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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI N.K.CHOUDHRY, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
आदेश /O R D E R
Per D.S.Sunder Singh, Accountant Member :
This appeal is filed by the assessee against the order passed u/s 263 of the Act by the Principal Commissioner of Income Tax (Pr.CIT), Rajahmundry in F.No.16/263/Pr.CIT/RJY/2018-19 dated 31.03.2019 for the Assessment Year (A.Y.)2014-15.
Badeti Venkateswara Rao, Attili
All the grounds of appeal are against the order passed by the Principal Commissioner of Income Tax (Pr.CIT) u/s 263 of the Income Tax Act, 1961 (in short ‘Act’). Brief facts of the case are that the assessee is a fruit merchant, filed his return of income admitting total income of Rs.2,26,310/- and the assessment was completed u/s 143(3) of the Act on total income of Rs.7,11,519/-. Subsequently, the Ld.Pr.CIT has taken up the case for revision u/s 263 and found that the total turnover of the assessee was Rs.1,99,32,034/- and observed that Assessing Officer (AO) estimated the income at 8% on the cash deposits of Rs.88.93 lakhs without examining source of each cash deposit. The Ld.Pr.CIT also observed that the cash deposits were made by the assessee himself in the account and taken example of couple of occasions. The Ld.Pr.CIT, viewed that the AO ought to have examined the sources of each cash deposits entry wise independently and collected the details of assets and liabilities and ascertained whether there was any unexplained investment in the year under consideration or not. Since the AO has not called for the full details, such as movable or immovable assets to ascertain unexplained investment in the year under consideration and estimated the income @8% on total cash deposits without examining the source of each deposit, the Ld.Pr.CIT viewed that the Badeti Venkateswara Rao, Attili assessment made by the AO was erroneous and prejudicial to the interest of the revenue, hence, issued show cause notice calling for explanation of the assessee as to why the assessment should not be revised u/s 263 of the Act. In response to the notice issued u/s 263, the assessee filed detailed explanation which was considered by the Ld.Pr.CIT and held that the AO ought to have treated the entire amount of cash deposits of the assessee as income instead of treating the same as turnover, since, the assessee failed to submit the proof in respect of each entry of the cash deposit as forming part of total deposit. Accordingly, the Ld.Pr.CIT set aside the order passed by the AO holding the same as erroneous and prejudicial to the interest of the revenue and directed the AO to make proper enquiries with customers and farmers and obtain complete information in relation to sources of the cash deposits in his bank account instead of resorting to estimation of income at 8% on the turnover and make the assessment afresh as per law.
3. Against the order of the Ld.Pr.CIT, the assessee filed appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the assessee is a fruit merchant, engaged in selling the fruits as intermediary and earning the commission of 1% on sales, accordingly admitted the gross commission of Rs.4,59,400/- in the return of income. The assessee also Badeti Venkateswara Rao, Attili furnished confirmations from the buyers of the fruits, wherein, they have confirmed that the commission was paid at 1%, as observed in page No.40 to 48 of the paper book. Taking our attention to the confirmation letters, the Ld.AR argued that the assessee gets commission at 1% from the buyers. The vendors are farmers and supply fruits to the buyers through the assessee. The assessee is acting as intermediary and his only source of income stated to be was commission @1% from the buyers for arranging the sale of fruits from the farmers. The case was selected for limited scrutiny under CASS to verify the deposits in savings bank account which was more than the turnover. The AO called for the details of the cash deposits and the assessee furnished confirmation letters and placed information before the AO. After verifying the information, accepting the explanation of the assessee, the AO treated the cash deposits as turnover and estimated the income at 8% on turnover, thus the total income was estimated at Rs.7,11,519/- against the income returned of Rs.2,48,620/-. Since the case was selected for limited scrutiny for verification of the cash deposits and the sources of the cash deposits were explained by the assessee as sales, supported by the evidences and estimated the income treating the same as turnover, the Ld.AR submitted that there was no error
Badeti Venkateswara Rao, Attili in the order passed by the AO which needs revision u/s 263. The Ld.AR submitted that the commission received by the assessee was only Rs.4,59,400/- which was admitted in the return of income and the income estimated by the AO was Rs.7,11,519/- more than the gross commission received. The Ld.AR further submitted that what was admitted in the return of income was gross commission received by the assessee on sales, but not the turnover. Therefore, argued that there is no error in the order of the AO which is prejudicial to the interest of the revenue, and the Pr.CIT is not justified in directing the AO to treat the entire cash deposits as income. The Ld.AR further submitted that the case was selected for limited scrutiny and it was not converted into full scrutiny, therefore, argued that the Ld.Pr.CIT has travelled beyond the scope of the scrutiny on this aspect also. Further, the Ld.AR argued that the AO had verified the source of deposits and treated the same as turnover. The Ld.Pr.CIT viewed that the AO has not properly examined the source of cash deposits which was incorrect. The Ld.AR further submitted that inadequate enquiry is not the reason for revision u/s 263 as decided by this Tribunal in the case of M/s Naveena Rice Industries in dated 31.07.2018. Thus
Badeti Venkateswara Rao, Attili argued that the order of the Ld.Pr.CIT passed u/s 263 to be set aside and allow the appeal of the assessee.
On the other hand, the Ld.DR vehemently supported the orders of the lower authorities and submitted that the AO has not caused any enquiries, verified the sources, simply accepted the turnover as income, therefore, argued that the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue, hence, requested to uphold the order of the Ld.Pr.CIT. The Ld.DR distinguished the order of this Tribunal in M/s Naveena Rice Industries (supra) stating that in the said case, there was a survey u/s 133A and all the payments were accounted in the regular books of accounts. Therefore, argued that the facts of the case law in the case of M/s Naveena Rice Industries (supra) are distinguishable and not applicable in the case of the assessee.
We have heard both the parties and perused the material placed on record. As per the order of the Ld.Pr.CIT, the assessee’s case was taken up for limited scrutiny in order to verify the cash deposits which were more than the turnover admitted by the assessee. On perusal of the assessment order, it is evident that the AO has called for the details by issue of notice u/s 142(1) along with questionnaire and the assessee’s authorized
Badeti Venkateswara Rao, Attili representative Shri Srikanth, CA appeared from time to time, filed necessary details and the assessment was completed after verifying the details. The only issue for which the assessee’s case was selected for scrutiny was verification of cash deposits made in the bank account which were more than the turnover. As seen from the assessment order dated 16.08.2016, it is observed that the AO has verified the sources of cash deposits and the assessee explained that he is doing commission business and the source of cash deposits was the sale proceeds of his business. Accordingly, the AO accepted the source of cash deposits as turnover and estimated the income @8% of the total turnover and determined the business income at Rs.7,11,519/-. Thus, prima facie, it is observed that the AO has verified the source of cash deposits and taken a conscious decision that the source of deposits made in the bank account was related to the turnover. The cash deposits made in the savings bank was duly verified by the AO. As discussed earlier, this case was selected for limited scrutiny for verification of deposits made in the savings bank account and the case was not converted into full scrutiny. Therefore, the AO is not permitted to travel beyond the scope of the case for which it was selected, unless the case is being converted into full scrutiny with the approval of Chief Commissioner
Badeti Venkateswara Rao, Attili of Income Tax or Commissioner of Income Tax as the case may be, as per the instructions given by the Board to the field functionaries. Calling for the details of movable and immovable properties, unexplained investments and any other information not related to limited scrutiny amounts to travelling beyond the scope of scrutiny for which the case was selected. Thus, the AO acted within the scope of limited scrutiny and assessed the income, after verification of the details. The Ld.Pr.CIT intends to substitute his view in place of decision taken by the AO, which is not permissible in the guise of revision u/s 263. No other evidence was collected by the department to show that the assessee has understated the income. As argued by the Ld.AR, inadequate enquiry is not the reason for taking up the case for revision u/s 263 as decided by the Tribunal in the case of M/s Naveena Rice Industries (supra) relied upon by the assessee. Though the Ld.DR tried to distinguish the case of the assessee with the Naveena Rice Industries, we find that the observation of the Tribunal is squarely applicable to the assessee’s case also. In the cited case, this Tribunal held that though lack of enquiry is the reason or for taking up the case for revision, inadequate enquiry cannot be held to be erroneous and prejudicial to the interest of the revenue. For the sake of clarity and Badeti Venkateswara Rao, Attili convenience, we extract relevant part of the order of this Tribunal in para No.7 which reads as under : “7. We have heard both the parties and perused the material placed on record. The Pr.CIT has taken up the case for revision u/s 263 for not properly examining the issues in the seized material marked as NRI-1 to NRI-40 for the assessment year 2012-13. Such cash credits and expenditure was worked out to Rs.1,41,48,064/-. All the cash credits stated to have been recorded by the assessee from explained sources relating to the business transactions. The assessee explained that the Managing Partner withdraws the money from the banks on day to day basis and hands over some funds to Mr.N.Narasimha Rao who is also called as ‘Pedababugaru’ who ensures making the payment towards purchase of paddy and other overheads through accountant who used to write those financial transactions in a rough note book referred to above in the name Pedababugaru alias Mr.M.Narasimha Rao in order to hold substantial control over the movement of funds and to avoid embezzlement. The entries are made not only in the regular books of accounts, but also in rough note books maintained by the accountant under the control and directions of Pedababugaru, The assessee further submitted that in this line of trading activity, it is very common to make the payments at different points of time to ryots and also to meet related overheads. The funds are drawn from the books of accounts by means of petty cash and recorded in the rough books referred above. The entries made in the rough books are nothing but the duplication of the entries in the regular books of accounts, no separate cash was introduced. The assessee also furnished Annexure A explaining the amounts withdrawn from the bank account, the cash available as per the books of accounts, the amounts noted in the rough note books and with the remarks, before the Ld.Pr.CIT in the paper book at page No. 78 to 80 during the revision u/s 263..On going through the Annexure A, there was sufficient cash balances available as per the regular books of accounts and there was no negative cash balance. It is a fact that the AO has conducted the survey u/s 133A and recorded the statements during the course of survey and found the discrepancies at the time of survey. All the above discrepancies were found by the AO at the time of survey and because of the discrepancies found during the course of survey, the assessment was reopened u/s 147 to examine the material available at the time of survey. Accordingly, the AO has taken up the case for assessment, called for the books of accounts, examined the books of accounts and completed the assessment. In this case, the entire material was available to the AO and the books of accounts were also made available to the AO. The assessee contended that the entries made in the rough cash book are nothing but the duplication of entries in the regular books of account and no separate cash was introduced. Therefore, once the AO examined the books of accounts, there is no basis for holding that the AO has not examined the issue merely because the AO has not Badeti Venkateswara Rao, Attili recorded his finding with regard to issues in the rough note book in the assessment order or has not placed the relevant details in the assessment records. The Pr.CIT cannot conclude that the AO has not examined the issue when the material is very much available with the AO. In these facts and circumstances, it is for the revenue to establish that the AO has not examined the issue in the reassessment, which the revenue has failed to do so. The Pr.CIT cannot consider the entries made in the rough cash book only with the withdrawals made from the bank. It has to be considered with regular cash book and withdrawals made from the bank account together. If the same is considered, there was no negative balance and the source of the entries made in the rough note book stands explained. The Pr.CIT heavily placed reliance on findings of the AO for the A.Y.2014-15 and the same are irrelevant in the year under consideration. The observations of the Ld.Pr.CIT at best can be called as inadequate enquiry but not the lack of enquiry. The Ld.Pr.CIT also stated in the order that the AO has not examined certain issues properly. Though lack of enquiry is a reason for taking up the case for revision, inadequate enquiry cannot be held to be erroneous and prejudicial to the interest of the revenue. Therefore, we hold that the assessment order passed by the AO was not erroneous and the revenue could not support it’s contention that the AO has not enquired into the issues available in the impounded material. Therefore, the order passed by the CIT u/s 263 is unsustainable and accordingly cancelled.” The department has not placed any other decision of the High Court or Supreme Court to controvert the decision relied upon by the assessee. Therefore, we hold that there is no error which is prejudicial to the interest of the revenue in the order passed by the AO u/s 143(3) dated 16.08.2016. Hence, we set aside the order of the Ld.Pr.CIT and allow the appeal of the assessee.
In the result, appeal of the assessee is allowed.
Badeti Venkateswara Rao, Attili
Order pronounced in the open court on 26th March, 2021.
Sd/- Sd/- (एन के चौिरी) (धड.एस .सुन्दर धसंह) (N.K.CHOUDHRY) (D.S.SUNDER SINGH) न्याधयक सदस्य/ JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 26 .03.2021 L.Rama, SPS आदेश की प्रतितिति अग्रेतषि/Copy of the order forwarded to:- 1. तिर्धाररिी/ The Assessee– Badeti Venkateswara Rao, D.No.17-44, Poleramma Temple St., Attili, West Godavari Dist. 2. रधजस्व/The Revenue – Income Tax Officer, Ward-1, Tanuku 3. The Pr.Commissioner of Income Tax , Rajahmundry 4. तवभधगीयप्रतितितर्, आयकरअिीिीयअतर्करण, तवशधखधिटणम/DR, ITAT, Visakhapatnam 5.गधर्ाफ़धईि / Guard file आदेशधिुसधर / BY ORDER // True Copy //
Sr. Private Secretary ITAT, Visakhapatnam