MANORANJAN PRUSTY,MAYURBHANJ vs. ITO, WARD-2, BARIPADA

आयकर अपीऱीय अधिकरण, “एस.एम.सी”, न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, CUTTACK श्री चन्द्र मोहन गगग, न्द्याययक सदस्य के समऺ । BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER आयकर अऩीऱ सं./ITA No.168/CTK/2018 (नििाारण वषा / Assessment Year :2010-2011) Manoranjan Prusty, Vs. ITO,Ward-2, Baripada At: pandalsil, PO:Sukurli Mayurbhanj-757039 स्थायी ऱेखा सं./ जीआइआर सं./ PAN/GIR No. : AElPP 6109 E (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) यनधागररती की ओर से /Assessee by : Shri D.K.Sheth/M.Sheth, Advocate राजस्व की ओर से /Revenue by : Shri S.M.Kesakamat, CITDR सुनवाई की तारीख / Date of Hearing : 12/06/2019 घोषणा की तारीख/Date of Pronouncement 23/08/2019 आदेश / O R D E R This is an appeal filed by the assessee against the order of CIT, Cuttack, dated 30.03.2018 passed u/s.263 of the Act for the assessment year 2010-2011. 2. The assessee has raised the following grounds of appeal :- 1. For that on the facts and in the circumstances of the case the order u/s.263 of the I. T. Act. as made by the Principal Commissioner is arbitrary , uncalled for and unjustified. 2. For that the learned Commissioner is not justified to hold that the order of the AO is erroneous and prejudicial to the Interest of Revenue. 3. For that the submissions furnished by the appellant should have been appreciated and accepted by the learned Commissioner 3. Brief facts of the case are that the assessee-individual derives income from civil contract work and filed its return of income for the Assessment year 2012-13, on 17.04.2013 showing total income

2 ITA No.168/CTK/2018 Rs.3,64,080/-. The assessment was completed u/s.143(3)/147 of the Income Tax Act, 1961 (in short "the Act") by the AO on 17.07.2015 determining the total income at Rs.6,20,880/-. Thereafter the CIT invoked provisions of Section 263 of the Act vide order dated 30.03.2018, against which the assessee is in appeal before the Tribunal. 4. I have heard the arguments of both the sides and carefully perused the material available on the record of the Tribunal, inter alia, the impugned order of ld. Pr. CIT dated 30.03.2018 passed u/s.263 of the Income Tax Act, 1961 (for short ‘the Act’) along with written submissions dated 3.10.2018 of the assessee. 5. Learned Assessee’s Representative (ld. AR) submitted that the AO while completing the assessment computed the income from contract business by applying rate of 6% on gross contract receipts after considering the relevant facts and circumstances of the case as the against 3.39% of gross receipts which was shown by the assessee in the return of income for the relevant period. Ld. AR further submitted that the provisions of Section 44AD of the Act are not applicable in the present case and the ld. Pr. CIT should not have directed the AO to complete the assessment in a particular manner by applying rate of 8% in place of 6% on gross contract receipts. Ld. AR strenuously contended that such directions are beyond the powers of ld. Pr. CIT conferred by the provisions of section 263 of the Act. After placing reliance on the decision of Hon’ble Madras High Court in the case of CIT Vs. Smt. Tasneem Z Madraswala, 324 ITR 67 (Mad), ld. AR submitted that there is no power

3 ITA No.168/CTK/2018 vested with the ld. Pr.CIT to direct the AO to complete the assessment in a particular manner. Ld. AR lastly submitted that the ld. Pr. CIT was not justified in holding that the order of the ld. AO is erroneous and prejudicial to the interest of revenue as the AO, after considering the entire facts and circumstances of the case estimated the net profit @6% of the total receipts from civil contract work as against the return of net profit of 3.39% of the assessee, therefore, ld. AR submitted that the impugned assessment order cannot be tagged as erroneous and prejudicial to the interest of revenue empowering the ld. Pr.CIT to review the order u/s.263 of the Act. 6. Ld. AR also placed reliance on the decision of Hon’ble Patna High Court in the case in the case of DCIT Vs. M/s Salauddin, rendered in Miscellaneous Appeal No.77 of 2010, dated 11.04.2012, wherein the Hon’ble High Court held that for civil contract estimation of 6% of net profit of total gross receipts is found to be correct and justified. He also placed reliance on the order of the coordinate bench of this Tribunal in the case of Sri Jagannath Mohapatra, passed in ITA No.152/CTK/2016, order dated 30.08.2017, wherein the Tribunal has observed that 6% of gross receipt for determination of net profit is reasonable. 7. Replying to the above, ld. DR strongly supported the impugned order u/s.263 of the Act and submitted that the AO vide order sheet entry dated 10.07.2015 asked the assessee to explain as to why book results of net profit should not be rejected by invoking provisions of Section 145(3) of the Act and net profit should not be estimated @8% of the entire

4 ITA No.168/CTK/2018 contract receipts. Ld. DR further submitted that the notice issued to the assessee was not completed by the assessee by way of any explanation or submitting any documentary evidence controverting the show cause notice of the assessee. Ld. DR submitted that in this situation the AO ought to have estimated net profit @8% of the total gross receipts but the AO estimated net profit @6% which is erroneous and prejudicial to the interest of revenue, therefore, ld. Pr. CIT was right in invoking provisions of Section 263 of the Act. Ld. DR also submitted that in the notice u/s.263 of the Act, ld. Pr. CIT directed the assessee to submit audited books of accounts for A.Y.2011-2012 and necessary evidence in support of the contentions, if any, but from reply dated 27.03.2018, it is clearly discernible that the assessee did not submit audited books of accounts and other necessary evidence in support of his contentions, therefore, the impugned order may kindly be upheld. 8. Ld. AR placing rejoinder to the above submissions of ld. DR, submitted that the AO has estimated the net profit @6% on a justified and reasonable manner, which also gets support from the decision of Patna High Court in the case of DCIT Vs. M/s Salauddin, rendered in Miscellaneous Appeal No.77 of 2010, dated 11.04.2012 and the order of the coordinate bench of the Tribunal in the case of Jagannath Mohapatra (supra). Accordingly, ld. AR, alternatively, submitted that if it is found that the ld. Pr. CIT was right in invoking the provisions of Section 263 of the Act, then also his estimation of net profit may kindly be reduced to 6%

5 ITA No.168/CTK/2018 which has been found justified and proper in a case of civil contract by the Hon’ble Patna High Court in the case of M/s Salauddin (supra). 9. On careful consideration of rival submissions and after perusing he relevant material placed on the record of the Tribunal, inter alia, the impugned assessment order dated 17.07.2015 passed u/s.143(3)/147 of the Act and the impugned revisional order passed by the ld. Pr. CIT u/s.263 of the Act, dated 30.03.2018, first of all, from para 3 of the show cause notice dated 19.03.2018 u/s.263 of the Act, it is discernible that the ld. Pr. CIT from the assessment records, noticed that the AO vide order sheet entry dated 10.07.2015 show caused the assessee as to explain as to why the book results should not be rejected by invoking the provisions of Section 145(3) of the Act and the net profit should not be estimated @8% of the entire contract receipts. Ld. Pr. CIT further noticed that the assessee did not file any reply to the said show cause notice and, thus, the AO had no option but to estimate of net profit @8% of gross receipts, however, the AO estimated the net profit @6% without making any further enquiry for adjudication of the issue. Therefore, I find that in the present case the AO has half-hearted proceeded to make enquiry regarding estimation of net profit by way of issuing show cause notice but without receiving any reply from the assessee and without any contention on the said show cause notice kept aside this stand taken by him. Without commenting on the merits of the conclusion drawn by the Pr. CIT, I clearly observe that there was inadequate enquiry by the AO on the point of

6 ITA No.168/CTK/2018 estimation of net profit, therefore, ld. Pr. CIT is entitled to undertake the provisions of Section 263 of the Act. 10. The next question to be adjudicated by me is as to whether the ld. Pr. CIT had no power to direct the AO to complete the assessment in a particular manner. To adjudicate this contention I find it profitable to reproduce the provisions of Section 263 of the Act for A.Y. 2013-2014, which reads as follows :- “263. Revision of orders prejudicial to revenue. (1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub- section,- (a) an order passed on or before or after the 1st day of June, 1988 ] by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner [or Deputy Commissioner] or the Income- tax Officer on the basis of the directions issued by the [Joint] Commissioner under section 144A; (ii) an order made by the [Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised by the Board in this behalf under section 120; (b) "record" [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner;

7 ITA No.168/CTK/2018

(c) where any order referred to in this sub- section and passed by the Assessing Officer had been the subject- matter of any appeal, [filed on or before or after the 1st day of June, 1988 ] the powers of the [Principal Commissioner or] Commissioner under this sub- section shall extend [ and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal.] (2) No order shall be made under sub- section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.] (3) Notwithstanding anything contained in sub- section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal,] the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub- section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.” 11. In my humble understanding of the above provision of Section 263 of the Act, ld. Pr. CIT may call for and examine the records or any proceedings under this Act, and if he considers that any order passed therein by the Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Meaning thereby while invoking the section 263 of the Act, ld. Pr. CIT has multiple options viz. (i) he may pass an order enhancing or modifying the assessment; (ii) pass order cancelling the

8 ITA No.168/CTK/2018 assessment; and (iii) pass order directing the AO to make fresh assessment. In the present case, the ld. Pr. CIT has taken first recourse i.e. enhancing the assessment order from 6% to 8% of total contract receipts and he computed the income of the assessee in para 12 of the impugned order resulting into enhancement of assessment. Thereafter in para 13, ld. Pr. CIT directed the AO to give effect the said enhancement order latest by 13.06.2018 as per mandate of Section 153(5) of the Act. Therefore, once the ld. Pr. CIT assumed its jurisdiction to revise the assessment order u/s.263 of the Act then he can very well enhance the assessment order and the same would be within the ambit of the powers conferred on him under all four corners of the Section 263 of the Act. 12. At this juncture, I also find it appropriate to distinguish the decision of Hon’ble Madras High Court in the case of Smt. Tasneem Z Madraswala (supra), wherein it has been observed that no power is vested with the ld. Pr. CIT to direct the AO to complete the assessment in a particular manner. In this case, the Hon’ble Madras High Court held that the CIT was right in exercising his powers u/s.263 of the Act, however, Their Lordships held that while remanding the matter the ld. CIT ought not to have given a specific direction to complete the assessment in a particular manner. The proposition rendered by the Hon’ble Madras High Court applies in a case where the ld. Pr. CIT after revising the assessment order directing the AO to frame a fresh assessment order. In my humble understanding Their Lordship rendered the proposition that if the ld. Pr. CIT is not availing the first two recourse available to him i.e. enhancing or

9 ITA No.168/CTK/2018 modifying the order or cancelling the assessment and chose to take third recourse i.e. directed the AO to make fresh assessment, then in such a situation, ld. Pr. CIT is not empowered to direct the AO to pass assessment order in a particular manner. 13. As I have noted above, in the present case, ld. Pr. CIT has chosen to enhance the assessment and has also computed the income of the assessee according to the enhancement and thereafter he directed the AO to give effect to the said order. Therefore, the proposition rendered by the Hon’ble Madras High Court is not applicable in favour of the assessee as in the present case there is no direction by the ld. Pr.CIT to the AO to pass assessment order in particular manner. Resultantly, I respectfully held that the benefit of the ratio of decision of Hon’ble Madras High Court in the case of Smt. Tasneem Z Madraswala(supra) is not applicable for the assessee in the present case. In view of the foregoing discussion, I am inclined to hold that ld. Pr. CIT was right in revising the order u/s.263 of the Act. 14. Now, I proceed to adjudicate the alternative prayer of the assessee i.e. estimation of net profit may kindly be reduced to 6% as per the decision rendered by the Hon’ble Patna High Court in the case of M/s Salauddin (supra) and the decision of the coordinate bench of the Tribunal in case of Sri Jagannath Mohapatra (supra). 15. Ld. AR submitted that the assessee is a civil contractor who declared entire contractual receipts before the AO and filed return of income showing net profit of 3.39% of gross receipts. Ld. AR further

10 ITA No.168/CTK/2018 submitted that the AO took a harsh view and estimated the net profit @6% of gross receipts and for the sake of termination of litigation the assessee did not file any appeal before the ld. CIT(A) in view of the proposition rendered by the Hon’ble Patna High Court in the case of M/s Salauddin (supra), therefore, ld. AR prayed that the estimation of net profit enhanced by the ld. Pr. CIT may kindly be reduced to 6% in the interest of justice and fair play. 16. Replying to the above, ld. DR strenuously supported the estimation of net profit enhanced by the ld. Pr. CIT and submitted that there is no reason to estimate the net profit @6% of gross contractual receipts. 17. On careful consideration of the above rival submissions, first of all, I may point out that the ld. Pr. CIT enhanced the estimating by rightly invoking powers u/s.263 of the Act and has calculated the income accordingly in para 12 of the impugned order. Even if the action of ld. Pr. CIT in invoking provisions of Section 263 of the Act is found to be correct, then also the Tribunal is empowered to examine and evaluate the consequent action of the enhancement of assessment. 18. As per proposition rendered by the Hon’ble Patna High Court in the case of M/s Salauddin (supra), wherein it has been held that in a case of civil contractor estimation of net profit @6% of the total contractual receipts is justified and reasonable. Therefore, respectfully following the same, enhancement made by the ld. Pr. CIT is modified and estimate of net profit made by the ld. Pr. CIT require modification. Thus, I direct the

11 ITA No.168/CTK/2018 AO to estimate of net profit of the assessee @6% of the total gross receipts. Consequently, appeal to this extent is allowed. 19. Accordingly, appeal of the assessee challenging the revisionary order of ld. Pr. CIT u/s.263 of the Act is dismissed, however, keeping in view the proposition rendered by the Hon’ble High Court in the case of M/s Salauddin (supra), estimation of net profit made by the ld. Pr. CIT while enhancing the assessment is reduced to 6% of total contractual receipts, the AO is directed to recompute the taxable income of the assessee accordingly. Finally, the appeal of the assessee is partly allowed. 20. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on 23/08/2019. Sd/- (CHANDRA MOHAN GARG) न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनांक Dated 23/08/2019 प्र.कु.मम/PKM, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant- . Manoranjan Prusty, At: pandalsil, PO:Sukurli Mayurbhanj-757039 प्रत्यथी / The Respondent- 2. ITO,Ward-2, Baripada 3. आयकर आयुक्त(अऩीऱ) / The CIT(A), 4. आयकर आयुक्त / CIT 5. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, ITAT, Cuttack 6. गार्ग पाईऱ / Guard file. सत्यावऩत प्रयत //True Copy// आदेशािुसार/ BY ORDER,

(Senior Private Secretary) आयकर अपीऱीय अधिकरण, कटक / ITAT, Cuttack