PRIYA CONSTRUCTION,NAMAKKAL vs. DCIT, CENTRAL CIRCLE,, SALEM

Brief facts of the case are as follows: The assessee is a firm engaged in the business of civil constructions on contract basis. For the assessment year 2020-21, its return of income was filed on 27.12.2020 declaring total income of Rs.1,53,24,440/-. The assessee firm discontinued the business w.e.f. 30.06.2019 and transferred all its business to a limited company by the name M/s. Priya Engineering Projects Private Limited. The partners of the firm became Directors of the said company. The company took over the business of the assessee firm and commenced its operation w.e.f. 01.07.2019. (The company was incorporated on 28.03.2019). There was a survey u/s.133A of the Act in the business premises of Priya Engineering Projects Pvt. Ltd., (the erstwhile firm) on 05.02.2020. During the course of survey proceedings, vouchers/receipts for some of the expenses claimed in the books of accounts of the firm/company could not be produced by the assessee. In view of the same, the Managing Director of the company Shri Sivakumar agreed to declare 8% of the total turnover as profits and had agreed to declare net profit on the basis of the same after claiming interest and partners remuneration for the assessment years 2013-14 to 2020-21. 4. Pursuant to the survey conducted, the case of the assessee firm was selected for scrutiny for the assessment year 2020-21. The assessee firm admitted total income of Rs.1,53,24,440/-, which was duly verified by Shri P.Sivakumar in his capacity as Managing Partner on 27.12.2020. The assessment was completed u/s.143(3) of the Act vide order dated 07.04.2022 accepting the returned income.

Subsequently, the PCIT issued notice u/s.263 of the Act on 21.02.2025 directing the assessee firm to explain why income ought not to be calculated at 8% of the gross receipts which comes to Rs.2,08,28,436/- (gross receipts of the assessee firm for the period 01.04.2019 to 30.06.2019 was Rs.26,03,55,447). Further, the PCIT directed the assessee firm to explain why interest and other income totaling to Rs.23,75,119/- ought not to be included in the total income. The relevant portion of the show-cause notice dated 21.02.2025 issued by the PCIT u/s.263 of the Act reads as follows:- “4. On perusal of the Trading and P&L ending 31.03.2020, it is seen that the assessee has shown Sales/Gross Receipts from Business at Rs.26,03,55,4471-. Owing to the statement made by Shri P.Sivakumar, (Managing Partner of the erstwhile firm M/s Priya Construction) to declare 8% of the total turnover as profit, during the course of survey, the profit from business is calculated as Rs. 2,08,28,436/- (@8% of 26,03,55,447/-). Further, as per its P& L Account, the assessee has received interest and other income totaling to Rs. 23,75,190/-. Considering the business income of Rs. 2,08,28,436/- and other income of Rs. 23,75,190/- the total income of the assessee company for the A.Y. under consideration, before salary to partners works out to Rs. 2,32,03,626/-.

However, the scrutiny assessment for the A.Y. 2020-21 was completed u/s 143(3) on 07.04.2022 by accepting the net profit offered at Rs. 1,53,24,440/- as against the income of Rs.2,32,03,626/- before salary to partners. Therefore, it is clear that the sum of Rs(78,79,186/- [Rs.2,32,03,626 Rs.1,53,24,440] has been omitted to be brought to tax, which has resulted in short levy of tax.

In these circumstances the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue. Hence, the assessment order is liable to be set aside u/s.263 of the Income-tax Act, 1961 as the same has been erroneous in so far as it is prejudicial to the interests of revenue without the meaning of clause (a) of Explanation 2 to Section 263 of the Income-tax Act, 1961. 7. You are hereby given an opportunity to explain why the proposed action u/s.263 as above should not be taken for Asst Year 2020-21 in your case. Your reply to this show cause should reach the undersigned on or before 28.02.2025 by 5 p.m.” 6. The assessee filed objections to the notice issued u/s.263 of the Act vide its letter dated 09.03.2025, which is reproduced at para 8 of the impugned order of the PCIT. The objections of the assessee firm were rejected and PCIT set aside the assessment order dated 07.04.2022 directing the AO to consider the assessment afresh after duly verifying the facts as discussed at paras 4, 5 and 6 and bring the correct income to tax after giving due opportunity to the assessee. The PCIT held that the statement recorded u/s.133A of the Act from the Managing Partner of the assessee firm was not the primary evidence. The PCIT was of the view that the survey team had found primary evidence of inflation of expenditure in the books of accounts which could not be substantiated by the assessee firm, which was further corroborated by the statement of the Managing Partner. The relevant finding of the PCIT in the impugned order passed u/s.263 of the Act dated 30.03.2025 reads as follows:- “11.1 So the crux of the observation of the Hon'ble Supreme Court in the case supra is that mere reliance on statement is not enough to sustain an assessment order, the same needs to be supported with further evidence and findings. In the present case of the assessee, the facts are different in the sense that during the course of survey, the survey team found expenses booked in the books of account maintained by the assessee and on opportunity being given to them to substantiate the same with vouchers/receipts etc. they failed to produce the supporting documents for the said entries for expenses in the books of account, subsequently, a statement was recorded u/s 133A to record the fact of such non- production, which was acceded to by the authorised signatory of the assessee. So in contradistinction to the referred case of CIT Vs. S. Khader Khan Son [(2012) 352 ITR 480 (SC)], in the present case the primary evidence is the finding in the survey of such inflated expenses booked in the books of account which could not be substantiated by the assessee which was further corroborated by the Department by recording the statement u/s 133A of the Act. The assessee did not discharge the onus of proving the contrary to the findings of the survey in this case. Therefore, the findings of the survey as to the difference in expenses claimed and the effect of the same on the Net profit is correct and as per record and therefore the contention of the assessee cannot be upheld and accordingly rejected.

