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Income Tax Appellate Tribunal, HYDERABAD BENCHES “B”, HYDERABAD
Before: SHRI RAMA KANTA PANDA & SHRI K.NARASIMHA CHARY
आदेश / ORDER PER K. NARASIMHA CHARY, JM: Aggrieved by the order dated 20/03/2020 passed by the learned Commissioner of Income Tax, Tirupati Charge, Tirupati (“Ld. CIT”) under section 263 of the Income Tax Act, 1961 (for short “the Act”) in the case of Sri Dastagiri Dudekula (“the assessee”) for the assessment year 2015-16, assessee preferred this appeal.
Brief facts of the case are that the assessee is an individual, deriving income from civil contracts, and filed the return of income for the assessment year 2015-16 on 27/09/2015 declaring income of Rs. 30,26,390/-. The return was selected for limited scrutiny to verify other expenses claimed in the Profit and Loss Account.
Learned Assessing Officer issued notice under section 143(2) of the Act, perused the books, bills, vouchers etc., to verify the expenses claimed by the assessee. He observed that the evidence is produced by the learned AR of the assessee are mostly supported by self-made vouchers and, therefore, the expenditure is not susceptible for verification. Learned Assessing Officer accordingly rejected the books of accounts, invoke the provisions under section 145(3) of the Act and estimated the income at 8% of the gross receipts on main contracts and 1% on the sub-contracts.
Subsequently, learned PCIT, on a perusal of record, by order dated 20/03/2020 opined that the assessment order is erroneous insofar as it is prejudicial to the interest of Revenue and therefore, set aside the assessment order and directed the learned Assessing Officer to redo the assessment de novo, by verifying the payments made to the sub- contractors under the head ‘other expenses’ with the details.
Assessee is, therefore, aggrieved and filed this appeal stating that the learned Assessing Officer erred in rejecting the books of account of the assessee without bringing any material on record to establish that the income cannot be computed on the basis of books of accounts maintained by the assessee. Learned AR submitted that the assessee filed audit report on the basis of the account books as per the provisions of the Act and, therefore, such account books cannot be rejected by invoking provisions of section 145(3) of the Act, however, after producing all the relevant material only the learned Assessing Officer had taken a conscious view to estimate the income of assessee at 8% of the gross receipts on main contract and 1% on subcontract works. Learned AR submits that in the circumstances, learned PCIT cannot impose his own notions on the learned Assessing Officer, when the learned Assessing Officer had taken a possible view. According to him, exercise of jurisdiction under section 263 of the Act in this case is bad under law. He placing reliance on a number of decisions to support his contention that when the learned Assessing Officer takes a conscious decision basing on the record available before him, exercise of jurisdiction under section 263 of the Act by the learned PCIT is bad under law.
Learned AR further submitted that when once the books are rejected and the income is estimated, such an estimate is in substitution of the income that is to be computed under section 29 of the Act, and therefore, all the deductions which are referred to under section 29 of the Act are deemed to have been taken into account while making such an estimate. For this proposition, he placed reliance on the decision of the Hon’ble Jurisdictional High Court in the case of Indwell Constructions vs. CIT [1998] 232 ITR 776 (Andhra Pradesh). On this premise he submitted that, when once the learned Assessing Officer rejected the books of accounts and accepted the estimate of 1% of sub-contract works, it amounts to learned Assessing Officer allowing the expenses and, therefore, it is not proper for the learned PCIT to conclude that for want of such verification the assessment order is erroneous insofar as it is prejudicial to the Revenue.
Per contra, learned DR submitted that in the return of income, the assessee classified all the expenses relating to the sub-contract, bank charges and other expenses as other expenses (specify nature and the amount) at column No. 38 thereof. Learned DR submits that, in such circumstances, the picking up of the return for verifying the other expenses is not confined to the expenses referred to at column No. 38 (3) of the return, but it extends to the verification of the expenses relating to the sub-contract given and bank charges also. He, therefore, submitted that the learned Assessing Officer limiting the enquiry to the expenses amounting to Rs. 1,79,40,593/- under column No. 38 (3) of the return of income is not incorrect compliance with the mandate of the limited scrutiny. He submitted that the learned Assessing Officer should have verified the genuineness of the expenses in respect of the sub-contracts also. On this premise, learned DR justified the order passed by the learned PCIT under section 263 of the Act.
We have gone through the record in the light of the submissions made on either side. It could be seen from the assessment order, learned Assessing Officer noted that the gross receipts of the assessee for the year under consideration were at Rs. 14,11,35,138/-, out of which the assessee has given works worth Rs. 12,11,70,408/- on sub-contract and the major expenditure incurred by the assessee as per profit and loss account is towards other expenses amounting to Rs. 1,79,40,593/-, learned Assessing Officer called for the production of the bills, vouchers etc., to verify the expenses claimed by the assessee and on verification of such material, the learned Assessing Officer rejected the books of accounts and estimated the income at 8% of the gross receipts and 1% on sub-contract works net of all expenses.
It is, therefore, clear that the learned Assessing Officer took cognizance of the sub-contract receipts worth Rs. 12,11,70,408/- and after verification of the sub-contract agreements and the assessee’s declaration of income at 1% thereof the learned Assessing Officer estimated the income at 1% on the subcontract works.
It could be seen from the notice dated 28/07/2016 issued under section 143(2) of the Act, learned Assessing Officer identified the other expenses claimed in the profit and loss account and called for the evidence. Further by notices dated 20/02/2017, 20/07/2017 and 09/10/2017, learned Assessing Officer called for various documents and it is only after verification of such documents, learned Assessing Officer concluded that the books of accounts have to be rejected and the income has to be estimated at 8% of gross receipts on main contracts and at 1% on sub-contracts net of all expenses as admitted by the assessee. In these circumstances, there is nothing on record to suggest that the learned Assessing Officer did not take cognizance of the expenses relating to the sub-contract works.
Further, in the case of Indwell Constructions (supra), Hon’ble jurisdictional High Court held that,- “The pattern of assessment under the Income-tax Act is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made it is in substitution of the income that is to be computed under section 29. In other words, all the deductions which are referred to under section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account.”
For all these reasons, we are of the considered opinion that the non-consideration of the expenses as detailed by the learned PCIT in the notice issued under section 263 of the Act does not afford jurisdiction to the learned PCIT to revise the order under section 263 of the Act, because when once the learned Assessing Officer resorts to estimation of income or accepts the estimate of income in respect of sub-contract works, it amounts to taking into account various deductions. With this view of the matter, we find it difficult to sustain the order passed by the learned PCIT under section 263 of the Act. Impugned order is therefore quashed.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on this the 5th day of October, 2023.