SATYANARAYANA & OTHERS,RAVULAPALEM vs. THE ITO, AMALAPURAM

Per Bench :

passed under section 263. The appeals should have been filed before ITAT on

or before 08.06.2012 against the date of filing the appeal on 21.08.2012. The

assessee explained the reasons for the delay during the appeal hearing and

filed the petition for condoning the delay. After hearing both the parties, the

delay of 74 days is condoned and the appeals are admitted.

of the Commissioner of Income Tax [CIT], Rajahmundry passed u/s 263 of

I.T.Act vide F.No.H.Qrs.3/263/CIT/RJY/2010-11 and H.Qrs.4/263/CIT/

RJY/2010-11 dated 20.03.2012. Since the facts are identical and the issue

involved is common in both the appeals, they are clubbed, heard together and

disposed of by this common order for the sake of convenience. The relevant

facts are extracted from ITA No. 298/Viz/2012 for the A.Y.2007-08 as under:

3 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. 3. The assessee is engaged in the sand business for sand ramp at

Ravulapalem Village, East Godavari Dist. (A.P.), being the successful bidders

in the auction conducted by the State Government Department. In this case,

survey u/s 133A was conducted on 29.08.2007 and during the course of

survey certain loose sheets, daily sheets were found and a statement was

recorded from the Managing Partner Sri Datla Satyanarayana Raju. The

Assessing Officer (AO) has issued notice u/s 142(1) for not filing the return of

income in response to which the assessee filed the return of income admitting

total income of ` 5,48,450/-. The case was taken up for scrutiny. During the

assessment proceedings, the assessee submitted that it has not maintained the

books of accounts and only available material was daily sheets, loose slips

regarding business transactions which were impounded at the time of survey.

As per the working sheets, the total sales were computed by the AO at

Rs.2,49,65,610/- for the assessment year 2007-08 and Rs.3,02,72,650/- for

the assessment year 2008-09. Since the assessee was not maintaining the

books of accounts, the AO completed the assessment estimating the income

@15% on total sales at Rs.32,63,241/- for the assessment year 2007-08 and

Rs.39,00,800/- for the assessment year 2008-09 after allowing the interest on

capital and remuneration paid to the partner.

4 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist.

assessment orders framed u/s 143(3) for the assessment year 2007-08 and

2008-09 for revision u/s 263 and found that the orders passed by the AO

were erroneous and prejudicial to the interest of the revenue since the AO has

not considered the income and expenditure workings made on the basis of

loose slips, daily sheets etc. found in the survey premises As per the paper

book filed by the assessee page No.28 was the income and expenditure

details of Godavari Sand Ramp, Ravulapalem for the financial year 2006-07,

the net profit worked out to Rs.38,77,491/-. Page No.28 stated to be statement

of computation of income compiled by the Income Tax department as on the

date of survey on the basis of evidence found during the survey. However, the

said working was neither signed by the officer who compiled nor did bear the

signature of the assessee. Similarly for the assessment year 2008-09 also, in

page No.six, of the paper book the assessee has enclosed the income and

expenditure details of Godavari Sand Ramp, Ravulapalem indicating the net

profit of Rs.90,57,690/- and the said computation sheet was also not signed

and without name. Page No.28 of paper book for the assessment year 2006-

07, page no.6 of paper book for the assessment year 2008-09 and the daily

5 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. sheets that were found at the time of survey were the source for initiation of

revision proceedings u/s 263 of I.T. Act. According to the Ld.CIT, the

department has computed the net profit on the basis of the evidences found

during the survey proceedings considering the total income and expenditure,

hence, the AO should have adopted the same income. Since there was no

indication of payment salaries to the partners and interest on partnership

capital, the AO should not have allowed the interest on capital and

remuneration paid to the partners. Similarly, the Ld.CIT also observed that the

assessee violated the provisions of TDS in respect of payments made for

machine hire charges, therefore, the disallowance u/s 40(a)(ia) attracts and

the AO did not consider this issue and failed to make the disallowance u/s

40(a)(ia) for non deduction of tax at source. Accordingly the Ld.CIT held that

the assessments made u/s 143(3) dated 24.12.2009 for the assessment year

2007-08 and 2008-09 are erroneous and prejudicial to the interest of the

revenue, hence set aside the orders with direction to redo the assessments as

per the observations made and directions given in the order under section

263.

During the appeal hearing, the Ld.AR argued that survey u/s 133A was

6 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. conducted in the premises of the assessee on 29.08.2007. The assessee is

engaged in the sand mining at Ravulapalem and not maintaining any books of

accounts. The only available material with the assessee was daily sheets,

vouchers and expenditure slips, charts etc. On the basis of daily sheets

available at the time of survey, the revenue has determined the sales at

Rs.2,49,65,610/- for the A.Y.2007-08 and Rs.3,02,72,650/- for the assessment

year 2008-09. The daily sheets, slips etc. though indicate complete sales, it

does not indicate the complete expenditure such as hire expenses, diesel

expenses, selling, marketing, distribution expenses etc. Therefore argued that

income and expenditure statement prepared by the department officials as

on the date of survey was rough working but does not reflect the true and

correct picture of income and expenditure. It was incomplete in respect of the

expenses incurred for salaries, wages, interest, marketing expenditure etc.

Therefore argued that the page No.28 of the paper book which shows the

income and expenditure details for the assessment year 2007-08 and page

No.6 of the paper book for the assessment year 2008-09 shows rough

workings but not complete income and account expenditure, hence argued

that the same cannot be taken cognizance of. This rough working was

prepared by the revenue authorities without preparing the books of accounts,

7 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. profit and loss account, balance sheet and the schedules for Depreciation etc..,

hence unreliable. The Ld. A.R further submitted that the revenue officials were

not sure of it’s correctness, hence did not sign the statement. Thus, argued

that the AO has rightly completed the assessment by estimation of income.

Once the books of accounts are rejected and the assessment is completed on

estimation basis, no other addition required to be made as held by Hon’ble AP

High Court in the case of Indwell Constructions Vs. CIT (1998) 232 ITR 776,

hence argued that the order of the Ld. CIT passed u/s 263 is beyond the scope,

erroneous which required to be quashed.

this case. Survey was conducted u/s 133A of I.T. Act in the business premises

of the assessee and during the course of survey, the AO found that the

assessee was not maintaining the books of accounts. The only material

available with the assessee as on the date of survey was daily sheets of sales

and loose slips and vouchers indicating certain expenses. On the basis of the

material available, the revenue has worked out the income and expenditure

8 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. account but it was neither signed by the assessee nor signed by the officer

who prepared the statement. It was only a piece of paper containing certain

information but cannot be said to be Profit and loss account. It was not

supported by financial statements, hence cannot be taken in to cognizance as

valid piece of evidence for computing the income. Prima facie, it appears that

the AO has made a rough working of income and expenditure, however on

careful verification of both the working sheets reveal that the complete

expenditure was not taken into account by the A.O. While completing the

assessment, the AO has estimated the income @15% of the total sales by

rejecting the books of accounts, since the complete information was not

available. The AO allowed the interest on capital and the remuneration paid

to the partners from the estimated income. The Ld.CIT viewed that since no

evidence was available at the time of survey for payment of remuneration and

interest on capital in the loose slips the AO has committed an error in allowing

interest and remuneration. As per the provisions of I.T. Act, the interest and

remuneration is required to be allowed as evidenced by the partnership deed.

Since the partnership deed filed in the paper book permits the payment of

remuneration and interest, the AO has not committed any error in allowing

the interest and remuneration paid to the partners from the estimated

9 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. income. Hence the assessment made by the AO in estimation of income is

neither erroneous nor prejudicial to the interest of the revenue giving scope

for invoking the jurisdiction u/s 263. Similarly, in case, the assessment is

completed u/s 143(3) by rejecting the books of accounts and estimating the

income as held by Hon’ble Jurisdictional High Court in the case of Indwell

Constructions Ltd. (supra), no other disallowance is required to be made.

Therefore, the view of the Ld. CIT that the AO has not considered the

disallowance u/s 40(a)(ia) is also a difference of opinion and does not give

any possibility for invoking the jurisdiction u/s 263. Hence, we set aside the

orders of the Ld.CIT passed u/s 263 and allow the appeals of the assessee.

ITA Nos. 506 & 508/Viz/2016

of I.T. Act for the assessment year 2007-08 and 2008-09. Since we have

decided the appeal of the assessee and set aside the orders of the Ld. CIT

passed u/s 263 of the Act, the appeals filed in respect of the orders passed u/s

143(3) r.w.s. 263 are infructuous, hence dismissed.

10 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. ITA Nos. 505& 507/Viz/2016

dated 24.12.2009. The Ld. CIT has taken up the case for revision u/s 263 and

set aside the orders passed u/s 143(3). The assessee filed appeals before

CIT(A) and the assessee also filed appeal against the order u/s 263 before

ITAT. The Hon’ble ITAT dismissed the appeals of the assessee against the

orders u/s 263 for non prosecution. Hence, the Ld. CIT(A) dismissed the

appeals holding that order u/s 263 has became final. Subsequently, the

assessee filed miscellaneous applications before the Tribunal and the ITAT

recalled the appeals filed against the order u/s 263. By this order we have set

aside the orders of the Ld.CIT passed u/s 263 and allowed the appeals of the

assessee. Hence, these appeals gets new life for fresh adjudication before the

CIT(A). Hence, we remit the appeals back to the file of the Ld.CIT(A) with a

direction to adjudicate the same on merits.

The above order was pronounced in the open court on 9th March, 2018.

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

11 ITA 298 & 299/Viz/2012 and ITA 505-508/Viz/2016 Satyanarayana & Ors,Ravulapalem, East Godavari Dist. वशाखापटणम /Visakhapatnam $दनांक /Dated : 09.03.2018 L.Rama, SPS

आदेश क� ��त&ल प अ'े षत /Copy of the order forwarded to:-

आदेशानुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, VISAKHAPATNAM