M/s Maruthi constructions, Visakhapatnam V. THE CIT, Rajahmundry., Rajahmundry

ITA 249/VIZ/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5929 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: C KAMESWARA RAO
• Keywords: Gross profit estimation
• Section: 40A(3); 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI J.SUDHAKAR REDDY, AM AND SHRI SAKTIJIT DEY, JM ITA NO.249/VIZAG/2012 : ASST.YEAR 2007-2008 M/S. SRI MARUTHI CONSTRUCTIONS C/O.C.KAMESWARA RAO, CA 1-90-17, LIG-52/5, M.V.P.COLONY VISAKHAPATNAM. PAN : AAYFS3960M. VS. THE COMMISSIONER OF INCOME - TAX RAJAHMUNDRY. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI C.KAMESWARA RAO RESPONDENT BY : SHRI K.V.N.CHARYA, CIT DATE OF HEARING : 03.03 .2014 DATE OF PRONOUNCEMENT : 05 .0 3 .2014 O R D E R PER J.SUDHAKAR REDDY (AM) : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX, RAJAHMUNDRY, U/S 263 OF THE ACT, DATED 22.03.2012, ON THE FOLLOWING GROUNDS:- 1. THE ORDER U/S 263 OF THE INCOME TAX ACT 1961 DT.22/03/2012 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX, IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUM STANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX, HAS MIS GUIDED HIMSELF IN TREATING THE ORDER U/S 143(3) DT. 25/11/ 2009 IS ERRONEOUS IN LAW AND PREJUDICIAL TO THE INTEREST OF THE REVEN UE. 3. THE LEARNED COMMISSIONER OF INCOME TAX, HAS FAI LED TO RECORD IN HIS ORDER, HOW THE SAID ORDER U/S 143(3) IS ERRONEOUS IN LAW AND PREJUDICIAL TO THE INTEREST OF REVENUE. 4. THE LEARNED COMMISSIONER OF INCOME TAX, HAS FAI LED TO POINT OUT WHETHER THE ORDER U/S 143(3) DT. 25/11/20 09 IS ERRONEOUS IN LAW OR PREJUDICIAL TO THE INTEREST OF REVENUE. 5. THE LEARNED COMMISSIONER OF INCOME TAX, HAS NOT BROUGHT ANY MATERIAL ON RECORD IN FRAMING HIS OPINI ON, IN RESPECT OF ITA NO.249/VIZAG/2012. M/S.MARUTHI CONSTRUCTIONS. 2 THE ISSUES DWELT BY HIM THAT THE ASSESSING OFFICER, WHILE EXERCISING HIS QUASI JUDICIAL FUNCTIONS UNDER THE S TATUTE; HAS NOT PERFORMED THEM IN ACCORDANCE WITH LAW. 6. THE LEARNED COMMISSIONER OF INCOME TAX, HAS SIM PLY OBSERVED THAT THE ASSESSING OFFICER HAS NOT MADE PR OPER ENQUIRIES AND INVESTIGATIONS, HENCE THE ORDER IS ER RONEOUS. AN ERRONEOUS ORDER NEED NOT BE PREJUDICIAL. 7. AT ANY RATE, THE LEARNED COMMISSIONER OF INCOM E TAX ORDER U/S 263 UNCALLED FOR AND UNJUSTIFIED AND NOT IN ACCORDANCE WITH LAW. 8. THE LEARNED COMMISSIONER OF INCOME TAX, HAS DIR ECTED THE ASSESSING OFFICER TO VERIFY ONCE AGAIN THE GAMI NESS OF THE EXPENSES, REASON FOR LOW GROSS PROFIT, CAPITAL INTR ODUCTION BY PARTNERS ALTHOUGH THE ASSESSING OFFICER HAS VERIFIE D THEM AND FORMED AN OPINION. 2. WE HAVE HEARD SRI C.KAMESWARA RAO, THE LEARNED C OUNSEL FOR THE ASSESSEE AND SRI K.V.N.CHARYA, THE LEARNED CIT-DR. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND TH AT THE GRIEVANCE OF THE ASSESSEE IS NOT ON THE EXERCISE OF JURISDICTION U/S 263 PER SE , BUT ON CERTAIN DIRECTIONS ISSUED BY THE LEARNED CIT, WHICH AS PER THE LEARNED COUNSE L FOR THE ASSESSEE ARE ACTING AS IMPEDIMENTS TO THE ASSESSING OFFICER. THE SPECIA L DIRECTION IN QUESTION IS DISALLOWANCE U/S 40A(3) AND IT WAS ARGUED THAT THE DIRECTIONS WITHOUT VERIFICATION OF FACTS IS BAD IN LAW. THE LEARNED DEPARTMENTAL REPRE SENTATIVE, ON THE OTHER HAND, POINTS OUT TO FORM NO.36D, WHICH IS ON PAGE 21 OF T HE PAPER BOOK, AND THE FACT THAT THREE PARTNERS (I) SRI P.SUDEER REDDY, (II) SRI V .V.V.SATYANARAYANA, AND (III) SRI GOLUGURI MADHAVA REDDY, WERE INDUCTED INTO THE PART NERSHIP ON 01.06.2006 AND THEY WERE GIVEN PROFIT SHARING RATIO ONLY AT 1% OR 2% CLAIM OF THE ASSESSEE THAT SEC.40A(3) WILL NOT APPLY HAS TO BE SEEN IN THIS CO NTEXT. ITA NO.249/VIZAG/2012. M/S.MARUTHI CONSTRUCTIONS. 3 2.1 ON A CAREFUL CONSIDERATION, WE ARE OF THE CONSI DERED OPINION THAT THE ISSUE, WHETHER THERE IS VIOLATION OF SECTION 40A(3) OR NOT HAS TO BE EXAMINED WITH REFERENCE TO THE EVIDENCES ON RECORD. THE CIT, WHIL E EXERCISING JURISDICTION U/S 263, HAS OBSERVED THAT THE AO HAS TO VERIFY THE GENUINEN ESS OF THE EXPENDITURE. HE ALSO OBSERVED THAT ONLY AFTER UNDERTAKING SUCH AN EXERCI SE, THE DISALLOWANCE U/S 40A(3) AT THE RATE OF 20% HAS TO BE MADE. IN OUR OPINION, THESE ARE NOT SPECIFIC DIRECTIONS. IF THE ASSESSING OFFICER HAS TAKEN THEM AS SPECIFIC DIRECTIONS, IN OUR OPINION, THAT IS ERRONEOUS. THE ASSESSING OFFICER HAS TO CONSIDER TH E EVIDENCES ON RECORD AND AFTER SATISFYING HIMSELF ABOUT THE GENUINENESS OF T HE EXPENDITURE, SHOULD EXAMINE THE LEGAL ASPECTS AS TO WHETHER PROVISIONS OF SECTI ON 40A(3) WOULD BE APPLICABLE TO THIS CASE. 2.2 AS IT IS BROUGHT TO OUR NOTICE THAT THE ASSESSI NG OFFICER HAS ALREADY PASSED AN ORDER U/S 143(3) READ WITH SECTION 263 ON 19.03. 2013. SUCH AN ORDER HAS TO BE NECESSARILY VACATED. IN THE INTEREST OF JUSTICE WE ARE OF THE OPINION THAT THIS PARTICULAR ISSUE OF DISALLOWANCE U/S 40A(3) MAY BE CONSIDERED BY THE AO IN ACCORDANCE WITH LAW, AFTER AFFORDING AN OPPORTUNITY TO THE ASSESSEE , WITHOUT BEING INFLUENCED BY THE ORDER OF THE CIT U/S 263. WITH TH ESE OBSERVATIONS, WE ALLOW THIS APPEAL OF THE ASSESSEE, TO THE EXTENT INDICATED ABO VE. 3. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. ORDER PRONOUNCED ON THIS 5 TH DAY OF MARCH, 2014. SD/- SD/- ( SAKTIJIT DEY ) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER VISAKHAPATNAM; DATED : 5 TH MARCH, 2014. DEVDAS* ITA NO.249/VIZAG/2012. M/S.MARUTHI CONSTRUCTIONS. 4 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT, RAJAHMUNDRY . 4. CIT(A) RAJAHMUNDRY . 5. DR, ITAT, VISAKHAPATNAM. 6. GUARD FILE. BY ORDER, //TRUE COPY// (SENIOR PRIVATE SECRETARY) ITAT, VISAKHAPATNAM