Shri Ishwarbhai Chotabhai Patel, Panchmahal V. The CIT.,III, Baroda

ITA 1107/AHD/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94234 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 19-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C MISHRA
• Assessee Lawyers: SUNIL H TALATI
• Section: 44AD; 143(3); 263

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ ITA NO.1107/AHD/2013 /BLOCK ASSTT. YEAR: 2008-2009 SHRI ISHARBHAI CHOTABHAI PATEL AT. VATAKPUR, P.O. NADISAR TAL. SHAHERA PANCHMAHAL 389 001. PAN : AEPPP 2939 G VS COMMISSIONER OF INCOME TAX - III BARODA. %& / (APPELLANT) '( %& / (RESPONDENT) ASSESSEE BY : SHRI SUNIL H. TALATI REVENUE BY : SHRI D.C. MISHRA, SR.DR / DATE OF HEARING : 10/08/2015 / DATE OF PRONOUNCEMENT: 10/08/2015 )*/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF THE LD.COMMISSIONER OF INCOME TAX DATED 20.2.2013 PASSE D UNDER SECTION 263 OF THE INCOME TAX ACT, 1961 FOR THE ASSTT.YEAR 2008-09. 2. SOLITARY SUBSTANTIAL GRIEVANCE OF THE ASSESSEE I S THAT THE LD.COMMISSIONER HAS ERRED IN TAKING COGNIZANCE UNDE R SECTION 263 OF THE INCOME TAX ACT, 1961, AND THEREBY, DIRECTING TH E AO TO RE-COMPUTE THE INCOME OF THE ASSESSEE BY APPLYING NET PROFIT R ATE OF 8% INSTEAD OF 5% APPLIED BY THE AO. ITA NO.1107/AHD/2013 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF CONSTRUCTION. HE HAS FI LED RETURN OF INCOME ON 29.9.2008 DECLARING TOTAL INCOME OF RS.1,67,560/ -. THE CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER S ECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. IN AN ANALYSI S OF THE ACCOUNTS, THE LD.AO FOUND THAT THE ASSESSEE HAS DISCLOSED GRO SS RECEIPT OF RS.45,24,572/- FROM CONSTRUCTION ACTIVITIES. HE FU RTHER OBSERVED THAT THE TRUE INCOME CANNOT BE DEDUCED FROM THE BOOKS OF ACCOUNTS PROVIDED BY THE ASSESSEE, AND THEREFORE, HE REJECTE D THE BOOK RESULT AND COMPUTED THE PROFIT OF THE ASSESSEE AT THE RATE OF 5% OF THE GROSS RECEIPTS. IN THIS WAY, THE LD.AO HAS WORKED OUT TH E ASSESSABLE INCOME OF THE ASSESSEE AT RS.2,26,230/- (5% OF GROSS RECEI PTS OF RS.45,24,572/-). THE LD.AO HAS PASSED AN ASSESSMEN T ORDER UNDER SECTION 143(3) ON 10.12.2010. 4. ON PERUSAL OF THE RECORD, THE LD.COMMISSIONER OF THE OPINION THAT THE ASSESSMENT ORDER IS ERRONEOUS AND CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. ACCORDING TO THE LD.COMMSSIONER, T HE AO HAS ESTIMATED THE INCOME OF THE ASSESSEE BY ADOPTING TH E RATE OF PROFIT AT 5%, WHICH IS TOO LOW. IN HIS OPINION, THE AO OUGHT TO HAVE ESTIMATED THE PROFIT BY APPLYING THE RATE OF 8% TO THE GROSS RECEIPTS. ACCORDINGLY, THE LD.COMMISSIONER ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE AND INVITED HIS EXPLANATION AS TO WHY THE IMPUGNED ASSE SSMENT BE NOT SET ASIDE. 5. AFTER HEARING THE ASSESSEE, THE LD.COMMISSIONER HAS SET ASIDE THE IMPUGNED ASSESSMENT AND DIRECTED THE AO TO COMPUTE THE INCOME OF THE ASSESSEE BY APPLYING THE NET PROFIT RATE OF 8% TO THE GROSS RECEIPTS DISCLOSED BY THE ASSESSEE. ACCORDING TO THE LD.COM MISSIONER, THE LD.AO FAILED TO REFER ANY MATERIAL WHICH GOADED HIM TO AP PLY THE RATE OF 5%. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ESTIMATED OPINION OF THE AO HAS BEEN REPLACED BY THE COMMISSIONER WITH A NOTHER ESTIMATED ITA NO.1107/AHD/2013 3 OPINION. THE LD.COMMISSIONER HAS ALSO FAILED TO AS SIGN ANY REASON WHY THE RATE OF 8% SHOULD BE APPLIED. IN THIS CONNECTI ON, HE TOOK US THROUGH THE LAST PARAGRAPH OF THE LD.COMMISSIONERS ORDER. 6. THE LEARNED DR CONTENDED THAT THE LD. COMMISSION ER HAS GONE THROUGH THE RECORD. HE NOTICED THAT THE DETAILS OF CONSTRUCTION MATERIAL, LABOUR PAYMENTS AND MISC. EXPENSES ARE UNVERIFIABLE . THE ASSESSEE FAILED TO SUBMIT SUPPORTING VOUCHERS. THEREFORE, HIS INCOME IS TO BE COMPUTED ON AN ESTIMATE BASIS. THE LD.COMMSSIONER THOUGH DID NOT APPLY SECTION 44AD WHICH PROVIDES A MECHANISM TO CO MPUTE THE INCOME OF THE ASSESSEE ENGAGED IN CONSTRUCTION ACTIVITY ET C. AT THE RATE OF 8% OF THE GROSS RECEIPTS, IF HIS TURNOVER IS LESS THAN RS.40 LAKHS, IN THAT CASE, THE ASSESSEE IS NOT SUPPOSED TO MAINTAIN BOOK S OF ACCOUNTS. BUT FOR THE PURPOSE OF GUIDANCE TO ARRIVE AT A CONCLUSI ON, WHAT PROFIT THE ASSESSEE MUST HAVE EARNED ? THE LD.COMMISSIONER HA S REFERRED TO THIS SECTION. LOOKING INTO THIS BACKGROUND, HE SET ASID E THE ASSESSMENT ORDER AND ESTIMATED THE INCOME OF THE ASSESSEE BY A PPLYING NET PROFIT AT 8%. 7. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. B EFORE CONSIDERING THE VARIOUS CONTENTIONS RAISED BY THE LEARNED REPRESENTATIVES, WE DEEM IT PERTINENT T O TAKE NOTE OF THE FUNDAMENTAL TESTS PROPOUNDED IN VARIOUS JUDGMENTS R ELEVANT FOR JUDGING THE ACTION OF THE CIT TAKEN U/S 263. THE ITAT IN THE CA SE OF MRS. KHATIZA S. OOMERBHOY VS. ITO, MUMBAI, 101 TTJ 1095, ANALYZED I N DETAIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 83 AND HAS PROPOUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION OF CIT TAKEN UNDER SECTION 263. (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. BOTH THE CONDITIONS MUST BE FULFILLED. ITA NO.1107/AHD/2013 4 (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONL Y WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACT ED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERR ONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJ UDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS AR E POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DO ES NOT AGREE. IF CANNOT BE TREATED AS AN ERRONEOUS ORDER, UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW (VI) IF WHILE MAKING THE ASSESSMENT, THE AO EXAMINE S THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME, THE CIT, WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMI TTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE I NCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARR IVE AT A CONCLUSION, SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER S. 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION . (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF A SSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF TH E ASSESSEE, THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEO US SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 8. ON DUE CONSIDERATION OF THE FACTS, IN THE LIGHT OF THE ABOVE TESTS, WE FIND THAT LD.COMMISSIONER HAS ALSO NOT ASSIGNED ANY REASON AS TO WHY NET PROFIT AT THE RATE OF 8% SHOULD BE APPLIED TO THE GROSS RECEIPTS OF THE ASSESSEE FOR ESTIMATING HIS INCOME. THE LD. COMMISSIONER IS NOT JUSTIFIED IN INTERFERING THE DISCRETION EXERCISED B Y THE AO WITHOUT ANY ITA NO.1107/AHD/2013 5 PLAUSIBLE REASON. THE ESTIMATED OPINION FORMED BY THE AO CAN ONLY BE INTERFERED, IF IT IS ESTABLISHED ON RECORD THAT SUC H AN OPINION WAS FORMED BY THE AO ON MISINTERPRETATION OR MISCONSTRUCTION O F FACTS OR BASED ON EXTRANEOUS REASONS. NO SUCH THING HAS BEEN POINTED OUT BY THE LD.COMMISSIONER IN THE IMPUGNED ORDER. THEREFORE, WE ARE OF THE VIEW THAT THE ORDER OF THE LD.CIT(A) IS NOT SUSTAINABLE IN THE EYES OF LAW. WE, ACCORDINGLY, ALLOW THIS APPEAL AND QUASH THE IM PUGNED ORDER. 9. IN THE RESULT OF THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE COURT ON 10 TH AUGUST, 2015 AT AHMEDABAD. SD/- SD/- (ANIL CHATURVEDI) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER