment of Rs.18.00 lakhs towards the first instalment of the license fee and therefore, such an amount cannot be treated as unexplained income from the business of the assessee. This is the capital introduced by him and if at all, it can only be the income from the earlier years and not from the relevant previous year. Therefore, respectfully following the judgment of the Hon’ble Supreme Court, we delete the addition of Rs.18.00 lakhs.
7. In the result, assessee’s appeal is partly allowed.
