GVR Associates, Hyderabad V. THE ITO, Vijayawada

ITA 221/VIZ/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 6560 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 02-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K HARI PRASADA RAO
• Assessee Lawyers: S RAMA RAO
• Keywords: Rejection of books of accounts; Opportunity of being heard; Assessment record
• Section: 40A(3); 143(3); 142(1); 263

Judgement Text

ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 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.221/VIZAG/2015 ( / ASSESSMENT YEAR:2010-11) G.V.R. ASSOCIATES, VIJAYAWADA VS. ITO, WARD - 1(3), VIJAYAWADA [PAN: AAGFG8578B ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI S. RAMA RAO, AR / RESPONDENT BY : SHRI K. HARI PRASADA RAO, DR / DATE OF HEARING : 29.12.2016 / DATE OF PRONOUNCEMENT : 20.01.2017 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE CIT(A), VIJAYAWADA U/S 263 OF THE INCOME TAX ACT, 1 961 (HEREINAFTER CALLED AS 'THE ACT') FOR THE ASSESSMENT YEAR 2010-1 1. ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPING PROPERTI ES AND UNDERTAKING CONSTRUCTION OF APARTMENTS, FLATS, ETC. FILED ITS R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-10 ADMITTING TOTAL INCOME AT ` 5,36,160/-. THE CASE HAS BEEN SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, NOTICE U/S 143(2) & 142(1) OF THE ACT, CALLING FOR INFORMA TION IN CONNECTION WITH SCRUTINY PROCEEDINGS HAVE BEEN ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED BOOKS OF ACCOUNTS AND OTHER INFORMATI ON CALLED FOR. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, ON 26.3.2013 DETERMINING THE TOTAL INCOME AT ` 13,01,420/- BY ESTIMATING NET PROFIT OF 12.5% ON GROSS RECEIPTS BEFORE ALLOWING REMUNERATIO N AND INTEREST ON PARTNERS CAPITAL ACCOUNT U/S 40(B) OF THE ACT, BY FOLLOWING JUDGEMENT OF M/S. K.N.R. CONSTRUCTIONS. 3. THE CIT, VIJAYAWADA ISSUED A SHOW CAUSE NOTICE D ATED 19.12.2014 AND ASKED TO EXPLAIN AS TO WHY THE ASSESSMENT ORDER PASSED BY THE A.O. US/ 143(3) OF THE ACT, DATED 26.3.2013 SHALL NOT BE REVISED UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. THE CIT PROP OSED TO REVISE THE ASSESSMENT ORDER FOR THE REASON THAT ON EXAMINATION OF ASSESSMENT RECORDS, CERTAIN OMISSIONS AND COMMISSIONS WERE NOT ICED WHICH ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 3 RENDERED THE ASSESSMENT ORDER ERRONEOUS IN SO FAR A S IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IN TERMS OF SECTION 263 OF THE ACT. THE CIT, IN THE SAID SHOW CAUSE NOTICE OBSERVED THAT THE A.O . HAS NOT VERIFIED THE ISSUES BEFORE COMPLETION OF ASSESSMENT, THEREBY IGN ORED THE CORE ISSUES SUCH AS LOW NET PROFIT ADMITTED BY THE ASSESSEE, DE DUCTIONS CLAIMED U/S 40(B) OF THE ACT TOWARDS REMUNERATION TO PARTNERS A ND INTEREST ON PARTNERS CAPITAL ACCOUNT, RECOGNITION OF WORK IN P ROGRESS IN THE BOOKS OF ACCOUNTS, PAYMENT OF INTEREST ON PARTNERS CAPITAL ACCOUNT AS WELL AS CURRENT ACCOUNT, LOANS BORROWED FROM PARTNERS ACCO UNT AND ITS GENUINENESS AND ALSO CREDITWORTHINESS OF THE PARTNE RS TO ADVANCE LOAN TO THE FIRM, ADVANCES GIVEN TO VARIOUS PERSONS AND RECOVERY OF INTEREST ON SUCH ADVANCES, DISCHARGING OF LIABILITIES APPEAR ED IN THE BALANCE SHEET AND APPLICABILITY OF DISALLOWANCE OF EXPENDIT URE INCURRED IN CASH IN EXCESS OF THE THRESHOLD LIMIT PRESCRIBED U/S 40A(B) OF THE ACT. THE A.O., WITHOUT EXAMINING THE ABOVE ISSUES, SIMPLY COMPLETE D ASSESSMENT BY RESORTING TO ESTIMATION OF INCOME WITHOUT VERIFYING THE NATURE OF BUSINESS CARRIED ON BY THE ASSESSEE BY FOLLOWING TH E DECISION OF ITAT, HYDERABAD IN THE CASE OF M/S. KNR CONSTRUCTIONS, WH ICH WAS RENDERED IN A DIFFERENT SET OF FACTS, WHICH RENDERED THE ASS ESSMENT ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. THE A.O. NOT ONLY EXAMINED THE ISSUES, BUT ALSO FAILED TO APPLY HIS MIND ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 4 BEFORE COMPLETION OF ASSESSMENT WHICH CAUSED PREJUD ICE TO THE INTEREST OF THE REVENUE, THEREFORE, OPINED THAT THE ASSESSME NT ORDER PASSED BY THE A.O. NEEDS TO BE REVISED U/S 263 OF THE ACT. 4. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE S UBMITTED THAT THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF T HE ACT, DATED 26.3.2013 IS NOT ERRONEOUS IN SO FAR AS IT IS PREJU DICIAL TO THE INTEREST OF THE REVENUE, AS THE A.O. HAS EXAMINED ALL THE ISSUE S POINTED OUT IN THE SHOW CAUSE NOTICE AT THE TIME OF COMPLETION OF ASSE SSMENT. THE ASSESSEE FURTHER SUBMITTED THAT IT IS INVOLVED IN T HE BUSINESS OF DEVELOPING APARTMENTS AND FLATS, MAINTAINED BOOKS O F ACCOUNTS, AS PER WHICH, IT HAS SUFFERED A LOSS OF ` 78,16,413/- FOR THE YEAR UNDER CONSIDERATION. HOWEVER, IT HAS IGNORED THE LOSS AS PER THE BOOKS OF ACCOUNTS AND ADMITTED INCOME OF 8% ON GROSS CONTRAC T RECEIPTS BEFORE ALLOWING DEDUCTION TOWARDS INTEREST ON CAPITAL AND REMUNERATION TO PARTNERS. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. HAS ISSUED A DETAILED SHOW CAUSE NOTICE CALLING FOR EACH AND EVE RY DETAILS OF PROJECT EXECUTED AND IT HAS FURNISHED BOOKS OF ACCOUNTS AND OTHER DETAILS CALLED FOR BY THE A.O. AT THE TIME OF ASSESSMENT. THE A.O . AFTER CONSIDERING THE BOOKS OF ACCOUNTS AND OTHER DETAILS CAME TO THE CONCLUSION THAT THE TRUE PROFIT FROM THE BUSINESS CANNOT BE COMPUTED FR OM THE BOOKS OF ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 5 ACCOUNTS MAINTAINED BY THE ASSESSEE AND HENCE, IGNO RED BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT OF 12.5% ON GROSS CONTRACT RECEIPTS SUBJECT TO FURTHER DEDUCTIONS TOWARDS REMUNERATION AND INTEREST ON CAPITAL TO PARTNERS U/S 40(B) OF THE ACT. 5. IT WAS FURTHER SUBMITTED THAT ESTIMATION OF NET PROFIT FROM THE BUSINESS IN ONE OF THE ACCEPTED METHOD OF ASSESSMEN T OF INCOME FROM BUSINESS AND THE A.O. AFTER CONSIDERING THE FACTS A ND CIRCUMSTANCES OF THE CASE HAD TAKEN CONSCIOUS DECISION AND ACTED IN ACCORDANCE WITH LAW AND MADE THE ASSESSMENT, THEREFORE THE SAME COULD N OT BE BRANDED AS ERRONEOUS BY THE CIT, SIMPLY BECAUSE ACCORDING TO H IM, THE ORDER SHOULD HAVE BEEN WRITTEN BY BRINGING MORE INCOME TA X. THE ASSESSEE FURTHER SUBMITTED THAT IN SO FAR AS ISSUES RAISED B Y THE CIT, IN RESPECT OF INTEREST ON PARTNERS CAPITAL, THE ASSESSEE HAS IGN ORED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT FROM GROSS RECEIP TS. ONCE NET PROFIT IS ESTIMATED, THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCT IONS TOWARDS INTEREST ON PARTNERS CAPITAL ACCOUNT AND REMUNERATION TO PA RTNERS AS PER THE PROVISIONS OF SECTION 40(B) OF THE ACT, THEREFORE, THERE IS NO REASON FOR SUSPECTING THE INTEREST PAYMENT TO PARTNERS CAPITA L ACCOUNT. IN SO FAR AS OTHER ISSUES RAISED BY THE CIT WITH REGARD TO RE COGNITION OF WORK IN PROGRESS, LOAN FROM PARTNERS AND ADVANCE GIVEN TO V ARIOUS INDIVIDUALS, ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 6 DISCHARGING OF LIABILITIES, THE A.O. HAS CALLED FOR NECESSARY EVIDENCES AND AFTER SATISFIED WITH THE DETAILS FILED BY THE ASSES SEE, CHOSEN TO COMPLETE THE ASSESSMENT BY ESTIMATING NET PROFIT FROM GROSS RECEIPTS. IN SO FAR AS APPLICABILITY OF THE PROVISIONS OF SECTION 40A(3) O F THE ACT, ONCE BOOKS OF ACCOUNTS ARE IGNORED FOR THE PURPOSE OF DETERMINATI ON OF INCOME FROM BUSINESS, REFERRING TO THE SAME BOOKS OF ACCOUNTS T O FIND OUT THE VIOLATIONS REFERRED TO IN SECTION 40A(3) OF THE ACT CANNOT BE JUSTIFIED. THEREFORE, THE ASSESSMENT ORDER PASSED BY THE A.O. CANNOT BE TERMED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 6. THE CIT, AFTER CONSIDERING THE SUBMISSIONS OF TH E ASSESSEE HELD THAT THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 14 3(3) OF THE ACT, DATED 26.3.2013 IS ERRONEOUS IN SO FAR AS IT IS PRE JUDICIAL TO THE INTEREST OF THE REVENUE, AS THE ASSESSING OFFICER HAS FAILED TO EXAMINE THE ISSUES POINTED OUT IN THE SHOW CAUSE NOTICE WITH REFERENCE TO BOOKS OF ACCOUNTS AND OTHER RELEVANT DETAILS. THE CIT FURTH ER OBSERVED THAT THE A.O. HAS COMPLETED ASSESSMENT BY ESTIMATING NET PRO FIT WITHOUT EXAMINING THE SPECIFIC ISSUES REFERRED TO IN THE SH OW CAUSE NOTICE WITH REGARD TO THE WORK IN PROGRESS, INTEREST ON CAPITAL AND LOANS TO PARTNERS, LOANS FROM PARTNERS AND ITS GENUINENESS, ADVANCES T O VARIOUS PERSONS AND APPLICABILITY OF THE PROVISIONS OF SECTION 40A( 3) OF THE ACT. THE CIT ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 7 FURTHER OBSERVED THAT THE A.O. NOT ONLY FAILED TO E XAMINE THE ISSUES POINTED OUT IN THE SHOW CAUSE NOTICE, BUT ALSO FAIL ED TO APPLY HIS MIND BEFORE COMPLETION OF ASSESSMENT, WHICH IS EVIDENT F ROM THE FACT THAT THE A.O. HAS MISCONSTRUED THE NATURE OF BUSINESS CARRIE D OUT BY THE ASSESSEE. THE ASSESSEE IS INTO THE BUSINESS OF DEV ELOPMENT OF PROPERTIES AND UNDERTAKING CONSTRUCTION OF APARTMEN TS, FLATS, ETC., WHEREAS THE A.O. HAS OBSERVED THAT THE ASSESSEE IS INTO THE BUSINESS OF CIVIL CONSTRUCTIONS THEREBY APPLIED THE RATIO LAID DOWN BY THE ITAT, IN M/S. KNR CONSTRUCTIONS TO ESTIMATE THE NET PROFIT F ROM THE BUSINESS. 7. THE CIT FURTHER OBSERVED THAT FOR THE PURPOSE OF INVOKING THE JURISDICTION U/S 263 OF THE ACT, IT IS SETTLED LAW THAT THE REVISIONAL AUTHORITY SHOULD APPLY THE TEST AS TO WHETHER SUCH AN ORDER SHOULD BE CONSIDERED AS ERRONEOUS NOT ONLY FOR THE REASON THA T IT CONTAINS SOME APPARENT ERROR OF REASONING OF LAW OR OF THE FACT O N THE FACE OF IT, BUT ALSO FOR THE REASON WHETHER IT IS AN ORDER WHEREIN THE A.O. SIMPLY ACCEPTED WHAT THE ASSESSEE HAS STATED IN HIS RETURN OR OTHER PARTICULARS FURNISHED BY HIM AND FAILED TO MAKE ENQUIRIES WHICH ARE CALLED FOR ON THE FACTS AND CIRCUMSTANCES OF THE CASE. IF, WE AP PLY THE ABOVE TESTS, IT IS CLEAR FROM THE ABOVE DISCUSSION THAT THE A.O. HA S NOT EXAMINED THE ABOVE ISSUES, WHICH ARE CALLED FOR ON THE FACTS AND CIRCUMSTANCES ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 8 NARRATED AND HENCE, THE IMPUGNED ASSESSMENT ORDER I S HELD AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. THEREFORE, THE ASSESSMENT ORDER DATED 26.3.2013 IS SET ASIDE AND T HE A.O. IS DIRECTED TO RE-DO THE ASSESSMENT DE-NOVO IN ACCORDANCE WITH LAW AND ESTABLISHED PROCEDURE AND AFTER AFFORDING THE ASSESSEE A REASON ABLE OPPORTUNITY OF BEING HEARD. AGGRIEVED BY THE CIT ORDER, THE ASSES SEE IS IN APPEAL BEFORE US. 8. THE LD. A.R. FOR THE ASSESSEE, SUBMITTED THAT TH E ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, DAT ED 26.3.2013 IS NOT ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, AS THE A.O. HAS EXAMINED ALL THE ISSUES POINTED OUT BY THE CIT IN THE SHOW CAUSE NOTICE. THE A.R. FURTHER SUBMITTED THAT THE CIT WAS NOT CORRECT IN DIRECTING THE A.O. TO CONDUCT FURTHER ENQUIRIES WIT H REGARD TO THE ISSUES WHICH WERE ALREADY EXAMINED BY THE A.O. AT THE TIME OF ASSESSMENT. THE A.O. HAS CALLED FOR ALL THE DETAILS WHICH WERE SUBJECT MATTER OF REVISION PROCEEDINGS U/S 263 OF THE ACT, VIDE ITS N OTICE DATED 7.11.2012, WHEREIN HE HAD CALLED FOR 13 DETAILS INCLUDING BOOK S OF ACCOUNTS AND OTHER ISSUES POINTED OUT BY THE CIT. THE ASSESSEE HAS FILED ALL THE DETAILS WITH REFERENCE TO SHOW CAUSE NOTICE ISSUED BY THE A.O. AND THE A.O. AFTER SATISFIED WITH THE EXPLANATIONS FURNISHE D BY THE ASSESSEE ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 9 IGNORED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PRO FIT OF 12.5% BY FOLLOWING DECISION OF ITAT, HYDERABAD IN M/S. KNR C ONSTRUCTIONS, THEREFORE, THE ASSESSMENT ORDER PASSED BY THE A.O. CANNOT BE BRANDED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE A.R. FURTHER SUBMITTED THAT REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF NET PROFIT IS ONE OF THE PERMISSIBLE METHODS OF ASSESSMENT OF INCOME FROM BUSINESS. THE A.O. HAD TAKEN ONE OF THE PERMISSIBLE METHOD TO DETERMINE THE TOTAL INCOME OF THE ASSESSE E AND HENCE THE VIEW TAKEN BY THE ASSESSING OFFICER CANNOT BE BRAND ED AS ERRONEOUS BY THE COMMISSIONER, SIMPLY BECAUSE THE NET PROFIT HAS BEEN ESTIMATED BY REJECTING BOOKS OF ACCOUNTS. THE A.R. FURTHER SUBM ITTED THAT EVEN THOUGH THE A.O. HAS NOT REJECTED BOOKS OF ACCOUNTS, ONCE RESORTED TO ESTIMATION OF NET PROFIT IT IS PRESUMED THAT THE BO OKS OF ACCOUNTS ARE REJECTED; THEREFORE THE CIT WAS INCORRECT IN STATIN G THAT THE A.O. HAS NOT REJECTED BOOKS OF ACCOUNTS. SINCE, THE BOOKS OF AC COUNTS ARE REJECTED AND INCOME IS ESTIMATED, THE CIT ERRED IN REFERRING TO THE SAME BOOKS OF ACCOUNTS TO DIRECT THE A.O. TO CAUSE FURTHER ENQUIR IES IN CONNECTION WITH THE ISSUES WHICH ARE ALREADY SUBJECT MATTER OF ASSE SSMENT PROCEEDINGS. 9. THE LD. D.R. ON THE OTHER HAND, STRONGLY SUPPORT ING THE ORDER OF THE CIT, SUBMITTED THAT THE ASSESSMENT ORDER PASSED BY THE A.O. IS ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 10 ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE, BECAUSE THE A.O. HAS IGNORED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT FROM THE BUSINESS, EVEN THOUGH THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS. THE D.R. FURTHER SUBMITTED THAT THE CIT HAS RIGHTLY POINTED OUT VARIOUS INCONSISTENCIES IN THE ASSESSME NT PROCEEDINGS COMPLETED BY THE A.O. WHICH CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE IN TERMS OF SECTION 263 OF THE ACT. THE CI T FOR THE DETAILED REASON RECORDED IN HIS ORDER GAVE A CATEGORICAL FIN DING THAT THE A.O. NOT ONLY FAILED TO EXAMINE THE CORE ISSUES, BUT ALSO FA ILED TO APPLY HIS MIND BEFORE COMPLETION OF ASSESSMENT, THEREFORE, THE ORD ER PASSED BY THE CIT SHOULD BE UPHELD. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE CIT ASSUMED JURISDICTION TO REVISE THE ASSESSMENT O RDER FOR THE REASON THAT THE A.O. HAS NOT CONDUCTED PROPER ENQUIRY BEFO RE COMPLETION OF ASSESSMENT, THEREBY THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT, DATED 26.3.2013 IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE CI T REVISED THE ASSESSMENT ORDER FOR THE REASON THAT THE A.O. HAS C OMPLETED THE ASSESSMENT WITHOUT EXAMINING VARIOUS ISSUES WHICH C AUSED PREJUDICE TO ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 11 THE INTEREST OF THE REVENUE. THE CIT FURTHER WAS O F THE OPINION THAT THE A.O. HAS COMPLETED THE ASSESSMENT IGNORING THE BOOK S OF ACCOUNTS BY ESTIMATING NET PROFIT OF 12.5% ON GROSS CONTRACT RE CEIPTS WITHOUT UNDERSTANDING THE BASIC NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE. THE ASSESSEE IS INTO THE BUSINESS OF DEVELOPING PRO PERTIES AND UNDERTAKING CONSTRUCTION OF APARTMENTS, FLATS, ETC. , WHEREAS THE A.O. OBSERVED THAT THE ASSESSEE IS INTO THE BUSINESS OF CIVIL CONSTRUCTION. THE A.O. WAS ERRED IN APPLYING THE RATIO OF THE DECISIO N OF ITAT, HYDERABAD, IN THE CASE OF M/S. KNR CONSTRUCTIONS, WHICH WAS RE NDERED UNDER DIFFERENT SET OF FACTS. THE CIT FURTHER OBSERVED T HAT THE A.O. FAILED TO EXAMINE VARIOUS ISSUES SUCH AS LOW NET PROFIT ADMIT TED BY THE ASSESSEE, DEDUCTIONS TOWARDS INTEREST ON CAPITAL AND REMUNERA TION TO PARTNERS U/S 40(B) OF THE ACT, RECOGNITION OF WORK IN PROGRESS, LOAN FROM PARTNERS, ADVANCE TO VARIOUS PERSONS AND HUGE WITHDRAWAL OF S ELF-CHEQUE AND APPLICABILITY OF THE PROVISIONS OF SECTION 40A(3) O F THE ACT. ACCORDING TO THE CIT, THE A.O. NOT ONLY FAILED TO EXAMINE THE IS SUES, BUT ALSO FAILED TO APPLY HIS MIND BEFORE COMPLETION OF ASSESSMENT, WHI CH CAUSED PREJUDICE TO THE INTEREST OF THE REVENUE. 11. IT IS THE CONTENTION OF THE ASSESSEE THAT THE A .O. HAS EXAMINED THE ISSUES POINTED OUT BY THE CIT, IN THE SHOW CAUSE NO TICE BEFORE ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 12 COMPLETION OF ASSESSMENT, WHICH IS EVIDENT FROM THE FACT THAT HE HAD ISSUED A NOTICE, WHEREIN HE HAD CALLED FOR EACH AND EVERY DETAILS OF ISSUES POINTED OUT BY THE CIT. THE A.O. ISSUED A S HOW CAUSE NOTICE DATED 7.11.2012. THE ASSESSEE HAS SUBMITTED DETAIL S OF PROJECT UNDERTAKEN BY THE ASSESSEE, VALUATION OF WORK IN PR OGRESS, DETAILS OF SALES FROM EACH PROJECT, DETAILS OF PARTNERS CAPIT AL ACCOUNT AND THE SOURCES OF CAPITAL INTRODUCED, DETAILS OF LOANS AND ADVANCES SHOWN IN THE BALANCE SHEET, ADVANCES GIVEN TO SHRI K. SUBBA RAO AND OTHERS, DETAILS OF TDS ON INTEREST AND DETAILS OF CAPITAL I NTRODUCED BY THE PARTNER AND THEIR SOURCES. THE ASSESSEE HAS FURNIS HED COMPLETE DETAILS IN RESPONSE TO SHOW CAUSE NOTICE AND ALSO FURNISHED BOOKS OF ACCOUNTS. THE A.O. AFTER SATISFIED WITH THE DETAILS FURNISHED BY THE ASSESSEE AND ALSO CONSIDERING THE VERACITY OF THE BOOKS OF ACCOU NTS, CHOSEN TO IGNORE THE BOOKS OF ACCOUNTS AND ESTIMATION OF NET PROFIT WHICH CANNOT BE TERMED AS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 12. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATE RIALS ON RECORD, WE FIND THAT THE A.O. HAS ISSUED A DETAILED NOTICE DATED 7.11.2012, WHEREIN HE HAD CALLED FOR EACH AND EVERY DETAIL IN RESPECT OF ISSUES RAISED BY THE CIT IN THE PROCEEDINGS U/S 263 OF THE ACT. ON PERUSAL OF ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 13 THE NOTICE ISSUED BY THE A.O., WE FIND THAT THE A.O . HAS SOUGHT DETAILS IN RESPECT OF VALUATION OF WORK IN PROGRESS, INTEREST ON PARTNERS CAPITAL ACCOUNT, SOURCES OF PARTNERS CAPITAL ACCOUNT, DETAI LS OF LOANS AND ADVANCES APPEARED IN THE BALANCE SHEET AND OTHER DE TAILS IN RESPECT OF PROJECT EXECUTED BY THE ASSESSEE. IN RESPONSE TO N OTICE, THE ASSESSEE HAS FURNISHED ALL THE DETAILS, THEREFORE, WE ARE OF THE VIEW THAT ONCE THE ASSESSEE PROVES THAT THE A.O. HAS EXAMINED THE ISSU ES ON WHICH CIT WANTS FURTHER VERIFICATION, THEN THE CIT CANNOT SAY THAT THE A.O. HAS NOT CONDUCTED PROPER ENQUIRY OF THE ISSUES BEFORE COMPL ETION OF ASSESSMENT. WE FURTHER OBSERVED THAT THE ASSESSEE HAS MAINTAINED BOOKS OF ACCOUNTS AS PER WHICH IT HAS INCURRED HUGE LOSSES. WHILE FILING THE RETURN OF INCOME, THE ASSESSEE HAS IGNORED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT OF 8% ON GROSS CONTRACT RE CEIPTS. THE A.O., WHILE COMPLETING THE ASSESSMENT, HAS RESORTED TO ES TIMATION OF NET PROFIT BY FOLLOWING THE DECISION OF ITAT, IN M/S. K NR CONSTRUCTIONS AND ESTIMATED NET PROFIT OF 12.5% ON GROSS CONTRACT REC EIPTS. WE FURTHER OBSERVED THAT ESTIMATION OF NET PROFIT IS ONE OF TH E PERMISSIBLE METHODS OF ASSESSMENT OF INCOME FROM BUSINESS. THE ASSESSI NG OFFICER HAD TAKEN A CONSCIOUS DECISION OF ESTIMATING THE NET PROFIT F ROM BUSINESS AFTER CONSIDERING THE NATURE AND COMPLEXITY OF THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. ONCE, THE A.O. HAD TAK EN A CONSCIOUS ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 14 DECISION AND ACTED IN ACCORDANCE WITH LAW AND MADE THE ASSESSMENT, THE SAME COULD NOT BE BRANDED AS ERRONEOUS BY THE C OMMISSIONER, SIMPLY BECAUSE ACCORDING TO HIM, THE A.O. SHOULD HA VE MADE FURTHER ENQUIRIES WITH REGARD TO THE ISSUES POINTED OUT IN THE SHOW CAUSE NOTICE, WITHOUT POINTING OUT SPECIFIC INSTANCES OF ERRONEOU S DECISION TAKEN BY THE A.O. WHILE COMPLETING THE ASSESSMENT. 13. THE PROVISIONS OF SECTION 263 OF THE ACT, DID N OT VISUALIZE THE CASE OF SUBSTANTIAL JUDGEMENT OF THE COMMISSIONER FOR TH AT OF THE ITO, WHO PASSED THE ORDER, UNLESS THE DECISION TAKEN BY THE A.O. WAS HELD TO BE ERRONEOUS. THE ASSESSING OFFICER, WHILE MAKING TH E ASSESSMENT EXAMINED THE ACCOUNTS, MADE ENQUIRIES, OFFERED HIS COMMENTS TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINED THE INCOME BY RESORTING TO ESTIMATION OF NET PROFIT. THE CIT, ON PERUSAL OF THE RECORDS MIGHT BE OF THE OPINION THAT THE ADDITIONS MADE BY THE A.O. WAS ON THE LOWER SIDE AND HE MUST HAVE MADE ADDITION ON ACCOUN T OF ISSUES DEALT BY HIM. BUT, AS PER THE PROVISIONS OF SECTION 263 OF THE ACT, THE CIT WOULD NOT HAVE VESTED WITH THE POWER TO RE-EXAMINE THE ACCOUNTS AND DETERMINED THE INCOME AT HIGHER FIGURE, THAT WAS BE CAUSE THE A.O. HAS EXERCISED THE QUASI JUDICIAL POWER VESTED IN ACCORD ANCE WITH LAW IN ARRIVING AT A CONCLUSION AND SUCH A CONCLUSION WOUL D NOT BE TERMED AS ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 15 ERRONEOUS, SIMPLY BECAUSE THE COMMISSIONER DID NOT FEEL SATISFIED WITH THE CONCLUSION. IT MIGHT BE SAID IN SUCH A CASE TH AT IN THE OPINION OF THE CIT, THE ORDER IN QUESTION WAS PREJUDICIAL TO THE I NTEREST OF THE REVENUE, BUT THAT BY ITSELF WOULD NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF REVISION BECAUSE THE FIRST REQUIREMENT THAT THE ORDER WAS ERRONEOUS WAS ABSENT. SIMILARLY, IF AN ORDER IS ER RONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEN TH E POWER OF REVISION CANNOT BE EXERCISED. 14. THE CIT ASSUMED JURISDICTION TO REVISE THE ASSE SSMENT ORDER ON THE SOLE GROUND THAT THERE IS A LACK OF ENQUIRY ON THE PART OF THE A.O. ON THE ISSUES REFERRED TO IN THE SHOW CAUSE NOTICE. T HE CIT QUESTIONED THE ISSUES RIGHT FROM EXAMINATION OF LOW NET PROFIT DEC LARED BY THE ASSESSEE TO THE APPLICABILITY OF THE PROVISIONS OF SECTION 4 0A(3) OF THE ACT FOR CASH PAYMENTS ON THE PRESUMPTION THAT THE ASSESSEE HAS M ADE HUGE CASH WITHDRAWALS. THE ASSESSEE HAS FILED PAPER BOOK WHI CH CONTAINS THE DETAILS FILED BEFORE THE A.O. AT THE TIME OF ASSESS MENT. ON PERUSAL OF THE PAPER BOOK FILED BY THE ASSESSEE, WE FIND THAT THE ASSESSEE HAS FILED ALL THE DETAILS TO THE A.O. ON THE ISSUES WHICH WER E SUBJECT MATTER OF EXAMINATION BY THE CIT IN THE REVISION PROCEEDINGS. THE A.O. AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE A ND ALSO TAKEN INTO ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 16 ACCOUNT THE BOOKS OF ACCOUNTS AND ITS COMPLEXITY, I GNORED THE BOOKS OF ACCOUNTS AND ESTIMATED NET PROFIT BY FOLLOWING THE DECISION OF HIGHER JUDICIARY, WHEREIN UNDER SIMILAR SET OF FACTS, THE NET PROFIT FROM THE BUSINESS HAS BEEN ESTIMATED AT 12.5% ON GROSS RECEI PTS. 15. IN THE PRESENT CASE, THE A.O. HAS IGNORED THE B OOKS OF ACCOUNTS AND RESORTED TO ESTIMATION OF NET PROFIT. THE MOME NT, THE A.O. HAS ESTIMATED THE NET PROFIT, EVEN THOUGH HE HAD NOT SP ECIFICALLY MENTIONED THAT THE BOOKS OF ACCOUNTS ARE REJECTED, IT IS PRES UMED THAT THE A.O. HAS REJECTED BOOKS OF ACCOUNTS BEFORE ESTIMATING NET PR OFIT FROM THE BUSINESS. ONCE, THE BOOKS OF ACCOUNTS ARE REJECTED AND PROFIT IS ESTIMATED, THEN THE CIT WAS ERRED IN REFERRING TO T HE SAME BOOKS OF ACCOUNTS TO DIRECT THE A.O. TO CONDUCT FURTHER ENQU IRIES ON FEW ISSUES IS NOT JUSTIFIED. THEREFORE, WE ARE OF THE VIEW THAT ONCE THE ISSUES WHICH WERE SUBJECT MATTER OF REVISION U/S 263 OF THE ACT, HAVE BEEN EXAMINED BY THE A.O. AT THE TIME OF ASSESSMENT, THEN THE CIT HAS NO JURISDICTION TO ENTERTAIN FRESH ENQUIRY ON THE SAME ISSUES BECAU SE HE HAD A DIFFERENT OPINION ON THE ISSUES. IN OUR CONSIDERED VIEW, THE ISSUES POINTED OUT BY THE CIT HAVE BEEN EXAMINED BY THE A.O., THEREFORE, THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE A.O. H AS NOT EXAMINED THE ISSUES BEFORE COMPLETION OF ASSESSMENT. ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 17 16. THE CIT HAS POWER TO REVISE ASSESSMENT ORDER U/ S 263 OF THE ACT, BUT TO INVOKE THE PROVISIONS OF SECTION 263 OF THE ACT, THE TWIN CONDITIONS MUST BE SATISFIED I.E. (1) THE ORDER OF THE A.O. IS ERRONEOUS (2) FURTHER IT MUST BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. UNLESS BOTH THE CONDITIONS ARE SATISFIED, THE CIT CANNOT A SSUME JURISDICTION U/S 263 OF THE ACT. IT IS NOT NECESSARY THAT EVERY ORD ER WHICH IS ERRONEOUS MAY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE O R VICE VERSA. IN SOME CASES THE ORDER PASSED BY THE A.O. MAY BE ERRONEOUS BUT IT MAY NOT BE PREJUDICIAL TO THE INTEREST OF THE REVENUE OR VICE VERSA. UNLESS THE ORDER PASSED BY THE A.O. IS ERRONEOUS AND ALSO PREJUDICIA L TO THE INTEREST OF THE REVENUE, THE CIT CANNOT ASSUME JURISDICTION TO REVISE THE ASSESSMENT ORDER, THIS IS BECAUSE THE TWIN CONDITIO NS I.E. THE ORDER IS ERRONEOUS AND THE SAME IS PREJUDICIAL TO THE INTERE ST OF THE REVENUE ARE CO-EXIST. IN THE PRESENT CASE, THE ORDER PASSED BY THE A.O. NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE RE VENUE AS THE A.O. HAS CONSIDERED ALL THE ISSUES AND AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE REJECTED BOOKS OF ACCOUNTS AND ESTIMAT ED NET PROFIT FROM THE BUSINESS. ONCE, NET PROFIT IS ESTIMATED FROM T HE BUSINESS, THE QUESTION OF REFERRING TO THE BOOKS OF ACCOUNTS TO R EVISE THE ASSESSMENT ORDER IS NOT JUSTIFIED. IT IS THE GENERAL PRESUMPT ION OF LAW THAT THE A.O. HAS CONSIDERED ALL THE DETAILS BEFORE COMPLETION OF ASSESSMENT AND THE ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 18 CIT CANNOT PRESUME THAT ENQUIRIES CONDUCTED BY THE A.O. IS INSUFFICIENT AND ALSO THE A.O. HAS NOT APPLIED HIS MIND, UNLESS THE CIT PROVES THAT THE ASSESSMENT ORDER PASSED BY THE A.O. IS ERRONEOU S. IN THIS CASE, THE CIT NEVER POINTED OUT ANY SPECIFIC INSTANCE OF ERRO NEOUS DECISION TAKEN BY THE A.O. BEFORE COMPLETION OF ASSESSMENT. WITHOU T POINTING OUT ANY DEFECTS IN THE ASSESSMENT ORDER, SIMPLY DIRECTING T HE A.O. TO CAUSE FURTHER ENQUIRIES ON THE PRESUMPTION THAT THE ENQUI RIES CONDUCTED BY THE A.O. ARE INSUFFICIENT IS NOT PERMISSIBLE UNDER THE PROVISIONS OF SECTION 263 OF THE ACT. THEREFORE, WE ARE OF THE V IEW THAT THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF T HE ACT DATED 26.3.2013 IS NOT ERRONEOUS IN SO FAR AS IT IS PREJU DICIAL TO THE INTEREST OF THE REVENUE. 17. NOW, IT IS PERTINENT TO DISCUSS THE CASE LAW RE LIED UPON BY THE ASSESSEE. THE ASSESSEE RELIED UPON THE DECISION OF COORDINATE BENCH OF VISAKHAPATNAM TRIBUNAL, IN THE CASE OF NU TECH ENGI NEERS VS. CIT IN ITA NO.570/VIZAG/2013 DATED 10.6.2016. THE COORDIN ATE BENCH OF THIS TRIBUNAL, UNDER SIMILAR CIRCUMSTANCES HELD THAT ONC E THE A.O. EXAMINED THE ISSUES ON WHICH THE CIT WANTS FURTHER VERIFICAT ION, THE CIT CANNOT ASSUME JURISDICTION ON THE SAME ISSUES WHICH WAS AL READY EXAMINED BY THE A.O. AT THE TIME OF ASSESSMENT BY STATING THAT THE A.O. HAS ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 19 CONDUCTED INADEQUATE ENQUIRY OR THERE IS A LACK OF ENQUIRY. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREUND ER: CIT ASSUMED JURISDICTION TO REVISE THE ASSESSMENT O RDER ON THE SOLE GROUND THAT THERE IS A LACK OF ENQUIRY ON THE PART OF THE A.O. IN EXAMINING THE ISSUES REFERRED TO IN HIS SHOW CAUSE NOTICE. THE QUESTION OF LOW NET PROFIT DECLARED BY THE ASSESSEE AND ALSO TDS ON RENT AND HIRE CHARGES HAVE BEEN CONSIDERED BY TH E A.O. AT THE TIME OF COMPLETION OF ASSESSMENT. THE ASSESSES FILE D A PAPER BOOK WHICH CONTAINS THE DETAILS FURNISHED BEFORE THE A.O . AT THE TIME OF ASSESSMENT. ON PERUSAL OF THE PAPER BOOK FILED BY T HE ASSESSEE, ITAT FIND THAT THE A.O. HAS ISSUED A DETAILED QUEST IONNAIRE IN RESPECT OF NET PROFIT AND ALSO TDS IN RESPECT OF RE NT AND HIRE CHARGES. THE A.O. AFTER SATISFIED WITH THE EXPLANAT IONS FURNISHED BY THE ASSESSEE HAS ACCEPTED THE INCOME RETURNED. THER EFORE, ITAT ARE OF THE VIEW THAT ONCE THE ISSUES WHICH ARE SUBJ ECT MATTER OF REVISION U/S 263 OF THE ACT, HAVE BEEN EXAMINED BY THE A.O. AT THE TIME OF ASSESSMENT, THE CIT HAS NO JURISDICTION TO ENTERTAIN FRESH ENQUIRY ON THE SAME ISSUES, BECAUSE HE HAS A DIFFER ENT OPINION ON THE ISSUES. IN ITAT CONSIDERED OPINION, THE ISSUE O F NET PROFIT AND TDS ON RENT AND HIRE CHARGES HAS BEEN EXAMINED BY T HE A.O. AT THE TIME OF ASSESSMENT, THEREFORE, THE CIT WAS NOT CORRECT IN COMING TO THE CONCLUSION THAT THE A.O. HAS NOT EXAM INED THE ISSUES. 18. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO APPLYING RATIO OF THE COORDINATE BENCH, WE ARE OF T HE VIEW THAT THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF T HE ACT DATED 26.3.2013 IS NEITHER ERRONEOUS NOR PREJUDICIAL TO T HE INTEREST OF THE REVENUE. THEREFORE, WE QUASH ORDER PASSED BY THE C IT U/S 263 OF THE ACT AND RESTORE THE ASSESSMENT ORDER PASSED BY THE A.O. U/S 143(3) OF THE ACT. ITA NO.221/VIZAG/2015 G.V.R. ASSOCIATES, VIJAYAWADA 20 19. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 20 TH JAN17. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 20.01.2017 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SRI S. RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, 3-6-643, STREET NO.9, HIMAYATNAGAR, HYDER ABAD-500 029. 2. / THE RESPONDENT THE ITO, WARD-1(3), VIJAYAWADA 3. + / THE CIT, VIJAYAWADA 4. + ( ) / THE CIT (A), VIJAYAWADA 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM