SHRI RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR V. PRINCIPAL COMMISSIONER OF INCOME TAX, CIRCLE, ALWAR

ITA 449/JPR/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7192 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 01-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VARINDAR MEHTA
• Keywords: Rejection of books of accounts; Revision of order; Opportunity of being heard; Maximum Marginal Rate; Set aside
• Section: 40A(3); 143(3); 133(6); 263

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENC HES A JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 449/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2014-15 RAMESHWAR PRASAD SHARMA, CONTRACTOR, BHARATPUR CUKE VS. PCIT, CIRCLE-ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AADFR1852J VIHYKFKHZ@ AP PELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SH. ROHAN SOGANI & SH. RAJEEV SOGANI (CA) JKTLO DH VKSJ LS @ REVENUE BY : SH. VARINDAR MEHTA (CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 15/10/2019 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 25/10/2019 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. PR. CIT, ALWAR DATED 14.02.2019 PASSED U/S 263 OF THE ACT WH EREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUND OF APPEAL:- IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. PR. CIT HAS ERRED IN, INVOKING PROVISIONS OF SECTION 263 AND SE TTING ASIDE THE ASSESSMENT ORDER PASSED BY THE LD. AO U/S 143(3) OF THE INCOME TAX ACT, 1961 AND, THEREBY DIRECTING LD. AO TO ISSUE A FRESH ASSESSMENT ORDER AFTER PROPERLY EXAMINING THE ISSUES. THE ACTION OF THE LD. PR. CIT IS ILLEGAL, UNJUSTIFIED, ARBITRARY AND AGAINST THE FAC TS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE SAID ORDER BEING ILLEGAL AND WITHOUT JURISDICTION. ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 21.12.2016 AT TO TAL INCOME OF RS. 1,81,75,760/- BY MAKING CERTAIN ADDITIONS TO TH E RETURNED INCOME. SUBSEQUENTLY, A SHOW CAUSE WAS ISSUED BY THE PR. CI T U/S 263 OF THE ACT ON 19.11.2018 RAISING CERTAIN SPECIFIC MATTERS WHICH A S PER THE LD. PR. CIT HAS RESULTED IN THE ASSESSMENT ORDER PASSED BY THE AO A S ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THEREAFTER, CONSID ERING THE SUBMISSION OF THE ASSESSEE FILED ON 28.01.2019, THE LD. PR. CIT WAS O F THE OPINION THAT ORDER PASSED BY THE ASSESSING OFFICER IS BASED ON MISTAKE N VIEW OF LAW/ERRONEOUS APPLICATION OF PROVISIONS OF THE ACT. HE ACCORDINGL Y DIRECTED THE CANCELLATION OF THE ASSESSMENT ORDER PASSED U/S 143(3) WITH THE DIR ECTIONS TO THE AO TO PASS A FRESH AND SPEAKING ASSESSMENT ORDER AFTER CONSIDERI NG THE MATTERS RAISED IN THE SHOW CAUSE NOTICE AND OTHER MATTERS WHICH MAY C OME TO THE NOTICE OF THE ASSESSING OFFICER, AFTER MAKING PROPER ENQUIRIES AN D AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AGAINS T THE SAID ORDER OF THE LD. PR. CIT, THE ASSESSEE IS NOW IN APPEAL BEFORE US. 3. IN THE FOLLOWING PARAGRAPHS, WE REFER TO THE VA RIOUS MATTERS RAISED BY THE LD. PR. CIT IN HIS ORDER AND THE CONTENTIONS AD VANCED BY THE LD. AR AND LD CIT DR IN THIS REGARD. 4. THE FIRST MATTER RAISED BY THE LD. PR. CIT RELAT ES TO REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) AND THE ESTIMATION OF THE PROFI TS BY THE ASSESSING OFFICER. FIRSTLY, THE LD. PR. CIT(A) OBSERVED THAT THE NP R ATE GIVEN IN FORM 3CD OF THE AUDIT REPORT IS DIFFERENT FROM THE NP RATE DISCLOSE D BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSING OFFICER HAS FAILED TO TAKE NOTICE OF THE DIFFERENCE SO REPORTED IN THE AUDIT R EPORT AND THE SUBMISSIONS FILED BY THE ASSESSEE. FURTHER, REGARDING THE ESTIM ATION OF PROFIT AFTER REJECTION OF BOOKS OF ACCOUNTS, THE LD. PR. CIT(A) OBSERVED T HAT THE AO MADE A LUMP ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 3 SUM TRADING ADDITION OF RS. 2.5 LAKHS AS AGAINST RS 3.00 LAKHS MADE IN THE PREVIOUS YEAR. IN THIS REGARD, THE LD. PR. CIT OBSE RVED THAT WHILE ESTIMATING TRADING ADDITION, THE AO HAS NOT TAKEN INTO CONSIDE RATION THE QUANTUM OF TOTAL TURNOVER WHICH HAS ENHANCED SUBSTANTIALLY DURING TH E YEAR IN COMPARISON TO THE QUANTUM OF TOTAL TURNOVER OF IMMEDIATE PRECEDING YE AR AND THE SAME SHOULD HAVE BEEN KEPT IN VIEW SO THAT THE TRADING ADDITION ENHANCED BY MERELY 20% DURING THE YEAR FROM PAST YEAR COULD HAVE BEEN ESTI MATED MUCH MORE. 5. IN THIS REGARD, THE LD. AR SUBMITTED THAT DIFFER ENCE IN THE PROFIT % EXISTED ONLY IN THE CASE OF NP % AND NOT IN CASE OF GP % AND THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER U/S 143( 3) OF THE ACT DID NOT CONSIDER THE NP RATE WHICH IS EVIDENT FROM THE FACT THAT CERTAIN INDIRECT EXPENSES HAVE ALSO BEEN DISALLOWED BY THE ASSESSING OFFICER. IT WAS ACCORDINGLY SUBMITTED THAT THE AO REJECTED THE BOOK S OF ACCOUNTS U/S 145(3) AND MADE TRADING ADDITIONS OF RS. 3 LACS AND AS FAR AS THE DISCREPANCY IN NP RATE, THE SAME WAS NOT FOUND RELEVANT BY THE ASSESS ING OFFICER. IT WAS ACCORDINGLY SUBMITTED THAT EVEN IF THERE IS DIFFERE NCE IN THE FIGURES OF NP RATE IN THE REPLY SUBMITTED DURING ASSESSMENT PROCEEDINGS V IS--VIS THE AUDIT REPORT, THE SAME IS NOT RELEVANT. REGARDING THE FACT THAT THE TRADING ADDITION MADE BY AO ARE NOT IN CONSONANCE WITH INCREASE IN TURNOVER FOR CURRENT YEAR, IT WAS SUBMITTED THAT INCREASE IN THE TURNOVER MAY RESULT IN INCREASE IN GP IN ABSOLUTE TERMS HOWEVER, THE SAME MAY NOT BE TRUE IN % TERMS. ON THE CONTRARY, IT HAPPENS THAT WITH THE INCREASE IN TURNOVER, IT RESU LTS IN DECREASE IN GP %, DUE TO DECREASE IN THE MARGINS, IN ORDER TO ACHIEVE HIG HER TURNOVER. IT WAS SUBMITTED THAT REASON FOR DECREASE IN THE GP% WAS D ULY CONVEYED TO THE AO AND HE ACCORDINGLY MADE ESTIMATION ON THE BASIS OF PAST HISTORY OF THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT UNDER THE S CHEME OF THE INCOME TAX ACT, NO AUTHORITY WHICH IS SUPERIOR TO THE AO CAN P REVAIL OVER HIS MIND. IF BASED ON THE JUDGMENT OF THE AO, CERTAIN ADDITIONS WERE M ADE BY HIM, THEY CANNOT ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 4 BE CHALLENGED BY ANY SUPERIOR AUTHORITY. THIS IS SP ECIFICALLY APPLICABLE TO A CASE WHEREIN BY WAY OF HIS OWN JUDGMENT, THE AO MADE ADD ITION ON ESTIMATION BASIS WHICH CANNOT BE DOUBTED OR FOUND TO BE ERRONE OUS, IN THE PROCEEDINGS U/S 263 OF THE ACT. 6. ANOTHER RELATED MATTER RAISED BY THE LD. PR. CIT RELATES TO POSSIBILITY OF VIOLATION OF PROVISION OF SECTION 40A (3) OF THE AC T. IN THIS REGARD, LD. PR. CIT OBSERVED THAT IN THE TRADING ACCOUNT, THE ASSESSEE HAS DEBITED CONTRACT EXPENSES TO THE TUNE OF RS. 57,78,08,195/- WHICH IN CLUDES EXPENSES INCURRED AMOUNTING TO RS. 37,48,82,448/- RELATING TO GRIT, B AJRI AND MITTI & MORAM. KEEPING IN VIEW THE POSSIBILITY OF VIOLATION OF PRO VISIONS OF SECTION 40A(3) OF THE ACT, THE AO SHOULD HAVE CALLED FOR THE LEDGER ACCOU NT OF SUCH EXPENDITURE AND PLACED ON RECORD SO AS TO AFFIRM THE FACT THAT THE CASE HAS ALSO BEEN EXAMINED FROM THIS ANGLE ALSO FOR THE PURPOSE OF ESTIMATION TOWARDS TRADING ADDITION SO MADE BY HIM. 7. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE A SSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM U/S 145(3) OF THE ACT AND MADE TRADIN G ADDITION. IT WAS SUBMITTED THAT THE HONBLE RAJASTHAN HIGH COURT IN CASE OF G. K. CONTRACTOR [2009] 19 DTR 305 (RAJ.) HAS HELD THAT ONCE THE BOO KS OF ACCOUNTS ARE REJECTED AND TRADING ADDITIONS ARE MADE ON ESTIMATE BASIS, NO FURTHER ADDITIONS RELATED TO EXPENSES CAN BE MADE IN THE HANDS OF THE ASSESSEE RELYING ON THE SAME SET OF BOOKS OF ACCOUNTS. IT WAS ACCORDINGLY S UBMITTED THAT SUCH DECISION OF THE HONBLE RAJASTHAN HIGH COURT WAS REQUIRED TO BE FOLLOWED BY THE ASSESSING OFFICER EVEN IF THE SAME WAS NOT EXPRESSI VELY PUT FORTH BEFORE HIM. IT WAS ACCORDINGLY SUBMITTED THAT THERE WAS NO ERRO R COMMITTED BY THE AO EVEN IF THERE ARE CERTAIN EXPENSES WHICH MAY HAVE B EEN INCURRED IN CONTRAVENTION OF PROVISION OF SECTION 40A(3) OF THE ACT. ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 5 8. ANOTHER ISSUE RAISED BY THE LD. PR. CIT RELATES TO ADDITION MADE IN THE PARTNER CAPITAL ACCOUNTS DURING THE YEAR. THE LD. P R. CIT OBSERVED THAT NO DOCUMENTARY EVIDENCE IS AVAILABLE ON RECORD WHEREFR OM IT MAY BE ASCERTAINED THE REASONS FOR THE INCREASE IN THE CAPITAL ACCOUNT OF THE PARTNERS OF THE ASSESSEE FIRM TO THE TUNE OF RS. 64,11,975 DURING T HE YEAR UNDER CONSIDERATION. 9. IN THIS REGARD, THE LD. AR SUBMITTED THAT DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE FIRM FORMED A JOINT VENTURE BY T HE NAME OF HGIEPL-RPS (JV) FOR UNDERTAKING CERTAIN PROJECTS WHICH WAS CON SIDERED AS AN ASSOCIATION OF PERSONS (AOP) FOR INCOME TAX PURPOSES. PROFIT GENER ATED BY SUCH AOP FOR THE RELEVANT PREVIOUS YEAR WAS TAXED AS PER SECTION 167 B(2) AT MMR AND THE SHARE OF MEMBER OF THE AOP IS NOT SUBJECT TO THE FURTHER TAXATION IN ITS INDIVIDUAL HANDS IN ACCORDANCE WITH SECTION 86 OF THE ACT. DU RING THE PREVIOUS YEAR, THE AOP EARNED PROFITS OF RS 1,30,85,665 ON WHICH IT HA S PAID TAXES AND THE ASSESSEES SHARE IN SUCH PROFITS COMES TO RS. 64,11 ,975 WHICH WAS NOT SUBJECT TO ANY FURTHER TAXATION IN ITS HANDS AS ALREADY TA XED IN HANDS OF AOP. IN ITS BOOKS OF ACCOUNTS, THE ASSESSEE FIRM, INSTEAD OF RO UTING/CREDITING SUCH PROFIT SHARE FROM AOP THROUGH THE PROFIT AND LOSS ACCOUNT, DIRECTLY CREDITED THE RESPECTIVE PROFITS TO EACH OF THE PARTNER OF THE AS SESSEE FIRM IN THEIR RESPECTIVE PROFIT SHARING RATIO. IT WAS ACCORDINGLY SUBMITTED THAT IN SUBSTANCE, THERE IS NO LOSS TO THE REVENUE, EVEN CONSIDERING THE FACT THAT DIFFERENT ACCOUNTING TREATMENT WAS ADOPTED BY THE ASSESSEE FIRM, OR THE AMOUNT CREDITED IN THE PARTNERS CAPITAL ACCOUNT DOESNT REMAINED UNSUBSTA NTIATED DURING THE ASSESSMENT PROCEEDINGS. IT IS A TRITE LAW THAT THE ASSESSMENT ORDER CAN BE REVISED UNDER SECTION 263 ONLY IF THE TWIN CONDITIO NS OF ERROR IN THE ASSESSMENT ORDER AND PREJUDICE CAUSED TO THE REVENUE. IT WAS S UBMITTED THAT THE NECESSARY DOCUMENTS IN FORM OF RETURN OF INCOME AND THE FINANCIAL STATEMENT ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 6 OF THE JOINT VENTURE WERE FURNISHED DURING THE COUR SE OF ASSESSMENT PROCEEDINGS AND ARE AVAILABLE ON RECORD. 10. ANOTHER ISSUE RAISED BY THE LD. PR. CIT RELATE S TO LOANS AND ADVANCE IN FAVOUR OF THE M/S HGIEPL-RPS(JV) CAPITAL ACCOUNT AM OUNTING TO RS. 3.94 CRORE. IN THIS REGARD, THE LD. PR. CIT OBSERVED THAT THE N ATURE AND SOURCE OF SUCH TRANSACTIONS SHOULD HAVE BEEN ASCERTAINED BY THE AO FROM THE ASSESSEE IN THE FORM OF RESPECTIVE LEDGER ACCOUNT OF M/S HGIEPL RPS (JV) OR CALLING FOR THE INFORMATION FROM SUCH CONCERN U/S 133(6) OF THE ACT . THE LD. PR. CIT FURTHER OBSERVED THAT AS AGAINST THE INTEREST INCOME RECEIP TS SHOWN FROM FDRS ONLY, THE ASSESSEE HAS CLAIMED HEAVY AMOUNT OF EXPENSES I N RESPECT OF INTEREST PAID ON SECURED LOANS AND ON PARTNERS CAPITAL. THUS CHAR GEABILITY OF INTEREST ON THE AMOUNT ADVANCES BY THE ASSESSEE FIRM TO SUCH CONCER N SHOULD ALSO HAVE BEEN EXAMINED BY THE AO. 11. IN THIS REGARD, LD. AR SUBMITTED THAT DURING TH E RELEVANT PREVIOUS YEAR, THE ASSESSEE FIRM MADE CAPITAL CONTRIBUTION TO AOP AND ALL THE RELEVANT INFORMATION, INCLUDING ALL THE BANK STATEMENTS OF T HE ASSESSEE FIRM, CAPITAL ACCOUNT OF PARTNERS WERE BEFORE THE LD. AO AND ALL THE TRANSACTIONS TO AND FROM THE ASSESSEE FIRM WERE THROUGH PROPER BANKING CHANN EL. IT WAS ACCORDINGLY SUBMITTED THAT SINCE ALL SUCH INFORMATION WAS FOUND TO BE CORRECT BY THE LD. AO, THE LD. AO THOUGHT IT FIT IN NOT SEEKING ANY INFORM ATION FROM ANY SOURCE U/S 133(6) OF THE ACT. IT WAS FURTHER SUBMITTED THAT CA PITAL CONTRIBUTION BY THE ASSESSEE FIRM INTO THE JOINT VENTURE I.E. HGIEPL-RP S(JV) WAS ONLY FOR THE PURPOSE OF BUSINESS EXPEDIENCY AS THE JOINT VENTURE IN TURN SUB-CONTRACTED THE INFRASTRUCTURE PROJECTS IT RECEIVED TO THE ASSESSEE FIRM. IT WAS SUBMITTED THAT THE ASSESSING OFFICER WAS HAVING KNOWLEDGE OF THE A BOVE MENTIONED FACTUAL POSITION, INCLUDING THE CAPITAL CONTRIBUTION MADE I N THE JV AND ALSO THE REVENUE GENERATED BY THE ASSESSEE FIRM, THROUGH SUCH COLLAB ORATION AND WAS SATISFIED OF ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 7 THE FACT THAT SUCH CAPITAL CONTRIBUTION MADE BY THE ASSESSEE FIRM, IN TURN HELPED IN FURTHERANCE OF THE BUSINESS OF THE ASSESS EE FIRM, AND THUS WAS ESSENTIAL FOR BUSINESS EXPEDIENCY. 12. ANOTHER ISSUE RAISED BY THE LD. PR. CIT RELATE S TO UNSECURED LOANS AMOUNTING TO RS. 10 LACS FROM RAMESHWAR PRASAD SHAR MA HUF. IN THIS REGARD, LD. PR. CIT OBSERVED THAT FROM THE PERUSAL OF THE B ANK STATEMENT OF MR. RAMESHWAR PRASAD SHARMA HUF, IT IS OBSERVED THAT TH E CASH WAS DEPOSITED IN THE BANK JUST BEFORE GIVING UNSECURED LOAN TO THE A SSESSEE FIRM. IN THIS REGARD, THE AO SHOULD HAVE EXAMINED EITHER SOURCE OF CASH D EPOSITED IN THE BANK ACCOUNT OR SHARED THE INFORMATION WITH THE AO OF RA MESHWAR PRASAD SHARMA HUF. 13. IN THIS REGARD, THE LD. AR SUBMITTED THAT IN OR DER TO CONFIRM IDENTITY OF THE LENDER FROM WHOM SUCH LOAN WAS TAKEN, BANK ACCO UNT OF SUCH LENDER WAS SUBMITTED TO THE LD. AO DURING THE COURSE OF ASSESS MENT PROCEEDINGS AND THE ASSESSEE IS ONLY REQUIRED TO PROVE THE SOURCE FROM WHICH SUCH LOAN HAS BEEN RECEIVED. 14. REGARDING THE LAST ISSUE RAISED BY THE LD PR C IT REGARDING THE REFLECTION OF INDIVIDUAL PARTNERS BANK ACCOUNTS IN THE BALANCE S HEET OF THE ASSESSEE FIRM, THE LD. AR SUBMITTED THAT ALL THE RELEVANT INFORMAT ION INCLUDING ALL THE BANK STATEMENTS OF THE ASSESSEE FIRM, CAPITAL ACCOUNT OF PARTNERS WERE BEFORE THE LD. AO DURING THE RELEVANT PREVIOUS YEAR. IT WAS SU BMITTED THAT SINCE ALL THE TRANSACTIONS TO AND FROM THE ASSESSEE FIRM WERE THR OUGH PROPER BANKING CHANNEL, THERE WAS NO FURTHER ENQUIRY WAS REQUIRED TO BE MADE BY THE LD. AO. 15. THE LD CIT DR IS HEARD WHO HAS VEHEMENTLY ARGU ED THE MATTER AND TAKEN US THROUGH THE FINDINGS OF THE LD PR CIT WHIC H WE HAVE ALREADY NOTED ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 8 ABOVE AND THE SAME NOT BEEN REPEATED FOR THE SAKE O F BREVITY. HE SUBMITTED THAT IT IS A CLEAR CASE OF LACK OF ENQUIRY ON THE P ART OF THE ASSESSING OFFICER ON VARIOUS COUNTS AND WHICH HAVE BEEN DULY HIGHLIGHTED BY THE LD PR CIT IN HIS ORDER. HE SUPPORTED THE FINDINGS OF THE LD PR CIT. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, REGARDING ESTIMATION OF PROFIT S, WE NOTE THAT THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3). ONCE THE BOOKS OF ACCOUNTS ARE REJECTED BY THE AO, THEN THE AO IS TO ASSESS THE INCOME OF THE ASSESSEE ON THE BASIS OF B EST JUDGMENT. THE ASSESSING OFFICER WHILE EXERCISING HIS JURISDICTION CANNOT ACT ARBITRARILY OR CAPRICIOUSLY. THE ASSESSMENT MUST PROCEED ON JUDIC IAL CONSIDERATIONS IN LIGHT OF RELEVANT MATERIAL AVAILABLE ON RECORD. IN OTHER WORDS, IN ANY CASE OF BEST JUDGMENT, THOUGH THE ELEMENT OF GUESS WORK IS INVOL VED, HOWEVER THE GUESS WORK SHOULD HAVE NEXUS WITH THE MATERIAL ON RECORD AND DISCRETION MUST NOT BE EXERCISED ARBITRARILY OR CAPRICIOUSLY. WE ARE THER EFORE OF THE VIEW THAT THE LD PR. CIT WHILE EXERCISING HIS REVISIONARY JURISDICTI ON U/S 263 CAN EXAMINE THE BASIS FOR ESTIMATION, WHETHER SUCH BASIS FOR ESTIMA TION HAS REASONABLE NEXUS WITH THE MATERIAL ON RECORD, WHETHER THE ESTIMATES MADE AND CONCLUSION DRAWN BY THE ASSESSING OFFICER ARE UNBIASED AND RATIONALL Y MADE AND THE AUTHORITY SO EXERCISED BY THE ASSESSING OFFICER IS VINDICTIVE OR CAPRICIOUS OR NOT. 17. IN THE INSTANT CASE, THE ASSESSING OFFICER OBSE RVED THAT THE G.P RATE SO DECLARED BY THE ASSESSEE HAS DECLINED AS COMPARED T O THE PREVIOUS ASSESSMENT YEAR 2013-14 AND HAS HELD THAT CONSIDERING THE PAST HISTORY, IT WOULD BE FAIR AND REASONABLE TO MAKE AN ADHOC ADDITION OF RS 3,00 ,000 IN THE TRADING RESULTS TO COVER ALL POSSIBLE LEAKAGE OF REVENUES. THE LD PR. CIT OBSERVED THAT IN A.Y 2013-14, THE AO HAD MADE LUMP SUM TRADING ADDITION OF RS 2,50,000 AND CONSIDERING THE SAME, FOR THE YEAR UNDER CONSIDERAT ION, THE ASSESSING OFFICER ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 9 HAS MADE ADHOC ADDITION OF RS 3,00,000 AND WHILE DO ING SO, HAS FAILED TO TAKE INTO CONSIDERATION THE FACT THAT THERE IS AN INCREA SE IN TURNOVER OF THE ASSESSEE FROM RS 6.08 CRORES IN AY 2013-14 TO RS 61.21 CRORE S IN THE YEAR UNDER CONSIDERATION. TO OUR MIND, THE VERY ACTION OF THE ASSESSING OFFICER IN MAKING AN ADHOC ADDITION OF RS 3,00,000 IS ERRONEOUS AND L EGALLY UNSUSTAINABLE IN THE SENSE THAT ONCE THE ASSESSING OFFICER HAS OBSERVED THAT THE GROSS PROFIT HAS DECLINED DURING THE YEAR AS COMPARED TO PREVIOUS YE AR AND THE BOOK RESULTS WERE REJECTED, THEN TO ESTIMATE THE PROFITS FOR THE YEAR, HE SHOULD HAVE CONSIDERED THE AVERAGE OF THE PAST GROSS PROFITS WH ICH HAVE BEEN ACCEPTED AND ATTAINED FINALITY IN THE PAST YEARS WHICH THE COURT S HAVE HELD AS RELIABLE AND REASONABLE BASIS/GUIDANCE FOR BEST JUDGMENT. IT S EEMS THAT THE ASSESSING OFFICER WAS SWAYED BY THE ACTION OF HIS PREDECESSOR IN THE EARLIER YEAR WHICH HE HAD MADE AN ADHOC ADDITION, HOWEVER, THE ASSESSING OFFICER FAILED TO TAKE INTO CONSIDERATION THE DECLARED G.P IN THE PAST YEAR (11 .68%) WHICH IS SUBSTANTIALLY HIGHER AS COMPARED TO CURRENT YEAR (5.95%). HAVING SAID THAT, WHERE THERE IS A SUBSTANTIAL INCREASE IN THE TURNOVER (RS 61.21 CR ORES) AS COMPARED TO THE PAST YEAR (RS 6.08 CRORES), THE SAME IS A MATERIAL CHANGE WHICH HAS HAPPENED DURING THE YEAR AND IT WAS INCUMBENT ON PART OF THE ASSESSING OFFICER TO EXAMINE AND CONSIDER THE IMPACT THEREOF WHILE CARRY ING OUT THE BEST JUDGMENT. IT IS NOT THAT THE ASSESSING OFFICER WAS NOT AWARE OF THE SAID DEVELOPMENT AND IN FACT, THE ASSESSEE IN ITS SUBMISSION DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS SUBMITTED THE SAID FACT BEFORE THE ASSESSING OFFICER. BESIDES THAT DURING THE YEAR, THE ASSESSEE WAS ALSO ENGAGED IN SUB-CONTRACT WORK WHICH WAS AWARDED BY A JOINT VENTURE BY NAME OF HGI EPL-RPS JV OF WHICH THE ASSESSEE IS ONE OF THE MEMBERS. THE FACT OF INCREA SE IN TURNOVER AND THE FACT OF INVOLVEMENT IN A SUB-CONTRACT DURING THE YEAR, W HICH MAY HAVE DIFFERENT PROFITS MARGINS DEPENDING UPON NATURE OF WORK AND O THER PARAMETERS, AND THAT TOO, WITH A RELATED ENTITY, IS CLEARLY A MATERIAL D EVELOPMENT AND DISTINCTION VIS- -VIS THE PAST YEAR AND THE SAME SHOULD HAVE BEEN E XAMINED AND CONSIDERED ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 10 WHILE ESTIMATING THE PROFITS BY THE ASSESSING OFFIC ER. HOWEVER, THE ASSESSING OFFICER HAS FAILED TO TAKE THE SAME INTO CONSIDERAT ION AND THEREFORE, THE BASIS OF ESTIMATION MERELY RELYING ON THE PAST HISTORY CANNO T BE ACCEPTED AS RATIONAL HAVING FAILED TO ESTABLISH REASONABLE NEXUS WITH TH E MATERIAL ON RECORD. FURTHER, EVEN GOING BY THE FINDINGS OF THE ASSESSIN G OFFICER WHERE HE SAYS THAT HE MAKES AN ADHOC ADDITION OF RS 3,00,000 IS CLEARL Y AN ARBITRARILY EXERCISE OF DISCRETION WHICH CANNOT BE ACCEPTED AND SHOWS COMPL ETE LACK OF APPLICATION OF MIND BY THE ASSESSING OFFICER. FURTHER, THE LD PR C IT HAS STATED THAT GIVEN THE NATURE AND QUANTUM OF EXPENSES INCURRED BY THE ASSE SSEE, POSSIBILITY OF VIOLATION OF PROVISION OF SECTION 40A (3) OF THE AC T AND WHICH SHOULD HAVE BEEN EXAMINED BY THE ASSESSING OFFICER. HERE, THE QUESTI ON IS NOT ABOUT MAKING A SEPARATE ADDITION UNDER SECTION 40A(3) OVER AND ABO VE THE TRADING ADDITION ONCE THE BOOK RESULTS ARE REJECTED U/S 145(3), HOWE VER THE QUESTION IS WHETHER THE FACT, WHICH MAY EMERGE ON EXAMINATION BY THE AS SESSING OFFICER THAT THERE IS A VIOLATION OF PROVISIONS OF SECTION 40A(3), WIL L BE A RELEVANT FACTOR TO BE TAKEN INTO CONSIDERATION WHILE ESTIMATING THE PROFI TS. TO OUR MIND, THE LD PR. CIT HAS RIGHTLY HIGHLIGHTED THIS FACT WHICH THE ASS ESSING HAS FAILED TO EXAMINE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE SAME SHOULD BE CONSIDERED AS A RELEVANT FACTOR WHILE ESTIMATING TH E PROFITS BY THE ASSESSING OFFICER. IT IS A CLEAR CASE OF FAILURE ON PART OF THE ASSESSING OFFICER TO EXAMINE THE MATTER IGNORING THE MATERIAL AVAILABLE ON RECOR D AND THUS, A MATTER OF COMPLETE LACK OF APPLICATION OF MIND. WE THEREFORE DONOT SEE ANY INFIRMITY IN THE ACTION OF THE LD PR. CIT WHO HAS RIGHTLY INTERV ENED AND EXERCISED HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT. 18. REGARDING THE MATTER RELATING TO INCREASE IN TH E PARTNERS CAPITAL ACCOUNT IN RESPECT OF WHICH THE LD. PR. CIT HAS OBSERVED TH AT NO DOCUMENTARY EVIDENCE IS AVAILABLE ON RECORD AND APPARENTLY THE SAID MATT ER HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. IN THIS REGARD, THE LD. A R HAS SUBMITTED THAT THE ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 11 INCREASE IN THE PARTNERS CAPITAL ACCOUNT IS ON ACC OUNT OF SHARE OF THE ASSESSEE IN THE JOINT VENTURE PROFIT (POST TAX) WHICH HAS BE EN CREDITED DIRECTLY IN THE ACCOUNTS OF THE PARTNERS CAPITAL ACCOUNT OF THE AS SESSEE FIRM INSTEAD OF ROOTING IT THROUGH PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FIRM. IT WAS FURTHER SUBMITTED THAT SINCE THE JOINT VENTURE PROFITS HAVE ALREADY S UFFERED TAXATION IN THE HANDS OF THE JOINT VENTURE(AOP) AT MAXIMUM MARGINAL RATE, THE SAME WOULD NOT SUFFER ANY FURTHER TAXATION IN THE HANDS OF THE ASS ESSEE FIRM AND THEREFORE, THERE IS NO LOSS CAUSED TO THE REVENUE BY SUCH ACCO UNTING TREATMENT DONE BY THE ASSESSEE FIRM. 19. UNDISPUTEDLY, THE MATTER RELATING TO INCREASE I N THE PARTNERS CAPITAL ACCOUNT HAS NOT BEEN EXAMINED BY THE ASSESSING OFFI CER. THEREFORE, WHEN THE MATTER HAS NOT BEEN EXAMINED AT FIRST PLACE BY THE ASSESSING OFFICER, IT WOULD BE DIFFICULT TO HOLD THAT THE ORDER OF THE ASSESSIN G OFFICER IS NOT ERRONEOUS AND AS FAR AS WHETHER THE ORDER IS PREJUDICIAL TO THE I NTEREST OF THE REVENUE OR NOT, THE SAME IS SUBJECT MATTER OF EXAMINATION AND HAD T HE MATTER BEEN EXAMINED BY THE ASSESSING OFFICER, IT CAN BE DETERMINED WHET HER THE JOINT VENTURE HAS BEEN FINALLY ASSESSED AT MMR AT CLAIMED BY THE ASSE SSEE AND WHETHER THE SHARES OF THE MEMBERS ARE DETERMINATE OR NOT. THERE FORE, IN ABSENCE OF EXAMINATION BY THE ASSESSING OFFICER, IT IS DIFFICU LT TO HOLD THAT THE ISSUE RAISED BY THE LD PR CIT HAS NOT CAUSED ANY PREJUDICE TO TH E REVENUE AND THEREFORE, WE UPHELD THE ORDER OF THE LD PR. CIT AND DO NOT SE E ANY INFIRMITY IN THE ACTION OF THE LD. PR. CIT IN DIRECTING AO TO EXAMINE THE S AME DURING SET ASIDE PROCEEDINGS. 20. REGARDING CAPITAL INFUSION BY THE ASSESSEE FIRM IN THE JOINT VENTURE TO THE TUNE OF RS. 3.94 CRORES, WHICH HAS BEEN SHOWN AS LO AN AND ADVANCE IN THE BOOKS OF THE ASSESSEE FIRM AND THE FACT THAT THE AS SESSEE HAS INCURRED HUGE INTEREST EXPENSES ON THE SECURED LOANS AND ON THE P ARTNERS OF THE CAPITAL ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 12 ACCOUNT. THE ASSESSEE HAS NOT DISPUTED THESE FACTS AND WE FIND THAT THE SAME HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. THE CONTENTION OF THE LD. AR REGARDING THE BUSINESS EXPEDIENCY OF CONTRIBUTING T HE CAPITAL TO THE JOINT VENTURE IS AGAIN A MATTER OF EXAMINATION AND GIVEN THAT THE SAID MATTER HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER, WE DO NOT S EE ANY INFIRMITY IN THE ACTION OF THE LD. PR. CIT IN EXERCISING HIS REVISIO NARY JURISDICTION. 21. REGARDING EXAMINATION OF SOURCE OF CASH DEPOSIT ED IN THE BANK ACCOUNT OF SH. RAMESHWAR PRASAD SHARMA (HUF) FROM WHOM THE ASSESSEE HAS RECEIVED UNSECURED LOAN OF RS. 10,00,000/-, GIVEN THAT RAMES HWAR PRASAD SHARMA (HUF) IS A RELATED ENTITY, THE ONUS OF THE ASSESSEE IS CLEARLY ON HIGHER PEDESTAL TO JUSTIFY THE CREDITWORTHINESS AND GENUINENESS OF THE TRANSACTION ESPECIALLY IN LIGHT OF THE OBSERVATIONS OF THE LD. PR. CIT THAT T HE CASH WAS DEPOSITED IN THE BANK ACCOUNT OF RAMESHWAR PRASAD SHARMA (HUF) JUST BEFORE UNSECURED LOAN WAS GIVEN TO THE ASSESSEE FIRM. GIVEN THAT THE ASSE SSING OFFICER HAS NOT EXAMINED THE SAID TRANSACTION, THERE IS NO INFIRMIT Y IN THE ACTION OF THE LD. PR. CIT IN DIRECTING THE ASSESSING OFFICER TO DO SO IN THE SET ASIDE PROCEEDINGS. 22. REGARDING THE REFLECTION OF INDIVIDUAL PARTNER S BANK ACCOUNTS IN THE BALANCE SHEET OF THE ASSESSEE FIRM, APPARENTLY GIVE N THAT THESE ARE PARTNERS PERSONAL BANK ACCOUNTS AND NOT THE BANK ACCOUNTS MA INTAINED BY THE PARTNERS ON BEHALF OF THE ASSESSEE FIRM, WE FIND IT STRANGE AS TO HOW THE PERSONAL BANK ACCOUNTS HAVE BEEN REFLECTED AS PART OF THE BALANCE SHEET OF THE ASSESSEE FIRM WHICH IS LEGALLY DISTINCT ENTITY VIZ A VIZ THE PART NERS AS FAR AS TAXATION LAWS IS CONCERNED. THEREFORE, THE LD. PR. CIT WAS RIGHT IN DIRECTING THE ASSESSING OFFICER TO EXAMINE THESE TRANSACTIONS IN THE PARTNE RS PERSONAL BANK ACCOUNTS AND LINKAGE THEREOF WITH THE TRANSACTIONS OF THE AS SESSEE FIRM. ITA NO. 449/JP/2019 RAMESHWAR PRASAD SHARMA CONTRACTOR, BHARATPUR VS. PCIT, CIR CLE- ALWAR 13 23. IN THE LIGHT OF ABOVE DISCUSSIONS AND IN THE EN TIRETY FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT IT IS A CLEAR CASE WHERE THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE THEREFORE, DO NOT SEE ANY INFIRMITY IN ACTION OF THE LD. PR. CIT WHO HAS RIGHTLY INTERVENED AND EXER CISED HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/10/2019. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25/10/2019 * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- RAMESHWAR PRASAD CONTRACTOR, BHARATP UR 2. IZR;FKHZ@ THE RESPONDENT- PR.CIT, ALWAR 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 449/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR