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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A”: HYDERABAD
Before: SHRI SATBEER SINGH GODARA & SHRI LAXMI PRASAD SAHU
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES “A”: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No. 437/Hyd/2020 Assessment Year: 2015-16 C. Eswar Reddy & Co., Vs. Asst. Commissioner of Kurnool. Income-tax, Circle – 1, Kurnool. PAN – AACFC 7761J (Appellant) (Respondent)
Assessee by: Shri M. Chandramouleswar Rao Revenue by: Shri Rajendra Kumar Date of hearing: 12/04/2022 Date of pronouncement: 13/04/2022
O R D E R PER L.P. SAHU, A.M.: This appeal of the assessee is directed against the Pr. CIT, Tirupati Charge, Tirupati’s order dated 13/03/2020 passed u/s 263 of the Income-tax Act, 1961 (in short ‘the Act’) for the AY 2015-16 on the following grounds of appeal: “That on the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax ('Pr.CIT) erred in assuming jurisdiction
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under Section 263 of the Income-tax Act, 1961 ('the Act). 2. That the Learned Pr. Commissioner of Income-tax did not correctly appreciate the explanation (1) inserted to section 263 of the LT. Act w.e.f. 1.6.2015. The said explanation is not attracted to the facts of the case as the assessment order was passed after making enquiries and verification and after satisfying by the AO. Hence it is neither erroneous nor it is prejudicial to the interests of the Revenue and the learned Pr. CIT erred in assuming otherwise. 3. That on the facts and in the circumstances of the case and in law, the learned Pr. CIT erred in fact that the case is selected for limited scrutiny purpose for verification of 'large other expenses claimed in the P & L Nc' and the AO during the course of assessment proceedings having found that the books of account unreliable has rejected the same under section 145 of I.T.Act and proceeded to estimate the profit. The ld. Pr. CIT cannot hold that the assessment order to be erroneous and prejudicial to the interests of revenue either on the allegation of insufficient enquiry or proper verification was not made by the AO, as it will amount to substitution of opinion of Id. Pr. CIT as against the opinion of AO. 4. That on the facts and in the circumstances of the case and in law, the learned Pr. CIT erred in pointing out in the 263 order that as per the audited P & L A/c. the gross receipts shown by the assessee are Rs. 42,51,87,018/- whereas the gross receipts as per the 26AS are Rs. 42,92,16,2401- Thus there is a difference in gross receipts to the tune of Rs. 40,29,222 which needs to be brought to tax. But the Ld. Pr. CIT, Tirupati failed to appreciate the assessment order where in the gross receipts considered by the AO as per 26AS are at Rs,42,94,74,767 as against Rs,42,92,16,240 as pointed out in 263 order. Thus the AO has assessed higher
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income than the discrepancy pointed out by the Ld. Pr.CIT to the extent of Rs. 2,58,527/-. 5. That on the facts and in the circumstances of the case and in law, the learned Pr. CIT erred in pointing out in the 263 order that the assessee firm claimed TDS to the tune of Rs. 92,43,080 as against the TDS as per Form No. 26AS at Rs. 91,76,217. Thus there is excess claim of TDS to the extent of Rs. 66,863/-. The Ld. Pr. CIT failed to verify the TDS credit allowed in the assessment order. The AO has allowed claim of TDS against the gross receipts from contract receipts at Rs. 91,76,217/-. Thus there is no additional credit of Rs. 66,863/- allowed by the AO as pointed out by the Pr. e •... in the 263 order. Therefore the order passed by the AO is not erroneous so far as prejudicial to the interest and hence not within the scope of 263 of I.T.Act. 6. That on the facts and in the circumstances of the case and in law, the learned Pr. CIT erred in pointing out in the 263 order that the assessee firm has not admitted the interest receipt of Rs. 8440/- received from Southern power Distribution Corporation Ltd. And the same need to be brought to tax. The Ld. Pro CIT failed to appreciate the fact that the appellant has offered interest income under the head income from other sources to the tune of Rs. 12,78,950/- which consists of Interest income from Andhra Bank to the tune of Rs. 12,70,110/- and Rs. 8,840/- being the Interest from M/s. Southern power Distribution Corporation Ltd., Thus there is no short admission of income by the appellant as pointed out by the Ld. PLCIT, Tirupati in the order passed u/s. 263. 7. That the Ld. Pr. CIT ought to have appreciated the fact that when AO is of the opinion that books of account are unreliable, the discretion is with him to reject the books of account and estimate the profit at a rate which is according to AO is reasonable considering the nature of business carried on by assessee. Once such
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decision is taken by the AO, who is the best judge of the situation, then, Ld. Pr. CIT cannot interfere with such decision of AO to substitute his own opinion by exercising power u/s 263 of the Act and hold that the assessment order is erroneous and prejudicial to the interests of revenue. 8. The order passed by the Ld. Pr. CIT under section 263 is purely on misconstrued facts. The Ld. Pr. CIT has verified the return of income w.r.t Form No. 26 AS instead of the Assessment Oder passed by the AO. The order passed by the Ld. Pr. CIT u/s. 263 is purely on assumptions and surmise and deserves to be quashed. It is therefore prayed that the order of Ld. Pr.CIT passed u/s. 263 be set aside and the order of the AO be restored. 9. The Appellant craves for the permission to add, amend, modify, alter revise, substitute delete and or all other grounds of the appeal if deemed necessary and also file any additional grounds of appeal with the permission of the Hon'ble Tribunal during the course of Appellate Proceedings.”
We notice at the outset that assessee’s instant appeal suffers from 3 days delay in filing before the ITAT. In this connection, the assessee has filed an affidavit, wherein, it was affirmed that the appeal sent by speed post to ITAT on 07/08/2020 being Friday and reached ITAT on 10/08/2020 due to closure of ITAT on account of Saturday and Sunday, which caused the impugned delay in filing the appeal belatedly. We rely on Case law Collector Land Acquisition Vs. Mst. Katiji & Ors, 1987 AIR 1353 (SC) and University of Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 2019, hold that such a
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delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. We accordingly hold that assessee’s impugned delay in filing this appeal is neither intentional nor deliberate but due to the circumstances beyond its control. The same stands condoned. Case is now taken up for adjudication on merits.
Briefly the facts of the case are that the assessee engaged in the business of civil contracts filed its “e” return of income for AY 2015-16 on 30/09/2015 admitting a total income of Rs. 2,82,19,143/-, which was processed u/s 143(1) of the Act. Subgsequently, the case was selected for scrutiny under CASS and accordingly, statutory notices were issued to the assessee.
3.1 During the course of assessment proceedings, the AO observed that some of the entries in the books of account were not supported by external vouchers and, therefore, he suspected the expenditure claimed by the assessee in the P&L Account and rejected the books of account of the assessee applying the provisions of section 145(3) of the Act. Accordingly, he estimated the profit @ 8% of gross receipts in respect of own contracts and 4% of receipts from sub-contact works undertaken clear of all expenses. He also noted that as per 26AS gross receipts from
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contracts were Rs. 42,94,74,767/-. The AO, accordingly, determined the income of the assessee as under: Gross receipts from contracts as per 26AS Rs. 42,94,74,767/- Less: Gross receipts given on sub contract Rs. 16,59,18,979/- Value of work done by the assessee Rs. 26,35,55,788/- Income from own contract works estimated @8% = Rs. 2,10,84,463/- Income on the subcontracts' estimated @4% = Rs. 66,36,759/- Total income estimated on total contracts Rs. 2,81,36,020/- Add: other income (Interest) Rs. 12,78,950 Total income determined Rs. 2,90,00,172/-
By virtue of powers vested u/s 263 of the Act, the Pr. CIT called for the assessment records of the assessee for AY 2015-16 and after examination of the record, he noticed on perusal of audited P&L account and Form 26AS that gross contract receipts as per Form 256AS was Rs. 42,92,16,240/- and gross contract receipts as per P&L account was Rs. 42,51,87,018/-. He, therefore, opined that the difference amount of Rs. 40,29,222/- needs to be brought to tax.
4.1 He further observed that the assessee has claimed TDS credit of Rs. 92,43,080/- against the available credit of Rs. 91,76,217/- as per form 26AS and, therefore, the excess claim of TDS claim was Rs. 66,863/-, which should have been brought to tax.
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4.2 Further, he observed that the assessee has not admitted the interest receipt of Rs. 8,440/- from M/s Southern Power Distribution Corporation as appearing in Form 26AS, which should have been brought to tax.
4.3 In view of the above observations, the Pr. CIT came to the conclusion that the order passed by the AO was erroneous in so far as it is prejudicial to the interests of revenue within the scope of section 263(1) of the Act and the AO has not examined the above issues properly.
The Pr. CIT, accordingly issues show cause notice dated 24/01/2020 to the assessee to furnish its explanation. Since the assessee failed to comply to the notices issued by him, the Pr. CIT directed the AO to redo the assessment, de-novo in accordance with law and established procedure on such issues and after affording a reasonable opportunity of being heard to the assessee.
Against the said order of Pr. CIT passed u/s 263 of the Act, the assessee is in appeal before the ITAT.
Before us, the ld. AR of the assessee submitted that the AO has considered the turnover to the tune of Rs. 42,92,16,240/-, whereas, the Pr. CIT noted that there is a difference in the turnover shown in the P&L Account of Rs. 40,29,222/-, which is not correct as the AO has computed
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the turnover as per 26AS and, therefore, there is no loss to the revenue and there is no prejudicial to the interests of the revenue as alleged by the Pr. CIT. He submitted that the profit rate applied by the AO was 8% on own contract works and 4% on the sub-contract works.
On the other hand, the ld. DR besides relying on the order of the Pr. CIT submitted that the assessee has shown short amount of Rs. 40,29,222/- in the P&L Account and, therefore, the order of the AO is erroneous and prejudicial to the interests of revenue.
We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. It is observed that the Pr. CIT pointed out that there is a difference amount of Rs. 40,29,222/- as per the gross contract receipts shown in form 26AS and gross contract receipts in P&L Account. But, the fact is that the AO has taken the turnover as recorded in form 26AS which is Rs. 42,92,16,2450/-, which is more the the turnover shown in P&L Account of Rs. 42,51,87,018/-. The AO has applied the provisions of section 145(3) while completing the assessment. The AO has also applied profit rate at 8% of gross receipts in respect of own contracts and 4% in respect of receipts from sub-contract works. As per Form No. 26AS, the difference pointed out by the Pr. CIT has already been considered by the AO. The ld. Pr. CIT has
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not disputed the profit rate applied by the AO for calculating income. Therefore, in our considered opinion, the order passed by the AO is not erroneous nor prejudicial to the interests of the revenue, as alleged by the Pr. CIT. Accordingly, we set aside the order of the Pr. CIT and the order of the AO is restored. Thus, the ground Nos. 1 to 4 raised by the assessee on this issue is allowed.
Ground Nos. 5 & 6 regarding TDS claim and interest receipt were not pressed by the ld. AR of the assessee at the time of hearing, therefore, the same are dismissed as not pressed.
Ground Nos. 7 to 9 are argumentative in nature, hence, need no adjudication.
In the result, appeal of the assessee is partly allowed, in above terms.
Pronounced in the open court on 13th April, 2022.
Sd/- Sd/- (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, Dated: 13th April, 2022. kv
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Copy to : 1 M/s C. Eswar Reddy & Co., Flat No. 105, Sailok Enclave, Saptagiri Nagar, Kurnool. 2 ACIT, Circle – 1, Aayakar Bhavan, N.R. Peta, Kurnool. 3 Pr. CIT(A), Tirupati. ITAT, DR, Hyderabad. 4 Guard File. 5