Similarly, on examination of the P& L Account of the Firm for the current year found that the assessee has received interest and other income totaling to Rs.23,75,190/- during the relevant year which has not been considered for the purposes of computing the total income for the relevant year.

On a careful consideration of the facts on record, the arguments and details submitted by the assessee as well as the concatenation of judgements relied herein, it is held that the impugned assessment order dated 07/04/2022 passed by the Assessing Officer for the AY 2020-21 is erroneous and prejudicial to the interest of revenue. Accordingly, in exercise of powers conferred u/s. 263(1) of the Act, the assessment order dated 07/04/2022 is set aside to the file of the Assessing Officer to consider the assessment afresh after duly verifying the facts as discussed at paras 4,5, and6 and bring the correct income to tax after giving due opportunity to the assessee.”

Aggrieved by the PCIT order passed u/s.263 of the Act, assessee has filed the present appeal before the Tribunal. The assessee had initially filed two sets of paper-book (PB). In the first set of paper-book, assessee had enclosed written submissions filed before the PCIT, notice issued u/s.263 of the Act, notice issued by the AO, the reply submitted by assessee firm and the case laws relied on. In the second set of paper-book, assessee had submitted English translation of the statement of the Managing Partner of assessee firm recorded during the course of survey u/s.133A of the Act, the case laws mentioning that sworn statement alone without corroborative evidence cannot be a reason for making additions, etc. On insistence of the Bench, assessee had filed the third paper-book enclosing therein the assessments completed in assessee firm’s case for assessment years 2013-14 to 2019-20, tax audit report, intimation issued u/s.143(1) of the Act and the assessment order passed u/s.143(3) of the Act for the relevant assessment year. The Ld.AR has filed a brief written submission. The primary contention in the written submission is that the statement recorded u/s.133A of the Act cannot be a lone basis for making addition. Further, it was contended that the AO has made adequate enquiry and therefore the revisionary powers exercised by the PCIT u/s.263 of the Act is bad in law. Lastly, it was contended that the PCIT ought not to have remanded the matter in a mechanical manner to the AO and ought have rendered a categorical finding as to the error in the assessment order completed u/s.143(3) of the Act.

On the other hand, the Ld.DR supported the findings of the PCIT. 9. We have heard rival submissions and perused the material on record. A survey u/s.133A of the Act was conducted in the premises of the assessee firm (erstwhile firm) on 05.02.2020. During the course of survey, the assessee was directed to furnish the details about the methods by which the books of accounts are maintained. In reply to the same, assessee submitted day book, cash book, ledger etc., which is maintained in computer form in tally. Further, assessee’s Managing Partner submitted that the above mentioned books of accounts as asked by the survey team could not be furnished and replied to Q.No.7, he shall estimate the income at 8% of the gross receipts and pay taxes for the AYs 2013-14 to 2019-20. The relevant question posed to the Managing Partner of the assessee firm namely Q.Nos.6 and 7 and his answer to the questions are detailed below:- Q.6) Do you have proper books of accounts for your company? If yes, please give us the details about the method by which the books of accounts are maintained?

Pursuant to the survey, assessments were reopened in the case of the assessee firm for the assessment years 2013-14 to 2019- 20 and assessments were duly completed for the aforesaid mentioned assessment years and the same are placed on record from pages 49 to 76 of the assessee’s paper-book 3. On perusal of the assessment order, assessee had not objected to the estimation of net profit at 8% of the gross receipts and had accepted the aforementioned assessment orders. 12. The PCIT had issued show-cause notice u/s.263 of the Act by invoking clause (a) to Explanation 2 to Section 263 of the Act, which states that for the purpose of section 263, it is hereby declared that an order passed by the AO shall be deemed to be erroneous insofar as prejudicial to the interests of the Revenue, if in the opinion of the PCIT, the order is passed without making enquiry or verification which should have been made. The AO had issued notice u/s.143(2) of the Act on 19.03.2021 (page 25 of PB-1). The AO vide his letter dated 07.10.2021 had fixed the case for hearing on 21.10.2021. Further, assessee had filed its reply online on 12.10.2021 by uploading certain details with regard to the expenses where TDS have been made, the computation of income, etc. After submission of the assessee’s reply, no hearing has been conducted by the AO and the AO has completed the assessment u/s.143(3) of the Act by accepting the returned income. On perusal of the notice issued by the AO during the course of assessment proceedings, there is nothing on record to suggest that AO has conducted necessary enquiry before concluding the assessment. The AO in the notice issued had not called for the details from the assessee as regards the details of expenses and why 8% of the gross receipts ought not to be taken as income as stated in the sworn statement recorded during the course of survey (especially when for assessment years 2013-14 to 2018-19, 8% of the gross receipts was assessed to tax in the reassessment orders completed). Therefore, we are of the view that there is total lack of enquiry by the AO during the course of assessment proceedings and had erroneously accepted the returned income. Therefore, the PCIT is justified in invoking his revisionary powers u/s.263 of the Act. However, we notice in para 6, the PCIT has given a specific direction to add 8% of the gross receipts. It is the claim of the assessee firm that its books of accounts are audited. If assessee is able to prove before the AO that its net profit rate is less than 8% by producing the necessary evidence and explain the expenditure claimed as allowable deduction, necessarily the AO dehors the observation of the PCIT, shall conclude the assessment in accordance with law. It is ordered accordingly.

In the result, the appeal filed by the assessee is dismissed.

अपीलाथȸ/Appellant

Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Salem 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF.