Sri KV Ramakrishna Rao, Narsapur v. The DCIT, Central Circle-1, Rajahmundry

ITA 177/VIZ/2010 | 2005-2006
Pronouncement Date: 22-07-2010 | Result: Allowed

Appeal Details

RSA Number 17725314 RSA 2010
Assessee PAN AGXPK5879Q
Bench Visakhapatnam
Appeal Number ITA 177/VIZ/2010
Duration Of Justice 4 month(s) 11 day(s)
Appellant Sri KV Ramakrishna Rao, Narsapur
Respondent The DCIT, Central Circle-1, Rajahmundry
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 22-07-2010
Assessment Year 2005-2006
Appeal Filed On 12-03-2010
Judgment Text
ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NOS. 172 TO 178/VIZAG/2010 ASSESSMENT YEARS:2000-01 TO 2006-07 K.V. RAMAKRISHNA RAO NARSAPUR VS. DCIT CENTRAL CIRCLE-1 RAJAHMUNDRY (APPELLANT) PAN NO: AGXPK 5879 Q (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI CA RESPONDENT BY: SHRI SUBRATA SARKAR CIT(DR) ORDER PER BENCH: THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST T HE ORDER DATED 22- 2-2010 PASSED BY LEARNED CIT (CENTRAL) HYDERABAD A ND THEY RELATE TO THE ASSESSMENT YEAR 2000-01 TO 2006-07. IN THESE APPEA LS THE ASSESSEE IS QUESTIONING THE ACTION OF THE LEARNED CIT IN INITIA TING REVISION PROCEEDINGS U/S 263 OF THE ACT. 2. THE FACTS OF THE CASE ARE STATED IN BRIEF. THE R EVENUE CARRIED OUT SEARCH AND SEIZURE OPERATION IN THE HANDS OF THE AS SESSEE ON 31-1-2006. CONSEQUENT THERETO ASSESSMENTS U/S 153A OF THE ACT WAS COMPLETED FOR ASSESSMENT YEARS UNDER CONSIDERATION. THE ASSESSEE IS A CIVIL CONTRACTOR. THOUGH THE ENTIRE CONTRACT RECEIPTS WERE RECEIVED I N HIS INDIVIDUAL CAPACITY THE ASSESSEE WAS DECLARING THE SAID RECEIPTS IN THE HANDS OF VARIOUS PARTNERSHIP CONCERNS. DURING THE COURSE OF SEARCH P ROCEEDINGS THE ASSESSEE AGREED TO OFFER THE ENTIRE CONTRACT RECEIP TS IN HIS HANDS. THE ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 2 OF 8 ASSESSEE PREPARED NET WEALTH STATEMENT AT THE END O F EACH YEAR AND ACCORDINGLY OFFERED INCOME ON THE BASIS OF NET ACCR ETION TO NET WEALTH. HOWEVER DURING THE COURSE OF ASSESSMENT PROCEEDING S THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF THE ASSESS EE AND ESTIMATED INCOME AT 8% OF GROSS RECEIPTS CLEAR OFF DEPRECIATION INT EREST AND OTHER EXPENSES FOR ALL THESE YEARS. 3. THE LEARNED CIT INITIATED PROCEEDINGS U/S 263 OF THE ACT AS THE LEARNED CIT WAS OF THE VIEW THAT THE ASSESSING OFFI CER HAS COMMITTED SERIOUS MISTAKE WHILE COMPLETING THE ASSESSMENT BY NOT MAKING VERIFICATION OF FOLLOWING ISSUES: A) THE TRANSACTIONS IN TWO BANK ACCOUNTS BEARING NU MBERS SOD 1546 AND ABJ 24 MAINTAINED WITH ANDHRA BANK HAVE N OT BEEN TAKEN NOTE OF BY THE ASSESSING OFFICER. B) THE ASSESSING OFFICER DID NOT CONSIDER INVESTMEN TS MADE IN CHIT FUNDS WHICH WERE NOT DISCLOSED OR REFLECTED IN THE BOOKS OF ACCOUNT FOR THE PURPOSE OF MAKING ADDITIONS U/S 69A OF THE ACT. C) THE ASSESSING OFFICER HAS NOT TAKEN INTO ACCOUNT THE INFORMATION RELATING TO THE FAMILY MEMBERS EXPENDI TURE ON EDUCATION ETC. D) THE ASSESSEE HAS RECEIVED INTEREST FROM BANK DEP OSITS DURING THE ASSESSMENT YEAR 2005 06 AND 2006 07 AND THE SAME HAS NOT BEEN INCLUDED IN THE TAXABLE INCOME. SIMILA RLY INTEREST ACCRUED ON VARIOUS DEPOSITS HAS NOT BEEN C ONSIDERED. E) IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2005- 06 THE ASSESSEE HAS PURCHASED GOLD FOR A VALUE OF RS.2 75 160/- AND THE SAME HAS NOT BEEN DECLARED BY THE ASSESSEE. ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 3 OF 8 F) THE ASSESSEE HAS INCLUDED PURCHASE OF JEWELLERY HAVING A VALUE OF RS.14.00 LAKHS IN THE BALANCE SHEET RELEVA NT FOR THE ASSESSMENT YEAR 2006-07. THE ASSESSING OFFICER HAS NOT EXAMINED THE TAXABILITY OF THE SAID AMOUNT. THE ASSESSEE EXPLAINED BEFORE THE LEARNED CIT THAT THE ESTIMATE OF INCOME @ 8% OF THE CONTRACT RECEIPT WILL TAKE CARE OF ALL THE ISSUES RAISED BY THE LEARNED CIT AND SAID EXPLANATION WAS NOT ACCEPTED. THE ASSESSEE ALSO SUBMITTED THAT THE APPEALS HAVE BEEN FILED AGAINST THE ORDER OF THE ASSESSING OFFICER BEFORE LEARNED CIT(A) AND THE FIR ST APPELLATE AUTHORITY HAS ALREADY PASSED THE ORDER. HENCE THE IMPUGNED ASSESS MENT ORDERS GOT MERGED WITH THE APPELLATE ORDERS AND HENCE THE REVI SION PROCEEDINGS COULD NOT HAVE BEEN INITIATED BY LEARNED CIT. IT WAS ALSO BROUGHT TO THE NOTICE OF LEARNED CIT THAT THE HON'BLE ITAT VISAKHAPATNAM BEN CH HAS ALREADY ADJUDICATED THE CROSS APPEALS PREFERRED AGAINST THE ORDERS PASSED BY LEARNED CIT(A). HOWEVER THE LEARNED CIT REJECTED THE SUBMISSIONS MADE BY THE ASSESSEE AND PASSED ORDER U/S 263 OF THE ACT BY SETTING ASIDE THE ASSESSMENT ORDERS WITH A DIRECTION TO THE ASSESSING OFFICER TO EXAMINE THE VARIOUS ISSUES NOTICED BY HIM. AGGRIEVED BY THE OR DERS PASSED BY LEARNED CIT THE ASSESSEE HAS FILED THESE APPEALS BEFORE US . 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE RECORD. IT WAS BROUGHT TO OUR NOTICE BY LEARNED AUTHORISED REPRESE NTATIVE THAT THE VARIOUS ISSUES RAISED BY THE LEARNED CIT HAS ALREADY BEEN C ONSIDERED BY THE ASSESSING OFFICER BEFORE FINALIZING THE ASSESSMENT. IN SUPPORT OF HIS CONTENTIONS THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THE FOLLOWING: A) IN PAGE 6 OF THE ASSESSMENT ORDER THE ASSESSING OFF ICER HAS EXTRACTED THE DETAILS OF DEMAND DRAFTS PURCHASE D THROUGH THE BANK ACCOUNT BEARING NUMBERS ABJ 24 AND SOD 1546 MAINTAINED WITH ANDHRA BANK. THUS THE ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 4 OF 8 ASSESSING OFFICER HAS DULY CONSIDERED THE TRANSACTI ONS IN THESE TWO BANK ACCOUNTS. B) IN PAGE NO.7 OF THE ASSESSMENT ORDER THE ASSESSING O FFICER HAS EXTRACTED PAYMENT MADE TOWARDS CHIT FUND CONTRI BUTION THROUGH THE ABOVE SAID TWO BANK ACCOUNTS. THUS THE ASSESSING OFFICER HAS CONSIDERED THE CHIT FUND CONT RIBUTIONS ALSO. C) WITH REGARD TO THE FAMILY EXPENDITURE THE LEARNED AUTHORISED REPRESENTATIVE BY INVITING OUR ATTENTIO N TO PARA NO.7.3 OF THE ORDER PASSED BY THE LEARNED CIT (A) SUBMITTED THAT THE ASSESSEE HAD TWO CHILDREN AND ST AYS AS THE JOINT FAMILY ALONG WITH HIS BROTHERS HAVING COM MON KITCHEN WHICH FACT WAS TAKEN NOT OF BY LEARNED CIT (A). ACCORDINGLY THE LEARNED CIT (A) HELD THAT FAMILY EX PENSES COULD NOT BE VERY HIGH PARTICULARLY WHEN NO IMPORT ANT SOCIAL FUNCTIONS LIKE MARRIAGES HAVE TAKEN PLACE DU RING THE YEAR UNDER CONSIDERATION. ACCORDINGLY THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THIS ISSUE IS NOT SIGNIFICANT DURING THE YEARS UNDER CONSIDERATION. D) WITH REGARD TO THE INTEREST RECEIVED ON FIXED DEPOS ITS THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E INCOME ESTIMATED BY THE ASSESSING OFFICER ALSO INCL UDE THE SAID INTEREST INCOME AND HENCE NO SEPARATE ADDITION OF THE SAME IS WARRANTED. E) WITH REGARD TO THE PURCHASE OF GOLD AMOUNTING TO RS.2 75 160/- THE LEARNED AUTHORISED REPRESENTATIVE INVITED OUR ATTENTION TO LETTER DATED 22-10-2007 ISSUED BY THE ASSESSING OFFICER AND REPLY DATED 21-11-2007 WHICH ARE PLACED RESPECTIVELY AT PAGES 52 AND 55 OF THE PAPER BOOK ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 5 OF 8 COMPILED BY THE ASSESSEE. THUS LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER HAS RAISED A SPECIFIC QUERY ON THIS ISSUE AND THE ASSES SEE HAS REPLIED THAT THE SAID PURCHASE RELATE TO ANOTHER AS SESSEE NAMED K.V. RAM KUMAR. F) WITH REGARD TO THE INVESTMENT OF RS.14.00 LAKHS IN GOLD PURCHASE THE LEARNED AUTHORISED REPRESENTATIVE INVI TED OUR ATTENTION TO THE BALANCE SHEET AS ON 31-03-2006 WHI CH IS PLACED AT PAGE 12 OF THE PAPER BOOK COMPILATION. IT IS NOTICED THAT THE ASSESSEE HAS DISCLOSED THE SAID AM OUNT OF RS.14.00 LAKHS IN THE ASSET SIDE OF THE BALANCE SHE ET. THE ASSESSING OFFICER HAS CONSIDERED THE BALANCE SHEETS FILED BY THE ASSESSEE FOR VARIOUS YEARS BEFORE FINALIZING TH E ASSESSMENT. ACCORDINGLY THE LEARNED AUTHORISED REPRESENTATIVE S UBMITTED THAT THE ASSESSING OFFICER HAS CONSIDERED THE VARIOUS ISSUES RAISED BY THE LEARNED CIT AND FINALLY CHOSE TO REJECT THE BOOKS OF ACCOUN T AND MAKE AN ESTIMATE OF INCOME @ 8% OF THE GROSS CONTRACT RECEIPTS CLEAR OF ALL EXPENSES AND DEDUCTIONS. ACCORDINGLY THE LEARNED AUTHORISED REPR ESENTATIVE CONTENDED THAT SINCE THE INCOME SO DETERMINED BY THE ASSESSIN G OFFICER IS ONE OF THE LEGITIMATE WAYS OF DETERMINING THE INCOME THE IMPU GNED ASSESSMENT ORDERS COULD NOT BE TERMED AS ERRONEOUS WARRANTING REVISION U/S 263 OF THE ACT. 5. HOWEVER THE LEARNED DEPARTMENTAL REPRESENTATIVE DEFENDED THE ORDER OF THE LEARNED CIT BY STATING THAT THE ORDERS PASSED BY THE ASSESSING OFFICER ARE ERRONEOUS AS HE HAS FAILED TO DISCUSS V ARIOUS ISSUES RAISED BY THE LEARNED CIT. ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 6 OF 8 6. BEFORE PROCEEDING FURTHER WE FEEL IT PERTIN ENT TO DISCUSS ON THE LEGAL POSITION ON THE ISSUE OF SECTION 263 OF THE ACT. TH E HON'BLE BOMBAY HIGH COURT IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT ( 321 ITR 92) HAS DEALT WITH THE SCOPE OF PROVISIONS OF SECTION 263 AS UNDE R: SECTION 263 OF THE INCOME-TAX ACT 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD O F ANY PROCEEDINGS UNDER THE ACT AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEO US IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENU E TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER AN ENQUIR Y AS IS NECESSARY ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. TH E KEY WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORD ER MUST BE CONSIDERED BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. TH IS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JU DGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUS TRIAL CO. LTD. V. CIT [2000] 243 ITR 83 THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFIC ER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WI LL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORREC T ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF L AW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE O R WITHOUT APPLICATION OF MIND WOULD BE AN ORDER FALLING IN T HAT CATEGORY. THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE THE SUPREME COURT HELD IT IS OF WIDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMENT OF THE SUPREME COURT (HEA D NOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PA SSED BY THE ASSESSING OFFICER. EVERY LOSS OF REVENUE AS A CON SEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREA TED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR EXAMPLE WHEN AN INCOME-TAX OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 7 OF 8 REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE IN LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAINED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA LTD. [2007] 295 ITR 282. 7. AS POINTED OUT BY LEARNED AUTHORISED REPRESENTAT IVE WE NOTICE THAT THE ASSESSING OFFICER HAS CONSIDERED THE VARIOUS IS SUES WHICH HAVE BEEN POINTED OUT BY THE LEARNED CIT IN THE REVISION PROC EEDINGS BEFORE FINALIZING THE ASSESSMENT. AFTER CONSIDERING THE FACTS RELATIN G TO THE CASE THE ASSESSING OFFICER CHOSE TO REJECT THE BOOKS OF ACCO UNT AND ALSO THE INCOME DISCLOSED BY THE ASSESSEE. THE ASSESSING OFFICER FI NALLY DETERMINED THE INCOME OF THE ASSESSEE FOR EACH YEAR @ 8% OF THE GR OSS CONTRACT RECEIPTS OF THE RELEVANT YEAR CLEAR OF ALL DEDUCTIONS. MOR EOVER THE INCOME DETERMINED BY THE ASSESSING OFFICER WAS FAR MORE TH AN THE INCOME RETURNED BY THE ASSESSEE. WITH THE INCOME RETURNED BY THE AS SESSEE ALL THE INVESTMENTS MADE BY THE ASSESSEE COULD BE EXPLAINED BY HIM BY PREPARING A NET WEALTH STATEMENT. THUS WHEN THE VARIOUS INVE STMENTS MADE BY THE ASSESSEE COULD BE EXPLAINED BY HIM WITH THE INCOME DISCLOSED BY HIM THE INCOME DETERMINED BY THE ASSESSING OFFICER BEING IN EXCESS OF RETURNED INCOME IT COULD ONLY BE PRESUMED THAT THE ASSESSIN G OFFICER WAS OTHERWISE SATISFIED WITH THE NET WEALTH STATEMENT PREPARED BY THE ASSESSEE. IN ANY CASE IT CANNOT BE DENIED THAT THE METHOD OF ESTIMA TION OF INCOME ADOPTED BY THE ASSESSING OFFICER IS ONE OF THE RECOGNIZED M ETHODS OF DETERMINING THE INCOME AND THE SAID METHOD IS ALSO REGULARLY F OLLOWED BY THE REVENUE. WHEN THE ASSESSING OFFICER FOLLOWS ONE OF THE METHO DS AVAILABLE FOR DETERMINING THE INCOME THEN THE ORDERS OF THE ASS ESSING OFFICER CANNOT BE TERMED AS ERRONEOUS WARRANTING REVISION PROCEEDINGS U/S 263 OF THE ACT SIMPLY BECAUSE ALTERNATIVE METHODS OF DETERMINING I NCOME IS ALSO AVAILABLE. IN VIEW OF THE FOREGOING DISCUSSIONS WE ARE OF THE VIEW THAT THE REVISION ITA NO. 172 TO 178/VIZAG/2010 KV RAMAKRISHNA RAO NARSAPUR PAGE 8 OF 8 PROCEEDINGS INITIATED BY THE LEARNED CIT ARE NOT IN ACCORDANCE WITH THE LAW AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY T HE LEARNED CIT FOR THE YEARS UNDER CONSIDERATION. 8. THE ASSESSEE HAS ALSO RAISED CERTAIN LEGAL ISSUE S BY FILING A PETITION FOR ADMISSION OF TWO ADDITIONAL GROUNDS. SINCE WE H AVE ALREADY SET ASIDE THE ORDERS PASSED BY THE LEARNED CIT ON MERITS WE DO NOT FIND IT NECESSARY TO ADDRESS THE LEGAL ISSUES RAISED IN THE PETITION. 9. IN THE RESULT THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 22/07/2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:22 ND JULY 2010. COPY TO 1 SHRI K.V.RAMAKRISHNA RAO D.NO. 6-12-18 MAIN ROAD NARSAPUR WEST GODAVARI DISTT. 2 THE DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCL E-1 RAJAHMUNDRY 3 THE CIT CENTRAL HYDERABAD 4 THE ADDITIONAL COMMISSIONER OF INCOME TAX CENTRAL CIRCLE RAJAHMUNDRY 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM