Income Tax Appellate Tribunal - Delhi
Allied Engineers,, vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "A" DELHI)
BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE VICE
PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER
ITA 2128(Del)2009
Assessment year: 2006-07
M/s. Allied Engineers, Income Tax Officer,
G.T. Road, Gharaunda. V. Ward 2, Karnal.
(Appellant) (Respondent)
Appellant by: Shri Ashwani Kumar, CA
Respondent by: Shri Ashok Pandey, CIT/DR
ORDER
PER A.D. JAIN, J.M.
This is assessee's appeal for the assessment year 2006-07 against the order dated 30.3.2009 passed u/s 263(1) of the Income Tax Act, by the CIT, Karnal.
2. The assessee firm derives income from the business of Civil Contractor. For the year under consideration, the assessee declared income of ` 4,75,650/-. The AO, however, vide order dated 21.2.2007, passed u/s 143(3) of the I.T. Act, assessed the income of the assessee at ` 9,75,640/-.
2 ITA 2128(Del)09
3. The CIT observed that the CIT, Karnal Range, Karnal, vide office letter dated 9.1.2007, had issued certain guide lines u/s 144 A of the Act, as per which, from the assessment record of the assessee, it was available that during the year under consideration, i.e., assessment year 2006-07, the assessee had shown net profit of ` 4,75,650/- against gross contractual receipts of ` 4,58,53,196/-. The net profit of ` 4,75,650/- included ` 3,99,740/- in respect of profit on sale of a plot. The net profit on contractual receipts thus worked out to ` 75,910/-, which was considered too low, keeping in mind the line of the assessee's business. The assessee was seen from the record to have worked for several principals during the year. The JCIT directed the AO to ascertain the correctness of the income shown, by obtaining the jobwise/principalwise trading account and examining the expenses incurred in respect of each job and work in progress, by making direct enquiries from the recipients. The assessee was found to have taken loans of substantial amounts from banks. The JCIT directed the AO to enquire as to what security had been offered for availing such loan and as to what source of acquisition of such security was.
4. The CIT found that the aforesaid directions u/s 144 A of the Act had not been carried out by the AO; that no details of expenses incurred had been obtained and no examination thereof had been done. No direct 3 ITA 2128(Del)09 enquiries had been made from the recipients, concerning the expenses incurred and the huge payments made in cash. The AO had made only a cursory enquiry from the bank regarding movable/immovable properties, pledged as securities. A clarification had been obtained in the shape of a letter from PIB, Gharaunda, to the effect that CC facilities had been granted to the assessee against pledging of properties in the names of Smt. S. Devi, wife of R Gupta, Smt. S. Gupta, wife of P. Kumar and Smt. Shalini Gupta, wife of Sh. S. Kumar.
5. The CIT observed that all the aforesaid persons were closely related to the partners of the assessee firm, i.e., Smt. S. Devi was the mother of Shri Pankaj Kumar, partner, whereas S. Gupta was his wife and Shalini Gupta was wife of Shri S. Kumar, another partner. The CIT observed that as such, there was every possibility of these properties, represented assets of assessee firm/its partners, being held benami by the said ladies; that the AO had made no enquiry to establish that the said persons were having independent income/source for making the investments. The CIT observed that the AO had not obtained any statements of bank accounts of the assessee from the concerned banks and he had not carried out any examination/verification of credit/debit entries made vis-a vis the books of account of the assessee. The CIT observed that further, the assessee firm had credited ` 3.99 lakhs to 4 ITA 2128(Del)09 its trading-cum-profit and loss account, as profit on the sale of plot, consequent on sale of two plots for ` 5.19 lakhs and ` 9.40 lakhs during the year, though these should have been reflected separately in the computation of income and capital gains thereon ought to have been offered for tax separately. However, the AO had not made any enquiry with the purchasers of the properties to verify the genuineness of the profits from the sales. The CIT observed that the AO had not obtained copies of accounts of the individual partners of the firm, i.e., from Pankaj Kumar and had not examined, additions, if any, in their capital accounts during the year. The CIT observed that the AO had not obtained certified copies of the partnership deed so as to examine the salary of ` 2.88 lakhs shown as debited to the partners, vis-à-vis the terms and conditions of the partnership deed. The CIT observed that the AO had not enquired from the assessee, the nature of the contract work, the terms and conditions under which the contracts for different parties were being executed by the assessee and the AO also did not obtain copies of contract agreements executed with respective parties, so as to examine/verify their terms and conditions vis-a- vis the income reflected by the assessee in its return of income. The CIT observed that on comparing datewise details of purchases made in respect of M/s. Aggarwal Trading Co., Karnal with copies of account of M/s.
5 ITA 2128(Del)09 Aggarwal Trading Co, the following payments had not been reflected in the copy of account of M/s. Aggarwal Trading Co., Karnal:-
S.No. Dates Amounts 1. 10.08.2005 19,800/- 2. 23.12.2005 19,300/- 3. 30.12.2005 19,375/- 4. 05.02.2006 3,585/- 5. 09.02.2006 13,590/- 6. 23.03.2006 18,300/-
6. The CIT observed that the AO had not made any enquiry in the matter so as to ascertain the genuineness of the purchases reflected in the profit and loss account. The CIT observed that the AO had passed the assessment order merely in a routine manner by just making a token ad-hoc addition of ` 5 lakhs to cover possible leakages, on his finding that all expenses were not properly verifiable, without specifying the expenses and to what extent they were not vouched and without giving any basis as to why the addition of ` 5 lakhs was sufficient to cover leakages. The CIT observed that the AO had thus completely failed to make independent verification of such an 6 ITA 2128(Del)09 inordinately high expenditure claimes, which reduced the net profit shown to a mere 0.16 % of the gross receipts, in violation of the directions issued u/s 144A of the Act; that the AO had also failed to reject the books of account, although he himself arrived at a finding of non-verifiability of the expenses; and that therefore, it appeared to be a 'clear-cut case of not only non- application of mind but of deliberate non-application of mind' resulting in an erroneous order, injurious to the interests of the revenue, attracting the provisions of section 263 of the Act.
7. The assessee maintained before the ld. CIT, inter alia, that as available from the assessment order, the AO had indeed examined the books of account of the assessee and the expenses entries on a test-check basis and it was only after applying his mind to the net profit and certain other defects, that the AO had made an addition of ` 5 lakhs; that in the assessment proceedings, the AO had asked for job-wise details of income and expenses incurred; that the party-wise trading account expenses incurred on each job had been duly placed before the AO; that apropos the securities kept with the bank for obtaining CC limit, the AO called for a bank certificate for confirming the securities kept as securities; that this bank certificate clearly stated that the properties belonged to Smt. Sushila Devi, Smt. Saroj Gupta and Smt. Shalini Gupta; that copies of the registration deeds were duly 7 ITA 2128(Del)09 produced before the AO; that all the properties had been purchased by the respective ladies in their own names in the earlier years; and that actually, the properties had been acquired by the ladies much prior to the limitation period.
8. The CIT observed that though the details of expenses concerning HPCL, IOCL, Numaligarh Refineries Ltd. and Shri A.N. Aggarwal, 4 major parties for whom contracts had been executed by the assessee, had been placed on record, these details did not include addresses and PANs; that in the case of labour payments, payments for sand, bajri and mitti, even the name of any party did not occur, leaving no scope for the AO to make any independent enquiry with the supplier, so as to confirm the genuineness of the claim for expenditure; that the AO did not carry out any such enquiry; that the copies of the contracts were not called; that though the partners' capital accounts had been stated to have been filed, they had not been filed; that the AO had also not asked for the same; that apropos the properties, the AO had not verified that the ladies were the actual owners thereof; that the registration deeds were not shown to have been produced before the AO; that the AO had not verified from the purchasers of the plots, if the sale value had been correctly shown; that the AO had not even verified the current or savings account in the bank of the assessee vis-à-vis the profits 8 ITA 2128(Del)09 from sale of plots; that the books of account were not properly examined and no specific defects had been located therein by the AO; that the assessee had failed to produce the books of account even in the proceedings u/s 263 of the Act, as was the case for assessment year 2005-06 also; and that as such, substantial income had escaped assessment due to non-application of mind by the AO to the facts of the case, rendering the assessment order erroneous and prejudicial to the interests of the revenue. As such, the ld. CIT, cancelling the assessment order, directed the AO to make the assessment de novo, taking into consideration her observations made in the impugned order.
9. Before us, challenging the impugned order, the learned counsel for the assessee has submitted that the Tribunal, vide its order dated 29.8.08 (copy placed on record), in ITA No. 4249(Del)07, in the assessee's case for the immediately preceding assessment year, i.e., assessment year 2005-06, has annulled a similar order passed u/s 263 of the I.T. Act, allowing the appeal of the assessee. It has been contended that the facts for the year under consideration are exactly similar to those for assessment year 2005-06; and that as such, the order under appeal be similarly cancelled. Reliance has been placed on 'CIT v. Gabriel India' 203 ITR 108(Bom), for the proposition that u/s 263, the CIT cannot revise an assessment order merely 9 ITA 2128(Del)09 because he disagrees with the conclusions arrived at by the AO. For the proposition that where there was a surrender of cash in survey and the AO, in his office note, explained as to why the surrendered amount of ` 10 lakhs due to excess stock, was not included in the assessment and the assessment order was passed with the approval of the Commissioner, the successor Commissioner could not say that the assessment order had been passed without application of mind, the learned counsel has sought to seek support from 'Hari Iron Trading Co. v. CIT', 263 ITR 437(P&H). Reliance has been placed on 'Rajiv Agnihotri v. CIT' 23 DTR (Del)(Trib) 476 to state that where the AO had called for information on every issue from the assessee and the assessee had submitted the details as called for by the AO, the CIT having not pointed out any specific defect in those details and not having recorded a finding as to how the order of the AO was erroneous, the order passed u/s 263 of the Act was liable to be quashed. 'CIT v. Development Credit Bank Ltd.' 323 ITR 206(Bom) has been relied on for the proposition that where the assessment order has been passed after considering all the details called for and furnished by the assessee, suo motu revision on the ground that enquiry was not conducted, is not justified. 'CIT v. Deepak Mittal' 324 ITR 411 (P&H) has been pressed into service for stating that the Commissioner, u/s 263 of the Act, cannot reappraise the 10 ITA 2128(Del)09 evidence and record a finding different from that arrived at by the AO, on the same facts.
10. The learned counsel for the assessee has thus contended that the order passed by the ld. CIT u/s 263 of the Act is illegal and is unsustainable in the eye of law and that the same be cancelled while allowing the appeal filed by the assessee.
11. The learned DR, on the other hand, has strongly supported the impugned order. It has been contended that there was no enquiry carried out by the AO and therefore, the ld. CIT was justified in invoking the provisions of section 263 of the Act and in cancelling the assessment order, directing the AO to make the assessment de novo. It has been contended that while passing the assessment order, the AO did not follow the guidelines issued u/s 144A of the Act; that as per these guidelines, it was evident from the assessment record that during the year, the assessee had shown net profit of ` 4,75,650/- against gross contractual receipts of ` 4,58,53,196/-; that the net profit of ` 4,75,650/- included an amount of ` 3,99,740/- representing profit on sale of a plot. The AO had been directed to ascertain the correctness of the income shown, by calling for the jobwise/principalwise trading account and examining the expenses incurred concerning each job and work-in- progress. The AO, as such, was to make direct enquiries through the 11 ITA 2128(Del)09 recipients. Apropos the substantial loans taken from the banks, the AO had been directed to enquire as to what security had been offered so as to avail these loans and as to how such security had been obtained. It has been contended that in contravention of the directions issued to him u/s 144A of the Act, the AO did not carry out any enquiry. Details of the expenses were not obtained, much less examined. So far as regards the expenses incurred, the recipients were not enquired from as to the enormous payments made to them in cash. Only a name-sake enquiry was made from the bank concerning the properties pledged as securities. The three ladies, in whose names the properties had been pledged, were close relatives of the partners of the assessee firm. Their independent income and the source of the investments made by them was not enquired into by the AO. The bank statements were not even called for and no examination whatsoever was made. Further, the AO did not make any enquiry into the credit of ` 3.99 lakhs by the AO to its trading-cum-profit and loss account, representing profit on sale of two plots. Copies of account of the partners of the firm were not summoned and consequently were not examined. Even the partnership deed was not obtained. The nature of the work carried on by the assessee was not gone into, nor were the contract agreements concerning such work called. Moreover, the genuineness of the purchases reflected by 12 ITA 2128(Del)09 the assessee in its profit and loss account was also not examined. It was only that a token ad-hoc addition of ` 5 lakhs was made by the AO to cover possible leakages, without stating any reason as to how addition of ` 5 lakhs only would be sufficient to cover the leakages. It has been submitted that in these facts, clearly, the AO miserably failed to make any independent enquiry in the entire matter, violating the directions issued u/s 144A of the Act, failing to reject the books of account of the assessee, despite having himself reached the conclusion that the expenses were non-verifiable. It has been pleaded that therefore, the ld. CIT cannot at all be said to have erred in invoking section 263 of the Act, or in passing the order under appeal, rightly directing the AO to frame the assessment denovo. The ld. DR also contended that the facts for the year under consideration, i.e., assessment year 2006-07, are entirely different from those present for the immediately preceding assessment year, i.e., assessment year 2005-06; that in that year, the assessee's turn over, as per the Tribunal order for that year, had increased from ` 2.7 crores to ` 6.21 crores; that for the year under consideration, on the other hand, the turn over of the assessee has gone down from ` 6.21 crores to ` 4.58 crores; that further, the profit this year includes profit on sale of plot, amounting to ` 3.99 lakhs, which cannot be said to be the business income of the assessee; that further-more, in the earlier year, 13 ITA 2128(Del)09 there was no direction u/s 144A of the Act, whereas in the year under consideration, such directions had been issued, which were not complied with by the AO. It has been requested that as such, there being no merit whatsoever in the appeal filed by the assessee, the same be dismissed, upholding the order passed by the ld.CIT.
12. We have heard the parties and have perused the material on record. The issue before us is as to whether jurisdiction u/s 263 of the I.T. Act has correctly been exercised by the CIT in the present case.
13. By virtue of the assessment order dated 21.2.2007, the AO made addition of ` 5 lakhs to the income of the assessee. In the assessment order, it was, inter alia, observed as follows:-
"Notice u/s 143(2) has been issued, served and complied with Shri Pankaj, partner of the firm attended the assessment proceedings from time to time and furnished documents, details and information as called for keeping in view the directions issued by worthy JCIT, Karnal vide letter No. JCIT/KNL/2006-07/6102 dated 10.01.2007, which have been examined and placed on records. The assessee has also produced books of account and expense vouchers for examination and which have been examined on test check basis. On examination of the books of account, it was found that certain expenses are not supported by proper vouchers. Further, the assessee has shown net profit rate @ 1.67%, which is on lower side, as the number of expenses are not supported by proper vouchers. When assessee was asked to state reason for low g.p. rate, he has explained the reasons as under:-
14 ITA 2128(Del)09 i. To get contract, less rates have been quoted at the time of tender application, which resulted in less profit.
ii. Work is spread over to all over the Haryana State, hence, possibility of theft of raw material cannot be ruled out. iii. Rates of wages, diesel, raw material, cartage increasing day by day.
iv. Even persons doing similar business in similar circumstances, cannot earn identical profit. Some persons do the business by his own resources and other do their business by raising loans from banks and private concerns. I have started my business by raising secured loans for which I have to pay huge interest every year.
v. Civil contract business is very competitive.
Keeping in view the above reasons, I have come to the conclusion that no doubt, business of civil contract is very competitive, even though plea taken by the assessee cannot accepted in total. In this case, the assessee has shown net profit @ 1.67% inclusive of capital gains. So, the results of the assessee seem to be on lower side. During the course of assessment proceedings, the assessee was asked as to why an addition of ` 5 lakhs may not be made to cover all possible leakages in trading account In the beginning, the assessee has not accepted my proposal, but after long discussion, he has offered ` 5 lakhs for taxation subject to no penalty u/s 271(1)(c) in order to avoid confrontation with the Department, which I have accepted. So, I make an addition of ` 5 lakhs to the income of the assessee subject to no penalty u/s 271(1)(c) on agreed basis............"
14. It is evident from the assessment order, as above, that on query, the assessee, during the assessment proceedings, had furnished the requisite documents, details and information from time to time, as called for by the 15 ITA 2128(Del)09 AO, keeping in view the directions issued u/s 144A of the Act. The assessment order finds specific mention of the fact that the assessee had produced books of account and expenses vouchers and the same were examined on a test-check basis.
15. A copy of the show cause dated 6.3.09 issued by the ld. CIT to the assessee, has been placed at pages 1 to 3 of the assessee's paper book ('APB', for short). The assessee's reply is contained at APB 4 to 8. APB 10 to 12 contains copies of the order sheet entries made by the AO. At this stage, it would be appropriate to reproduce these order sheet entries:-
"8/06 - Sh. Sandeep Kumar, assessee attends with whom case is discussed partly. He is asked to furnish some informations and details to complete assessment. He is also requested to furnish details of some expenses. Details of sale of plot of ` 14,58,000/- certificate of bank - regarding secured loans, reason for low g.p.rate . He has stated that -
i. To get contract - less rate have to be quoted at the tender applications.
ii. Work is spread over to so many places where possibilities of theft of raw material cannot be ruled out.
iii. Rate of labour or material, diesel differ from station to station or increasing day by day, months after months.
iv. Net profit increased from ` 92,516/- to ` 4,75,650/- on gross contract receipt ` 6,21,88,418/- to ` 4,58,53,196/- respectively this means, N.P. increased in this year even though contract receipt decreased during the year.
16 ITA 2128(Del)09 To verify the correctness of expenses debited to profit and loss account with reference to books of account. To produce books of account - case is adjourned to 27/11/06.
Sd/-
27/11/06 - Case is adjourned to 10.1.07.
sd/-
27/11/06- Case is adjourned to 10.1.07.
sd/-
10/1/07 - Shri Sandeep Kumar assessee partner attends with whom case is discussed partly. He is assessed. Prepare trading account in respect of each job and work in progress in respect of each division. Produce expenses vouchers for verification. Let this office know what security offered for availing loans and what was the source of acquisitions of each security. Case is adjourned to 22.1.07. Trading account of each job separately.
Sd/-
Shri Sandeep Kumar assessee partner attended the assessment proceedings and filed trading account of each job and party from whom contracts taken such IOCL, NRL, Amar Nath appraised HPCL and purchase and expense account and bank certificate clarifying the properties assessment which ............................................... Measuring 3K 2M situated in V.Malakpur purchased by partners of firm the properties of Smt. Sushila Devi, w/o Shri Ram Gupta , mother of the assessee and Smt. Saroj Gupts and Shalini Gupta are wives of two partners. Books of account produced which has been test checked and expense vouchers produced for verification with reference to books of account. On examination of expense vouchers it has been noticed that some of the expense vouchers are not inadmissible nature deserve to be disallowed. When assessee was asked to explain reason for low g.p. rate he has stated that even persons doing the similar business cannot get similar or identical profit. Secondly -
i. To get contract less rate have to be quoted at the time of tender application which resulted in less profit.
17 ITA 2128(Del)09 ii. Work is spread over to so many places such as Panipat, Hissar, Rohtak-Mahindergarh and other places where rate of raw material and labour, wages differ, rate of cement, diesel increasing day by day , months after months and more expenses on cartage. Keeping in view the above reasons which are partly acceptable - assessee was asked to show cause as to why an addition of ` 5,00,000/- may not be made to cover all possible leakages in trading results and inadmissible expenses. The assessee has not accepted the proposal. For further scrutiny case is adjourned to 19/2/07.
Sd/-
Agreed at the addition of ` 5,00,000/- ` five lakhs only without any penalty.
19/2/07 - Shri Pankaj partner attended and with whom case is discussed and he offered ` 5,00,000/- for taxation in order to avoid confrontation with the Department. So save an addition of ` 5,00,000/- to the income of the assessee subject to no penalty u/s 271(1)(c) on agreed basis."
16. In sum, the ld. CIT has maintained that there was complete lack of enquiry by the AO, due to which, the assessment order was both erroneous as well as prejudicial to the interests of the revenue. We, however, find ourselves unable to subscribe to this view. As discussed, it comes out from the assessment order, that the AO, during the assessment proceedings, asked the assessee, in compliance of the directions issued u/s 144A of the Act, to furnish documents, details and information. Such documents, details and information were duly filed by the assessee before the AO. The AO examined the same. The assessee produced its books of account before the 18 ITA 2128(Del)09 AO. Expense vouchers were also filed. They were examined on a test- check basis. Thus, from the assessment order itself, it is evident that due enquiries were made by the AO in the assessment proceedings. Now, the manner in which the order is written, is entirely beyond the control of an assessee. But once it evinces enquiries having been carried out, the ld. CIT cannot exercise jurisdiction u/s 263 of the Act to revise an assessment order, simply because he is not in agreement with the conclusions arrived at by the AO. This is what has been laid down in 'Gabriel India' (supra). Since the AO had called for information on all the issues and the assessee had submitted all the details as required, there was no occasion for invocation of the provisions of section 263 of the Act, particularly when no defect was pointed out in the details and the assessment order was not shown to be erroneous, much less prejudicial. 'Rajiv Agnihotri' (supra) is, as such, squarely applicable. All the details called for were considered by the AO, as available from the assessment order and so, in keeping with 'Development Credit Bank Ltd.'(supra), suo motu revision of the assessment order was entirely uncalled for. The present case is a case where the evidence considered by the AO has been reappraised by the CIT, though on the same facts, as were present before the AO, which is not the domain of proceedings u/s 263 of the Act, for which, 'Deepak Mittal'(supra) is a direct Authority.
19 ITA 2128(Del)09
17. A similar was the position in the assessee's case for the immediately preceding assessment year, i.e., assessment year 2005-06. There, the Tribunal, vide its order dated 29.8.2008(supra), under similar circumstances, annulled the proceedings u/s 263 of the Act, for that year. Therein, it was observed, inter alia, as follows:-
6. We have considered the rival contentions carefully and gone through the orders of authorities below and also deliberated on the case laws cited by Ld. A.R. & Ld. D.R., and also the case laws referred by Cit in his order passed u/s 263, and found from the record that assessee's case was selected for scrutiny because of gross contract receipts exceeded Rs.2.00 crores and net income declared was less than 5% of gross contract receipts. As per the observations of the A.O. in his order as well as notings in the order sheet, it is clearly revealed that during the course of scrutiny assessment, the A.O. has asked the assessee to furnish details of various expenses as will as books of accounts for examination. The A.O. further stated that assessee has furnished details of expenses and the books of accounts so produced were also test checked. The A.O. also confronted the assessee on low GP rate and the reason for the same was also furnished by the assessee, which was not found acceptable by the A.O. in toto. The A.O. observed that reasons for low GP rate submitted by the assessee are general in nature and cannot be considered to be accepted in toto.
After considering the issue from all angels i.e. from the point of view of GP rate as well as possible leakage in trading account, disallowable nature of expenses and after discussion with the assessee, addition of Rs.5.60 lacs was made to the returned income which was more than 6 times of the returned income. However, the allegation of CIT u/s 263 basically revolves around no inquiry had been made by the A.O. before finalizing the assessment and there was cash payment exceeding Rs.20,000/- which is required to be 20 ITA 2128(Del)09 considered for disallowance u/s 40A(3). The moot question which arises for our consideration is as to whether under the facts and circumstances of the case, the A.O. can be said to have applied his mind while making assessment by asking production of various books of accounts, expenses details etc and after considering the low GP rate and having detailed discussion with the assessee, made an addition of Rs.5.60 lacs or can it be said to have without application of mind? The answer is no. Various entries in order sheet clearly indicates that the A.O. asked the assessee to produce cash books, ledger and expenses vouchers for verification and examination. Various books of accounts comprising of cash book, ledger, and vouchers of expenses were produced and books were examined on test check basis. The reason for low GP rate were discussed and after having considered all these points, the A.O. has made an addition of Rs.5.60 lacs. Merely because CIT was of the opinion that net profit rate @ 8% can be replaced for that of A.O., without showing that addition of Rs.5.60 lacs made by the A.O. was not correct. Profit rate of @8% is to be applied where assessee does not maintain books of accounts and the turnover is less than Rs.40 lacs. However, in the instant case, the turnover was 6.21 crores and assessee has maintained proper books of accounts which w3ere duly audited and free from any adverse comments from auditors. Audited P & L account, balance sheet etc. were also filed along with the return of income and the A.O. has also called the assessee to produce these books of accounts which were ;produced before him and test checked. Merely because after completion of scrutiny assessment the assessee has destroyed the same, and consequently could not be produced before CIT, will not disprove the facts that these books of accounts were not maintained or not audited, or not produced before the A.O., or not verified by the A.O. Action of CIT for applying 8% net profit, which application u/s 44AD, was not justified. The Hon'ble Rajasthan High Court in the case of Sriram Jhawarlal VS. ITO 175 DET 229, observed that where estimation of income is required to be made on contract receipt and the gross receipt of assessee contractor were more than Rs.40 lacs, Section 44AD is not applicable nor the principle underlined Section 44AD can be applied for estimating the profit. In this case, the tribunal has confirmed the order of CIT passed u/s 263 and addition made by the lower authorities by applying principles of Section 44AD of the Act were confirmed. The Hon'ble High Court held that the tribunal was not justified in 21 ITA 2128(Del)09 adopting the principles underlying section 44AD when it was not applicable. It was further observed that according to the Proviso to sub-section (1) applied in cases where no receipt exceeding s. more than Rs.40 lacs. It was not in dispute that in the present case, the said amount exceeded Rs.40 lacs, provisions of section 44AD, as such, is not applicable. So far as the permissibility of adopting principles underlying therein is concerned, no legal authority has been shown to support the proposition that in this manner, the principles underlying therein can be adopted.
7. With regard to disallowance of expenses u/s 40A(3), we found that as per the audit report field along with return of income, there was no any adverse observation by the auditors with regard to any cash payment having been made in excess of Rs.20,000/-.After the order of CIT u/s 263 was passed, to give effect the A.O. passed order u/s 143(3)/263 after making detailed inquiry, wherein no addition was made by the A.O. to allege that cash payment in excess of Rs.20,000/- was made by the assessee. Accordingly, no addition on account of Section 40A(3) was made. Simply to obey the directions of CIT, the A.O. has applied 8% profit rate and computed the assessment. There is no dispute to the well settled legal proposition that every loss of revenue as a consequence of order of A.O. cannot be treated as prejudicial to the interest of revenue e.g. when A.O. adopted one of the courses permissible in law and it has resulted in loss of the revenue, and where two views are possible and the A.O. has taken one view with which the CIT does not agree, it cannot be treated as erroneous order prejudicial to the interest of revenue unless the view taken by the A.O. is found to be not sustainable in law. Where an A.O. acting in accordance with law passes some order, same cannot be branded as erroneous by the Commissioner if he is of other view or in the opinion of the Commissioner the order passed by the A.O. is weak or should have made detailed order. Section 263 does not visualize a case of substitution of judgement of Commissioner for that the A.O. who passed the order, unless the order of A.O. is held to be erroneous causing prejudice to the interest of revenue. The intention of the legislature u/s 263 is to empower the CIT to have a supervisory jurisdiction, and the same can be exercised only if both the circumstances specified therein exist. Moreover, the order of the A.O. cannot be set aside for making rowing inquiry without pointing out specific mistake in the order. Furthermore, an order can be revised 22 ITA 2128(Del)09 only when such order is demonstrated to be erroneous, the course of revision is not meant to be exercised for the purpose of directing an officer to hold another investigation when the order is not found to be erroneous. In the instant case, we found that assessment was framed by the A.O. after due inquiry and verification of the books of accounts and other details. Justifiable addition has also been made by the A.O., merely because the books of accounts which were destroyed could not be produced before the CIT, as unreasonable view for estimating the profit @ 8% cannot be substituted for the decision of the A.O. which has been arrived at after verification of books of accounts, details of expenses, reason for low GP rate etc. In view of above discussion, we found that action of CIT is not sustainable on facts and in law. On merits also, as discussed hereinabove, no expenditure in excess of Rs.20,000/- have been made in cash, as found by A.O. on subsequent inquiry which framing assessment u/s 263/143(3). There is also no justification for computing the profit @ 8%, when the reasonable addition has already been made by the A.O. after taking into account various facts and circumstances of the case including nature of assessee's business, reason for decline in GP rate, possibility of over statement of expenses or that of unverifiable nature of expenses etc.
8. In view of the above discussion, the order passed by CIT u/s 263 is set aside and the appeal of the assessee is allowed".
18. Thus, it is seen that therein also, it was a case of reappraisal of evidence, as is instance herein. The said Tribunal order has not been shown to have been upset on appeal.
19. In view of the above, finding merit in the grievance sought to be raised by the assessee by way of the grounds of appeal taken, the same is accepted.
23 ITA 2128(Del)09
20. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 12.11.2010.
Sd/- sd/-
(G.E. Veerabhadrappa) (A.D. Jain)
Vice President Judicial Member
Dated: 12.11.2010
*RM
copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
True copy
By order
Deputy Registrar