MOHAN GARDENS KALYANA MANDAPAM,CHENNAI vs. ITO, NCC-7(4), CHENNAI

The assessee has raised following grounds of appeal:- “1. .For that the order of the Principal Commissioner of Income Tax is without jurisdiction, contrary to law, facts and circumstances of the case and at any rate is opposed to the principles of equity, natural justice and fair play.

Brief facts of the case are that the assessee is a partnership firm running a kalyana mandapam filed its return of income u/s.139(4) of the Income Tax Act, 1961, on 07.12.2017 disclosing total income of Rs.1,10,620/- and such income has been determined on presumptive basis u/s.44AD of the Income Tax Act, 1961 @ 8% of gross receipts of Rs.13,82,700/-. A survey u/s.133A of the Income Tax Act, 1961, was conducted on 19.09.2019 in the premises of the assessee and during the course of survey suppression of receipts to the tune of Rs.75 lakhs was noticed. Consequent to survey, case has been reopened u/s.147 of the Income Tax Act, 1961, and in response to notice issued u/s.148 of the Act, the assessee has filed its return of income on 05.03.2019 and declared total income of Rs.18,03,840/- and said income has been determined u/s.44AD of the Act on presumptive basis. The assessment has been completed u/s.143(3) r.w.s. 147 of the Act, on 28.12.2019 and determined total income at Rs.18,03,840/- without making any additions.

The case has been subsequently taken up for revision proceedings u/s.263 of the Income Tax Act, 1961, and consequently, show-cause notice dated 14.03.2022 was issued and called upon the assessee to explain as to why assessment order passed by the Assessing Officer dated 28.12.2019 should not be set aside. The PCIT, in the said show-cause notice observed that although, the assessee has admitted suppression of receipts during the course of survey, but has claimed various expenses and declared net profit of Rs.18,03,840/-, however, could not substantiate necessary expenses with evidences. However, the Assessing Officer has accepted explanation furnished by the assessee without application of mind to the relevant provisions of the Act, which rendered assessment order erroneous, insofar as it is prejudicial to the interests of revenue. In response to notice, the assessee submitted that it has filed return of income in response to notice u/s.148 of the Act, on presumptive basis in terms of section 44AD of the Act and estimated 8% net profit of gross receipts, including gross receipts found during the course of survey and thus, question of maintenance of books of account and production of evidences for expenses does not arise. Therefore, the Assessing Officer has accepted return of income filed by the assessee without making adjustment and thus, when the Assessing Officer himself does not have any power to call for books of account and evidences for expenses, then the PCIT cannot exercise his powers u/s.263 of the Act on the very same issue and set aside the assessment order. The Principal CIT, however was not convinced with explanation furnished by the assessee and according to the PCIT, the assessment order passed by the Assessing Officer dated 28.12.2019 is erroneous, insofar as it is prejudicial to the interests of revenue, because the Assessing Officer has failed to examine the issue in right perspective of law, even though, the assessee and his Auditor claimed that firm does not have any evidences in support of expenses and hence, set aside the assessment order and directed the Assessing Officer to redo the assessment to examine aspects as discussed in the 263 order. Aggrieved by the PCIT order, the assessee is in appeal before us.

The learned A.R for the assessee submitted that the PCIT erred in not appreciating fact that the assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of revenue, because the assessee has adopted presumptive taxation in terms of section 44AD of the Act, and declared 8% profits on gross receipts, including suppression of receipts found during the course of survey. The Assessing Officer, after considering relevant facts has rightly concluded the assessment without making any adjustment.

The learned DR, on the other hand, supporting order of the learrned PCIT submitted that the PCIT has made out a case of erroneous order passed by the Assessing Officer, which caused prejudice to the interests of the Revenue and thus, there is no error in the reasons given by the PCIT to set aside the assessment order and their order should be upheld.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. The facts borne out from records indicate that the assessee has originally filed its return of income and estimated profit in terms of section 44AD of the Income Tax Act, 1961, on gross receipts of Rs.13,82,700/-. During the course of survey u/s.133A of the Act, suppression of receipts to the tune of Rs.75 lakhs was found and the assessee in response to 148 notice has filed return of income and declared gross receipts of Rs.88,82,700/- and estimated 8% profit in terms of section 44AD of the Income Tax Act, 1961, and declared net profit of Rs.18,03,842/-. The Assessing Officer has accepted income returned by the assessee in the course of assessment proceedings without making any further addition. The PCIT was of the opinion that the Assessing Officer ought to have carried out necessary verification with regard to expenses claimed by the assessee against suppressed turnover and thus, opined that the assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of revenue.

In light of above factual background, if you examine the case of the assessee, one has to understand whether the assessment order passed by the Assessing Officer is erroneous, insofar as it is prejudicial to the interests of revenue.