M/s Tejaswini Engineering Pvt Ltd., Hyderabad V. Commissioner of Income Tax-II, Hyderabad

ITA 748/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91635 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 25-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Revision of order; Depreciation; Assessment record
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 748/HYD/2014 ASSESSMENT YEAR: 2009-10 M/S TEJASWAINI ENGG. PVT. LTD., HYDERABAD. PAN AABCT 6421A VS. COMMISSIONER OF INCOME-TAX- II, HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P. MURALI MOHAN RAO REVENUE BY : SMT. G. APARNA RAO DATE OF HEARING 29-04-2015 DATE OF PRONOUNCEMENT 08-05-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER DATED 25/03/2014 PASSED U/S 263 OF THE IT ACT, 1961 (ACT) BY LD. CIT-II, HYDERABAD FOR THE AY 2009-10. 2. BRIEFLY THE FACTS ARE, ASSESSEE A COMPANY IS ENG AGED IN THE BUSINESS OF TRADING IN STEEL PRODUCTS. FOR THE AY U NDER CONSIDERATION, IT FILED ITS RETURN OF INCOME ON 31/03/2010 DECLARI NG INCOME OF RS. 20,71,880. SUBSEQUENTLY, ASSESSEE FILED A REVISED R ETURN ON 26/08/2010 DECLARING TOTAL INCOME OF RS. 27,78,371. IN COURSE OF ASSESSMENT PROCEEDING, AO AFTER VERIFYING THE BOOKS OF ACCOUNT AND OTHER INFORMATIONS AVAILABLE ON RECORD FOUND THAT A SSESSEE HAS MADE PURCHASES AND SALES FROM APRIL TO OCTOBER WITH NO M AJOR GAIN OR LOSS. HOWEVER, FROM NOVEMBER08 ONWARDS, ASSESSEE STARTED INCURRING LOSS AND IN THE MONTH OF NOVEMBER INCURRED HUGE LOSS TO THE EXTENT OF RS. 2 ITA NO. 748 /HYD/2014 M/S TEJASWINI ENGINEERING PVT. LTD. 2.81 CRORES. HE FURTHER OBSERVED THAT AS PER THE DE TAILS FURNISHED, THE AVERAGE COST OF MATERIAL PURCHASED DURING THE MONTH S OF FEBRUARY AND MARCH WORKS OUT TO RS. 29,109 PER TONE. HOWEVER , ASSESSEE HAS ADMITTED CLOSING STOCK @ 33,004, WHICH IS MORE THAN THE COST PRICE. AO OBSERVED THAT PURCHASES FOR THE MONTH OF MARCH A S DECLARED BY ASSESSEE IS RS. 67,48,30,627 WHEREAS AS PER THE VA T RETURN PURCHASES WERE SHOWN AT RS. 71,53,67,397. AO ALSO N OTED DISCREPANCIES IN THE SALES FIGURES AS PER THE BOOKS AND AS PER THE VAT RETURN. IN VIEW OF THE AFORESAID FACTS, AO CONC LUDED THAT THE BOOKS OF ACCOUNT OF ASSESSEE CANNOT BE RELIED UPON, HENCE, TO BE REJECTED. AFTER REJECTING THE BOOKS OF ACCOUNT, AO PROCEEDED TO ESTIMATE GROSS INCOME OF ASSESSEE FROM STEEL TRADIN G BUSINESS @ 1% OF SALES. FROM SUCH ESTIMATED GROSS INCOME, AO ALLO WED EXPENDITURE OF RS. 1,98,42,745 COMPRISING OF EMPLOYEES PAYMENT, ADMINISTRATIVE AND SELLING EXPENSES, DEPRECIATION, PRELIMINARY EXP ENSES, ETC AND ULTIMATELY DETERMINED THE TOTAL INCOME AT RS. 3,54, 11,850 IN THE ASSESSMENT ORDER PASSED ON 30/12/2011. BEING AGGRIE VED OF THE ASSESSMENT ORDER SO PASSED, ASSESSEE PREFERRED APPE AL BEFORE LD. CIT(A). 3. AS IT APPEARS FROM RECORD BEFORE LD. CIT(A), ASS ESSEE SPECIFICALLY CHALLENGED REJECTION OF BOOKS OF ACCOU NT AND ESTIMATION OF GROSS INCOME AT 1%. LD. CIT(A) AFTER CONSIDERING TH E SUBMISSIONS OF ASSESSEE, THOUGH, UPHELD THE REJECTION OF BOOKS OF ACCOUNT, HOWEVER, REDUCED THE ESTIMATION OF GROSS INCOME OF ASSESSEE FROM 1% TO 0.7% OF THE TURNOVER. STILL AGGRIEVED WITH THE ORDER OF LD. CIT(A), ASSESSEE AS WELL AS DEPARTMENT PREFERRED APPEAL BEFORE ITAT. 4. WHEN THE MATTER STOOD LIKE THIS, LD. CIT IN EXER CISE OF POWER U/S 263 OF THE ACT CALLED FOR THE ASSESSMENT RECORDS OF ASSESSEE FOR THE YEAR UNDER CONSIDERATION. AFTER EXAMINING THE SAME, LD. CIT WAS OF THE VIEW THAT ASSESSMENT ORDER IS ERRONEOUS AND PRE JUDICIAL TO THE INTERESTS OF REVENUE AND ACCORDINGLY ISSUED A NOTIC E ON 26/02/2014 TO 3 ITA NO. 748 /HYD/2014 M/S TEJASWINI ENGINEERING PVT. LTD. ASSESSEE DIRECTING IT TO SHOW CAUSE AS TO WHY ASSES SMENT ORDER SHALL NOT BE REVISED DUE TO THE FOLLOWING ERRORS: 3. ON VERIFICATION OF ASST. RECORD, IT IS SEEN THAT WHILE COMPLETING THE ASSESSMENT, THE BOOKS OF ACCOUNT WER E REJECTED ON THE GROUND THAT THERE WERE SOME DISCREPANCIES AN D THE INCOME WAS ESTIMATED @ 1% ON THE GROSS SALES OF RS. 545,10,64,804 AND THE TOTAL INCOME WAS DETERMINED A T RS. 3,54,11,850 AFTER ALLOWING PRELIMINARY EXPENSES, SE LLING AND ADMINISTRATIVE EXPENSES AND SALARIES TO EMPLOYEES A ND DEPRECIATION AMOUNTING TO RS. 1,88,86,251. WHEN THE BOOKS OF ACCOUNT WERE REJECTED AND INCOME WAS ESTIMATED ON GROSS RECEIPTS, THAT ITSELF TAKES CARE OF ALL EXPENDITURE UNDER THE PROVISIONS OF THE IT ACT. THE REFORE, ALLOWING OF EXPENDITURE OF RS. 1,88,86,251 SEPARATE LY IS NOT IN ORDER. IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE APPE ARED BEFORE LD. CIT AND MADE ELABORATE SUBMISSIONS CHALLENGING NOT ONLY THE JURISDICTION INVOKED U/S 263, BUT, ALSO THE ISSUE O N MERIT. THE SPECIFIC PLEA TAKEN BY ASSESSEE BEFORE LD. CIT WAS ASSESSMEN T ORDER PASSED HAVING MERGED WITH THE ORDER OF LD. CIT(A) AND IN F URTHER APPEAL BEFORE ITAT, EXERCISE OF POWER U/S 263 IS INVALID. THE OTHER CONTENTION OF ASSESSEE WAS SINCE AO HAS TAKEN A VIE W ON THE ISSUE OF ESTIMATION OF INCOME, LD. CIT CANNOT TAKE RECOUR SE TO SECTION 263 TO SUBSTITUTE HIS OPINION. LD. CIT AFTER CONSIDERIN G THE SUBMISSIONS OF ASSESSEE DID NOT FIND MERIT IN THE SAME. AS FAR AS THE ISSUE OF MERGER OF THE ASSESSMENT ORDER IS CONCERNED, LD. CIT REFER RING TO EXPLANATION (C) TO SUB-SECTION (1) OF SECTION 263 OF THE ACT, O BSERVED THAT ONLY THOSE ISSUES WHICH WERE CONSIDERED AND DECIDED BY A PPELLATE AUTHORITY ARE OUTSIDE THE PURVIEW OF SECTION 263. H E OBSERVED THAT SINCE ALLOWABILITY OF EXPENDITURE WAS NOT AN ISSUE BEFORE LD. CIT(A) INVOKING OF JURISDICTION U/S 263 IS IN ACCORDANCE W ITH LAW. HE FURTHER OBSERVED THAT ONCE BOOKS OF ACCOUNT ARE REJECTED A ND INCOME IS ESTIMATED, AO CANNOT RELY ON THE SAME BOOKS OF ACCO UNT FOR ALLOWING EXPENSES FROM THE ESTIMATED INCOME. FOR COMING TO S UCH CONCLUSION, HE RELIED UPON CERTAIN JUDICIAL PRECEDENTS. ON THE AFORESAID REASONING, LD. CIT FINALLY CONCLUDED THAT ASSESSMEN T ORDER PASSED 4 ITA NO. 748 /HYD/2014 M/S TEJASWINI ENGINEERING PVT. LTD. BEING ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE HAS TO BE SET ASIDE WITH A DIRECTION TO AO TO PASS THE ASSESS MENT ORDER TAKING INTO CONSIDERATION THE ISSUE OF NON-ALLOWABILITY OF EXPENDITURE FROM THE ESTIMATED INCOME. BEING AGGRIEVED WITH THE ORDE R OF LD. CIT, ASSESSEE HAS PREFERRED THIS APPEAL RAISING AS MANY AS 10 GROUNDS BOTH ON THE JURISDICTIONAL ISSUE AS WELL AS ON MERI TS. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD. LD. ARS SUBMISSION PRECISELY, IS THE ISSUE OF EST IMATION OF PROFIT BEING SUBJECT MATTER OF APPEAL BEFORE LD. CIT(A) AN D HAVING BEEN CONSIDERED AND DECIDED BY LD. CIT(A), EXERCISE OF J URISDICTION U/S 263 IS CONTRARY TO THE STATUTORY MANDATE AS PROVIDED IN EXPLANATION (C) TO SECTION 263(1) OF THE ACT. LD. AR SUBMITTED, IN FAC T, WHILE CONSIDERING THE APPEALS PREFERRED BY ASSESSEE AS WELL AS REVENU E AGAINST THE ORDER OF LD. CIT(A), ITAT HAS REMITTED THE MATTER B ACK TO THE FILE OF AO WITH A DIRECTION TO EXAMINE ASSESSEES BOOKS OF ACCOUNT AND OTHER DOCUMENTS AND THEREAFTER DECIDE THE ISSUE. TH US, IT WAS SUBMITTED BY LD. AR, SINCE THERE IS NO ASSESSMENT O RDER IN EXISTENCE AS ON DATE BY VIRTUE OF THE ORDER OF ITAT, REVISION ORDER PASSED U/S 263 HAS NO LEGS TO STAND. 6. LD. DR, ON THE OTHER HAND, SUBMITTED BEFORE US, SINCE THE ISSUE RELATING TO ALLOWANCE OF EXPENDITURE ON INCOME ESTI MATED WAS NOT CONSIDERED AND DECIDED BY THE APPELLATE AUTHORITY, LD. CIT WAS WELL WITHIN HIS POWER TO EXERCISE JURISDICTION U/S 263. SHE FURTHER SUBMITTED, ASSESSMENT ORDER IS ERRONEOUS AND PREJUD ICIAL TO THE INTERESTS OF REVENUE DUE TO THE FACT THAT ONCE INCO ME IS ESTIMATED NO FURTHER ALLOWANCE OF EXPENDITURE CAN BE GIVEN. 7. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES , WE ARE UNABLE TO ACCEPT THE CONTENTION OF LD. DR. IT IS MA NIFEST FROM THE FACTS 5 ITA NO. 748 /HYD/2014 M/S TEJASWINI ENGINEERING PVT. LTD. AND MATERIALS ON RECORD, AO AFTER REJECTING THE BOO KS OF ACCOUNT ESTIMATED THE GROSS INCOME OF ASSESSEE FROM STEEL T RADING BUSINESS AND FROM SUCH ESTIMATED GROSS INCOME ALLOWED CERTAI N EXPENDITURE. ASSESSEE PREFERRED APPEAL AGAINST THE SAID ASSESSME NT ORDER BEFORE LD. CIT(A) BY SPECIFICALLY CHALLENGING THE REJECTIO N OF BOOKS OF ACCOUNT AND ESTIMATION OF GROSS INCOME AT 1%. LD. CIT(A) WH ILE DISPOSING OF THE APPEAL, THOUGH, UPHELD THE REJECTION OF BOOKS O F ACCOUNT, BUT, ESTIMATION OF GROSS INCOME WAS REDUCED FROM 1% TO 0 .7%. THUS, AS CAN BE SEEN FROM THE AFORESAID FACTS, ASSESSEE HAS NOT ONLY CHALLENGED THE REJECTION OF BOOKS OF ACCOUNT BUT AL SO ESTIMATION OF GROSS INCOME BEFORE LD. CIT(A). THEREFORE, ALL ISSU ES ANCILLARY AND INCIDENTAL TO THE ESTIMATION OF PROFIT ALSO BECAME SUBJECT MATTER OF APPEAL BEFORE LD. CIT(A). IN THAT VIEW OF THE MATTE R, CONTENTION OF LD. DR THAT ISSUE RELATING TO ALLOWANCE OF EXPENDITURE WAS NOT SUBJECT MATTER OF APPEAL BEFORE LD. CIT(A) IS NOT ACCEPTABL E. MOREOVER, AS CAN BE SEEN, WHILE DISPOSING OF APPEALS FILED BY ASSESS EE AS WELL AS DEPARTMENT, ITAT IN ORDER PASSED IN ITA NOS. 406 & 546/HYD/2014, DATED 11/03/2015 HAS SET ASIDE THE ORDER OF LD. CIT (A) AND REMITTED THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO EXAMINE THE BOOKS OF ACCOUNT AND OTHER DOCUMENTS OF ASSESSEE AND DECI DE THE ISSUE ACCORDINGLY. THUS, THE DIRECTIONS OF ITAT MAKE IT CLEAR THAT THE ENTIRE ISSUE IS OPEN BEFORE AO AS HE HAS BEEN DIRECTED TO MAKE A FRESH ASSESSMENT. IN THESE CIRCUMSTANCES, WHEN THE ASSESS MENT ORDER HAS BEEN RESTORED BACK BY ITAT TO THE FILE OF AO WITH A DIRECTION TO MAKE A FRESH ASSESSMENT AFTER EXAMINING THE BOOKS OF ACC OUNT, THE IMPUGNED ORDER OF LD. CIT HAS BECOME INFRUCTUOUS. A CCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT AND DIRECT AO TO COM PLETE THE ASSESSMENT AS PER THE DIRECTIONS OF ITAT IN ITA NOS . 406 & 546/HYD/2014, DT. 11/03/2015. 6 ITA NO. 748 /HYD/2014 M/S TEJASWINI ENGINEERING PVT. LTD. 8. IN THE RESULT, ASSESSEES APPEAL IS CONSIDERED T O BE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 8 TH MAY, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 8 TH MAY, 2015 KV COPY TO:- 1) M/S TEJASWINI ENGG. PVT. LTD., C/O. P. MURALI & CO, CAS., 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 500 082 2) CIT-II, HYDERABAD 3 ADDL. CIT, RANGE - 2, HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.