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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order passed u/s 263 by the Principal Commissioner of Income Tax (Pr.CIT)-1, Vijayawada dated 27.03.2018 for the assessment year 2014-15.
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In this case, the assessment was completed u/s 143(3) by an order dated 31.12.2015 on total income of Rs.1,56,21,540/- against the returned income of Rs.67,37,480/-. The case was selected for scrutiny under CASS. During the assessment proceedings, the Assessing Officer (AO) found that the books of accounts, supporting bills and vouchers produced by the assessee reveal that the expenditure claimed by the assessee was mostly on self-made vouchers and supported by the various registers and not amenable for verification. Thus, the AO rejected the books of accounts and estimated the income @ 5% on the gross receipts, placing reliance on the judicial pronouncements of ITAT, Hyderabad and accordingly completed the assessment and estimated the net income of Rs.1,53,78,085/-. Later on, the Ld. Pr.CIT, Vijayawada has taken up the case for revision u/s 263 and found that the case was taken up for scrutiny under CASS for verification of large other expenses and large increase in sundry creditors w.r.t. turnover as compared to the preceding year. The Ld.Pr.CIT further observed that the AO had erred in estimating the income at 5% instead of 7% which was generally accepted percentage of profit in contract business, and also found that no proper explanations, details were called for in respect of the above two issues. Therefore, the Ld.Pr.CIT held that the assessment order passed
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by the AO was erroneous and prejudicial to the interest of the revenue and accordingly set aside the assessment order for redoing the assessment for re verification of the issues referred above, i.e. large expenses debited to P&L account and large increase in sundry creditors outstanding.
Aggrieved by the order of the Ld.Pr.CIT, the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR argued that the AO has taken up the case for scrutiny under CASS and verified the books of accounts, vouchers, bills etc. which was produced before the AO. Large amount of expenses as well as the trade creditors was duly accounted in the books of accounts with party-wise ledgers. Similarly, all the expenses were duly accounted in the books of accounts and the books of accounts were audited u/s 44AB of the Act. On complete verification of books of accounts, the AO found the genuineness of the outstanding trade creditors, and did not make any addition on account of trade creditors. Similarly, the AO verified the books of accounts and held that the expenses were not amenable for verification, hence, followed the decision of Hon’ble ITAT, Hyderabad and estimated the income at 5% on gross contract receipts. Once, the AO rejected the books of accounts and the income is estimated,
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no other addition required to be made since the income has to be computed as per section 29 and the expenditure mentioned in section 30 to 43D deemed to have been considered. Similarly, trade creditors are parts of the expenditure debited to the P&L account, hence, once the income is estimated, it is not permitted to make further addition on account of trade creditors. The Ld.AR submitted that the identical issue was considered by the Hon’ble ITAT, Visakhapatnam in the case of G.V.R Associates Vs. ITO (2017) 49 CCH 0223 and held that once the books of accounts are rejected, then the CIT is not permitted in referring to the same books of accounts to conduct further enquiries on few issues. The Ld.AR also relied on the decision of this Tribunal in the case of K.Subba Raju in ITA No.198/Viz/2014. The Ld.AR also submitted that for the assessment year 2011-12, the Hon’ble ITAT upheld the Ld.CIT(A) order in restricting the estimation of income at 5%. For the assessment year 2012-13 and 2013- 14, the AO estimated the income at 5%, and argued that the income estimated by the AO at 5% is in accordance with the precedence of ITAT, as fair and reasonable. The Ld.Pr.CIT though held that estimation of profit @7% is reasonable he did not bring any other case law on identical facts of the assessee. Similarly, since large sundry creditors and the large amount of
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expenses was verified and conscious decision was taken by the AO to resort for estimation of income, the Ld.Pr.CIT is not permitted to take up the case for revision u/s 263, hence argued that the order passed u/s 263 is required to be quashed.
On the other hand, the Ld.DR supported the orders of the Ld.Pr.CIT.
We have heard both the parties and perused the material placed on record. We have also gone through the decisions relied upon by the Ld.Pr.CIT and the orders relied up on by the Ld.AR. The Ld.Pr.CIT has taken up the case for revision u/s 263 holding that the AO has not at all carried out any enquiry with regard to large expenses claimed in P&L account and large increase in the sundry creditors. The Ld.Pr.CIT also viewed that the estimation of income at 7% is generally accepted percentage in contract business. At the outset, there is no general application of a specific percentage of income for estimation of income in all contractors cases. The estimation of income depends upon the facts and circumstances of the each case. And the same cannot be made universal application. In the assessee’s case, the AO adopted the income at 5% on gross contract receipts which is
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in consonance with the subsequent orders passed by the AO and also in agreement with the orders of the ITAT in the assessee’s own case for the assessment year 2011-12. Therefore, estimation of income at 5% cannot be held to be unreasonable and erroneous. The AO during the course of assessment proceedings verified the books of accounts as evidenced from the assessment order. The AO verified the books of accounts, supporting bills, vouchers and registers. After verification of the books of accounts, vouchers and the explanations of the assessee, the AO rejected the books of accounts and completed the assessment by estimation of income taking the support from the orders of the ITAT, Hyderabad and the facts and the circumstances of the assessee’s case. The trade creditors are part of the unpaid expenses and the same forms part the books of accounts which were duly supported by the bills and vouchers and audited u/s 44AB of the Act. The AO having verified the books of accounts and given his findings in the assessment order, the conclusion of the Ld.Pr.CIT that the AO has not at all carried out any enquiry or verification of large expenses and increase in trade creditors is incorrect observation, not based on the facts on the assessment record. The AO has already given a finding that the books of accounts were not amenable for verification, hence rejected the books of
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accounts and estimated the income. As held by the Tribunal in the case of G.V.R.Associates (supra), once the income is estimated, the CIT cannot order for fresh enquiry on the same issue. For ready reference, we extract para No.15 of the order of the Tribunal which reads as under : “15. In the present case, the A.O has ignored the books of accounts and resorted to estimation of net profit. The moment, the A.O. has estimated the net profit, even though he had not specifically mentioned that the books of accounts are rejected, it is presumed that the A.O. has rejected books of accounts before estimating net profit from the business. Once, the books of accounts are rejected and profit is estimated, then the CIT was erred inreferring to the same books of accounts to direct the AO to conduct further enquiries on few issues is not justified. Therefore, we are of the view that once the issues which were subject matter of revision u/s 263 of the Act, have been examined by the A.O. at the time of assessment, then the CIT has no jurisdiction to entertain fresh enquiry on the same issues because he had a different opinion on the issues. In our considered view, the issues pointed out by the CIT have been examined by the AO, therefore, the CIT was not correct in coming to the conclusion that the A.O. has not examined the issues before completion ofassessment.” 5.1. The facts of the assessment order very clearly establish that the AO made due verifications of both the issues raised in the assessment order and there is no scope for inferring the adverse view. Since the income is estimated on gross turnover, the AO is not permitted to make any other addition on account of trade creditors. Therefore, we do not find any erroror caused prejudice to the interest of the revenue from the order of the AO. Therefore, we hold that the Ld.Pr.CIT has invoked jurisdiction without any material to support his view. At best, it can be called as inadequate enquiry, but not lack of enquiry. Though lack of enquiry is a
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reason for taking up the case for revision, inadequate enquiry does not give any scope for invoking the jurisdiction u/s 263. Therefore, we cancel the order u/s 263 and restore the assessment order.
In the result, appeal of the assessee is allowed.
The above order was pronounced in the open court on 17th Aug,2018.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददिांक /Dated : 17.08.2018 L.Rama, SPS आदेश की प्रधिधलधप अग्रेधर्ि/Copy of the order forwarded to:- 1. ननर्ााररती/ The Assessee-Battula Anjaneyulu, D.No.21-67, Santhi Nagar Tiruvuru, Krishna Dist. 2. राजस्व/ The Revenue –Dy.Commissioner of Income Tax-3(1),Vijayawada 3. The Pr.Commissioner of Income Tax-1, Vijayawada 4. धिभागीयप्रधिधिधि, आयकरअपीलीयअधिकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 5.गाडाफ़ाईल / Guard file आदेशािुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM