S.RAVI,CUDDALORE vs. ACIT CENTRAL CIRCLE 2(1), CHENNAI

आदेश / O R D E R

PER BENCH:

These appeals are filed by the assessee against the common

Order of the Commissioner of Income Tax (Appeals)-18, Chennai, in

ITA Nos.41,42,69,70,71,43 & 72/18-19 dated 09.01.2019 for the

assessment years 2009-10 to 2015-16.

ITA No.1021 to 1027/Chny/2019 :- 2 -:

and Mr.Salendra Mammidi represented on behalf of the Revenue.

274 of the Act is common in all these appeals, we heard these

appeals together and dispose of the same by this common order.

“1. Assessment Order passed by the AO is without jurisdiction for the following reasons:

(a) The Assessment Orders were passed by the AO in respect of AYs 2009-10, 2010-11, 2011-12, 2013-14 and 2014-15 without prior approval of Joint Commissioner of Income Tax (JCIT) as per Sec. 153D of the Act. The approval dated 27.12.2016 in respect of AYs 2012-13 and 2015-16 u/s 153D(provided to the counsel for appellant during hearing dated 11th June 2019 before this Hon 'ble Tribunal) fails to conform to procedure prescribed under Clause 9 of Manual of Office Procedure, Volume II(Technical) issued by the Directorate of Income Tax, CBDT. (b) There were no incriminating materials unearthed during the assessment proceedings to warrant invocation of Sec. 153A of Act. (c) In view of CIT(A)'s order, assessment under Sec. 144 is not correct, therefore the entire assessment is void-ab-initio.

(a) The CIT(A) ought not to have held assessment u/s 153A to be valid while observing that assessment orders cannot be construed as best judged order passed u/s 144.

ITA No.1021 to 1027/Chny/2019 :- 3 -:

(b) The CIT(A) on one hand observes that adoption of 6% of the turnover will meet the ends of justice, but passes its order by directing AO to adopt 7% instead of 9%. (c) The CIT(A) ought to have considered that the entire assessment was made on basis of assumption to invoke Sec.153A, as the AO states Assessee has not maintained books of accounts but invokes Sec.145(3) to reject the books which according to AO does not exist.

(a) Assessee was maintaining books of accounts and also kept vouchers for expenditures. (b) No specific books of accounts have been prescribed for business of a civil contractor and thus rigor of penalty u/s 271A is not applicable. (c) Reference was made to sub section (2) of Sec. 44AA of the Act, to indicate that the appellant had maintained books of accounts and other documents that could have enabled AO to compute Assessee's total income in accordance with the Act.

ITA No.1021 to 1027/Chny/2019 :- 4 -:

proprietor of business under the name of M/s.Sai

Construction, which is doing the business of civil construction.

On account of search on the group of JSTV Trust,

consequential search u/s.132 of the Act had taken place on

the assessee”s premises on 10.11.2014. It was submitted

that notice u/s.153A came to be issued on the assessee on

16.06.2015. In response to notice u/s.153A, the return came

to be filed on 16.07.2015. The assessment came to be

completed u/s.153A of the Act r.w.s.144 on 29.12.2016

wherein the Assessing Officer had invoked the provisions of

section 145(3) of the Act and rejected the books of accounts

as maintained by the assessee and estimated the income of

assessee at 9% of the gross receipts by applying the

principles of section 44AD of the Act. It was submitted that in

the course of search, no books of accounts were found at the

business premises, only cash vouchers were found and seized.

The assessee had claimed that books of accounts are

maintained by his Auditor and the assessee was only

submitting his receipts, bank statements and bills pertaining

to expenditure, etc., to his Auditor. The assessee had

categorically mentioned that he was not aware of the cash

ITA No.1021 to 1027/Chny/2019 :- 5 -:

book, bank book, individual ledger accounts for expenses, trial

balance, etc. It was submitted that Auditor had also been

called and statements recorded u/s.131 of the Act. The

Auditor had appeared and had stated that he was not in

possession of any of the books of account except tally back up

accounts based on the data provided by the assessee. It was

submitted that on account of non-maintenance of books of

accounts, penalty proceedings u/s.271A of the Act has also

been levied on the assessee. It was a further submission that

against the levy of penalty u/s.271A of the Act, the assessee

had filed an appeal before the ld.CIT(A). It was submitted

that ld.CIT(A) had in his impugned order under appeal

reduced the estimation of income to 7% from 9% as

estimated by the Assessing Officer. It was submitted that no

estimation was liable to be made. It was submitted that in

respect of penalty levied u/s.271A of the Act, ld.CIT(A) had

allowed the assessee”s claim by holding that:

“The assessee is a civil contractor and is not involved in a specified business for which specific books of account and documents are statutorily required to be maintained in terms of Section 44AA read with Rule 6F(1) of the income Tax Rules, 1962. It is a fact that books of account as contemplated in Sec.44AA are not maintained by the assessee. This being the case, even though specified

ITA No.1021 to 1027/Chny/2019 :- 6 -:

books of account as per the Act are not maintained, assessee was maintaining bank accounts, keeping vouchers for expenditure. The Provisions which the Assessing Officer could rely upon is sub-section(2) of section 44AA of the Act which enjoins upon the Appellant to keep and maintain such books of account and other documents as may enable the Assessing Officer to compute Appellant”s total income in accordance with the provisions of the Act. No specific books have been prescribed for business of a civil contractor carried on by the assessee and thus the rigour of levy of penalty u/s.271A is not applicable in the Appellant”s case.”

It was thus a submission that there was no requirement of

maintaining of books of accounts and consequently, rejection of

assessee”s books, and estimation of the income of assessee was

not permissible. It was submitted that estimation as done by the

Assessing Officer and as reduced by the ld.CIT(A) at 7%, was liable

to be deleted and returned income accepted.

Assessing Officer and the ld.CIT(A). It was submitted that in course

of search on the assessee, incriminating materials have been found

and as the assessee was unable to substantiate the expenditure

claimed, the Assessing Officer had rejected the assessee”s books of

accounts maintained on tally back up accounts by the Auditor. It was

ITA No.1021 to 1027/Chny/2019 :- 7 -:

submitted that the assessee was also not maintaining any books

from which the true and correct income of assessee could be

determined properly. It was submitted that the estimation done by

the ld.CIT(A) was liable to be upheld.

available on record. In reply to very specific query as to whether the

assessee”s turnover exceeded the amount prescribed for

applicability of provisions of section 44AD of the Act, it was

submitted by the ld.PCIT D.R that the turnover of the assessee for

each of the assessment year far exceeded the limit for applying the

provisions of section 44AD of the Act.

is a search in the case of assessee, and no regular books of accounts

required for determination of the income of assessee was found

available. The assessee as well as his Auditor has categorically

admitted that the books are prepared on tally software on the basis

of the vouchers and details submitted by the assessee. It is also an

admitted fact that the Revenue has not filed any appeal against the

order of the ld. CIT(A) in respect of deletion of penalty levied

u/s.271A of the Act. A perusal of the order of ld. CIT(A) in para 5.5.

of his order in respect of penalty levied u/s.271A of the Act clearly

ITA No.1021 to 1027/Chny/2019 :- 8 -:

shows that the ld.CIT(A) has gone on record with a finding that the

assessee being a civil contractor, is not involved in a specified

business for which specific books of account and documents are

statutorily required to be maintained in terms of section 44AA read

with Rule 6F(1) of Income Tax Rules, 1962. A perusal of pra 5.4 of

ld.CIT(A)”s order cancelling the penalty levied u/s.271A of the Act

shows that:

“The Appellant’s explanation that the profits could be worked out by preparing “income and expenditure statement”, is plausible. In fact, the Assessing Officer could disallow such expenditures ig he comes to a conclusion that they are not substantiated or are not incurred wholly and exclusively for the purpose of the Appellant’s business. In fact, I have in the quantum appeals vide order in ITA Nos.279 to 285/18-19 dated 09.01.2019. I have given partial relief to the Appellant by holding that 7% of the turnover as income from contract business would meet the ends of justice.”

Ld.CIT(A) has categorically given a finding that the Assessing Officer

could disallow such expenditure, if he comes to a conclusion that

they are not substantiated or are not incurred wholly and exclusively

for the business of assessee. In the present case, admittedly there

are incriminating materials alleged to have been found in the course

of search. There is nothing talked about the incriminating materials

in the assessment order. How the incriminating materials have been

used for the purpose of determining the income of assessee, is not

coming out. When the turnover of assessee exceeds the limit

prescribed for the applicability of provisions of section 44AD of the

ITA No.1021 to 1027/Chny/2019 :- 9 -:

Act, then obviously provisions of section 44AD cannot be applied. In

fact, a perusal of the provisions of section 44AD of the Act also

clearly shows that the assessee could disclose a lower income, if he

maintains books of accounts and is able to substantiate the claim of

lower income. In the present case, there are records available from

which the income of assessee could be reasonably determined. In

any case even the audit of account u/s.44AB of the Act being the

Audit report submitted by the Auditor are on the basis of the tally

accounts maintained, and cash vouchers have been found in the

course of search. True, the substantial effort would be required for

determining the correct income, but that would not be ground

enough for rejecting the books of accounts of the assessee and

estimating the income directly. Even if estimation was to be

adopted, then comparative study would have to have been done.

This is not done in the present case. Obviously, the assessee”s

accounts for the earlier and subsequent years could be based as

comparative study. This being so, as the assessment has been done

for estimating the income and ld.CIT(A) has reduced the said

estimate. The estimation itself is impermissible under law, especially

in view of the fact that incriminating materials have been found in

the course of search. Consequently, the assessment order and the

impugned order of ld.CIT(A) in respect of present appeals are set-

ITA No.1021 to 1027/Chny/2019 :- 10 -:

aside and the issues in the appeals are restored to the file of

Assessing Officer for re-adjudication and for determination of the

correct income of assessee on the basis of the materials available

and found the course of search. The Assessing Officer shall not

resort to short cut method of applying provisions of section 44AD of

the Act, when the turnover of assessee exceeds the prescribed limit

u/s.44AD of the Act.

Order pronounced in the open Court after conclusion of hearing on the 24th September, 2019 in Chennai. Sd/- Sd/- (इंटूर� रामा राव) (जॉज� माथन) (INTURI RAMA RAO) (GEORGE MATHAN) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai, 3दनांक/Dated: 24th September, 2019. K S Sundaram

आदेश क, *�त4ल5प अ6े5षत/Copy to: 1. अपीलाथ)/Appellant 4. आयकर आयु7त/CIT 2. *+यथ)/Respondent 5. 5वभागीय *�त�न�ध/DR 3. आयकर आयु7त (अपील)/CIT(A) 6. गाड� फाईल/GF