Sri Yandra Subba Rao, Eluru V. The CIT, Rajahmundry, Rajahmundry

ITA 194/VIZ/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1984 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-01-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 24-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M BHUPAL REDDY
• Keywords: Rejection of books of accounts; Assessment record
• Section: 143(3); 263

Judgement Text

ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.191/VIZAG/2012 ( / ASSESSMENT YEAR: 2007-08) KODI ANANDA RAO ELURU VS. CIT , RAJAHMUNDRY [PAN: ARMPK0665L ] ( / APPELLANT) ( / RESPONDENT) ./I.T.A.NO.194/VIZAG/2012 ( / ASSESSMENT YEAR: 2007-08) YANDRA SUBBA RAO ELURU VS. CIT , RAJAHMUNDRY [PAN: AAXPY8696D ] ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI M. BHUPAL REDDY, DR / DATE OF HEARING : 24.03.2016 / DATE OF PRONOUNCEMENT : ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE ASSESSEES ARE DIRECTED AGAINST THE SEPARATE, BUT IDENTICAL ORDERS OF CIT, RAJAHMUNDRY U/S 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS THE AC T) AND IT PERTAINS TO THE ASSESSMENT YEAR 2007-08. SINCE, THE FACTS ARE I DENTICAL AND ISSUES ARE COMMON, THEY ARE CLUBBED, HEARD TOGETHER AND DI SPOSED OFF, BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE EXTRACTED FROM ITA N O.191/VIZAG/2012 ARE THAT THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN T HE BUSINESS OF TRADING IN IMFL, FILED HIS RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2007-08 ON 1.11.2007 DECLARING TOTAL INCOME OF RS.1,51,362/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICE U/S 1 43(2) OF THE ACT WAS ISSUED. IN RESPONSE TO NOTICE, THE AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCED BO OKS OF ACCOUNTS AND OTHER RELEVANT DETAILS. THE A.O. AFTER DULY CO NSIDERING THE BOOKS OF ACCOUNTS AND OTHER DETAILS, COMPLETED ASSESSMENT U/ S 143(3) OF THE ACT ON 4.8.2009 AND ESTIMATED THE INCOME AT 4% ON NET P URCHASES. 3. THE CIT, RAJAHMUNDRY ISSUED A SHOW-CAUSE NOTICE U/S 263 OF THE ACT DATED 1.8.2011 AND PROPOSED TO REVISE THE ASSES SMENT ORDER. THE ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 3 CIT, PROPOSED TO REVISE THE ASSESSMENT ORDER FOR TH E REASON THAT ON EXAMINATION OF ASSESSMENT RECORD, IT WAS NOTICED TH AT THE A.O. HAS NOT EXAMINED CERTAIN ISSUES, WHICH RENDER THE ASSESSMEN T ORDER ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE IN TERMS OF SECTION 263 OF THE ACT. THE CIT OBSERVED THAT THE A.O. HAS ESTIMATED THE NET PROFIT OF 4% ON NET PURCHASES WITHOUT CONSI DERING THE RATIOS OF THE JUDGEMENT OF HONBLE ITAT VISAKHAPATNAM IN THE CASE OF ACIT VS. M/S. M. VEERABHADRA RAO & OTHERS IN ITA NOS.345 & 3 46/VIZAG/1999, WHEREIN THE ITAT HAS DIRECTED TO ESTIMATE THE SALES AT 8 TIMES OF THE PURCHASE AND THEN ESTIMATE THE NET PROFIT AT 1% ON SUCH ESTIMATED SALES OR DECLARED SALES WHICHEVER IS MORE CLEAR OF ALL DEDUCTIONS AND ALLOWANCES. THE A.O. WITHOUT CONSIDERING THE DECISI ON OF THE JURISDICTIONAL ITAT, HAS ESTIMATED THE NET PROFIT O F 4% ON NET PURCHASE WHICH IS CONTRARY TO THE DECISION OF JURISDICTIONAL ITAT. THEREFORE, THE ASSESSMENT ORDER PASSED BY THE A.O. IS ERRONEOUS, I N SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CI T FURTHER OBSERVED THAT THE ASSESSEE HAS SHOWN UNSECURED LOANS AND INTRODUC ED FRESH CAPITAL DURING THE YEAR. HOWEVER, THE A.O. HAS FAILED TO EX AMINE THE CRUCIAL AND ESSENTIAL INGREDIENTS I.E. IDENTITY OF THE CREDITOR S, GENUINENESS OF THE TRANSACTION AND CREDITWORTHINESS OF THE CREDITORS A ND ALSO NOT EXAMINED SOURCES FOR CAPITAL INTRODUCTION. SIMILARLY, THE CI T OBSERVED THAT THE A.O. ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 4 HAS FAILED TO ANALYSE THE REASONS FOR DECLARATION O F LOW NET PROFIT. FURTHER, THE A.O. HAS FAILED TO VERIFY THE QUANTITA TIVE BREAKUP OF PURCHASE AND SALES MADE DURING THE YEAR, NOT ANALYS ED THE SOURCE FOR PAYMENT OF LICENSE FEES AND ALSO SOURCES FOR DEPOSI TS KEPT IN BANK FOR OBTAINING THE BANK GUARANTEE. WITH THESE OBSERVATIO NS, THE CIT WAS OF THE OPINION THAT THE A.O. HAS COMPLETED THE ASSESSM ENT CONTRARY TO THE DECISIONS RENDERED BY THE JURISDICTIONAL HIGH COURT AND ITAT, WHICH RENDER THE ASSESSMENT ORDER ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IN TERMS OF SECTION 263 OF THE ACT. THEREFORE, ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT DATED 4.8.2009 S HALL NOT BE SET ASIDE. 4. IN RESPONSE TO SHOW-CAUSE NOTICE, THE ASSESSEE H AS FILED HIS WRITTEN SUBMISSIONS DATED 29.8.2011 AND CONTENDED T HAT THE ORDER PASSED BY THE A.O. WAS NOT ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, AS THE A.O. HAS VERIFIED T HE DETAILS WITH REGARD TO THE ESTIMATION OF NET PROFIT FROM THE BUSINESS. THE ASSESSEE FURTHER SUBMITTED THAT THE CASE LAWS RELIED UPON FOR REVISI ON OF ORDER IS RENDERED BY THE ITAT, UNDER DIFFERENT SET OF FACTS WHICH CANNOT BE COMPARED. THE ASSESSEE FURTHER STATED THAT HE IS IN THE BUSINESS OF DEALING IN IMFL, WHEREAS THE CASE LAWS RELIED UPON BY YOU ARE DEALING ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 5 WITH SALE OF ARRACK. THERE IS A DIFFERENCE BETWEEN BUSINESS ACTIVITY AND ALSO PROFIT MARGINS IN TWO BUSINESSES, WHICH CANNOT BE COMPARED. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. AT THE TIM E OF ASSESSMENT HAS TAKEN NOTE OF ALL THE FACTS AND DECIDED TO ADOPT A NET PROFIT OF 4% ON NET PURCHASES, THEREFORE, THE ORDER OF THE A.O. CAN NOT BE TERMED AS ERRONEOUS, IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS REGARDS THE OTHER ISSUES RAISED BY THE CIT(A), THE ASSESSEE SUBMITTED THAT IT HAS FURNISHED THE DETAILS OF UNSECURED LOAN S AND ALSO FILED NAME AND ADDRESS OF THE PERSONS FROM WHOM THE LOANS HAS BEEN TAKEN BEFORE THE A.O. IN RESPECT OF CAPITAL INTRODUCED, IT WAS S UBMITTED THAT THE ASSESSEE HAS FURNISHED SOURCES FOR CAPITAL INTRODUC TION AND ON VERIFICATION OF THE DETAILS FILED BY THE ASSESSEE T HE A.O. HAS CHOSEN TO ESTIMATE THE NET PROFIT. THEREFORE, THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT IS NOT ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. HOWEVER, THE CIT AFTER CONSIDERING THE EXPLANATI ONS OFFERED BY THE ASSESSEE, HELD THAT THE A.O. DID NOT VERIFY THE ABO VE ISSUES AT THE TIME OF COMPLETING THE ASSESSMENT U/S 143(3) OF THE ACT. THEREFORE, THE ASSESSMENTS ORDER DATED 4.8.2009 NEEDS TO BE REVISE D, AS IT IS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE IN TEREST OF THE REVENUE. ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 6 WITH THESE OBSERVATIONS, THE CIT SET ASIDE THE ASSES SMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT ON 4.8.2009 AND D IRECTED THE A.O. TO COMPUTE THE NET PROFIT IN THE LIGHT OF THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. M/S. V. RAMULU, KAKINADA IN ITA NO.197/VIZAG/2003 DATED 21.6.2009, BY ADOPTING THE METHOD OF ESTIMATING NET PROFIT @ 2% OF THE ESTIMATED SALES O F 16% OF THE PURCHASE VALUE, WHICHEVER IS HIGHER CLEAR OF ALL DE DUCTIONS AND ALLOWANCES. IF THE NET PROFIT ESTIMATED IS LESS THA N THE PROFIT DECLARED BY THE ASSESSEE, THEN THE PROFIT SO DECLARED SHOULD BE ACCEPTED. THE A.O. IS DIRECTED TO GO THROUGH THE ORDER OF THE HONBLE A.P. HIGH COURT THOROUGHLY AND COMPLETE THE ASSESSMENT AFRESH WITHI N THE STIPULATED TIME AND COMPUTE THE NET PROFIT IN ACCORDANCE WITH THE ORDER OF THE HONBLE A.P. HIGH COURT. THE CIT FURTHER DIRECTED T HE A.O. TO EXAMINE THE UNSECURED LOAN ACCEPTED BY THE ASSESSEE. THE AS SESSING OFFICER SHOULD VERIFY THE SOURCES FOR INITIAL CAPITAL INTRO DUCTION FOR PAYMENT OF LICENSE FEE. WITH THESE OBSERVATIONS, THE CIT SET A SIDE THE ASSESSMENT ORDER. AGGRIEVED BY THE CIT ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. A.R. OF THE ASSESSEE SUBMITTED THAT THE CIT WAS ERRED IN REVISING THE ASSESSMENT ORDER U/S 263 OF THE ACT, A S THE A.O. HAS VERIFIED THE ISSUES POINTED OUT BY THE CIT IN THE A SSESSMENT ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 7 PROCEEDINGS. THE A.R. FURTHER SUBMITTED THAT THE A .O. HAS VERIFIED THE ISSUE OF NET PROFIT AND CHOSE TO ESTIMATE THE NET P ROFIT OF 4% ON NET PURCHASE CONSIDERING THE EXPLANATIONS OFFERED BY TH E ASSESSEE. THE A.R. FURTHER SUBMITTED THAT THE JUDGMENTS RELIED UP ON BY THE CIT FOR INITIATING THE REVISION PROCEEDINGS ARE IN RESPECT OF TRADING IN ARRACK, THE FACTS AND CONTEXT OF WHICH ARE DIFFERENT FROM ASSES SEES BUSINESS OF TRADING IN IMFL AND HENCE, CANNOT BE APPLIED TO THI S LINE OF BUSINESS. THE A.R. FURTHER SUBMITTED THAT THE ASSESSEE IS DEA LING IN IMFL WHEREIN THE MRP OF THE GOODS WAS FIXED BY THE APBCL IN CONS ULTATION WITH THE EXCISE DEPARTMENT AND ASSESSEE CANNOT SELL THE GOOD S OVER AND ABOVE THE MRP. THEREFORE, THE NET PROFIT MARGIN IN THIS L INE OF BUSINESS IS VERY LESS WHEN COMPARED TO THE BUSINESS OF TRADING IN AR RACK. THE A.R. FURTHER SUBMITTED THAT THE A.O. HAS TAKEN NOTE OF A LL THESE ASPECTS AND CHOSE TO ESTIMATE THE NET PROFIT WHICH CANNOT BE TE RMED AS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE. AS REGARDS THE OTHER ISSUES RAISED BY THE CIT, THE A.R. SUBMITTED THAT HE HAS NOT PRESSED THE OTHER ISSUES RAISED BY THE CIT, SUCH AS UNSECURED LOANS AND INTRODUCTION OF FRESH CAPITAL, THEREFORE REQUESTED TO MODIFY THE ORDER TO THE EXTENT OF ESTIMATION OF NET PROFIT. ON THE OTH ER HAND, THE LD. D.R. SUBMITTED THAT THE ISSUE OF NET PROFIT ESTIMATED BY THE A.O. IS NOT A SUBJECT MATTER OF REVISION, AS THE A.O. HAS ALREADY CONSIDERED THE ISSUE ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 8 OF ESTIMATION OF NET PROFIT AT THE TIME OF ASSESSME NT. HOWEVER, THE OTHER TWO ISSUES RAISED BY THE CIT WITH REGARD TO THE UNS ECURED LOAN AND INTRODUCTION OF CAPITAL, THE A.O. HAS NOT VERIFIED THE ISSUES AT THE TIME OF COMPLETION OF ASSESSMENT, THEREFORE, THE CIT(A) RIG HTLY ASSUMED THE JURISDICTION U/S 263 OF THE ACT AND HIS ORDER SHOUL D BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE CIT ASSUMED JURISDICTION TO REVISE THE ASSESSMENT ORDER FOR THE REASON THAT THE A.O. HAS NOT CONDUCTED PROPER ENQUIRY WHILE COM PLETING THE ASSESSMENT U/S 143(3) OF THE ACT. THEREFORE, THE AS SESSMENT ORDERS DATED 4.8.2009 IS ERRONEOUS, IN SO FAR AS IT IS PRE JUDICIAL TO THE INTEREST OF THE REVENUE. THE CIT ASSUMED JURISDICTION FOR TH E REASON THAT THE A.O. HAS NOT CONSIDERED THE ITAT AND JURISDICTIONAL HIGH COURT JUDGEMENTS, WHILE ESTIMATING THE NET PROFIT FROM TH E BUSINESS. THE CIT WAS OF THE OPINION THAT ITAT AND HONBLE A.P. HIGH COURT HAS HELD THAT SALES SHOULD BE ESTIMATED AT 8 TIMES OF THE PURCHAS E PRICE AND THEN ESTIMATES THE NET PROFIT AT 1% OF SUCH ESTIMATED SA LES. THE A.O., WITHOUT CONSIDERING THE RATIOS OF THE JURISDICTIONA L HIGH COURT AND ITAT, SIMPLY ESTIMATED 4% NET PROFIT ON NET PURCHASES, WH ICH RENDER THE ASSESSMENT ORDER ERRONEOUS, IN SO FAR AS IT IS PREJ UDICIAL TO THE INTEREST ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 9 OF THE REVENUE. ON PERUSAL OF THE SHOW CAUSE NOTICE ISSUED BY THE CIT, WE FIND THAT THE ISSUE OF ESTIMATION OF NET PROFIT QUESTIONED BY THE CIT WAS ALREADY EXAMINED BY THE A.O. AT THE TIME OF ASS ESSMENT PROCEEDINGS, WHICH IS EVIDENT FROM THE ASSESSMENT O RDER. THE A.O. AT THE TIME OF COMPLETION OF ASSESSMENT AFTER CONSIDER ING THE BOOKS OF ACCOUNTS AND OTHER EXPLANATIONS FURNISHED BY THE AS SESSEE REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE NET PROFIT OF 4 % ON NET PURCHASES. THEREFORE, WE ARE OF THE OPINION THAT THE CIT WAS N OT CORRECT IN OBSERVING THAT THE A.O. DID NOT CONDUCT PROPER ENQU IRY OF THE ISSUES BEFORE COMPLETION OF THE ASSESSMENT. 8. THE CIT ASSUMED THE JURISDICTION TO REVISE THE A SSESSMENT ORDER ON THE GROUND THAT THERE IS A LACK OF ENQUIRY ON TH E PART OF THE A.O. FOR ESTIMATION OF NET PROFIT. THE CIT(A) HELD THAT THE A.O. FAILED TO CONSIDER THE JUDGMENTS OF JURISDICTIONAL HIGH COURT AND ITAT , WHILE ESTIMATING THE NET PROFIT. THE LD. A.R. OF THE ASSESSEE SUBMI TTED THAT THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE A. O. DID NOT CONDUCT PROPER ENQUIRY, AS THE A.O. HAS EXAMINED THE ISSUE WHICH IS SUBJECT MATTER OF REVISIONAL PROCEEDINGS. ONCE THE A.O. HAS VERIFIED THE DETAILS AND CHOSE TO ADOPT THE NET PROFIT, THEN THE CIT CAN NOT ASSUME THE JURISDICTION TO REVISE THE ASSESSMENT ORDER FOR THE SAME REASONS BY ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 10 STEPPING INTO THE SHOES OF THE ASSESSING OFFICER. T HE A.O. AT THE TIME OF ASSESSMENT HAS CALLED FOR BOOKS OF ACCOUNTS AND AFT ER VERIFICATION OF BOOKS OF ACCOUNTS REJECTED THE SAME AND RESORTED TO ESTIMATION OF NET PROFIT. WHILE ESTIMATING THE NET PROFIT, THE A.O. H AS TAKEN NOTE OF THE RELEVANT FACTORS AND ESTIMATED THE NET PROFIT OF 4% ON NET PURCHASES. THE CIT(A) WAS OF THE OPINION THAT THE A.O. HAS FAI LED TO COMPLY THE RATIOS OF JURISDICTIONAL HIGH COURT FOR ESTIMATING THE NET PROFIT, WITHOUT CONSIDERING WHETHER THE RATIO LAID DOWN BY THE ITAT AND HONBLE A.P. HIGH COURT ARE APPLICABLE TO THE FACTS OF THE CASE. THEREFORE, WE ARE OF THE OPINION THAT THE CIT WAS NOT CORRECT IN CONSIDE RING THE JURISDICTIONAL HIGH COURT AND ITAT, JUDGMENTS FOR ESTIMATION OF NE T PROFIT FROM THE BUSINESS. THE ISSUE OF ESTIMATION OF NET PROFIT IS A DEBATABLE ISSUE AND ALWAYS TWO VIEWS ARE POSSIBLE. THE A.O. HAS TAKEN O NE OF THE POSSIBLE VIEW, THEREFORE, IT CANNOT BE HELD THAT THE ORDER P ASSED BY THE A.O. IS ERRONEOUS AND ALSO IT IS PREJUDICIAL TO THE INTERES T OF THE REVENUE. THE ASSESSMENT ORDER PASSED BY THE A.O. IS ALSO NOT PRE JUDICIAL TO THE INTEREST OF THE REVENUE, AS THERE IS NO LOSS OF REV ENUE BECAUSE OF THE ACTION OF THE A.O, AS THE A.O. HAS CHOSEN TO ADOPT 4% NET PROFIT, WHICH IS ALMOST IN LINE OF THE BUSINESS ACTIVITY OF THE A SSESSEE. ONCE, THE A.O. ALLOWED THE CLAIM OF THE ASSESSEE AFTER BEING SATIS FIED WITH THE EXPLANATIONS, THEN, THE CIT CANNOT REVISE THE ASSES SMENT ORDER FOR SAME ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 11 REASON WITH A DIFFERENT OPINION. IT IS NOT A CASE OF CIT THAT THE A.O. HAS NOT EXAMINED THE VERY ISSUE AT THE TIME OF ASSESSME NT. IN THE PRESENT CASE ON HAND, THE A.O. HAS EXAMINED THE BOOKS OF AC COUNTS AND AFTER CONSIDERING THE BOOKS OF ACCOUNTS AND OTHER RELEVAN T INFORMATION FURNISHED BY THE ASSESSEE, REJECTED THE BOOKS OF AC COUNTS AND RESORTED TO ESTIMATION OF NET PROFIT, WHICH CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFO RE, WE ARE OF THE OPINION THAT THERE IS NO REASON OF WHATSOEVER FOR T HE CIT TO REVISE THE ASSESSMENT ORDER FOR ESTIMATION OF HIGHER PROFIT. 9. THE CIT U/S 263 OF THE ACT HAS POWER TO REVISE T HE ASSESSMENT ORDER. BUT, TO INVOKE THE PROVISIONS OF SECTION 26 3 OF THE ACT, THE TWIN CONDITIONS MUST BE SATISFIED. (1) THE ORDER OF TH E A.O. IS ERRONEOUS AND (2) FURTHER IT MUST BE PREJUDICIAL TO THE INTER EST OF THE REVENUE. UNLESS BOTH THE CONDITIONS ARE SATISFIED, THE CIT C ANNOT ASSUME THE JURISDICTION U/S 263 OF THE ACT. IT IS NOT NECESSA RY THAT EVERY ORDER WHICH IS ERRONEOUS MAY NOT BE PREJUDICIAL TO THE IN TEREST OF THE REVENUE OR VICE VERSA. UNLESS THE A.OS ORDER IS ERRONEOUS , NO ACTION CAN BE TAKEN BY THE CIT U/S 263 OF THE ACT. THIS IS BECAU SE, THE TWIN CONDITIONS I.E. THE ORDER IS ERRONEOUS AND THE SAME IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE ARE CO-EXISTS. IN THE PRESENT CASE ON HAND, ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 12 ON EXAMINATION OF THE RECORDS, WE FIND THAT THE A.O . HAS CONDUCTED ENQUIRY ON THE ISSUE OF ESTIMATION OF NET PROFIT. THE ASSESSING OFFICER AFTER VERIFICATION OF BOOKS OF ACCOUNTS AND OTHER R ELEVANT DETAILS HAS ADOPTED 4% NET PROFIT ON NET PURCHASES, WHICH CANNO T BE TERMED AS ERRONEOUS. THE CONTENTION OF THE CIT WAS THAT THE A .O. HAS NOT APPLIED THE JURISDICTIONAL HIGH COURT JUDGMENTS AND ALSO IT AT JUDGEMENT WHILE ESTIMATING THE NET PROFIT. THEREFORE, THE ORDER PAS SED BY THE A.O. IS WITHOUT APPLICATION OF MIND. WE DO NOT SEE ANY MER ITS IN THE ARGUMENTS OF THE CIT, FOR THE REASONS THAT THERE IS A DISTINC TION BETWEEN LACK OF ENQUIRY AND INADEQUATE ENQUIRY, IF THERE IS AN INAD EQUATE ENQUIRY THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE CIT TO ASS UME JURISDICTION U/S 263 OF THE ACT, MERELY BECAUSE HE HAS A DIFFERENT O PINION. THEREFORE, WE ARE OF THE OPINION THAT IN THE PRESENT CASE ON H AND, THERE IS NO REASON FOR THE COMMISSIONER TO REVISE THE ASSESSMEN T ORDER, AS THE A.O. HAS VERIFIED THE ISSUE AND ESTIMATED THE NET PROFIT . IN THIS CASE, THERE CANNOT BE ANY DISPUTE THAT A.O. HAS NOT DISCUSSED T HE ISSUE AT THE TIME OF COMPLETION OF THE ASSESSMENT. THE NET PROFIT ADO PTED BY THE A.O. IS CORRECT OR NOT IS A DEBATABLE QUESTION. THE LD. CIT HAS NOT POINTED OUT ANY MISTAKES IN SUCH ESTIMATION TO SAY THAT IT IS E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE QUE STION WHETHER THE DECISION OF ITAT IN THE CASE OF M. VEERABHADRA RAO AND OTHERS (SUPRA) ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 13 AND ALSO THE HONBLE A.P. HIGH COURT IN THE CASE OF M/S. V. RAMULU, KAKINADA IN ITA NO.197/2003 DATED 21.6.2011, BOTH A RE RENDERED IN THE CONTEXT OF ARRACK BUSINESS, SHALL BE APPLIED TO THE IMFL BUSINESS OR NOT. THEREFORE, WE ARE OF THE OPINION THAT THE CIT WAS E RRED IN CONSIDERING THE CASE LAWS RENDERED BY THE A.P. HIGH COURT AND I TAT IN THE CONTEXT OF ARRACK BUSINESS TO THE BUSINESS OF THE ASSESSEE I.E. TRADING IN IMFL. THEREFORE, WE ARE OF THE OPINION THAT THE ASSESSMEN T ORDER PASSED BY THE A.O., IN RESPECT OF ESTIMATION OF NET PROFIT IS NOT ERRONEOUS, IN SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 10. DURING THE COURSE OF HEARING, BOTH THE COUNSELS SUBMITTED THAT THE OTHER ISSUES RAISED BY THE CIT WITH REGARD TO THE V ERIFICATION OF UNSECURED LOANS AND CAPITAL ACCOUNT OF THE ASSESSEE , THE A.O. HAS NOT VERIFIED THE ISSUES AT THE TIME OF COMPLETION OF AS SESSMENT. THEREFORE, THE ASSESSMENT ORDER PASSED BY THE A.O. IN RESPECT OF THESE TWO ISSUES IS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE, REQUESTED TO MODIFY THE CIT DIRECTIONS. ON EXAMINATION OF THE ASSESSMENT ORDER AND CIT ORDER, WE FIND THAT TH E ISSUE OF UNSECURED LOANS AND CAPITAL INTRODUCTION BY THE ASSESSEE WERE NOT EXAMINED BY THE A.O. AT THE TIME OF COMPLETION OF ASSESSMENT. THERE FORE, WE ARE OF THE OPINION THAT THE ASSESSMENT ORDER PASSED BY THE A.O ., IN RESPECT OF ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 14 UNSECURED LOANS AND CAPITAL INTRODUCTION IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ACCORDI NGLY, WE UPHOLD THE CIT ORDER AND SET ASIDE THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, IN RESPECT OF UNSECURED LOANS AN D CAPITAL ACCOUNT. ACCORDINGLY, THE ORDER PASSED BY THE CIT U/S 263 OF THE ACT IS MODIFIED, SO AS TO REJECT THE CIT ORDER IN RESPECT OF ESTIMAT ION OF NET PROFIT AND UPHOLD THE ACTION OF THE CIT, IN RESPECT OF UNSECUR ED LOANS AND CAPITAL ACCOUNT IS CONCERNED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO.194 OF 2012: 12. THE FACTS AND ISSUES INVOLVED IN ITA NO.194 OF 2012 ARE IDENTICAL TO ITA NO.191 OF 2012. THEREFORE, FOR THE REASONS R ECORDED IN THE PRECEDING PARAGRAPH, WE MODIFY THE ORDER OF CIT PAS SED U/S 263 OF THE ACT, SO AS TO SET ASIDE THE ORDER OF THE CIT IN RES PECT OF THE ESTIMATION OF NET PROFIT AND UPHOLD THE ACTION OF CIT IN RESPE CT OF UNSECURED LOANS AND CAPITAL ACCOUNT INTRODUCTION. ITA NOS.191&194/VIZAG/2012 KODI ANANDA RAO & YANDRA SUBBA RAO, ELURU 15 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 31 ST MAR16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 31.03.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI KODI ANANDA RAO, PROP: Y.S. LIQUORS, CHATAPARRU, ELURU RURAL MANDAL, ELURU. 2. / THE APPELLANT YANDRA SUBBA RAO, PROP: Y.S.LIQU ORS, AGADALA LANKA, ELURU 3. / THE RESPONDENT THE CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), RAJAHMUNDRY 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM