M/S RR CONSTRUCTIONS,,VIJAYAWADA vs. THE DCIT,, VIJAYAWADA

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the assessee is directed against order of the

Commissioner of Income Tax {CIT}, Vijayawada dated 27.3.2015 for the

assessment year 2010-11.

Income Tax Act, 1961 (hereinafter called as 'the Act') by the CIT. In

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada this case, the assessee filed return of income admitting total income of `

37,88,885/-. The A.O. has taken up the case for scrutiny and called for

the relevant information and examined the books of accounts. Since the

A.O. was not satisfied with the book results, invoked the provisions u/s

145(3) of the Act and completed the assessment estimating the income

@ 8% on own contracts and 5% on sub contract works given to others

and accordingly, completed the assessment u/s 143(3) of the Act by an

order dated 27.3.2015 on total income of ` 40,09,400/-. The gross total

income was worked out to ` 80,21,700/- and the A.O. has allowed the

depreciation, remuneration and interest paid on capital and computed

the total income at ` 40,09,400/-. Subsequently, the CIT has taken up

the case for revision u/s 263 of the Act and issued the show cause

notice with the following errors, which are stated to be prejudicial to the

interest of the revenue.

(i)The A.O. has estimated the income @ 5% on sub contracts given to others without collecting any material and the details and the relevant particulars. (ii) The A.O. has completed the assessment estimating the income @ 8% on own contract without obtaining the relevant material indicating the basis for making estimation of income @ 8% on contract receipts. (iii) The A.O. has allowed the depreciation of ` 28,23,214/- from the estimated income. The Ld. CIT(A) is of the view that the expenditure required to be allowed u/s 30 to 38 of the Act deemed to have been allowed and there no case for allowing depreciation separately from the estimated income. (iv)The assessee had invested a sum of ` 42,39,000/- in the land. The total accumulated investment made in the land was ` 1,54,47,855/- and the A.O. has not called the relevant details and examined the sources/purposes, etc. (v) The A.O. has not verified the unsecured loans and merely accepted the letters filed by the assessee without examining the identity, genuineness and creditworthiness of the creditors.

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada The assessee filed reply to the show cause notice issued by the Ld.

CIT. Not being satisfied with the reply of the assessee, the Ld. CIT held

the assessment made u/s 143(3) of the Act dated 13.12.2012 is

erroneous and prejudicial to the interest of the revenue, accordingly set

aside the assessment order made by the A.O. and directed the A.O. to

re-do the assessment as per the directions given in the revision order.

Aggrieved by the order of the Ld. CIT, the assessee is in appeal before

this Tribunal.

that in this case, the assessment was completed u/s 143(3) of the Act

after verification of all the details required for assessment and in the

process the issues raised by the Ld. CIT were also considered by the

A.O. The AR submitted that during the assessment proceedings the

assessee has produced the books of accounts, vouchers and submitted

the relevant information with regard to the expenditure debited to the

P&L account, explained the investments made during the year and filed

the confirmations letters in respect of loans and sundry creditors etc.

and the AO has completed the assessment after verifying the entire

information placed before him. The A.O. concluded that the true and

correct profits cannot be arrived at from the books of accounts and

accordingly rejected the books of accounts and computed the

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada assessment estimating the income @ 8% on own contracts and 5% on

sub contracts. The Ld. A.R. further submitted that during the

assessment proceedings, the assessee has submitted the relevant

evidences in respect of the investments made during the year and

unsecured loans accepted during the year, therefore, there is no case

for revision u/s 263 of the Act. The Ld. CIT was of the view that the AO

has not made the investigation to the level of his expectation hence

taken up the case for revision which is not permitted in law. In the eyes

of the Ld. CIT, the A.O. should have done more enquiries and obtained

some more information before completing the assessment, which

tantamount to inadequate enquiry, but not the lack of enquiry. The Ld.

A.R. further submitted that inadequate enquiry is not a case for revision

u/s 263 of the Act. The case of the assessee is that inadequate enquiry,

hence, requested to quash the revision order passed u/s 263.

on record and gone through the orders of the authorities below. In this

case, the assessment was completed u/s 143(3) of the Act on

31.12.2012. During the assessment proceedings, the A.O. has called for

evidences in respect of expenses claimed by the assessee under various

heads and verified the vouchers/bills and the same is evident from the

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada assessment order. Since the assessee has failed to substantiate the

expenses with proper evidences, the A.O. invoked the provisions of

section 145(3) of the Act and accordingly, completed the assessment by

estimation of income. Once the assessment is completed by rejection of

books of accounts on estimation basis, there is no merit in the argument

of Ld. CIT that the A.O. has not conducted the proper enquiry. The A.O.

resorts to estimation of income only as a last resort, when the assessee

fails to furnish the complete information for completing the assessment.

The estimation of income @ 8% on own contracts is supported by

number of judgements including the decision of special bench in the

case of Arihant Builders, Developers & Investors (P.) Ltd. v. Assistant

Commissioner of Income-tax*, Circle I(1), Indore, [2007] 106 ITD 10

(INDORE) and similarly the estimation of income @ 5% also appears to

be reasonable and supported by the number of decisions. The A.O. has

taken one of the possible view, hence, there is no case for making

revision u/s 263 of the Act. Accordingly, the order of the Ld. CIT on the

issue of estimation of income fails.

the allowance of depreciation from the estimated income. The A.O.

completed the assessment by estimating the income @ 8% on own

contracts and 5% on sub contracts and from the resultant profit, the 5

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada A.O. has allowed the depreciation as allowable as per the Act. The Ld.

CIT has taken up the case for revision u/s 263 of the Act, holding that

once the income is estimated, the expenditure u/s 30 to 38 of the Act

deemed to have been considered and thus, in the opinion of the Ld.

CIT, no depreciation required to be allowed separately from the

estimated income. However, depreciation allowance is statutory

allowance, which required to be allowed even if the income is estimated.

Hon’ble Jurisdictional High Court’s judgement in the case of CIT vs Y.

Ramachandra Reddy, [2014] 50 taxmann.com 129 (Andhra Pradesh)

supports this view. Further, in the assessee’s own case for the

assessment year 2008-09, the ITAT Visakhapatnam in ITA

No.447/Vizag/2013 dated 6.11.2015 held that depreciation is an

allowable deduction even after estimation of net profit and gross profit.

Hence, it is established that the A.O. has taken one of the possible views

supported by the legal precedents. Hence, there is no case for revision

u/s 263 of the Act.

in land. The assessee had made investments of ` 42,39,000/- in the

land and the accumulated investment was ` 1,54,47,855/-. During the

assessment proceedings, it was submitted by the assessee that the

sources of them have flown out of funds used from the OD Limit of `

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada 100 lakhs held with the Corporation Bank and it was verified during the

scrutiny assessment with necessary documents. Therefore, the issue

with regard to the investments was verified by the assessing officer

during the scrutiny assessment proceedings and after complete

verification of the investments with relevant documents and the books

of accounts the A.O. has accepted the investments made by the

assessee. Once the A.O. has made complete enquiries, there is no case

for revision u/s 263 of the Act.

loans. The assessee has stated before the CIT that the assessee had

furnished the conformation from sundry debtors, sundry creditors,

unsecured loans, etc., which was verified by the A.O. before completing

the assessment. Once the assessee submits the confirmation letters,

burden shifts to the revenue and burden of the assessee stands

discharged and the Ld. CIT cannot hold that the A.O. has not made the

enquiry. If the complete details were not obtained as expected by the

Ld. CIT, at best it can be said that inadequate enquiry. Inadequate

enquiry is not a case for revision u/s 263 of the Act. Only lack of

enquiry is a case for revision u/s 263 of the Act. This view is supported

by the decision of Hon’ble Supreme Court in the case of Malabar

Industries Company Limited Vs. CIT 243 ITR 83 (SC) and the decision of

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada CIT Vs. Max India Limited 166 Taxman.com 188. Further, Hon’ble ITAT,

Kolkata has examined this issue in Vinod Agarwal Vs. PCIT 80

Taxman.Com 171 and held that for revision of the assessment order, the

assessment order passed by the A.O. should be erroneous and

prejudicial to the interest of the revenue. Once the assessee furnishes

the required information, which is being verified by the A.O., there is no

case for revision. Once the A.O. has conducted enquiry and he is

satisfied with the reply given on the enquiries raised, the Principal CIT

cannot intervene through revision to come to a conclusion that

assessment order passed by the A.O. was erroneous and prejudicial to

the interest of the revenue for lack or inadequate enquiry.

In the instant case, the A.O. with regard to the estimation of

income and the depreciation has taken one of the possible views, in

respect of the investments made, sundry creditors and unsecured loans,

the A.O. collected the information after conducting the enquiries and

completed the assessment. Therefore, there is no case for revision u/s

263 of the Act and the Ld. PCIT has not made out a case of not

conducting the enquiry on any of the issues. The assessee’s case is

squarely covered by Hon’ble Supreme Court in the case of CIT Vs. Max

India Limited 166 Taxman.com 188 and the Hon’ble Supreme Court in

the case of CIT Gujarat II Vs. Quality Steel Supply Complex 395 ITR 1.

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada and CIT Vs. Y. Ramachandra Reddy 50 Taxmann.com 129 (AP. Hence,

we are unable to sustain the order of the Ld. PCIT and do not find any

reason to uphold the order. Accordingly, the order passed by the Ld.

CIT u/s 263 of the Act is set aside and we allow the appeal of the

assessee.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 28.02.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:-

ITA No.248/Vizag/2015 M/s. R.R. Constructions, Vijayawada

Sl. Description Date Initials No. 1. Date of dictation by the Author 21.02.2018 Sr.PS 2. Draft placed before the Dictating Member 22.02.2018 Sr.PS 3. Draft placed before the Second Member Sr. PS 4. Draft approved by the Second Member Sr. PS 5. Date of approved order comes to the Sr. PS Sr. PS 6. Date of pronouncement of order Sr. PS 7. Date of file sent to the Bench Clerk Sr. PS 8. Date on which file goes to the Head Clerk Hd. Clk 9. Date of dispatch of order Sr. PS