M/s Ramesh Metals, Vijayawada V. The CIT, Vijayawada, Vijayawada

ITA 81/VIZ/2012

• Counselvise Citation: 8125314 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 26-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Rejection of books of accounts; Opportunity of being heard; Difference of opinion; Assessment record; Change of opinion
• Section: 143(3); 263

Judgement Text

ITA NO.81/VIZAG/2012 RAMESH METALS, VIJAYAWADA IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 81 /VIZAG/ 2012 ASSESSMENT YEAR : 2007-08 RAMESH METEALS VIJAYAWADA VS. ACIT CIRCLE-2(1) VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO.AAJFR 7702F ASSESSEE BY: SHRI G.V.N. HARI, ADVOCATE REVENUE BY: SHRI K.V.N. CHARYA, CIT(DR) DATE OF HEARING : 09.07.2014 DATE OF PRONOUNCEMENT : 09.07.2014 ORDER PER BENCH:- THIS APPEAL OF THE ASSESSEE IS AGAINST THE ORDER D ATED 31.1.2012 PASSED BY THE CIT VIJAYAWADA U/S 263 OF THE INCOME-T AX ACT RELATING TO THE ASSESSMENT YEAR 2007-08. 2. BRIEFLY THE FACTS ARE, THE ASSESSEE, A PARTNERSH IP FIRM IS ENGAGED IN THE BUSINESS OF EXECUTING CIVIL CONTRACT WORK. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IT FILED ITS RETURN OF INCOME ON 24.1 0.2007 DECLARING TOTAL INCOME OF RS.1,38,26,000/-. DURING THE ASSESSMENT PROCEEDING, THE ASSESSING OFFICER AFTER EXAMINING THE BOOKS OF ACCO UNTS OF THE ASSESSEE FOUND VARIOUS DEFECTS AND DEFICIENCIES, HENCE, PROPOSED T O REJECT THE SAME AND ESTIMATE THE PROFIT. AS NOTED BY THE ASSESSING OFF ICER, SINCE THE ASSESSEE HAD NO OBJECTION TO SUCH REJECTION OF BOOKS OF ACCOUNTS , THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS AND PROCEEDED TO EST IMATE THE PROFIT FROM CONTRACT WORK. AS THE ASSESSEE HAS EXECUTED WORK A S A SUB CONTRACTOR, HE ESTIMATED THE NET PROFIT AT 6% AND THEREAFTER ALLOW ED DEDUCTION TOWARDS REMUNERATION TO THE PARTNERS. THE COMMISSIONER OF INCOME-TAX IN EXERCISE OF POWER CONFERRED U/S 263 OF THE ACT CALLED FOR TH E ASSESSMENT RECORDS PERTAINING TO THE ASSESSMENT YEAR UNDER CONSIDERATI ON AND AFTER EXAMINING ITA NO.81/VIZAG/2012 RAMESH METALS, VIJAYAWADA 2 IT WAS OF THE VIEW THAT THE ASSESSMENT ORDER PASSED IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGL Y, HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE PROPOSING TO REVISE THE ASSE SSMENT ORDER. THOUGH THE ASSESSEE OBJECTED TO SUCH ACTION, BUT REJECTING THE OBJECTIONS RAISED BY THE ASSESSEE, THE CIT HELD THAT THE ASSESSMENT ORDER PA SSED IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE AS THERE IS NO BASIS FOR ESTIMATION OF PROFIT AT 6% ON GROSS CONTRACT RECEIPTS. THE CIT W AS FURTHER OF THE VIEW THAT AFTER ESTIMATION OF PROFIT FURTHER DEDUCTION ON ACC OUNT OF REMUNERATION TO PARTNERS CANNOT BE ALLOWED IN VIEW OF THE DECISION OF THE HONBLE ANDHRA PRADESH HIGH COURT IN CASE OF INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776. ACCORDINGLY, THE CIT SET ASIDE THE ASSESSMENT ORDER WITH THE FOLLOWING DIRECTION. ON CONSIDERATION OF THE ABOVE JUDGEMENTS OF THE HO NBLE APEX COURT, JURISDICTIONAL HIGH COURT AND TRIBUNALS, THE ACTION OF THE ASSESSING OFFICER IN ESTIMATING PROFIT OF THE ASSESSEE @ 6% ON THE GROSS BILLS OF RS.30,78,57,529/-IS WITHOUT ANY BASIS AND THE AO HA S NOT CALLED FOR ANY MATERIAL IN SUPPORT OF HIS DECISION. THUS, THE ASS ESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE I.T. ACT, 19 61 DATED 15.7.2009 IS CANCELLED FOR THE REASONS MENTIONED ABOVE WITH A DI RECTION TO REDO THE SAME AFTER CONSIDERING THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF M/S. INDWELL CONSTRUCTIONS VS. CIT CITED SUPRA AND TO EST IMATE THE INCOME OF THE ASSESSEE AS THE AO THINKS FIT, AFTER GIVING THE ASS ESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 3. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. ON A PERUSAL OF THE ORDER OF THE CIT, IT IS TO BE SEEN THAT BASICALLY HE CONSIDERS THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE FOLL OWING TWO REASONS: 1. ESTIMATION OF PROFIT AT 6% IS WITHOUT ANY BASIS 2. REMUNERATION TO PARTNERS CANNOT BE ALLOWED FROM PRO FIT SO ESTIMATED. 4. HOWEVER, AS CAN BE SEEN FROM THE FINAL CONCLUSIO N OF THE CIT, HE HAS AGAIN LEFT IT TO THE DISCRETION OF THE ASSESSING OF FICER TO ESTIMATE THE PROFIT AS HE THINKS FIT. THIS SHOWS THAT THE CIT HIMSELF WAS NOT SURE OF THE RATE OF PROFIT TO BE ADOPTED. IN THE AFORESAID CIRCUMSTANCE S, THE EXERCISE OF POWER U/S 263 OF THE ACT IS MERELY ON A CHANGE OF OPINION AND NOT DUE TO THE FACT ITA NO.81/VIZAG/2012 RAMESH METALS, VIJAYAWADA 3 THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF REVENUE. WHEN THE ASSESSING OFFICER CONSIDERING TH E FACTS AND CIRCUMSTANCES OF THE CASE HAS APPLIED NET PROFIT RATE WHICH ACCOR DING TO HIM WAS APPROPRIATE, THE CIT CANNOT SUBSTITUTE THE SAME WIT H ANOTHER ESTIMATE OF HIS OWN. SO FAR AS THE ISSUE OF REMUNERATION PAYMENT T O PARTNER IS CONCERNED, LAW IS SQUARELY WELL SETTLED BY A NUMBER OF DECISIO NS OF THE ITAT HYDERABAD BENCH HOLDING THAT EVEN IN CASE OF ESTIMATION OF PR OFIT REMUNERATION AND INTEREST PAYMENT TO PARTNERS IS ALLOWABLE. CONSIDE RING THE AFORESAID FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE EXERC ISE OF POWER U/S 263 OF THE ACT IS INVALID AS THE ASSESSMENT ORDER CANNOT BE CO NSIDERED TO BE EITHER ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE . ACCORDINGLY, WE QUASH THE ORDER PASSED U/S 263 OF THE ACT. 5. IN THE RESULT, ASSESSEES APPEAL IS CONSIDERED TO BE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 9 TH JULY14 SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 9 TH JULY, 2014 COPY TO 1 M/S. RAMESH METALS, VIJAYAWADA 2 ACIT CIRCLE-2(1), VIJAYAWADA 3 THE CIT, VIJAYAWADA 4 THE CIT (A) , VIJAYAWADA 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM