K.K. Rao Engineering Works (P) Ltd., Hyd, Hyderabad V. ITO, Ward-2(1), Hyderabad, Hyderabad

ITA 316/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6416 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 17-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: K V DEVDAS
• Keywords: Reopening of assessment; Depreciation; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion; Reassessment proceedings
• Section: 143(3); 115JB; 147; 131; 148; 139

Judgement Text

ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI PARTHA SARATHI CHAUDHURI, JUDICIAL MEMBER ITA NO.316/HYD/2016 (ASSESSMENT YEAR: 2006-07) M/S KK RAO ENGINEERING WORKS PRIVATE LIMITED HYDERABAD PAN: AAACK 9222 D VS. INCOME TAX OFFICER WARD 2(1) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.V. DEVDAS FOR REVENUE : SHRI M. SITARAM, DR DATE OF HEARING : 22 .06.2016 DATE OF PRONOUNCEMENT : 29 .06. 2016 O R D E R PER SHRI PARTHA SARATHI CHAUDHURI, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED CIT (A)-2 HYDERABAD DATED 31.12.2015 RE LEVANT TO A.Y 2006-07. ASSESSEE RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE CIT (A)-2, HYDERABAD (CLT(A)) I N UPHOLDING THE REASSESSMENT PROCEEDINGS U/S.147 OF THE LT. ACT, 1961 IS WHOLLY UNSUSTAINABLE BOTH ON F ACTS AND IN LAW. 2. THE LEARNED CIT (A) FAILED TO NOTE THAT THE ORIG INAL ASSESSMENT U/S.143 (3) WAS COMPLETED ON 8/10/2008 AFTER VERIFICATION OF THE INFORMATION FILED ALONG W ITH THE BOOKS OF ACCOUNT AND HENCE, THE REASSESSMENT PROCEEDINGS ON THE SAME SET. OF FACTS EXISTING AT' THE TIME OF ORIGINAL ASSESSMENT IS INVALID, WITHOUT JURISDICTION AND ARISE ON A CHANGE OF OPINION WHICH IS ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 2 OF 11 IMPERMISSIBLE IN LAW AND THEREFORE THE RE-ASSESSMEN T PROCEEDINGS MUST BE QUASHED. 3. THE LEARNED CIT(A) FAILED TO NOTE THAT THE REASO NS RECORDED FOR REOPENING OF ASSESSMENT HAS NO NEXUS WITH THE INCOME REASSESSED AND THEREFORE THE REASSESSMENT PROCEEDINGS HAS NO LEGS TO STAND AND MUST BE QUASHED. 4. THE LEARNED CIT (A) FAILED TO NOTE THAT THE REOP ENING OF ASSESSMENT WAS TO TAX THE 115JB PROFITS AND AS N O INCOME HAS BEEN TAXED U/S.1L5JB OF THE LT. ACT, 196 1, THE QUESTION OF MAKING ANY ADDITIONS TO THE INCOME TAXABLE UNDER THE NORMAL PROVISIONS OF THE LT. ACT DOES NOT ARISE AND THEREFORE, THE ENTIRE RE-ASSESSMENT PROCEEDINGS ARE INVALID, WITHOUT JURISDICTION AND M UST BE QUASHED, 5. WITHOUT PREJUDICE TO ANY OF THE AFORESAID GROUN DS, THE ADDITION OF RS.34,13,415 UNDER THE HEAD SUB CONTRACT PAYMENTS IS WITHOUT COGENT REASONS AND WITHOUT ADHERING TO PRINCIPLES OF LAW. 2. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY ENGAGE D IN THE BUSINESS OF PRODUCTION AND MAINTENANCE OF TRANSFORM ERS, FILED ITS RETURN OF INCOME FOR THE A.Y 2006-07 ON 28.11.2 006 DECLARING A LOSS OF RS. 17,78,609. ASSESSMENT U/S 143(3) WAS COMPLETED ON 8.10.2008 ACCEPTING THE LOSS RETURNED. SUBSEQUEN TLY, IT WAS NOTICED BY THE AO THAT THE ASSESSEE IS HAVING BOOK PROFIT OF RS.14,99,060 AS PER P&L A/C, WHICH WAS NOT BROUGHT TO TAX. HENCE, THERE WAS A REASON TO BELIEVE THAT A SUM OF RS.14,99,061 U/S 115JB HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 AND NOTICE U/S 148 WAS ISSUED ON 11.11. 2010 AND SERVED ON THE ASSESSEE BY THE AO. IN RESPONSE, ASSE SSEE FILED A LETTER DATED 2.12.2010 REQUESTING THAT THE RETURN F ILED U/S 139 ON 28.11.2006 MAY BE CONSIDERED AS RETURN FILED IN RESPONSE TO ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 3 OF 11 NOTICE U/S 148. IN ANOTHER LETTER DATED 2.12.2010, ASSESSEE REQUESTED FOR REASONS FOR REOPENING OF THE ASSESSME NT AND ISSUE OF NOTICE U/S 148. SUBSEQUENTLY THE CASE WAS SELECT ED FOR SCRUTINY IN COMPULSORY CATEGORY AND NOTICE U/S 143( 2) WAS ISSUED ON 6.6.2011. MEANWHILE, AO COMMUNICATED REAS ONS FOR REOPENING OF ASSESSMENT AND THE REASONS FOR REOPENI NG OF THE ASSESSMENT FOR A.Y 2006-07 ARE GIVEN BELOW: M/S. KK RAO ENGG. WORKS PRIVATE LIMITED FILED ITS RETURN OF INCOME ON 28.11.2006 ADMITTING LOSS OF RS.17,78,609. THE SAME WAS PROCESSED U/S 143(3) WAS COMPLETED ON 8.10.2008 ACCEPTING THE LOSS RETURNED. SUBSEQUENTLY, IT IS NOTICED THAT THERE IS BOOK PROFIT OF RS.14,99,061 AS PER P&L A/C, WHICH WAS NO T BROUGHT TO TAX. HENCE, I HAVE REASONS TO BELIEVE TH AT A SUM OF RS.14,99,061 (U/S 115JB) HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147. 3. AO THUS COMPLETED THE ASSESSMENT BY TAKING THE B OOK PROFIT AND ALSO BRINGING THE FOLLOWING ADDITIONS/DI SALLOWANCES TO THE REGULAR COMPUTATION OF INCOME: A) DISALLOWANCE MADE 40A(2)(B) RS.34,13,415 B) SUB CONTRACT PAYMENT MADE RS.10,63,250 TO SHRI S.SRINIVASA RAO, BEING EXCESSIVE. C) DISALLOWANCE U/S 40(A)(IA) RS.36,79,951 4. GROUND NOS. 1 TO 4 IN THE APPEAL ESSENTIALLY REL ATES TO WHETHER THE REOPENING OF ASSESSMENT U/S 147 IS SUST AINABLE OR NOT. ALSO THE SANCTITY OF SECTION 115JB VIS--VIS R EOPENING OF THE ASSESSMENT IS ALSO BROUGHT INTO QUESTION. FOR THE S AKE OF BREVITY, WE WOULD TAKE THESE GROUNDS SIMULTANEOUSLY IN THIS ORDER. FROM ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 4 OF 11 THE ORDER OF THE LEARNED CIT (A) WE FIND THAT AFTER CONSIDERING THE OBSERVATIONS OF THE AO FOR REOPENING OF THE ASSESSM ENT U/S 147 ARE AS FOLLOWS: 'DURING THE PREVIOUS YEARS RELATED TO ASSESSMENT YE AR UNDER CONSIDERATION THE PROFIT AS PER P&L A/E. RS. 14,99,061/AND ADJUSTED TAXABLE INCOME WAS RS. 19,01,342/-. THE ASSESSEE REDUCED DISALLOWANCE OF EXPENDITURE U/S, 40(A)(IA) DURING THE A. Y.205-06 AMOUNTING TO RS.36,79,951/- AND ARRIVED AT NET LOSS OF RS. 17,78, 609/-. FROM THE INFORMATION OBTAINED DURING RE-ASSESSMENT IT IS ALSO OBSERVED THAT THE AMOUNT OF RS.39,79,951/- WAS DISALLOWED UNDER THE PROVISIONS OF SEE.40(A)(IA) FOR NON-DEDUCTION OF TD S AND THE ASSESSEE HAD CLAIMED WEIGHTED DEDUCTION U/S.80 IA ON THE INCREASED INCOME ON ACCOUNT OF DISALLOWANCE OF 36,79,951/- DURING THE A. Y.2005-06 . DURING THE RE -ASSESSMENT PROCEEDINGS, THE ASSESSEE VIDE ITS LETTER DATED 28.12.2011 HAS GIVEN A NOTE O N APPLICABILITY OF MAT. WHERE IN THE ASSESSEE SPEAKS ON LEGISLATIVE INTENT OF INTRODUCTION OF MAT WHEREIN H E CLAIMS THAT THE CONCEPT OF MAT WAS INTRODUCED TO MAKE SURE THAT THE COMPANY HAVING LARGE PROFITS AND DECLARING SUBSTANTIAL DIVIDENDS TO SHAREHOLDERS, AL SO POPULARLY KNOWN AS ZERO TAX COMPANIES, BUT WHO WERE NOT CONTRIBUTING TO THE GOVERNMENT BY WAY OF CORPORATE TAX BY TAKING ADVANTAGE OF THE VARIOUS INCENTIVES & EXEMPTIONS PROVIDED IN THE ACT PAY A FIXED PERCENTAGE OF TAX ON BOOK PROFIT ON MAT. THE ASSESSEE HAS RELIED ON THE BUDGET SPEECH OF HON 'BL E FINANCE MINISTER, THE EXTRACT OF WHICH READS AS UND ER AS GIVEN IN THE NOTE BY THE AR. '90. CORPORATE TAX RATES HAVE BEEN REDUCED AND SIMP LIFIED OVER THE PAST FEW YEARS AND THE RESULTS HAVE BEEN V ERY ENCOURAGING WITH A SIGNIFICANT INCREASE IN CORPORAT E TAXES AS A PERCENTAGE OF GOP. HOWEVER, THERE ARE TWO ISSU ES WHICH NEED TO BE ADDRESSED. THE FIRST IS THE PROMIS E MADE IN THE PAST THAT THE CORPORATE SURCHARGE WILL BE TE MPORARY, THE OTHER IS THE PHENOMENON OF ZERO TAX COMPANIES W HICH, ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 5 OF 11 ACCORDING TO MANY OBSERVERS, REFLECTS AN EXCESSIVE DEGREE OF LAXITY IN THE TAX REGIME. I PROPOSE TO RESPOND T O THE TWO ISSUES AS FOLLOWS: I AM REDUCING THE RATE OF SURCHARGE ON CORPORATION TAX FROM 15% TO 7.5% AND HOPE TO TAKE A SIMILAR STEP IN MY NEXT BUDGET. THE REDUCED TAX BURDEN WILL BENEFIT ALL COMPANIES BEING AND SMALL. I PROPOSE TO INTRODU CE A 'MINIMUM ALTERNATE TAX' (MAT) ON COMPANIES. IN A CASE WHERE THE TOTAL INCOME OF THE COMPANY, AS COMPUTED UNDER THE INCOME TAX ACT AFTER AVAILING OF ALL ELIGIBLE DEDUCTIONS, IS LESS THAN 30 PER CENT O F THE BOOK PROFIT, THE TOTAL INCOME OF SUCH A COMPANY SHA LL BE DEEMED TO BE 30 PER CENT OF THE BOOK PROFIT AND SHALL BE CHARGED TO TAX ACCORDINGLY. THE EFFECTIVE RATE WORKS OUT TO 12 PER CENT OF BOOK PROFIT CALCULATED UNDER THE COMPANIES ACT. COMPANIES ENGAGED IN THE POWER 16 AND INFRASTRUCTURE SECTOR WILL, HOWEVER, B E EXEMPTED FROM THE LEVY OF MA T.' THE ASSESSEE CLAIMED THAT EVEN IF MAT IS LEVIED IT WOULD BE ELIGIBLE FOR TAX CREDIT IN THE IMMEDIATE N EXT ASSESSMENT EAR AND THUS THERE IS NO REVENUE LOSS FO R THE GOVERNMENT. THE CLAIM OF THE ASSESSEE IS NOT ACCEPTED. THE PAYMENT OF MAT IS AS PER THE PROVISIONS LAID DOWN U/S.115 JB WHICH ARE SPECIAL PROVISIONS FOR PAYMENT OF TAX BY CERTAIN COMPANIES. AND THE EXPLANATION 1 OF PROVISO TO SEC. 115 JB DESCRIBES WHAT BOOK PROFIT MEANS FOR THE PURPOSE OF 115 JB. THE EXPLANATION 1 READS: 'FOR THE PURPOSES OF THIS SECTION, 'BOOK PROFIT' ME ANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCO UNT OF THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB - SECTION (2), AS INCREASED BY - THE AMOUNT OF INCOME-TAX PAID OR PAYABLE, AND THE PROVISION THEREFOR; OR THE AMOUNTS CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED; OR ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 6 OF 11 THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MAD E FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; OR THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUBSIDIARY COMPANIES; OR THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOSED; OR THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH ANY OF THE PROVISIONS OF CHAPTE R III APPLIES; THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET, IF ANY AMOUNT REFERRED TO IN CLAUSES (A) TO (G) I S DEBITED TO THE PROFIT AND LOSS ACCOUNT, AND AS REDU CED BY, THE AMOUNT WITHDRAWN FROM ANY RESERVES OR PROVISIONS IF ANY SUCH AMOUNT IS CREDITED TO THE PR OFIT AND LOSS ACCOUNT; PROVIDED THAT, WHERE THIS SECTION IS APPLICABLE TO AN ASSESSEE IN ANY PREVIOUS YEAR (INCLUDING THE RELEVA NT PREVIOUS YEAR), THE AMOUNT WITHDRAWN FROM RESERVES CREATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1997 -[BUT ENDING BEFORE THE 1ST DAY OF APRIL, 2001J SHALL NOT BE REDUCED SCORN THE BOOK PR OFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREA SED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH IRE S AID AMOUNT WAS WITHDRAWN) UNDER THIS EXPLANATION; OR (II) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF CHAPTER III APPLIES, IF ANY SUCH AMOU NT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR (III) THE AMOUNT OF LOSS BROUGHT FORWARD OR UNABSOR BED DEPRECIATION, WHICHEVER IS LESS AS PER BOOKS OF ACCOUNT. ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 7 OF 11 EXPLANATION-FOR THE PURPOSES OF THIS CLAUSE, THE LO SS SHALL NOT INCLUDE DEPRECIATION; THE PROVISIONS OF T HIS CLAUSE SHALL NOT APPLY IF THE AMOUNT OF LOSS BROUGH T FORWARD OR UNABSORBED DEPRECIATION IS NIL; OR) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER; OR V) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING LOCATED IN AN INDUSTRIALLY BACKWARD STA TE OR 'DISTRICT AS REFERRED TO IN -[SUB-SECTION (4) AN D SUB- SECTION (5) OF SECTION 80IB. FOR THE ASSESSMENT YEARS SUCH INDUSTRIAL UNDERTAKIN G IS ELIGIBLE TO CLAIM A DEDUCTION OF HUNDRED PER CEN T OF THE '[PROFITS AND GAINS UNDER SUB-SECTION (4) OR SU B- SECTION (5) OF SECTION 80-IB); OR VI) THE AMOUNT OF PROFITS DERIVED BY AN INDUSTRIAL UNDERTAKING FROM THE BUSINESS OF DEVELOPING, MAINTAINING AND OPERATING ANY INFRASTRUCTURE FACILI TY [AS DEFINED IN THE EXPLANATION TO SUB-SECTION (4) O F SECTION 80-IA AND SUBJECT TO FULFILLING THE CONDITI ONS LAID DOWN IN THAT SUB-SECTION; OR VII) THE AMOUNT OF PROFITS OF SICK INDUSTRIAL COMPA NY FOR THE ASSESSMENT YEAR COMMENCING FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE SAID COMPANY HAS BECOME A SICK INDUSTRIAL COMPANY UNDER SUB-SECTION (1) OF SECTION17 OF THE S ICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 (1 OF 1986) AND ENDING WITH THE ASSESSMENT YEAR DURING WHICH THE ENTIRE NET WORTH OF SUCH COMPANY BECOMES EQUAL TO OR EXCEEDS THE ACCUMULATED WHERE AS THE ASSESSEE CLAIMS THAT HIS TAXABLE INCOM E IS (-) 17,78,608/- AFTER DEDUCTING EARLIER DISALLOW ANCE OF EXPENDITURE U/S 40(A)(IA) DURING THE A.Y 2005-06 FOR THE ADJUSTED PROFIT OF RS.19,01,342/. HENCE IT IS C LEAR CUT CASE OF ESCAPEMENT OF MAT AS PER PROVISIONS OF 115JB. 5. ASSESSEE ON THE OTHER HAND CLAIMED THAT EVEN IF MAT IS CLAIMED, IT WOULD BE ELIGIBLE FOR DEDUCTION U/S 40( A)(IA) AND THUS, ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 8 OF 11 THERE IS NO REVENUE LOSS FOR THE GOVT. ON CONSIDERI NG THE CONTENTIONS OF BOTH THE AO AND THE ASSESSEE THE LEA RNED CIT (A) HELD THAT THE ACTION OF THE AO IN REOPENING OF THE ASSESSMENT WAS JUSTIFIED. BEING AGGRIEVED, THE ASSESSEE CARRIE D FORWARD THIS APPEAL BEFORE US ON THIS ISSUE. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO AND THE LEARNED CIT (A), WHEREAS THE LEARNED DR RELIED ON T HE ORDER OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES O F THE CASE, THE RIVAL SUBMISSIONS AS WELL AS THE LEGAL ST ATUE INVOLVED IN THIS CASE AND WE HAD ARRIVED AT OUR CONSIDERED VIEW THAT SO FAR AS THE REOPENING OF THE ASSESSMENT IS CONCERNED, TH E ENACTMENT SPECIFICALLY SPELLS OUT THAT WHENEVER THE AO HAS RE ASON TO BELIEVE THAT THE INCOME HAS ESCAPED THE ASSESSMENT, HE MAY RESORT TO REOPENING. IN THIS CASE, IT IS CLEARLY EVIDENT THAT THE ASSESSEE HAVING SHOWN BOOK PROFIT OF RS.14,99,060 AS PER P&L A/C WHICH WAS NOT BROUGHT TO TAX. HENCE THE AO HAD REASONS TO BELIEVE THAT SUM OF RS.14,99,061 U/S 115JB HAS ESCAPED ASSESSMEN T WITHIN THE MEANING OF SECTION 147. THEREFORE, GOING BY THE SPIRIT OF THE STATUTE THE ACTION OF THE AO IS JUSTIFIED AND THERE FORE, THIS REOPENING OF THE ASSESSMENT IS GOOD AND CORRECT. TH ESE GROUNDS OF APPEAL FILED BY THE ASSESSEE RELATING TO REOPENI NG IS THEREFORE, DISMISSED. 7. GROUND NO.5 RELATES TO THE ADDITION OF RS.34,13, 415 U/S 40A(2)(A) IN THE HEAD SUB CONTRACT PAYMENT. THE A O TREATED THE SUB-CONTRACT PAYMENTS MADE TO THE RELATED PARTIES W AS HELD TO ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 9 OF 11 BE EXCESSIVE AND THEREBY THE AO ADDED 30% OF THE SU B CONTRACT PAYMENT TO THE RETURNED INCOME. 8. ON THIS ISSUE, THE LEARNED CIT (A) AFTER CONSIDE RING THE SUBMISSIONS BOTH FROM THE AR OF THE ASSESSEE AND TH E AO OBSERVED THAT THE ASSESSEE HAS GIVEN SUB CONTRACT W ORK TO RELATIVES OF THE MD OF THE ASSESSEE. DURING THE SCR UTINY, THE AO HAS EXAMINED THEM U/S 131 OF THE ACT AND FOUND THE SAID PERSONS DO NOT HAVE WHEREWITHAL TO EXECUTE THE SUB CONTRACT WORKS. HENCE THEIR ROLE IN EXECUTION OF THE SUB-CON TRACT WORKS APPARENTLY NOT POSSIBLE. FURTHER, WHEN ASKED FOR TH E DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE EXECUTION OF SUB- CONTRACT WORKS, ALL THE PERSONS FEIGNED IGNORANCE/E XPRESSED INABILITY TO PRODUCE THE SAME. UNDER THESE CIRCUMST ANCES, THE AO HAS COME TO THE CONCLUSION THAT SUB CONTRACT WOR KS GIVEN TO THE RELATED PARTIES ARE ON HIGHER SIDE AND HENCE TR EATED 30% OF TOTAL SUB CONTRACT WORKS BEING EXCESSIVE AND ADDED THE SAME TO THE RETURNED INCOME. THAT DURING THE APPELLATE PROC EEDINGS, THE AR HAS STRONGLY OPPOSED THE FINDINGS OF THE AO, BUT THE LEARNED CIT (A) CONSIDERED THE ACTION OF THE AO TO BE JUSTI FIED IN TREATING THE 30% OF THE SUB CONTRACT WORKS AS EXCESSIVE THER EBY ADDING RS.34,13,415 (30% OF TOTAL SUB CONTRACT WORKS TO TH E RELATED PARTIES I.E. RS.1,13,78,050) TO THE RETURNED INCOME . BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED AR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT (A) AND PUT FORTH BEFORE US THE SUBMISSION THAT THE REOPENING OF ASSE SSMENT WAS DONE U/S 115JB READ WITH SECTION 147 OF THE ACT IN AS MUCH WHEREIN STATED SUCH INCOME AND ALSO ANY OTHER INCOM E CHARGEABLE TO TAX BUT NOT IN THE REGULAR HEADS OF I NCOME. THE ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 10 OF 11 LEARNED AR FURTHER SUBMITTED THAT THE AO HAS MADE T HIS ADDITION ON REOPENING OF ASSESSMENT WHEREAS IN THE ORIGINAL ASSESSMENT, THE AO HAS ACCEPTED ASSESSEES CONTENTION AS IT IS WHICH IN EFFECT LEADS TO REVIEWING ONES OWN DECISION LEGALLY NOT M ANDATED, WHEREAS THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 9. HAVING REGARD TO THE LEGAL PROVISIONS INVOLVED H ERE AND THE FACTS AND THE CIRCUMSTANCES IN THIS CASE, WE ARRIVE AT OUR CONSIDERED VIEW THAT SO FAR AS THE ADDITIONS IN REL ATION TO THE SUB CONTRACT WORKS ARE CONCERNED, THE BASIC CRUX OF SEC TION 40A(2)(A) IN THIS CONTEXT OF THE PRESENT CASE SPECIFY THAT WH EN AN ASSESSEE ACQUIRES CONTRACT WORK, THEN IT MAY GIVE IT TO SOME 3 RD PARTY TO EXECUTE THE SAME. IF THAT BEING SO, THE GENERAL NOT ION IS THAT THE COST OF SUCH SUB CONTRACT APPEARS TO BE IN A REASON ABLE SENSE, WHILE ON THE OTHER HAND, IF THE SAME SUB CONTRACT I S ASSIGNED BY THE ASSESSEE TO HIS RELATIVES, THEN THERE IS A POSS IBILITY THAT THE RATE OF SUCH SUB CONTRACT IS INFLATED TO REDUCE THE PROFIT. IN SUCH A SCENARIO THE AO HAS GOT THE POWER TO SCRUTINIZE T HE ACTUAL COST UNDERTAKEN FOR SUCH PROJECT TO DETERMINE THE ACTUAL COST OF THE SUB CONTRACT WORKS DONE. HAVING SAID SO IN THIS CAS E WHEN THE ORIGINAL ASSESSMENT WAS COMPLETED, ALL THE DETAILS OF THESE SUB CONTRACTS CARRIED OUT BY THE ASSESSEE THROUGH THEIR RELATIVES OR WHATSOEVER WERE PLACED BEFORE THE AO, ALL THE BILLS , VOUCHERS, BANK STATEMENT, DETAILS OF THE TRANSACTIONS CARRIED OUT AND THE NAMES OF THE PARTIES WERE WITH THE AO AT THE TIME O F THE ORIGINAL ASSESSMENT AND THAT THE AO HAS ACCEPTED AS IT IS. T HEREAFTER ON REOPENING OF THE ASSESSMENT, THE AO ESSENTIALLY BY ADDING 30% ON THE TOTAL SUB CONTRACT WORKS IS ACTUALLY REVIEWI NG HIS OWN ITA NO 316 OF 2016 KK RAO ENGG WORKS P LTD HYDERABA D PAGE 11 OF 11 EARLIER ACTIONS. IN THE SPIRIT OF THE ENACTMENT AND AS GUIDED BY THE INCOME TAX PROVISIONS A QUASI JUDICIAL AUTHORIT Y, THE AO IS NOT EMPOWERED TO REVIEW HIS OWN EARLIER ACTIONS SUO MOTO. ONLY IF THERE HAD BEEN AN INTERFERENCE BY ANY HIGHER AUT HORITY TO DO SO, THEN SUCH ACTIONS WOULD HAVE BEEN JUSTIFIED. BU T IN THIS CASE THE AO ON REOPENING FEELS THE SUB CONTRACT WORK CAR RIED OUT BY THE ASSESSEE THROUGH RELATIVES IS EXCESSIVE IN NATU RE AND THEREBY ADDED 30% OF THE SUB CONTRACT WORK ON THE INCOME OF THE ASSESSEE AND IN FACT, REVIEWING HIS EARLIER ACTION WHICH IS THEREFORE, NOT MANDATED BY THE LAW. THEREFORE, IN O UR CONSIDERED VIEW THIS ADDITION OF 30% SHALL NOT STAND, SINCE IT DOES NOT HAVE ANY LEGAL VALIDITY AND THEREFORE, IT SHALL BE DELET ED. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. 10. GROUND NO.6 IS GENERAL IN NATURE AND NEEDS NO ADJUDICATION. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JUNE, 2016. S D/ - S D/ - (B. RAMAKOTAIAH) (PARTHA SARATHI CHAUDHURI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 29 TH JUNE, 2016. VNODAN/SPS COPY TO: 1. M/S. KK RAO ENGINEERING WORKS P LTD PLOT NO. PART OF 8 ROAD NO.1 IDA NACHARAM, HYDERABAD 500076 2. INCOME TAX OFFICER WARD 2(1) HYDERABAD 3. CIT-(A) 2 HYDERABAD 4. PRINCIPAL CIT-2 HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER