Mr. K.N. Ramchandra, Panaji v. Asstt. Comm. Of Income Tax Ward 2(1), Panaji

ITA 47/PAN/2013 | 2009-2010
Pronouncement Date: 28-11-2014 | Result: Allowed

Appeal Details

RSA Number 4724114 RSA 2013
Assessee PAN ADAPN4702F
Bench Panaji
Appeal Number ITA 47/PAN/2013
Duration Of Justice 1 year(s) 8 month(s) 29 day(s)
Appellant Mr. K.N. Ramchandra, Panaji
Respondent Asstt. Comm. Of Income Tax Ward 2(1), Panaji
Appeal Type Income Tax Appeal
Pronouncement Date 28-11-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 28-11-2014
Date Of Final Hearing 07-08-2014
Next Hearing Date 07-08-2014
Assessment Year 2009-2010
Appeal Filed On 01-03-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH PANAJI BEFORE SHRI P. K. BANSAL HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA HONBLE JUDICIAL MEMBER ITA NO. 47/PNJ/2013 (ASSESSMENT YEAR - 2009 - 10) MR. K. N. RAMCHANDRA NAIDU PROP. M/S SHAKTI SALES CORPORATION BELGAUM BYPASS ROAD PONDA GOA. PAN: ADAPN4702F (APPELLANT) VS. THE COMMISSIONER OF INCOME TAX PANAJI. (RESPONDENT) APPELLANT BY : SHAM J. KAMAT C.A CHINMAY S. KAMAT C.A RESPONDENT BY : B. BARTHAKUR LD. DR. DATE OF HEARING : 07/08 /2014 DATE OF PRONOUNCEMENT : 28 /11/2014 O R D E R PER: D.T. GARASIA (JM) THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT - PANAJI DATED 12 TH DECEMBER 2012 FOR THE ASSESSMENT YEAR 2009 - 10 . 2. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE. CONSOLIDATED GROUNDS OF APPEAL TAKEN WITHOUT PREJUDICE TO ONE ANOTHER: 1. IN THE FACTS AND CIRCUMSTANCE OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX HAS NO JURISDICTION AND IS NOT ENTITLED UNDER SECTION 263 OF THE INCOME TAX ACT 1961 TO REVISE THE ORDER U/S 143(3) DATED 17/12/2012 PASSED BY THE LEARNED AO SPECIFICALLY ACCEPTING THE AUDITED BOOKS OF ACCOUNT AFTER APPROPRIATE INQUIRY. 2. IN THE FACTS AND CIRCUMSTANCE OF THE CASE THE COMMISSIONER OF IN COME - TAX IS NOT JU STIFIED IN HOLDING THAT THE ORDER OF THE ASSESSIN G OFFICER WAS ERRONEOUS AND PREJUDICIAL T O THE INTERESTS OF THE REVENUE. 3 THE COMMISSIONER OF INCOME - TAX HAD FAILED TO APPRECIATE THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IN THE ORDER UNDER REVISION WAS SUSTAINABLE IN LAW AND A PLAUSIBLE VIEW UNDER THE LAW AND THUS THE SAID ORDER CANNOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 2 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT 4. IN THE FACTS AND CIRCUMSTANCE OF THE CA SE THE LEARNED COMMISSIONER OF INCOME TAX HAS NO JURISDICTI ON AND IS NOT ENTITLED UNDER SEC TION 263 OF THE INCOME TAX ACT 1961 TO REVISE AS ERRONEO US OR PREJUDICIAL TO THE INTEREST OF REVENUE THE ORDER U/S 143(3) DATED 17/12/2012 PASSED AFTER INQUIRY WITHOUT THE LEARNED COMMISSIONER OF INCOME TAX HIMSELF EMBARKING ON ANY FURTHER INQUIRY. 5 THE IMPUGNED ORDER OF THE LEARNED COMMISSIONER OF INCOME T AX IS OPPOSED TO LAW AND FACTS OF THE CASE. 3. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SCRAP DEALER. DURING THE ASSESSMENT PROCEEDING THE ASSESSEE WAS ASKED TO FILE THE RECONCILIATION STATEMENT FOR THE INCOME DISCLOSE DURING THE SURVEY PRO CEEDINGS U/S. 133A AND THEIR LEDGER EXTRACT FOR MONTH WISE SALES. THE AR PRODUCE THE LEDGER EXTRACT OF THE MONTH WISE SALE. IN HIS RECONCILIATION STATEMENT A.R. HAS SHOWN THAT INCOME OF RS. 78 57 000/ - (RS. 25 00 000/ - TOWARDS CLOSING STOCK AND RS. 53 57 000/ - TOWARDS HOTEL & FACTORY) DECLARED DURING THE SURVEY HAS BEEN OFFERED FOR TAXATION. THE SAME WAS REFLECTED IN THE P&L A/C FOR THE YEAR ENDED 31.03.2009 AS ADDITIONAL INCOME U/S. 132(4) WHICH IS PL ACED ON RECORD. THE BOOKS OF ACCOUNT AS AUDITED BY THE C.A. WERE VERIFIED AND FOUND TO BE CORRECT ON TEST CHECK BASIS. WHILE VERIFYING THE PROFIT AND LOSS ACCOUNT IT WAS NOTICED THAT NET PROFIT SHOWN BY THE ASSESSEE WAS ONLY 5% AFTER CONSIDERING THE CLOSI NG STOCK DECLARED DURING THE SURVEY SEPARATELY. THE ASSESSEE A SCRAP DEALER THEREFORE ASSESSEE HAS TO INCUR MAJOR EXPENSES OF PURCHASES. THE AR WAS AGREED FOR NET PROFIT @ 6.5% WHICH WORKS OUT RS. 10 00 000/ - OVER AND ABOVE THE AMOUNT DECLARED DURING THE SURVEY. 3.1 THE COMMISSIONER OF INCOME TAX U/S. 263 OF THE INCOME TAX HAS PERUSED THE ASSESSMENT ORDER AND HE WAS OF THE VIEW THAT DURING THE YEAR UNDER CONSIDERATION THERE WAS SURVEY WAS CARRIED OUT ON 22.2.2009 AND THEREAFTER REGULAR ASSESSMENT WAS MAD E U/S. 143(3) ON 25.11.2011. ON VERIFICATION OF THE BOOKS OF ACCOUNTS IT WAS SEEN THAT THERE WAS A DIFFERENCE IN DECLARATION OF STOCK BY THE ASSESSEE AND THE STOCK AVAILABLE IN BOOKS. HENCE THE ASSESSMENT ORDER PASSED IS ERRONEOUS IN AS MUCH AS THERE HAS BEEN UNDER ASSESSMENT OF INCOME. 3 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT THE ASSESSMENT WAS FOUND TO BE PRIMA FACIE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF THIS THE NOTICE U/S. 263 DATED 16.10.2012 WAS GIVEN WHICH IS REPRODUCED AS UNDER : MONTH OPENING STOCK PURCHASES GROSS SALES SALES EXCLUDING GROSS PROFIT @ 10% CLOSING STOCK 1 2 3 4 5 6 APRIL 3320970 1254411 5588399 5029559.10 - 454178.10 MAY 0 2273403 9494560 8545104 - 6271701 JUNE 0 2062998 9413325 8471992.50 - 6408994.50 JULY 0 9551233 8992546 8093291.40 1457941.60 AUGUST 1457941.60 4976723 9852278 8867050.20 - 2432385.60 SEPTEMBE R 0 5166400 4099280 3689352 1477048 OCTOBER 1477048 9315126 2878097 2590287.30 8201886.70 NOVEMBER 8201886.70 5231632 399689 359720.10 13073798.60 DECEMBER 13073798.60 3833558 2300316 2070284.40 14837072.20 JANUARY 14837072.20 4079419 2109267 1898340.30 17018150.90 FEBRUARY 17018150.90 2249070 1760310 1584279 17682941.90 MARCH 17682941.90 2839307 5678332 5110498.80 15411750.10 AFTER HEARING THE ASSESSEE THE COMMISSIONER WAS OF THE VIEW THAT THE ORDER PASSED BY THE ASSESSEE IS PREJUDICIAL TO THE INTEREST OF REVENUE THEREFORE HE HAS RESTORED THE ASSESSMENT FOR 2009 - 10 PASSED BY AO AND RESTORE TO THE ISSUE AO FOR PASSING THE FRESH ORDER AFTER EXAMINING THE RELEVANT FACTS A ND GIVE ADEQUATE OPPORTUNITY OF ASSESSEE BEING HEARD. THE AO WAS DIRECTED TO VERIFY THE STOCK REGISTER BOOKS OF ACCOUNT AND HE WAS DIRECTED TO PASS A FRESH ORDER. AGAINST THIS ORDER THE ASSESSEE HAS COME UP BEFORE TRIBUNAL. 4. THE ASSESSEE HAS ARGUED THE MATTER AS WELL AS FILED THE WRITTEN SUBMISSION WHICH READ AS UNDER: THE AR SUBMITTED THAT THE CIT HIMSELF WAS IN ERROR FOR HAVING ESTIMATED THE STOCK BY EXTRAPOLATION THAT TOO ON THE BASIS OF LAST YEARS GP AT 10% WHILE THIS FULL YEARS OVERALL GP WAS 14.69% ON THE BASIS OF AUDITED BOOKS WHICH WERE DULY VERIFIED AND ACCEPTED BY THE AO. HE CHALLENGED THE CORRECTNESS OF THE CITS ACTION OF 4 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT ESTIMATING STOCK WHILE THE STOCK DECLARED BY THE ASSESSEE WAS AS PER THE BOOKS OF ACCOUNT AND ALSO AS PER PHYSICAL ST OCK FOUND DURING SURVEY. HE SUBMITTED THAT THE REVENUE IS GENERALLY FOUND OBSESSED WITH A FALLACIOUS NOTION THAT THE CLOSING STOCK WORKED BACKWARDS AS IS DONE BY THE CIT IS THE STOCK AS PER BOOKS. HE SUBMITTED THAT THE STOCK WORKED BACKWARDS IN THIS MAN NER IS AT BEST ESTIMATED STOCK AND CANNOT BE ADOPTED FOR COMPUTATION OF INCOME TAX UNLESS THE BOOK STOCK OR THE PHYSICAL STOCK IS NOT AVAILABLE AND THE BOOK RESULTS ARE REJECTED. HE SUBMITTED THAT IN THIS CASE THE PHYSICAL STOCK AS ON 20/2/2009 WAS TAKEN BY THE AO HIMSELF WHICH IS AVAILABLE ON RECORD. ALSO THE BOOK STOCK AS PER ACCOUNTS AT PAPER BOOK 21 WITH COMPLETE RECORD OF PURCHASES AND SALES FROM THE DATE OF SURVEY 20/2/09 TO 31/3/09 IS AVAILABLE. HENCE THE AO WAS CORRECT IN ACCEPTING THE STOCK AS P ER THE ACCOUNTS OF THE ASSESSEE AND IN NOT MAKING AN ESTIMATE. HE SUBMITTED THAT AS PER THE WORLD INDUSTRY TRENDS DUE TO PRESSURE ON STEEL PRICES ON ACCOUNT OF OLYMPICS IN CHINA THE PRICES OF SCRAP STEEL HAD GONE UP SKYROCKETING DURING THE FIRST FIVE M ONTHS OF AY 2009/10 BY ABOUT 60% AND HAD FALLEN DRASTICALLY DURING THE LAST SEVEN MONTHS BY ABOUT 75%. THE GP OF THE ASSESSEE HAD ALSO FLUCTUATED WIDELY WHICH WAS BOUND TO HAPPEN. IN TERMS OF EXACT FIGURES OF SALES AND PURCHASES AS PER THE CHART MADE BY T HE CIT DURING THE FIRST FIVE MONTHS THE OVERALL GP RATIO OF THE APPELLANT WAS 46% THE SALES BEING RS. 43341108/ - TO A COST OF APPROXIMATELY RS. 23439738/ - AS THE STOCK WAS ALMOST NIL. HOWEVER DURING THE LAST SEVEN MONTHS BASED ON THE SAME CHART THE SAL ES WERE RS. 19225291/ - TO A COST OF RS. 29937912/ - (AFTER CLOSING STOCK OF S.2776600/ - ) BEING A GROSS LOSS ON COST OF 36%. THIS VARIATION IN GROSS PROFIT IS AS PER THE INDUSTRY TREND AND THUS THE FOUNDATION OF THE CITS CONTENTION THAT THE STOCK HAS TO BE EXTRAPOLATED AT A FIXED GP OF 10% FOR ALL THE MONTHS IS ITSELF WRONG. THEREFORE THE CIT WAS WRONG IN ADOPTING A FIXED PERCENTAGE FOR ALL THE 12 MONTHS WHILE COMING TO A FALLACIOUS FINDING THAT THE ORDER U/S 143(3) WAS ERRONEOUS FOR THE AOS NOT HAVING M ADE ESTIMATE OF MONTHLY STOCKS BY WORKING BACKWARDS ON THE BASIS OF A FIXED GP OF 10%. THE AR ALSO SUBMITTED THAT IT IS ON RECORD THAT ACTUAL PHYSICAL STOCK TAKEN ON 20/2/2009 WAS ONLY RS. 2750220/ - WHICH WAS THE ACTUAL STOCK AND THE CIT HIMSELF WAS IN ERROR FOR ESTIMATING THE STOCK IN THE SAME MONTH OF FEBRUARY AS RS. 17682942/ - . SIMILARLY AS ON 31/3/2009 THE PHYSICAL STOCK AS PER LIST OF INVENTORY WITH THE ADDITIONAL STOCK WAS ONLY RS. 27 76 600/ - WHILE THE CIT ESTIMATED THE SAME AT RS. 1 54 11 750/ - . HE SUBMITTED THAT WHEN ACTUAL PHYSICAL STOCK TAKEN BY THE DEPARTMENT DURING SURVEY IN FEBRUARY WAS AVAILABLE THERE IS NO SCOPE FOR IGNORING THE ACTUAL STOCK AND ESTIMATING STOCK TO A ASTRONOMICAL FIGURE FOR COMING TO A CONCLUSION THAT THE ASSESSMENT ORD ER IS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. THE AR TOOK US THROUGH THE ORDER OF THE CIT AND SUBMITTED THAT THE ONLY POINT ON THE BASIS OF WHICH THE CIT HAD HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REV ENUE IS THAT IN THE OPINION OF THE CIT THE AO HAD 5 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT FAILED TO RESORT TO ESTIMATING CLOSING STOCK AND INCOME BY EXTRAPOLATION BASED ON MONTHLY PURCHASES AND SALES ADOPTING A FIXED GP RATIO OF THE EARLIER YEAR. HE THUS SUBMITTED THAT THE ONLY ISSUE INVOLVE D IS WHETHER THERE WAS ANY ERROR IN THE AOS ORDER FOR NOT HAVING RESORTED TO ESTIMATE WHICH IN THE OPINION OF THE CIT WAS REQUIRED. THE AR STATED THAT IN THE CIRCUMSTANCE OF THE CASE IT WAS NEITHER REQUIRED NOR POSSIBLE NOR PERMISSIBLE FOR THE AO TO R ESORT TO ESTIMATE. HENCE THE AO WAS NOT REQUIRED AND DID NOT ATTEMPT ESTIMATION BY BACKWARD WORKING AS CONTEMPLATED BY THE CIT. THIS ABSTINENCE BY THE AO IS A MANDATE OF LAW AND NOT AN ERROR. THE AR BROUGHT TO OUR NOTICE BY RELYING ON ACIT VS RAVI AGR ICULTURAL INDUSTRIES 117 ITD 338 AGRA THAT THE CALCULATION OF CLOSING STOCK MADE BY THE CIT IN THE 263 ORDER IS ONLY ESTIMATE BY EXTRAPOLATION. HE SUBMITTED THAT IT IS A KNOWN PROPOSITION THAT IN THE TRADING ACCOUNT THE OPENING STOCK PURCHASES SALES AND CLOSING STOCK ARE INDEPENDENT VARIABLES AND THE GP IS THE RESULTANT BALANCING FIGURE OR DEPENDENT VARIABLE. ONLY WHEN THE BOOKS ARE NOT CORRECT OR COMPLETE AND ARE REJECTED A SITUATION COULD ARISE FOR RESORTING TO ESTIMATING GP AND WORKING OUT CLOSING STOCK BACKWARDS AS DEPENDENT VARIABLE. FOR THIS PROPOSITION HE REFERRED TO OBSERVATIONS IN MALANI RANJIVAN JAGANNATH V/S ACIT 316 ITR 120 RAJ THE AR WENT THROUGH THE ASSESSMENT ORDER AND REFERRING TO THE PARA 4 THEREOF SHOWED THAT THE BOOKS OF ACCOUNT AS AUDITED BY THE CA WERE VERIFIED BY THE AO. THE AR BROUGHT TO OUR NOTICE THAT THE BOOKS WERE NOT REJECTED BY THE AO; BUT ON THE OTHER HAND THE BOO KS WERE SPECIFICALLY FOUND TO BE CORRECT BY THE AO. ON THIS BASIS THE AR ARGUED THAT HAVING ONCE ACCEPTED THE BOOKS THE AO WAS PRECLUDED FROM MAKING ANY ESTIMATE OF INCOME OR CLOSING STOCK. FOR THIS PROPOSITION HE RELIED ON FOLLOWING CASE LAWS: 1 UTKAL ST EELS LTD VS DCIT 82 ITD 120 CTK AS CONFIRMED BY ORISSA HIGH COURT IN CIT V/S UTKAL ALLOYS LTD 319 ITR 339 ORI 2 YOG RAJ SONI V/S ACIT 108 TTJ 912 DEL 3 ACIT V/S INTERMEDIA CABLE COMMUNICATION PVT LTD 145 TTJ 476 PUNE 4 DCIT V/S BHATINDA CHEMICALS LTD 1 SOT 36 A SR THE AR ALSO ARGUED THAT IT IS ALSO NOT POSSIBLE TO UPHOLD THE CITS ORDER ON THE BASIS OF LACK OF INQUIRY BY THE AO. HE SUBMITTED THAT THE NECESSARY INQUIRY WAS DULY CARRIED OUT BY THE AO BY OBTAINING THE DETAILS OF PURCHASES AND SALES. HOWEVER THE AO DID NOT RESORT TO ESTIMATE BECAUSE IT IS NOT PERMISSIBLE TO REJECT THE BOOKS ON THE BASIS OF ESTIMATE. HE RELIED ON FOLLOWING CASE LAWS: 1 ITO V/S DR V K BANSAL 2 SOT 844 CHD 6 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT 2 GOODLUCK AUTOMOBILES PVT LTD V/S ACIT 254 CTR 1 GUJ 3 ACIT V/S INTERMEDIA CABLE COMMU NICATION PVT LTD 145 TTJ 476 PUNE THE AR SUBMITTED THAT ESTIMATE CANNOT FORM THE BASIS OF REJECTION OF BOOKS THUS IT IS NOT POSSIBLE FOR THE CIT TO CONSIDER THE AOS ORDER AS ERRONEOUS OR PREJUDICIAL ON THIS BASIS AS WELL. HE RELIED ON THE FOLLOWING CAS E LAWS: 1 ASSOCIATED PETROLEUM CORPORATION V/S DCIT 44 SOT 45 AHD 2 ACIT V/S SHIV AGREVO LTD 123 TTJ 416 JP 3 MALANI RANJIVAN JAGANNATH V/S ACIT 316 ITR 120 RAJ THE AR SUBMITTED THAT IN A HYPOTHETICAL CASE IF THE AO HIMSELF AFTER SPECIFICALLY EXAMINING AND ACCEPTING THE BOOKS OF ACCOUNT AND WITHOUT REJECTING THE SAME HAD RESORTED TO ESTIMATING CLOSING STOCK; THIS HIGHER AUTHORITY WOULD HAVE FOUND FAULT WITH THE AOS ACTION; AS HAS BEEN DONE IN PLETHORA OF CASES. HENCE THE CIT IS NOT ENTITLED TO FIND FAULT W ITH THE AOS ORDER SIMPLY BECAUSE THE AO DID NOT RESORT TO ESTIMATE AFTER ACCEPTING THE BOOKS. THE AR SUBMITTED THAT THE AO HAD OBTAINED EXAMINED AND GONE THROUGH ALL THE NECESSARY EVIDENCE; WHICH INCLUDED THE AUDITED BOOKS OF ACCOUNT VOUCHERS AND VARI OUS OTHER DETAILS. HE STATED THAT THE CITS CASE CANNOT BE THAT THERE WAS NO INQUIRY BUT ONLY THAT IN THE OPINION OF CIT THERE WAS NO SUFFICIENT INQUIRY. THE CIT IS NOT ENTITLED TO SET ASIDE THE ORDER AS ERRONEOUS ON THE COUNT OF INSUFFICIENCY OF INQUIRY UNLESS THE CIT HIMSELF UNDERTAKES FURTHER INQUIRY AS HELD IN DIRECTOR OF INCOME TAX VS. JYOTI FOUNDATION (2013) 357 ITR 388 (DELHI) AND INCOME TAX OFFICER VS. DG HOUSING PROJECTS LTD. (2012) 343 ITR 329 (DELHI) . HE SUBMITTED THAT THERE IS A CLEAR DISTI NCTION BETWEEN LACK OF INQUIRY AND INSUFFICIENT INQUIRY. IF THE CIT IS OF THE OPINION THAT THE ORDER IS ERRONEOUS FOR INSUFFICIENT INQUIRY AS DISTINGUISHED FROM A LACK OF INQUIRY HE HAS TO MAKE FURTHER INQUIRY HIMSELF. THUS IN THIS CASE THE CIT WAS NOT E MPOWERED TO REMIT THE MATTER TO THE AO FOR A FRESH DECISION WITHOUT MAKING FURTHER INQUIRY HIMSELF WHICH IN THIS CASE WOULD HAVE BEEN TO GO THROUGH THE BOOKS OF ACCOUNT HIMSELF AND FIND IF THEY CONTAINED ANY DEFECT SO AS TO REJECT THE BOOKS AND RESORT TO ESTIMATE. THE AR SUBMITTED THAT THE INVOCATION OF THE SECTION 68 BY THE CIT IS OUT OF LACK OF APPLICATION OF MIND. SECTION 68 IS MEANT FOR TAXING UNEXPLAINED CASH CREDITS WHICH IS NOT THE CASE. FURTHER SECTION 68 DOES NOT CONTEMPLATE TAXING ESTIMATED CA SH CREDITS BUT ACTUAL CASH CREDITS FOUND IF ANY. THUS THE ORDER OF THE CIT CANNOT BE UPHELD ON THIS COUNT AS WELL. THE AR FINALLY CONCLUDED BY SUBMITTING THAT THE 143(3) ORDER CANNOT BE DEEMED TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF REVENUE S IMPLY BECAUSE THE AO DID NOT DISCUSS THE ABOVE ISSUE MORE ELABORATELY. HE RELIED ON THE FOLLOWING CASE LAWS: 7 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT 1 JET ELECTRONICS V/S ACIT 116 TTJ 225 AHD 2 WESTERN COALFEILDS LTD V/S ACIT 123 TTJ 659 NAG THE AR THUS SUBMITTED THAT THERE WAS NO ERROR IN THE ASSE SSMENT ORDER AND THE CIT IS NOT ENTITLED TO HOLD THAT THE ORDER IS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. ON MERITS THE AR STATED THAT THE GP RATIO OF THE ASSESSEE HAS FLUCTUATED WIDELY DURING THE YEAR IN HARMONY WITH THE INTERNATIONAL SCRAP PRICES WHICH FLUCTUATED TREMENDOUSLY AND THERE IS NO SCOPE FOR ADOPTING A FIXED PERCENTAGE OF GP FOR ESTIMATION. 5 . ON THE OTHER HAND LEARNED DR RELIED UPON THE ORDER OF COMMISSIONER. 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION AND PERUSE D THE MATERIAL PLACED BEFORE US ALONG WITH CASE LAWS AND ORDER OF CIT U/S. 263. WE ARE OF THE VIEW THAT IN ORDER TO INVOKING THE PROVISIONS OF SECTION 263. BOTH THE CONDITIONS THAT ORDER PASSED BY AO IS ERRONEOUS AND IT IS PREJUDICE TO THE INTEREST OF REVE NUE MUST BE SATISFIED. IF ONE OF THEM IS ABSENT IT MAY BE HELD THAT PROVISIONS OF SECTION 263 WERE NOT LAWFULLY INVOKED. THE TERM ERRONEOUS HAS NOT BEEN DEFINED IN IT ACT BUT IT IS WELL SETTLED THAT EACH AND EVERY TYPE OF MISTAKE FOR ERROR COMMITTED BY A O CANNOT BE SAID TO BE ERRONEOUS IF THERE IS INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF LAW IN THE ORDER BY AO. IF THE AO AFTER MAKING THE INQUIRY AN EXAMINING THE RECORD TAKEN ONE OF THE POSSIBLE VIEW IT CANNOT BE SAID THAT THE O RDER PAS SED BY AO WAS ERRONEOUS T HE RECORD OF EVIDENCE PRODUCED BEFORE US . D URING THE COURSE OF HEARING IT CLEARLY REFLECT THAT INQUIRY IN THE IMPUGNED CASE HAS BEEN CARRIED OUT BY AO ON BOTH RELATING ISSUES OF GP A S WELL AS THE PICK CLOSING STOCK. 6 .1 THE AO HAS DISCUSSED THE INQUIRY CARRIED AND IT HAS ALSO MENTIONED IN THE ASSESSMENT ORDER. WE FIND THAT THE AO HAS MADE AN INQUIRY AND ASSESSEE HAS REPLIED ALL QUERIES RAISED BY THE AO. WE FIND THAT HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. GABRIEL IND IA 114 CTR 81(BOM) HAS HELD THAT THE ITO IN THIS REGAR D HAD MADE AN INQUIRY IN REGARD TO THE NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAIL ED EXPLANATION IN T HIS REGARD BY LETTER 8 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT IN WRITING THEY WERE PART OF THE RECORDS OF T HE CASE. EVIDENTLY THE CLAIM WAS ALLOWED BY ITO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. THIS DECISION OF ITO CANNOT BE HELD TO BE ERRONEOUSLY SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE ELABORATE DISCUSS IN THIS REGARD. MOREOVER IN THI S INSTANT CASE THE CIT HIMSELF EVEN AFTER INITIATING THE PROCEEDING S FOR REVISION AND HEARING THE ASSESSEE WOULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ERRONEOUS AND THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT EXP ENDITURE WAS CAP ITAL NATURE. HE SIMPLY ASKED THE ITO TO RE - EXAMINE THE MATTER . T HAT WAS NOT PERMISSIBLE. THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE THE ORDER PASSED BY THE CIT U/S. 263. 6 .2 THE ASSESSEE HAS MAINTAINED CORRECT AND COMPLETE ACCOUNT WHICH WAS ACCEPTED BY AO ALSO THE PHYSICAL STOCK WAS TAKEN BY AO ON 20/02/2009. DURIN G THE SURVEY PROCEEDING THE AO HAS BENEFIT OF KNOWLEDGE OF ACTUAL QUANTITY OF STOCK FROM BOTH THE BOOKS AS WELL AS PHYSICALLY. HENCE THE AS SESSMENT U/S. 143 WAS COMPETED ACCEPTING THE BOOKS RE SULT. WE FIND THAT HAVING DONE SO THERE WAS NO SCOPE FOR AO TO DO THE CONCLUSION OF CLOSING STOCK ON ESTIMATED BASIS BY EXTRAPOLATED AT A FIXED GP OF 10% FOR ALL THE MONTH. HENCE NO FAULT CAN BE FOUND WITH THE AO S ORDER FOR NOT HAVING RESTORED TO ESTIMATE AND ORDER U/S. 143 CANNOT BE TERMED AS ERRONEOUS. SIMILARLY THE ISSUE HAD COME UP IN THE CASE OF COMMISSIONER OF INCOME TAX VS. DR. V.K. BANSAL (2004) SOT 844 WHERE ONE OF US WAS THE AUTHOR OF THE JUDGMENT AND IT WAS LAID DOWN THAT QUESTION OF ESTIMATE CAN ARISE ONLY WHEN THE BOOKS ARE REJECTED AND NOT OTHERWISE. 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD WE HAVE ALSO GONE THROUGH THE ORDER OF THE AO AS WELL AS OF THE CIT(A). WE FIND THAT THE AO HAS GIVEN CLEAR FINDING S IN HIS ASSESSMENT ORDER AT PARA 2 THAT THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT CONSISTING OF CASH BOOK LEDGER ETC. WHICH WERE TEST CHECKED. THE INFORMATION/EVIDENCE REGARDING THE VARIOUS CASH 9 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT CREDITS INTRODUCED BY THE ASSESSEE AS WELL AS THE DETAILS OF EXPENDITURE DEBITED IN P&L A/C FURNISHED BY THE ASSESSEE HAVE BEEN EXAMINED. THE AO DID NOT REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE BUT MADE ADDITION MERELY BY RELYING ON THE DEPARTMENTAL VALUATION REPORT WHICH ONLY GIVES THE ESTIMATED COST OF CONST RUCTION AND NOT THE ACTUAL COST OF CONSTRUCTION INCURRED BY THE ASSESSEE. IN ABSENCE OF REJECTION OF BOOKS OF ACCOUNT IN OUR OPINION THE AO IS NOT AUTHORISED TO REJECT THE COST OF CONSTRUCTION SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT. WE THEREFORE IN THE ABSENCE OF REJECTION OF BOOKS OF ACCOUNT BY THE AO ALLOW THE APPEAL OF THE ASSESSEE AND DELETE THE ADDITION MADE BY THE AO ON THE BASIS OF DEPARTMENTAL VALUATION REPORT. 6.4. IN THE CASE OF COMMISSIONER OF INCOME TAX VS. UTKAL ALLOYS LTD. (200 9) 319 ITR 339 WHEREIN IT HAS HELD THAT A DMITTEDLY IN COURSE OF SEARCH THE SEARCH PARTY DID NOT FIND ANY INCRIMINATING DOCUMENT OR DUPLICATE BOOKS OF ACCOUNT INVOLVING THE RESPONDENT - ASSESSEE IN ANY CLANDESTINE BUSINESS ACTIVITY LIKE EFFECTING ANY SALE OR P URCHASE OUTSIDE THE REGULAR BOOKS OF ACCOUNTS ON THE BASIS OF WHICH RETURNS WERE FILED. THE DEPARTMENT COULD NOT FIND OUT ANY OMISSION OF IMPORTANT PURCHASE/SALE FROM THE ASSESSEES BOOKS OF ACCOUNT OR ANY ENTRY IN THE BOOKS OF ACCOUNT NOT SUPPORTED BY VOU CHER. THE ADDITION HAS BEEN MADE ON THE BASIS OF DISCREPANCY WORKED OUT ON ESTIMATION OF THE STOCK. 6.5. IN VIJAYA TRADERS CASE (SUPRA) THE QUESTION BEFORE THE MYSORE HIGH COURT WAS WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE ITO COULD ACT ON THE PROVISO TO S. 13 OF THE IT ACT 1922 FOR COMPLETING THE ASSESSMENT FOR THE ASST. YR. 1961 - 62 AND ON THE PROVISO TO SUB - S. (1) OF S. 145 OF THE IT ACT 1961 FOR COMPLETING THE ASSESSMENT FOR THE ASST. YR. 1962 - 63. THE HIGH COURT HELD THAT THE TRIBU NAL WAS NOT RIGHT IN LAW IN HOLDING THAT THE ITO COULD ACT ON THE PROVISO TO S. 13 OF THE ACT OF 1922 OR THE PROVISO TO S. 145(1) OF THE ACT OF 1961 FOR COMPLETING THE ASSESSMENTS AS THE ACCURACY OF THE ACCOUNTS HAD NOT BEEN 10 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT DOUBTED AND THE TRIBUNAL DID NOT ALSO FIND THAT THE MANNER IN WHICH THE ASSESSEE MAINTAINED HIS ACCOUNTS DID NOT ENABLE A PROPER DETERMINATION OF HIS INCOME. SO LONG AS IT IS NOT IMPOSSIBLE TO DEDUCE THE TRUE INCOME FROM THE ACCOUNTS ITS COMPUTATION COULD NOT BE MADE IN ANY OTHER WAY . 6.6. THE DELHI HIGH COURT IN CIT VS. BALAJI WIRE (P) LTD. (2007) 212 CTR (DEL) 35 : (2008) 304 ITR 393 (DEL) HELD THAT OF COURSE THE BEST METHOD OF DETERMINING THE NUMBER OF BUNDLES AND THEIR AVERAGE WEIGHT WOULD BE TO ACTUALLY COUNT THE BUNDLES AND USE MACHINES/CRANES FOR WEIGHING EACH BUNDLE. THIS IS NO DOUBT A TEDIOUS EXERCISE BUT WHERE A LIABILITY IS SOUGHT TO BE FOISTED UPON AN ASSESSEE THE REVENUE HAS TO BE A LITTLE MORE SERIOUS WHILE EXERCISING POWERS CONFERRED UPON IT UNDER THE ACT. MERE GUESSWO RK OR AN ESTIMATE CANNOT BE AN ADEQUATE SUBSTITUTE FOR A SCIENTIFIC INVESTIGATION OR CARRYING OUT SOME EMPIRICAL STUDY. THE OFFICERS WHO CONDUCTED THE SEARCH DID NOT WANT TO TAKE THE NECESSARY TROUBLE WHICH OF COURSE WOULD HAVE BEEN TIME CONSUMING BUT T HE IMPACT OF MAKING A GUESS TIME CAN BE QUITE DAMAGING INSOFAR AS THE ASSESSEE IS CONCERNED. THE ASSESSEE CANNOT BE MADE TO SUFFER THE CONSEQUENCES OF LETHARGY ON THE PART OF THE OFFICERS OF THE REVENUE. THE PROCEDURE OF ASSESSMENT IS QUASI JUDICIAL IN NAT URE AND IN MAKING THE ASSESSMENT THE AO MUST OBSERVE THE JUDICIAL PRINCIPLES. ACCOUNTS REGULARLY MAINTAINED IN COURSE OF BUSINESS HAVE TO BE RELIED UPON UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO DISBELIEVE THEM. NEEDLESS TO SAY THAT DISCREPANCY WOR KED OUT ON THE BASIS OF ESTIMATION OF QUANTITY AND VALUE OF STOCK IS NOT ACCURATE CORRECT AND SCIENTIFIC. THEREFORE IN ABSENCE OF ANY DEFECT FOUND OUT IN THE BOOKS OF ACCOUNT MAINTAINED IN REGULAR COURSE OF BUSINESS NO ADDITION CAN BE MADE TO THE INCOM E DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME ON THE BASIS OF DISCREPANCY WORKED OUT ON ESTIMATION OF STOCK . 6 .7 . IN YOG RAJ SONI VS. ASSISTANT COMMISSIONER OF INCOME TAX (2007) 108 TTJ (DEL) 912 IT IS HELD THAT W E HAVE CONSIDERED THE RIVAL 11 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT CONTENTIONS CAREFULLY GONE THROUGH THE MATERIALS PLACED ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO DELIBERATED ON THE CASE LAW CITED BY THE AO AND CIT(A) IN THEIR RESPECTIVE ORDERS AS WELL AS REFERRED TO BY THE LEARNED AUTHORISED REP RESENTATIVE AND DEPARTMENTAL REPRESENTATIVE WITH RESPECT TO REJECTION OF BOOK RESULTS AND ESTIMATION OF PROFIT ON CONTRACT RECEIPTS. FROM THE RECORD WE FOUND THAT ASSESSEE WAS ENGAGED IN BUSINESS OF CONSTRUCTION SINCE 1984 MAINLY UNDERTAKING WORK OF CENT RAL PUBLIC WORKS DEPARTMENT (CPWD) AND DEPARTMENT OF TELECOMMUNICATION (DOT) AS CLASS ONE CONTRACTOR. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE FIRM HAD UNDERTAKEN VARIOUS CIVIL PROJECTS. THE PROPRIETOR OF FIRM IS A QUALIFIED CIVIL ENGINEER AND LOO KED AFTER BUSINESS WITH THE HELP OF A SON WHO WAS ALSO QUALIFIED ENGINEER. UNDISPUTEDLY THE TURNOVER OF THE ASSESSEE EXCEEDED BEYOND THE LIMIT PRESCRIBED FOR THE AUDIT UNDER SECTION 44AB OF THE IT ACT 1961. THE BOOKS OF ACCOUNT REGULARLY MAINTAINED WERE GOT AUDITED AND THERE WAS NO ADVERSE COMMENT OF THE AUDITOR WITH REGARD TO THE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE OR WITH REGARD TO THE TRUE AND FAIR PICTURE OF THE PROFIT DISCLOSED BY THE ASSESSEE AND THE STATE OF AFFAIRS BEING SHOWN BY T HE ASSESSEE AS AT THE END OF THE YEAR. SINCE ASST. YR. 1994 - 95 TILL 1998 - 99 THE TURNOVER WAS VARYING BETWEEN RS. 72 LACS TO RS. 3.65 CRORES AND THE PROFIT DECLARED THEREON WAS ALSO VARYING FROM 0.99 PER CENT TO 1.65 PER CENT. DURING THE YEAR UNDER CONSIDE RATION THE CONTRACT RECEIPTS HAVE INCREASED TO RS. 3.65 CRORES AS COMPARED TO CONTRACT RECEIPTS OF RS. 1.82 CRORES IN THE IMMEDIATELY PRECEDING ASST. YR. 1997 - 98. IN THE ASST. YR. 1995 - 96 ON THE CONTRACT RECEIPTS OF RS. 1.23 CRORES THE PROFIT RATE OF 1. 61 PER CENT WAS ACCEPTED BY THE DEPARTMENT UNDER SCRUTINY ASSESSMENT. DURING THE YEAR UNDER CONSIDERATION THE CONTRACT RECEIPT HAS INCREASED TO MORE THAN THREE TIMES MARGINAL DECLINE IN THE RATE OF PROFIT IS INEVITABLE AS OVERALL INCREASED PROFIT CAN BE ACHIEVED WITH SOME SACRIFICES IN PROFIT RATE. AS PER THE NATURE OF WORK CONTRACT UNDERTAKEN BY THE ASSESSEE MATERIALS LIKE CEMENT AND STEEL WERE SUPPLIED BY CPWD/DOT AND ASSESSEE WAS 12 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT PROVIDING LABOUR AND BALANCE MATERIAL. PAYMENT WAS DISBURSED TO THE ASSE SSEE BY GOVERNMENT DEPARTMENT ON THE BASIS OF WORK COMPLETED AND BILLS RAISED AND CERTIFIED BY THE CPWD/DOT ENGINEERS. ON THE BASIS OF WORK COMPLETED AS PER THE CERTIFICATE OF ENGINEER OF CPWD/DOT AFTER DEDUCTING AMOUNT OF MATERIAL SUPPLIED BY THE DEPARTM ENT ITSELF TAX WAS DEDUCTED THEREON AND BALANCE PAYMENT WAS BEING MADE TO THE ASSESSEE ON THE SETTLEMENT OF ACCOUNT. IN RESPECT OF SOME OF MATERIALS WHICH WERE NOT BEING SUPPLIED BY THE DEPARTMENT THE ASSESSEE WAS GIVEN SECURED ADVANCE FOR PURCHASE OF SU CH MATERIAL AND THE SAME WAS ADJUSTED WHILE MAKING THE FINAL PAYMENT OF BILLS WHEREIN SUCH MATERIALS ARE USED. THUS THE DIFFERENCE FOUND OUT BY THE AO WITH RESPECT TO CONTRACT AMOUNT ON WHICH TDS WAS DEDUCTED AND THE CONTRACT AMOUNT DISCLOSED IN THE AUDI TED BOOKS OF ACCOUNT WERE BASICALLY ATTRIBUTABLE TO SUCH SECURED ADVANCE BEING MADE BY THE DEPARTMENT. AS SUCH ADVANCES WERE NOT ACTUAL PAYMENTS FOR THE WORK DONE BUT WERE MERELY ADVANCES TO BE ADJUSTED AGAINST THE FINAL BILLS NO TDS WAS DEDUCTED ON SUCH ADVANCES. THESE ADVANCES WHEN SETTLED AND ADJUSTED AGAINST THE FINAL BILLS THE SAME WERE SUBJECTED TO TDS. THEREFORE THE AO FOUND DIFFERENCE AND WITHOUT RECONCILING THE SAME WITH RESPECT TO THE SECURED ADVANCE ADJUSTED AT THE TIME OF THE FINAL PAYMENT HE WORKED OUT DIFFERENCE AT RS. 1 42 990. HOWEVER THE CIT(A) CALLED RECONCILIATION STATEMENT AND CONFIRMATION WAS FURNISHED BY THE GOVERNMENT DEPARTMENT WITH REGARD TO RELEASE OF SUCH SECURED ADVANCE WHEREON NO TDS WAS DEDUCTED. THEREFORE THE CIT(A) ACCE PTED THE ASSESSEE'S CONTENTION AND DELETED THE ADDITION MADE BY THE AO ON ACCOUNT OF SUCH DIFFERENCE. DURING THE COURSE OF SCRUTINY ASSESSMENT UNDER SECTION 143(3) THE ASSESSEE PRODUCED BOOKS OF ACCOUNT AND WHICH WERE ALSO EXAMINED BY THE AO. THE POINT WH ICH DISTURBED THE AO RELATES TO THE LABOUR PAYMENT FOR MONTHS OF JANUARY FEBRUARY AND MARCH 1998. THE AO FOUND THAT LABOUR PAYMENT FOR THE MONTH OF JANUARY WAS ACTUALLY PAID IN MARCH 1998 AND LABOUR PAYMENT OF FEBRUARY WAS PAID IN THE NEXT MONTH OF MARC H. LABOUR PAYMENT FOR MARCH 1998 WAS PAID BY THE END OF MARCH 1998 ITSELF. 13 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT THE AO HOWEVER DID NOT ACCEPT THE ASSESSEE'S VERSION THAT DELAY IN PAYMENT OF LABOUR WAGES WAS ON ACCOUNT OF FINANCIAL DIFFICULTY. FROM THE RECORD WE FOUND THAT ASSESSEE GOT THE PAYMENT IN RESPECT OF WORK EXECUTED IN THE MONTH OF MARCH THEREFORE IMMEDIATELY ON RECEIPT OF PAYMENT HE PAID THE LABOUR CHARGES FOR JANUARY 1998. OTHERWISE ALSO THE LABOUR PAYMENT FOR ANY MONTH WAS ALSO PAID IN THE IMMEDIATELY NEXT MONTH NO FAULT CA N BE FOUND FOR PAYMENT TO LABOURERS OF FEBRUARY 1998 IN THE MONTH OF MARCH 1998. SIMILARLY LABOUR PAYMENT FOR MARCH WAS PAID BY THE END OF MARCH ITSELF CANNOT BE MADE THE GROUND FOR REJECTION OF BOOKS OF ACCOUNT. AS PER OUR CONSIDERED VIEW THE BOOKS OF ACCOUNT REGULARLY MAINTAINED IN THE COURSE OF BUSINESS WHICH ARE DULY AUDITED UNDER THE PROVISIONS OF IT ACT 1961 AND ARE FREE FROM ANY QUALIFICATION BY THE AUDITORS SHOULD BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UNRELIABLE. FOR REJECTING THE BOOKS OF ACCOUNT IT IS REVENUE'S ONUS TO PROVE THAT EITHER THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE ARE NOT CORRECT AND COMPLETE OR THE METHOD OF ACCOUNTING ADOPTED IS SUCH THAT TRUE PROFITS CANNOT BE DED UCED THEREFROM. AS THE ONUS TO MAKE OUT A CASE FOR REJECTION OF BOOKS OF ACCOUNT IS ON THE REVENUE THE AO IS REQUIRED TO INDICATE SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT WHICH CLINCHES THE PROFIT SHOWN BY THE ASSESSEE OR ITS STATE OF AFFAIRS. IN THE INST ANT CASE WHILE REJECTING THE BOOKS OF ACCOUNT THE ADVERSE OBSERVATION OF THE AO WAS WITH RESPECT TO DELAY IN PAYMENT OF LABOUR CHARGES FOR THE MONTH OF JANUARY 1998. AS PER OUR CONSIDERED VIEW THIS IS NOT A SUFFICIENT FOR REJECTING THE AUDITED ACCOUNTS WHEREIN NO ADVERSE COMMENT WAS MADE BY THE AUDITOR NOR ANY SPECIFIC DEFECT WAS POINTED OUT BY THE AO. IT WAS NOT THE CASE OF AO THAT ASSESSEE HAS RECORDED EXCESS PAYMENT OF LABOUR CHARGES NOR THERE IS ANY ALLEGATION THAT LABOUR CHARGES WERE DISPROPORTIO NATE TO THE NATURE OF CONTRACT WORK EXECUTED. ON THE OTHER HAND WE FOUND THAT EVEN AS PER GOVERNMENT MANUALS THE PERCENTAGE OF LABOUR EXPENSES AS A PERCENTAGE OF TOTAL VALUE OF CONTRACT IN RESPECT OF CIVIL CONTRACT IS 25 PER CENT WHEREAS IN THE INSTAN T CASE THE EXPENSES CLAIMED UNDER 14 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT LABOUR CHARGES WORK OUT TO 20.67 PER CENT (TOTAL CONTRACT RECEIPTS RS. 364.54 LAKHS LABOUR CHARGES RS. 75.37 LAKHS). THUS IT IS NOT A CASE OF EXCESS PAYMENT OF LABOUR CHARGES TO REDUCE THE PROFIT BUT ON THE CONTRARY AS AGAINST THE STANDARD NORMS OF 25 PER CENT LABOUR CHARGES AMOUNTING TO RS. 91.13 LAKHS THE ASSESSEE HAS ACTUALLY INCURRED ONLY RS. 75.37 LAKHS WHICH WORKS OUT TO BE 20.67 PER CENT. WE HAD ALSO CAREFULLY GONE THROUGH THE DETAILS OF MONTHLY EXPENSES INCU RRED ON LABOUR MATERIALS AND OTHER EXPENSES COPY OF LABOUR CHARGES ACCOUNT COPY OF STAFF SALARY ROLLS FROM OCTOBER 1997 TO MARCH 1998 COPY OF CASH BOOK FROM FEBRUARY 1998 TO MARCH 1998 AS PLACED IN THE PAPER BOOK PAGE NOS. 23 29 TO 54 AND DO NOT FIND ANY MISTAKE THEREIN. AFTER PRODUCTION OF BOOKS OF ACCOUNT AND SUBMISSION OF EXPLANATION BY THE ASSESSEE IF ANY ASKED FOR WITH RESPECT TO THE CONTENTS OF THE RETURN AND BOOKS OF ACCOUNT THE REVENUE MAY ACCEPT THE SAME OR AFTER POINTING OUT THE SPE CIFIC DEFECT MAY REJECT THE BOOKS OF ACCOUNT AND PROCEED TO DETERMINE THE ASSESSEE'S INCOME AS PER THE PROVISIONS OF SECTION 145. INCOME - TAX PROVISIONS NOWHERE EITHER AUTHORIZE THE AO OR CAST AN OBLIGATION ON THE ASSESSEE TO PROVE THE NEGATIVE RESULT I.E. TO PROVE AS TO WHY HE FAILED TO MAKE A PROFIT AT A PARTICULAR RATE. BEFORE REJECTING THE BOOKS OF ACCOUNT THE DEPARTMENT HAS TO PROVE THAT ACCOUNTS ARE UNRELIABLE INCORRECT OR INCOMPLETE. 6.8 . THE ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSINESS DULY AUDITED UNDER THE PROVISIONS OF IT ACT AND FREE FROM ANY QUALIFICATION BY THE AUDITORS SHOULD BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REASONS TO INDICATE THAT THEY ARE UN RELIABLE. EVEN THOUGH IT IS NOT POSSIBLE TO LAY DOWN THE EXACT CIRCUMSTANCES IN WHICH ACCOUNTS SHOULD BE REJECTED AS UNRELIABLE OR INCORRECT YET THE ACCOUNTS MAY BE REJECTED AS UNRELIABLE IF IMPORTANT ENTRIES AND TRANSACTIONS ARE OMITTED THEREFROM OR IF P ROPER PARTICULARS AND VOUCHERS BILLS ETC. ARE NOT FORTHCOMING OR IF THEY DID NOT INCLUDE ENTRIES RELATING TO PARTICULAR CLASS OF BUSINESS TRANSACTION. THE ASSESSEE SHOULD INVARIABLY BE GIVEN 15 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT OPPORTUNITY FOR OFFERING EXPLANATION REGARDING DEFECTS IN ACCOU NTS AND ON HIS FAILURE TO SATISFACTORILY EXPLAIN THE DEFECTS THE DEPARTMENT WOULD BE JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT. THUS BOOKS OF ACCOUNT SHOULD NOT BE REJECTED LIGHT - HEARTEDLY. REASONS FOR REJECTING WAGES RECORD AS COMMENTED BY THE AO RELA TE TO FULL ADDRESS OF THE LABOUR WHICH WAS NOT GIVEN ON THE MUSTER ROLL REGISTER. WE FOUND THAT WAGES RECORD HAS BEEN KEPT BY THE ASSESSEE AS PER REGULATION KNOWN AS 'CONTRACT LABOUR (REGULATION AND ABOLITION) ACT 1970. WE HAVE VERIFIED THE COPIES OF WAG ES REGISTER PLACED IN THE PAPER BOOK AND FOUND THAT SAME ARE AS PER PROVISIONS OF THE RESPECTIVE ACT. THE ADDRESSES OF THE LABOURERS TO WHOM WAGES HAVE BEEN PAID WERE NOT MENTIONED SINCE THE LABOURER STAYS IN THE JHUGI JHOPERIES AT A WORK SITE ITSELF AND TO THIS EFFECT THE ASSESSEE HAS ALREADY REPLIED TO THE AO VIDE ITS LETTER DT. 23RD MARCH 2001 THROUGH WHICH SITE OF CONSTRUCTION WHERE LABOUR RESIDED WAS GIVEN AS TELECOM CIVIL II DIVISION VIKET VIHAR NEW DELHI WHICH WAS HOWEVER NOT TAKEN NOTICE BY T HE AO AND THE SAME WAS SENT TO HIM BY COURIER AND WAS FOUND TO BE DULY RECEIVED BY THE DEPARTMENT. THE AO HAD ALSO ALLEGED THAT THE ACTUAL DATE OF PAYMENT WAS NOT MENTIONED BY THE PAYEE RECEIVING THE WAGES. IN THIS RESPECT WE FOUND THAT THE DATE ON WHICH T HE ENTRY HAS BEEN MADE IN THE WAGES REGISTER WAS ACTUAL DATE OF PAYMENT. AS PER THE NATURE OF THE CONTRACT WORK EXECUTED BY THE ASSESSEE THE ASSESSEE GETS A CONTRACT TO CARRY OUT A PARTICULAR JOB OR A CONTRACT FOR WHICH THE MATERIAL WAS SUPPLIED BY THE CP WD/DOT AND THE LABOUR WAS PROVIDED BY THE ASSESSEE CONTRACTOR. THE ASSESSEE USED TO MAKE PAYMENTS TO THE LABOURERS ON THE BASIS OF MANDAYS PUT BY IN BY THE LABOURERS AND NOT ON THE BASIS OF WORK PERFORMED BY THEM ON EACH DAY. WE THEREFORE DO NOT FIND ANY MERIT IN THE ALLEGATIONS OF THE AO THAT WORK PERFORMED BY THE LABOUR WAS NOT MENTIONED ON THE PAYMENT VOUCHERS AND TO MAKE THEM BASIS FOR REJECTION OF BOOKS OF ACCOUNT. WE ALSO FOUND THAT PAYMENT TO THE ASSESSEE CONTRACTOR WAS ALSO MADE ON THE BASIS OF WO RK COMPLETED AND MEASURED BY THE DEPARTMENT ITSELF AND NOT ON THE BASIS OF WHAT THE LABOURER HAS DONE. THE BILLS FOR SUCH A 16 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT CONTRACT WAS PREPARED WHICH WERE GOT VERIFIED BY THE ENGINEERS OF CONTRACTEE BEFORE MAKING PAYMENTS. ON THE BASIS OF BILLS WHICH AR E FINALLY APPROVED BY THE GOVERNMENT ENGINEERS/CONTRACTEE THE PAYMENT WAS GIVEN TO THE ASSESSEE CONTRACTOR AFTER DEDUCTING TDS. THUS IT WAS HUMANLY NOT POSSIBLE TO PROVIDE THE DETAILS AS TO WHAT WORK A PARTICULAR LABOURER HAS DONE AT THE SITE. AO'S ALLEG ATIONS TO THE EFFECT THAT THERE WAS NO RECORD ON THE SCROLLS AS TO WHOM PAYMENT IS MADE AND AGAINST WHAT WORK DONE IS NOT SUSTAINABLE SINCE WAGES SCROLLS WERE PREPARED NOT ON THE BASIS OF THE WORK WHICH THE LABOURER CARRIES ON BUT HIS/HER NAME THE DETA ILS SUCH AS THE NUMBER OF DAYS THE PERSON HAS WORKED THE RATE OF WAGES THE TOTAL AMOUNT IS GIVEN AND THE RECEIPT IS TAKEN FROM THE LABOURER CONCERNED. IT IS NOT POSSIBLE TO MENTION THE WORK WHICH A PARTICULAR LABOURER HAS CARRIED OUT DURING THE DAY. WE A LSO FOUND THAT IN EARLIER YEARS THE BOOK RESULTS OF THE ASSESSEE WERE ACCEPTED AFTER VERIFICATION OF BOOKS OF ACCOUNT SUBJECT TO MINIMAL CHANGES. THE CASE LAW REFERRED TO BY THE AO WHILE REJECTING BOOKS OF ACCOUNT ARE NOT AT ALL APPLICABLE TO THE FACTS AN D CIRCUMSTANCES OF THE INSTANT CASE INSOFAR AS THERE WAS NO REASON MUCH LESS A COGENT REASON FOR REJECTION OF BOOKS OF ACCOUNT. THESE CASE LAW ARE APPLICABLE ONLY WHEN BOOKS OF ACCOUNT ARE LIABLE TO BE REJECTED AND NOT OTHERWISE. THE AO HAS ALSO NOT INDIC ATED ANY DEFECT IN THE SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE OR ITS CORRECTNESS NOR THERE WAS ANY CHANGE IN THE METHOD OF ACCOUNTING DURING THE YEAR UNDER CONSIDERATION AS COMPARED TO THE EARLIER YEARS TO INDICATE ANY INTENTION OF ASSES SEE TO SHOW LOW PROFIT. WHILE EXAMINING THE BOOKS OF THE ASSESSEE ITO HAS TO CONSIDER THE FOLLOWING ASPECTS: (I) WHETHER THE ASSESSEE HAS REGULARLY EMPLOYED A METHOD OF ACCOUNTING ? (II) EVEN IF REGULAR ADOPTION OF A METHOD OF ACCOUNTING IS THERE WH ETHER THE ANNUAL PROFITS CAN PROPERLY BE DEDUCED FROM THE METHOD EMPLOYED ? 17 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT (III) WHETHER THE ACCOUNTS ARE CORRECTLY MAINTAINED ? (IV) WHETHER THE ACCOUNTS MAINTAINED ARE COMPLETE IN THE SENSE THAT THERE IS NO SIGNIFICANT OMISSION THEREIN ? IF THE ANSWE RS TO ABOVE FOUR QUESTIONS ARE IN THE AFFIRMATIVE ASSESSEE'S PROFITS ARE TO BE COMPUTED ON THE BASIS OF HIS ACCOUNTS. IN SUCH CASES PROVISO TO SECTION 145(1) OR SECTION 145(2) CANNOT BE INVOKED. 6.9. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF BAS TIRAM NARAYANDAS MAHESWARI (210 ITR 438) HELD THAT THE FAI L URE TO MAINTAIN PROPER REGISTERS CONTRIBUTES TO THE DISSATISFACTION OF THE AO ABOUT THE FAIRNESS OR CORRECTNESS OF THE ACCOUNTS AND THUS THE AO IS EMPOWERED TO MAKE THE BEST JUDGMENT ASSESSMENT. I T IS THE SETTLED LAW THAT THE BOOKS CANNOT BE REJECTED U/S 145 OF THE ACT AND RESORT TO BEST JUDGMENT ASSESSMENT UNLESS THE AU RECORD ANY FINDING THAT THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE ARE INCORRECT RENDERING IT IMPOSSIBLE TO DEDUCE THE PRO FITS. A U NEEDS TO INDICATE THAT HE NOTI CED ANY INCONSISTENCY OR INFIRMITY IN THE AUDIT REPORT. JUDGMENT OF HONBLE HIGH CO URT IN THE CASE OF MADNANI CONSTRUCTI ON CO RPORATION P LTD VS CIT (296 ITR 0045) (GAUHATI) IS RELEVANT. ALLEGATION OF LOWER GP IS NO GROU ND FOR REJECTION OF BOOKS U/S 145 OF THE ACT AS HELD BY THE HIGH COURT OF PU NJAB & HAIYANA IN THE CASE OF CI T VS PATIALA DISTRICT CO OP MILK PRODUCERS UNION LTD (328 0625 AND ANOTHER CASE REPORTED IN 3 36 ITR 0332. IT IS THE JUDGM ENT OF TH E JURISDICTIONAL HIGH COURT IN T HE CASE OF BASTIRAM NAAYANDAG MAHESHRI VS CI T 220 ZTR 0438 FOR REJECTION OF THE ACCOUNTS NON MAINTENANCE OF THE DAY TO DAY RECORDS SHOWING THE MANUFACTURING DETAILS IS ADEQUATE. THUS WHEN NO DISCREPANCY IS NOTICED IN T HE ACCOUNT S MAINTAINED BY THE ASSESSEE AO CANNOT ASSUME JURISDICTION U/S 145(3) OF THE ACT AS HELD BY THE DELHI HIGH COURT IN THE CASE OF ANAND KUMAR DEEPAK KUMAR. II IS ALSO RELEVANT TO MENTION THAT WITHOUT ENLISTING THE DEFECTS INCOMPLETION AND INACCUR ACIES IN THE ACCOUNTS OF THE ASSESSEE AO CANNOT 18 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT EXPRESSIVELY OR OTHERWISE INVOKE THE PROVISIONS OF SECTION 145(3) OF THE ACT. AHMEDABAD BENCH OF THE TRIBUNAL HELD IN THE CASE OF M/S PARAS DYEING AND PRINTING MILLS P LT D 004 ITR(TRIB) 0029 (AHD) THAT WHE N NO SPECIFIC DISCREPANC IES OR DEFECTS IN. THE BOOKS OF ACCOUNT OF THE ASSESSEE HAS BEEN POINTED OUT NOR WAS ANY MATERIAL BROUGHT TO ESTABLISH THAT PURCHASES WERE INFLATED OR RECEIPT S SUPPRESSED THERE IS NO JUSTIFI CATION IN INVOKING THE PROVISIONS OF SECT ION 145 OF THE ACT IF THERE WAS NO CHALLENGE TO THE TR ANSACTIONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO THE DEPARTMENT TO CONTEND THAT WHAT WAS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. THERE WAS NO BASIS FO R REJECTION OF BOOKS OF A CCOUNT. CIT V. VIKRARN PLASTICS [1999] 239 ITR 161(GUJ) WAS RELIED ON. THUS SU SPICION HOWEVER STRONG IT MAY BE IS NO GROUND FOR THE AO FOR INVOKING THE PROVISIONS O F SECTION 145(3) OF THE ACT. THUS THIS THE SCOPE OF THE PROVISIONS OF SECTION 143(3 ) W HICH PROVIDE AUTHORITY TO THE AO TO ADOPT BEST JUDGMENT IN THE MANNER PROVIDED U/C 144 OF THE ACT. 6.10 . REGARDING THE AU BEING NOT SATISFIED ABO UT THE CORRECTNESS AND CORRECT NESS OF THE ASSESSEES ACCOUNTS T HE CALCUTTA HIGH COURT JUDGMENT I N THE CASE OF ASHOK REFRACTORIES PVT. LTD (279 ITR 457) IS R ELEVANT. IN THE SAID CASE THE H ONBLE HIGH COUR T HELD THAT IN ORDER TO REJECT THE ACCOUNTS THE AO HAS TO COME TO AN OPINION THAT THE INCOME CANNOT BE PROPERLY DEDUCED FR OM THE ACCOUNTS SO MAINTAINED. I N OR DER TO ARRIVE AT SUCH CONCLUSION IT MUST BE SHOWN THAT THE AO HAS TAKEN INTO CONSIDERATION RELEVANT FACTORS AND NOT OMITTED TO CONSIDER THE MATERIAL BEFORE HIM. THUS THE ABOVE SCOPE OF THE PROVISIONS OF SECTION 145 CONCLUSIVE ESTABLISHING THE FACT THAT WHAT IS IMPORTANT FOR REJECTION OF BOOKS IS THE AO BEING NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS AND IT IS FOR THE AO TO ESTABLISH THE INCOMPLETENESS OR INCORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE. 7. IN DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE - 10 AHMEDABAD V. ASSOCIATED PETROLEUM CORPORATION [2011] 44 SOT 45 (AHD.) IT IS OBSERVED THAT 19 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT SECTION 145 REQUIRES THE ASSESSING OFFICER TO GIVE A FINDING AS TO WHETHER METHOD OF ACCOUNTING ADOPTED BY THE ASSESS EE IS SUCH THAT IT WILL NOT ENABLE THE ASSESSING OFFICER TO COMPUTE THE INCOME OF THE ASSESSEE CORRECTLY OR THAT THERE ARE SERIOUS DEFECTS IN THE MAINTENANCE OF ACCOUNTS WHICH WILL NOT ENABLE THE ASSESSING OFFICER TO WORK OUT THE INCOME OF THE ASSESSEE. TH US SECTION 145 ONLY RELATES TO METHOD OF ACCOUNTING OR RECORDING OF THE EVENTS WHICH TAKE PLACE DURING THE COURSE OF BUSINESS. SECTION 145 CANNOT BE INVOKED FOR CARRYING OUT BUSINESS IMPRUDENTLY OR VERY GOOD RESULTS IN THE BUSINESS ARE NOT SHOWN. IT IS FOR THE ASSESSEE TO CARRY OUT THE BUSINESS AS PER HIS OWN PRUDENCE. EFFICIENT BUSINESSMAN MAY GIVE BETTER RESULTS AND HIGHER INCOME WHEREAS IMPRUDENT OR INEFFICIENT BUSINESSMAN MAY NOT BE ABLE TO EARN THE PROFIT TO THAT EXTENT. THE BOOKS OF AN IMPRUDENT BUSIN ESSMAN CANNOT BE REJECTED BECAUSE IN THE EYES OF ASSESSING OFFICER HE HAS NOT DECLARED THE PROFITS AS IT OUGHT TO HAVE BEEN. IN THE SIMILAR MANNER BOOKS OF ACCOUNT OF A PRUDENT BUSINESSMAN GIVING HIGHER INCOME CANNOT BE ACCEPTED MERELY BECAUSE IT HAS GIVEN HIGHER PROFIT EVEN THOUGH BOOKS OF ACCOUNT CONTAINED SERIOUS DEFECTS. IN FACT EXAMINATION OF ACCOUNTS IS AN INITIAL STEP. ONLY AFTER CROSSING THIS HURDLE AND GIVING A FINDING ON THE NATURE OF ACCOUNTS BY POINTING OUT THAT VARIOUS INGREDIENTS MENTIONED IN SECTION 145 ARE NOT SATISFIED THE ASSESSING OFFICER GETS JURISDICTION/POWER TO ESTIMATE THE PROFITS. 7.1. PROVISIONS OF SECTION 145(3) CAN BE INVOKED FOR REJECTING THE BOOKS IF ASSESSING OFFICER GIVES A FINDING THAT (I) ASSESSEE IS NOT FOLLOWING REGULAR LY ANY ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNMENT IN ACCORDANCE WITH SECTION 145(2) OR (II) ASSESSING OFFICER IS NOT SATISFIED ABOUT CORRECTNESS OR COMPLETENESS OF THE ACCOUNT OR (III) WHERE ASSESSEE IS NOT FOLLOWING ANY METHOD OF ACCOUNTING R EGULARLY. IF NO SUCH FINDING IS GIVEN THEN INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' HAS TO BE COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. FOR REJECTING 20 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT THE BOOKS BY INVOKING CONDITION NO. 1 THE ASSESSING OFFICER HAS TO SHOW THAT WHAT WAS THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED COMPULSORILY OR WHAT WAS FOLLOWED IN EARLIER YEARS AND HAS NOT BEEN FOLLOWED THIS YEAR. THE ASSESSING OFFICER HAS ALSO TO SHOW THAT BY NOT FOLLOWING AN ACCOU NTING STANDARD OR NOT FOLLOWING THE ONE FOLLOWED EARLIER THE COMPUTATION OF CORRECT INCOME CANNOT BE DONE. FOR REJECTING THE BOOKS UNDER CONDITION NO. 2 THE ASSESSING OFFICER HAS TO SHOW THAT THE ACCOUNTS ARE NOT CORRECT AND COMPLETE AS THERE EXIST SERIO US DEFECTS IN MAINTENANCE OF ACCOUNTS IRRESPECTIVE OF WHETHER ACCOUNTING METHOD OR ACCOUNTING STANDARDS ARE REGULARLY FOLLOWED. THE ASSESSING OFFICER HAS TO SHOW HERE THAT THE WAY ACCOUNTS ARE WRITTEN OR KEPT (AND NOT ACCOUNTING METHOD ADOPTED LIKE CASH OR MERCANTILE) PROFITS CANNOT BE CORRECTLY DEDUCED THEREFROM. FOR REJECTING THE BOOKS BY INVOKING CONDITION NO. 3 THE ASSESSING OFFICER HAS TO SHOW THAT THE ASSESSEE IS ABRUPTLY CHANGING METHOD OF ACCOUNTING FROM CASH TO MERCANTILE OR FOR DIFFERENT TRANSACT IONS IT IS ADOPTING DIFFERENT METHOD OF CASH OR MERCANTILE. FOR THIS THE ASSESSING OFFICER HAS TO IDENTIFY THE TRANSACTIONS RECORDED IN DIFFERENT METHODS OR IDENTIFY THE ASST. YEARS IN WHICH DIFFERENT ACCOUNTING METHODS (CASH OR MERCANTILE) HAVE BEEN FOLL OWED. EVERY FINDING RELATING TO THREE CONDITIONS HAS TO BE BASED ON EVIDENCE AND SHOULD NOT BE MERELY AN OPINION OF THE ASSESSING OFFICER. FURTHER IT IS NOT ALWAYS CORRECT TO RESORT TO ESTIMATION AFTER REJECTING THE BOOKS IF ADEQUATE MATERIAL IS NOT AVAIL ABLE TO SUPPORT THE ESTIMATION OF HIGHER INCOME AS COMPARED TO WHAT ASSESSEE HAS SHOWN. THUS REJECTION OF THE BOOKS IN ACCORDANCE WITH SECTION 145 IS THE INITIAL STEP BEFORE ASSESSING OFFICER RESORTS TO NEXT STEP I.E. ESTIMATION OF INCOME. THUS THE REJEC TION OF BOOKS CANNOT BE DONE WITHOUT POINTING THE DEFECTS IN ACCOUNTS OR ACCOUNTING METHOD. AS WE HAVE HELD ABOVE THE ASSESSING OFFICER HAS NEITHER GIVEN ANY FINDING ABOUT REJECTION OF BOOKS NOR IT IS DISCERNIBLE FROM HIS ORDER THE WORKING OF HIS MIND FO R REJECTION OF THE BOOKS. IN VIEW OF THIS WE HOLD THAT ASSESSING OFFICER HAS FAILED TO DISCHARGE THE ONUS OF REJECTING THE BOOKS AND INVOKING SECTION 145(3). WE ARE SUPPORTED BY THE 21 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT DECISION OF HONBLE GAUHATI HIGH COURT IN MADNANI CONSTRUCTION CORPN. (P.) LTD. V. CIT [2008] 296 ITR 45 WHEREIN IT IS HELD THAT ACCOUNTS CANNOT BE REJECTED IF ASSESSING OFFICER DID NOT FIND BOOKS OF ACCOUNT INCORRECT OR ANY INFIRMITY IN THE AUD IT REPORT. IN CIT V. RAJNI KANT DAVE [2006] 281 ITR 6 (ALL.) IT IS HELD THAT IF THERE IS NO FINDING THAT BOOKS OF ACCOUNT ARE INCOMPLETE OR INCORRECT ACCOUNTS CANNOT BE REJECTED. IN ASHOKE REFRACTORIES (P.) LTD. V. CIT [2005] 279 ITR 457 1 (CAL.) IT IS HELD THAT EVEN THOUGH THERE MAY BE ABSENCE OF STOCK REGISTER OR ITEM - WISE ACCOUNTING OF STOCK BUT IF THERE IS NO FINDING THAT INCOME COULD NOT BE DEDUCED FROM THE METHOD OF ACCOUNT FOLLOWED ACCOUNTS CANNOT BE REJECTED AND SECTION 145 CANNOT BE INVOKED. SIMILAR VIEW WAS TAKEN BY HONBLE CALCUTTA HIGH COURT IN JUGGILAL KAMLAPAT UDYOG LTD. V. CIT [2005] 278 ITR 52 2 WHEREIN IT IS HELD THAT IF THERE IS NO FINDING THAT INCOME COU LD NOT BE DEDUCED FROM THE ACCOUNTS MAINTAINED BY THE ASSESSEE THEN REJECTION OF ACCOUNTS WOULD BE INVALID. HONBLE GUJARAT HIGH COURT IN CIT V. VIKRAM PLASTICS [1999] 23 9 ITR 161 HAS HELD THAT WHERE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED REGULARLY AND NO DEFECTS HAVE BEEN FOUND IN THE ACCOUNTS THEN THE TRIBUNAL WOULD BE JUSTIFIED IN HOLDING THAT ACCOUNTS CANNOT BE REJECTED UNDER SECTION 145. ACCORDINGLY WE HOLD THAT BOOKS OF ASSESSEE CANNOT BE REJECTED AND THEREFORE ASSESSING OFFICER CANNOT RESORT TO ESTIMATION OF INCOME BY ESTIMATING LOSSES. ACCORDINGLY THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED 7.2. IN MALANI RAMJIVAN JAGANNATH VS. ASSISTANT COMMISSIONER O F INCOME TAX (2009) 316 ITR 120 : (2007) IT IS OBSERVED THAT THE TRADING ACCOUNT PRODUCED BEFORE THE AO WAS PLACED FOR OUR PERUSAL WHICH SHOWS THAT IN EACH TRADING ACCOUNT ONLY FOUR ENTRIES WERE THERE OF OPENING STOCK PURCHASE ON DEBIT SIDE SALES AND CLOSING S TOCK OF CREDIT SIDE. THE QUANTUM AND VALUE OF PURCHASES AND SALES HAD NOT BEEN IN DISPUTE IN AS MUCH AS THEY WERE HELD TO BE FULLY VOUCHED. VALUE OF OPENING STOCK ALSO CANNOT 22 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT BE DISPUTED AS IT CAME FROM CLOSING STOCK OF PREVIOUS YEAR. THE INVENTORIES OF CL OSING STOCK WAS ALSO NOT FOUND TO BE INCORRECT. THAT IS TO SAY ACTUAL STOCK POSITION WAS NOT IN DISPUTE. THE PREVIOUS YEARS BOOKS OF ACCOUNT WERE NOT FOUND TO BE INCORRECT. 7.3. IN THE FACE OF THESE UNDISPUTED FACTS AND CIRCUMSTANCES THE TRIBUNAL IN OUR OPINION COULD NOT HAVE INTERFERED WITH THE ORDER OF CIT(A). IN DOING SO IT HAD IGNORED ALL ADMITTED FACTS NOTICED BY US ABOVE IN THE FACE OF WHICH THERE WAS NO OCCASION FOR THE AO TO HAVE RESORTED TO ESTIMATE METHOD. THE GP IS PRIMARILY RESULT OF EXCESS OF SALES OVER PURCHASES OPENING STOCK CLOSING STOCK THE UNSOLD STOCK AT TWO TERMINALS IS ONLY BALANCING FACTOR. ADMITTEDLY OUT OF THIS FOUR COMPONENTS OF TRADING RESULT THERE COULD NOT HAVE BEEN ANY GROUND FOR THE REVENUE TO ARRIVE AT DIFFERENT RESULT. SO FAR AS CLOSING STOCK IS CONCERNED INVENTORIES OF EXISTING STOCK WERE NOT FOUND TO BE INCORRECT BY THE AO I.E. THAT POSITION OF STOCK AS SHOWN IN THE ACCO UNT BOOKS WAS NOT IN CORRECT. THERE BEING NO DISPUTE ABOUT THE SALES AND PURCHASES NON - MAINTENANCE OF STOCK REGISTER LOST ITS SIGNIFICANCE SO FAR AS ARRIVING AT THE GROSS PROFIT IS CONCERNED. THEREFORE THE COMMISSIONER OF INCOME - TAX (APPEALS) WAS RIGHT IN HIS REASONING ABOU T THE ADMITTED STATE OF AFFAIRS. RESORTING TO ESTIMATE OF THE GROSS PROFIT RATE WAS FOUNDED ON NO MATERIAL. IT WAS MERELY A CASE OF MAKING CERTAIN ADDITIONS ON THE BASIS OF CERTAIN DEFECTS POINTED OUT BY THE ASSESSING OFFICER AND WHICH HE HAS SHOWN IN D IFFERENT ACCOUNT BY GIVING MARGIN OF UNVOUCHED EXPENSES. HE HAS DISALLOWED CERTAIN EXPENSES. 7.4. THE TRIBUNAL COMMITTED BASIC ERROR IN NOT APPRECIATING THE REASONING GIVEN BY THE CIT(A). IT IS TRITE TO SAY THAT IN THE FACTS AND CIRCUMSTANCES OF PRESENT C ASE ACCOUNT BOOKS ARE MAINTAINED AS THEY WERE ORDINARILY MAINTAINED YEARS AFTER YEARS AND WHICH WERE FOUND TO YIELD A FAIR RESULT. MERE DEVIATION IN GP RATE CANNOT BE A GROUND FOR REJECTING BOOKS OF ACCOUNT AND ENTERING REALM OF ESTIMATE AND GUESSWORK. LO WER GP RATE SHOWN IN THE BOOKS OF ACCOUNT DURING 23 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT CURRENT YEAR AND FALL IN GP RATE WAS JUSTIFIED AND ALSO ADMITTED BY THE AO AS WELL AS CIT(A) AS WELL AS THE TRIBUNAL. THEREFORE FALL IN GP RATE LOST ITS SIGNIFICANCE. HAVING ACCEPTED THE REASON FOR FALL IN GP RATE NAMELY STIFF COMPETITION IN MARKET AND ALSO THAT HUGE LOSS CAUSED IN PARTICULAR TRANSACTION NEITHER THE REJECTION OF BOOKS OF ACCOUNT WAS JUSTIFIED NOR RESORT TO SUBSTITUTION OF ESTIMATED GP BY RULE OF THUMB MERELY FOR MAKING CERTAIN ADDITIONS. WE ARE THEREFORE OF THE OPINION THAT THE FINDINGS ARRIVED AT BY THE TRIBUNAL SUFFERS FROM BASIC DEFECT OF NOT APPLYING ITS MIND TO THE EXISTING MATERIAL WHICH WERE RELEVANT AND WENT TO THE ROOT OF THE MATTER. WHEN ALL THE DATA AND ENTRIES MADE IN THE TRA DING ACCOUNT WERE NOT FOUND TO BE INCORRECT IN ANY MANNER THERE COULD NOT HAVE BEEN ANY OTHER RESULT EXCEPT WHAT HAS BEEN SHOWN BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. WE ARE THEREFORE UNABLE TO SUSTAIN THE ORDER OF THE TRIBUNAL. ACCO RDINGLY THE APPE AL IS ALLOWED 7 . 5 WE FIND THAT THE ASSESSEES CASE IS ALSO SUPPORTED BY THE JUDGEMENT IN DIRECTOR OF INCOME TAX VS. JYOTI FOUNDATION (2013) 357 ITR 388 (D ELHI) WHERE IT IS OBSERVED THAT F ROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME - TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE ACCORDING TO HIM THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME - TAX OFFICER WHO PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME - TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS MAKES ENQUIRIES APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY AC CEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSIONER ON PERUSAL OF THE RECORDS MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE 24 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT INCOM E AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE INCOME - TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE - EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCOME - TAX OFFICER HAS EXERCISED THE Q UASI - JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE FORMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION . . . THERE MUST BE SOME PRIMA FACIE MAT ERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED . . . 7.6. WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE POWERS OF THE COMMISSIONER SET OUT ABOVE. THE INCOME - TAX OFFICER IN THIS CASE HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANAT ION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE ARE PART OF THE RECORD OF THE CASE. EVIDENTLY THE CLAIM WAS ALLOWED BY THE INCOME - TAX OFFICER ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. SUCH DECISION OF THE INCOME - TAX OFFICER CANNOT BE H ELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 7.7. THUS IN CASES OF WRONG OPINION OR FINDING ON MERITS THE CIT HAS TO COME TO THE CONCLUSION AND HIMSELF DECIDE THAT THE ORDER IS ERRONEOUS BY CONDUCTING NECESSARY ENQUIRY IF REQUIRED AND NECESSARY BEFORE THE ORDER UNDER SECTION 263 IS PASSED. IN SUCH C ASES THE ORDER OF THE ASSESSING OFFICER WILL BE ERRONEOUS BECAUSE THE ORDER PASSED IS NOT SUSTAINABLE IN LAW AND THE SAID FINDING MUST BE RECORDED. CIT CANNOT REMAND THE MATTER TO THE ASSESSING OFFICER TO DECIDE WHETHER THE FINDINGS RECORDED ARE ERRONEOUS . IN CASES WHERE THERE IS INADEQUATE ENQUIRY BUT NOT LACK OF ENQUIRY AGAIN THE CIT MUST GIVE AND RECORD A FINDING THAT THE ORDER/INQUIRY MADE IS ERRONEOUS. THIS CAN HAPPEN IF AN ENQUIRY AND VERIFICATION IS CONDUCTED BY THE CIT AND HE IS ABLE TO ESTABLISH AND SHOW THE 25 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT ERROR OR MISTAKE MADE BY THE ASSESSING OFFICER MAKING THE ORDER UNSUSTAINABLE IN LAW. IN SOME CASES POSSIBLY THOUGH RARELY THE CIT CAN ALSO SHOW AND ESTABLISH THAT THE FACTS ON RECORD OR INFERENCES DRAWN FROM FACTS ON RECORD PER SE JUSTIFIED AND MANDATED FURTHER ENQUIRY OR INVESTIGATION BUT THE ASSESSING OFFICER HAD ERRONEOUSLY NOT UNDERTAKEN THE SAME. HOWEVER THE SAID FINDING MUST BE CLEAR UNAMBIGUOUS AND NOT DEBATABLE. THE MATTER CANNOT BE REMITTED FOR A FRESH DECISION TO THE ASSESSING OF FICER TO CONDUCT FURTHER ENQUIRIES WITHOUT A FINDING THAT THE ORDER IS ERRONEOUS. FINDING THAT THE ORDER IS ERRONEOUS IS A CONDITION OR REQUIREMENT WHICH MUST BE SATISFIED FOR EXERCISE OF JURISDICTION UNDER SECTION 263 OF THE ACT. IN SUCH MATTERS TO REMAN D THE MATTER/ISSUE TO THE ASSESSING OFFICER WOULD IMPLY AND MEAN THE CIT HAS NOT EXAMINED AND DECIDED WHETHER OR NOT THE ORDER IS ERRONEOUS BUT HAS DIRECTED THE ASSESSING OFFICER TO DECIDE THE ASPECT/QUESTION. 7.8. THIS DISTINCTION MUST BE KEPT IN MIND BY THE CIT WHILE EXERCISING JURISDICTION UNDER SECTION 263 OF THE ACT AND IN THE ABSENCE OF THE FINDING THAT THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE EXERCISE OF JURISDICTION UNDER THE SAID SECTION IS NOT SUSTAINABLE. IN MOST CASES OF ALLEGED 'INADEQUATE INVESTIGATION' IT WILL BE DIFFICULT TO HOLD THAT THE ORDER OF THE ASSESSING OFFICER WHO HAD CONDUCTED ENQUIRIES AND HAD ACTED AS AN INVESTIGATOR IS ERRONEOUS WITHOUT CIT CONDUCTING VERIFICATION/INQUIRY. THE ORDER OF THE ASSESSING OFFICER MAY BE OR MAY NOT BE WRONG. CIT CANNOT DIRECT RECONSIDERATION ON THIS GROUND BUT ONLY WHEN THE ORDER IS ERRONEOUS. AN ORDER OF REMIT CANNOT BE PASSED BY THE CIT TO ASK THE ASSESSING OFFICER TO DECIDE WHETHER THE ORDER WAS ERRONEOUS. THIS IS NOT PE RMISSIBLE. AN ORDER IS NOT ERRONEOUS UNLESS THE CIT HOLD AND RECORDS REASONS WHY IT IS ERRONEOUS. AN ORDER WILL NOT BECOME ERRONEOUS BECAUSE ON REMIT THE ASSESSING OFFICER MAY DECIDE THAT THE ORDER IS ERRONEOUS. THEREFORE CIT MUST AFTER RECORDING REASONS HOLD THAT THE ORDER IS ERRONEOUS. THE JURISDICTIONAL PRECONDITION STIPULATED IS THAT THE CIT MUST COME TO THE CONCLUSION THAT THE ORDER IS ERRONEOUS AND IS 26 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT UNSUSTAINABLE IN LAW. WE MAY NOTICE THAT THE MATERIAL WHICH THE CIT CAN RELY INCLUDES NOT ONLY THE RECORD AS IT STANDS AT THE TIME WHEN THE ORDER IN QUESTION WAS PASSED BY THE ASSESSING OFFICER BUT ALSO THE RECORD AS IT STANDS AT THE TIME OF EXAMINATION BY THE CIT [SEE CIT VS. SHREE MANJUNATHESWARE PACKING PRODUCTS 231 ITR 53 (SC)]. NOTHING BARS/PROHIB ITS THE CIT FROM COLLECTING AND RELYING UPON NEW/ADDITIONAL MATERIAL/EVIDENCE TO SHOW AND STATE THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS. 7 .9 IN INCOME TAX OFFICER VS. DG HOUSING PROJECTS LTD. (2012) 343 ITR 329 (DELHI) THE COURT OBSERVED TH AT IN THE PRESENT CASE INQUIRIES WERE CERTAINLY CONDUCTED BY THE ASSESSING OFFICER. IT IS NOT A CASE OF NO INQUIRY. THE ORDER UNDER SECTION 263 ITSELF RECORDS THAT THE DIRECTOR FELT THAT THE INQUIRIES WERE NOT SUFFICIENT AND FURTHER INQUIRIES OR DETAILS SHOU LD HAVE BEEN CALLED. HOWEVER IN SUCH CASES AS OBSERVED IN THE CASE OF DG HOUSING PROJECTS LIMITED (SUPRA) THE INQUIRY SHOULD HAVE BEEN CONDUCTED BY THE COMMISSIONER OR DIRECTOR HIMSELF TO RECORD THE FINDING THAT THE ASSESSMENT ORDER WAS ERRONEOUS. HE SH OULD NOT HAVE SET ASIDE THE ORDER AND DIRECTED THE ASSESSING OFFICER TO CONDUCT THE SAID INQUIRY . THUS WE FIND THAT THE UNANIMOUS LEGAL PRINCIPLE ESTABLISHED IS THAT IF BOOKS OF ACCOUNT ARE ACCEPTED AND UNLESS THE BOOKS ARE REJECTED NO ESTIMATE CAN BE RES ORTED TO. THE AO HAS FOLLOWED THIS PRINCIPLE IN THE ASSESSMENT. THE CIT HAS CONSIDERED THE ORDER TO BE ERRONEOUS ONLY BECAUSE THE AO DID NOT RESORT TO ESTIMATION OF CLOSING STOCK. 7 .10 . ON EXERCISE OF POWERS BY CIT U/S 263 THE JURISDICTIONAL HIGH COURT IN COMMISSIONER OF INCOME - TAX V. GABRIEL INDIA LTD. (1993) 203 ITR 108 BOM HAS OBSERVED THAT F ROM A READING OF SUB - SECTION (1) OF SECTION 263 IT IS CLEAR THAT THE POWER OF SUO MOTU REVISI ON CAN BE EXERCISED BY THE COMMISSIONER ONLY IF ON EXAMINATION OF THE RECORDS OF ANY PROCEEDINGS UNDER THIS ACT HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE INCOME - TAX OFFICER IS 'ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVE NUE '. IT IS NOT AN ARBITRARY OR UNCHARTERED POWER. IT CAN BE EXERCISED ONLY ON FULFILMENT OF THE REQUIREMENTS 27 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT LAID DOWN IN SUB - SECTION (1). THE CONSIDERATION OF THE COMMISSIONER AS TO WHETHER AN ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE MUST BE BASED ON MATERIALS ON THE RECORD OF THE PROCEEDINGS CALLED FOR BY HIM. IF THERE ARE NO MATERIALS ON RECORD ON THE BASIS OF WHICH IT CAN BE SAID THAT THE COMMISSIONER ACTING IN A REASONABLE MANNER COULD HAVE COME TO SUCH A CON CLUSION THE VERY INITIATION OF PROCEEDINGS BY HIM WILL BE ILLEGAL AND WITHOUT JURISDICTION. THE COMMISSIONER CANNOT IN ITIATE PROCEEDINGS WITH A VIEW TO STARTING FISHING AND ROVING ENQUIRIES IN MATTERS OR ORDERS WHICH ARE ALREADY CONCLUDED. SUCH ACTION WIL L BE AGAINST THE WELL - ACCEPTED POLICY OF LAW THAT THERE MUST BE A POINT OF FINALITY INALL LEGAL PROCEEDINGS THAT STALE ISSUES SHOULD NOT BE REACTIVATED BEYOND A PARTICULAR STAGE AND THAT LAPSE OF TIME MUST INDUCE REPOSE IN AND SET AT REST JUDICIAL AND QUA SI - JUDICIAL CONTROVERSIES AS IT MUST IN OTHER SPHERES OF HUMAN ACTIVITY. ( SEE PARASHURAM POTTERY WORKS CO. LTD. V. ITO [1 977] 106 ITR 1 (SC) AT PAGE 10 ). AS OBSERVED IN SIRPUR PAPER MILLS LTD. V. ITO [1978] 114 ITR 404 407 (AP) BY RAGHUVEER J. ( AS HIS LORDSHIP THEN WAS ) THE DEPARTMENT CANNOT BE PERMITTED TO BEGIN FRESH LITIGATION BECAUSE OF NEW VIEWS THEY ENTERTAIN ON FACTS OR NEW VERSIONS WHICH THEY PRESENT AS TO WHAT SHOULD BE THE INFERENCE OR PROPER INFERENCE EITHER OF THE FACTS DISCLOSED OR THE WEIGHT OF THE CIRCUMSTANCES. IF THIS IS PERMITT ED LITIGATION WOULD HAVE NO END ' EXCEPT WHEN LEGAL INGENUITY IS EXHAUSTED '. TO DO SO IS ' . . . TO DIVIDE ONE ARGUMENT INTO TWO AND TO MULTIPLY THE LITIGATION '. THE POWER OF SUO MOTU REVISION UNDER SUB - SECTION (1) IS IN THE NATURE OF SUPERVISORY JURI SDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISION UNDER THIS SUBSECTION VIZ. (I) THE ORDER IS ERRONEOUS ; (II) BY VIRTUE OF THE ORDER BEING ERRONEOUS PREJUDICE HAS BEEN CAUSED TO THE INTERESTS OF THE REVENUE. IT HAS THEREFORE TO BE CONSIDERED FIRSTLY AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS. WE FIND THAT THE EXPRESSIONS 'ERRONEOUS ' 'ERRONEOUS ASSESSMENT ' AND ' ERRONEOUS JUDGMENT ' 28 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT HAVE BEEN DEFINED IN BLACK'S LAW DICTIONARY. ACCORDING TO THE DEFINITION 'ERR ONEOUS' MEANS 'INVOLVING ERROR ; DEVIATING FROM THE LAW '. ' ERRONEOUS ASSESSMENT' REFERS TO AN ASSESSMENT THAT DEVIATES FROM THE LAW AND IS THEREFORE INVALID AND IS A DEFECT THAT IS JURISDICTIONAL IN ITS NATURE AND DOES NOT REFER TO THE JUDGMENT OF THE ASSESSING OFFICER IN FIXING THE AMOUNT OF VALUATIO N OF THE PROPERTY. SIMILARLY ' ERRONEOUS JUDGMENT ' MEANS ' ONE RENDERED ACCORDING TO COURSE AND PRACTICE OF COURT BUT CONTRARY TO LAW UPON MISTAKEN VIEW OF LAW OR UPON ERRONEOUS APPLICATION OF LEGAL PRINCIPLES '. FROM THE AFORESAID DEFINITIONS IT IS CLEAR THAT AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN INCOME TAX OFFICER ACTING IN ACCORDANCE WITH LAW MAKES A CERTAIN ASSESSMENT THE SAME CANNOT BE BRANDED AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE ACCORDING TO HIM THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY. THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUT ION OF THE JUDGMENT OF THE COMMISSIONER FOR THAT OF THE INCOME - TAX OFFICER WHO PASSED THE ORDER UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE THE INCOME - TAX OFFICER WHILE MAKING AN ASSESSMENT EXAMINES THE ACCOUNTS MAKES ENQU IRIES APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACCEPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATE HIMSELF. THE COMMISSIONER ON PERUSAL OF THE RECORDS MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY T HE OFFICER CONCERNED WAS ON THE LOWER SIDE AND LEFT TO THE COMMISSIONER HE WOULD HAVE ESTIMATED THE INCOME AT A FIGURE HIGHER THAN THE ONE DETERMINED BY THE INCOME - TAX OFFICER. THAT WOULD NOT VEST THE COMMISSIONER WITH POWER TO RE - EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE INCOME - TAX OFFICER HAS EXERCISED THE QUASI - JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WITH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BEC AUSE THE COMMISSIONER DOES NOT FEEL SATISFIED WITH THE CONCLUSION. IT MAY BE SAID IN SUCH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER IN QUESTION IS PREJUDICIAL TO THE INTERESTS OF THE 29 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIREMENT VIZ. THAT THE ORDER IS ERRONEOUS IS ABSENT. SIMILARLY IF AN ORDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE THEN ALSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE THE SUBJECT - MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT ALSO MUST BE FULFILLED. THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHA T WAS JUST HAS BEEN IMPOSED. AS OBSERVED IN DAWJEE DADABHOY AND CO. V. S. P. JAIN [1957] 31 ITR 872 (CAL) AT PAGE 881 ' THE WORDS ' PREJUDICIAL TO THE INTERESTS OF THE REVENUE ' HAVE NOT BEEN DEFINED BUT IT MUST MEAN THAT THE ORDERS OF ASSESSMENT CHALLENGED ARE SUCH AS ARE NOT IN ACCORDANCE WITH LAW IN CONSEQUENCE WHEREOF THE LAWFUL REVENUE DUE TO THE STATE HAS NOT BEEN REALISED O R CANNOT BE REALISED. IT CAN MEAN NOTHING ELSE '. THE AFORESAID OBSERVATIONS WERE ALSO APPLIED BY THE GUJARAT HIGH COURT IN ADDL. CIT V. MUKUR CORPORATION [1978] 111 ITR 312. WE ARE OF THE OPINION THAT THE AFORESAID INTERPRETATION GIVEN BY THE CALCUTTA HIG H COURT TO THE EXPRESSION 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE ' IS THE CORRECT INTERPRETATION. 8. WE THEREFORE HOLD THAT IN ORDER TO EXERCISE POWER UNDER SUB - SECTION (1) OF SECTION 263 OF THE ACT THERE MUST BE MATERIAL BEFORE THE COMMISSIONER T O CONSIDER THAT THE ORDER PASSED BY THE INCOME - TAX OFFICER WAS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WE HAVE ALREADY HELD WHAT IS ERRONEOUS. IT MUST BE AN ORDER WHICH IS NOT IN ACCORDANCE WITH THE LAW OR WHICH HAS BEEN P ASSED BY THE INCOME - TAX OFFICER WITHOUT MAKING ANY ENQUIRY IN UNDUE HASTE. WE HAVE ALSO HELD AS TO WHAT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. AN ORDER CAN BE SAID TO BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE IF IT IS NOT IN ACCORDANCE WITH T HE LAW IN CONSEQUENCE WHEREOF THE LAWFUL REVENUE DUE TO THE STATE HAS NOT BEEN REALISED OR CANNOT BE REALISED. THERE MUST 30 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT BE MATERIAL AVAILABLE ON THE RECORD CALLED FOR BY THE COMMISSIONER TO SATISFY HIM PRIMA FACIE THAT THE AFORESAID TWO REQUISIT ES ARE PR ESENT. IF NOT HE HAS NO AUTHORITY TO INITIATE PROCEEDINGS FOR REVISION. EXERCISE OF POWER OF SUO MOTU REVISION UNDER SUCH CIRCUMSTANCES WILL AMOUNT TO ARBITRARY EXERCISE OF POWER. IT IS WELL - SETTLED THAT WHEN EXERCISE OF STATUTORY POWER IS DEPENDENT UPON THE EXISTENCE OF CERTAIN OBJECTIVE FACTS THE AUTHORITY BEFORE EXERCISING SUCH POWER MUST HAVE MATERIALS ON RECORD TO SATISFY IT IN THAT REGARD. IF THE ACTION OF THE AUTHORITY IS CHALLENGED BEFORE THE COURT IT WOULD BE OPEN TO THE COURTS TO EXAMINE WHETHE R THE RELEVANT OBJECTIVE FACTORS WERE AVAILABLE FROM THE RECORDS CALLED FOR AND EXAMINED BY SUCH AUTHORITY. OUR AFORESAID CONCLUSION GETS FULL SUPPORT FROM A DECISION OF SABYASACHI MUKHARJI J.(AS HIS LORDSHIP THEN WAS ) IN RUSSELL PROPERTIES PVT. LTD. V. A . CHOWDHURY ADDL. CIT [1977] 109 ITR 229 (CAL). IN OUR OPINION ANY OTHER VIEW IN THE MATTER WILL AMOUNT TO GIVING UNBRIDLED AND ARBITRARY POWER TO THE REVISING AUTHORITY TO INITIATE PROCEEDINGS FOR REVISION IN EVERY CASE AND START RE - EXAMINATION AND FR ESH ENQUIRIES IN MATTERS WHICH HAVE ALREADY BEEN CONCLUDED UNDER THE LAW. AS ALREADY STATED IT IS A QUASI - JUDICIAL POWER HEDGED IN WITH LIMITATION AND HAS TO BE EXERCISED SUBJECT TO THE SAME AND WITHIN ITS SCOPE AND AMBIT. SO FAR AS CALLING FOR THE RECORDS AND EXAMINING THE SAME IS CONCERNED UNDOUBTEDLY IT IS AN ADMINISTRATIVE ACT BUT ON EXAMINATION ' TO CONSIDER ' OR IN OTHER WORDS TO FORM AN OPINION THAT THE PARTICULAR ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS A QUASI - JUDICIAL ACT BECAUSE ON THIS CONSIDERATION OR OPINION THE WHOLE MACHINERY OF RE - EXAMINATION AND RECONSIDERATION OF AN ORDER OF ASSESSMENT WHICH HAS ALREADY BEEN CONCLUDED AND CONTROVERSY WHICH HAS BEEN SET AT REST IS SET AGAIN IN MOTION. IT IS AN IMPORTANT DECISION AND THE SAME CANNOT BE BASED ON THE WHIMS OR CAPRICE OF THE REVISING AUTHORITY. THERE MUST BE MATERIALS AVAILABLE FROM THE RECORDS CALLED FOR BY THE COMMISSIONER. WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE POWERS OF THE COMMISSIONER SET OUT ABOVE. THE INCOME - TAX OFFICER IN THIS CASE HAD MADE 31 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT ENQUIRIES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING. ALL THE SE ARE PART OF THE RECORD OF THE CASE. EVIDENTLY THE CLAIM WAS ALLOWED BY THE INCOME - TAX OFFICER ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. SUCH DECISION OF THE INCOME TAX OFFICER CANNOT BE HELD TO BE ' ERRONEOUS ' SIMPLY BECAUSE IN HIS ORDE R HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. MOREOVER IN THE INSTANT CASE THE COMMISSIONER HIMSELF EVEN AFTER INITIATING PROCEEDINGS FOR REVISION AND HEARING THE ASSESSEE COULD NOT SAY THAT THE ALLOWANCE OF THE CLAIM OF THE ASSESSEE WAS ER RONEOUS AND THAT THE EXPENDITURE WAS NOT REVENUE EXPENDITURE BUT AN EXPENDITURE OF CAPITAL NATURE. HE SIMPLY ASKED THE INCOME - TAX OFFICER TO RE - EXAMINE THE MATTER. THAT IN OUR OPINION IS NOT PERMISSIBLE. FURTHER INQUIRY AND/OR FRESH DETERMINATION CAN BE DIRECTED BY THE COMMISSIONER ONLY AFTER COMING TO THE CONCLUSION THAT THE EARLIER FINDING OF THE INCOME - TAX OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WITHOUT DOING SO HE DOES NOT GET THE POWER TO SET ASIDE THE ASSESSMENT. IN T HE INSTANT CASE THE COMMISSIONER DID SO AND IT IS FOR THAT REASON THAT THE TRIBUNAL DID NOT APPROVE HIS ACTION AND SET ASIDE HIS ORDER. WE DO NOT FIND ANY INFIRMITY IN THE ABOVE CONCLUSION OF THE TRIBUNAL. 8.1 . THE APEX COURT IN MALABAR INDUSTRIAL CO. LTD. V. COMMISSIONER OF INCOME - TAX (2000) 243 ITR 83 SC HAS CATEGORICALLY OBSERVED THAT E VERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F 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 REVENUE UNLESS THE VIEW TAKEN BY THE INCOME - TAX OFFICER IS UNSUSTAINABLE IN LAW. 32 . ITA NO. 47 /PNJ/2013 (A.Y.2009 - 10) MR. K. N. RAMCHANDRA NAIDU VS. CIT 8.2. IN THE INSTANT CASE WE FIND THAT THE COURSE ADOPTED BY THE AO OF NOT RESORTING TO O R ATTEMPTING ESTIMATE AFTER FIRST ACCEPTING THE BOOKS AS CORRECT AND COMPLETE IS THE MANDATE OF LAW. THUS THE COURSE ADOPTED BY THE AO WAS FULLY JUSTIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN FACT THE AO WOULD HAVE BEEN IN ERROR IF HE HAD RESO RTED TO ESTIMATE WHILE THE BOOKS WERE FOUND CORRECT. THUS THE VIEW ADOPTED BY THE AO WAS THE ONLY VIEW SUSTAINABLE IN LAW. 8.3 IN VIEW OF THIS WE FIND THAT THE ORDER PASSED BY THE AO WAS NOT ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE IN ANY WAY. ACCORDINGLY THE CIT HAD NO JURISDICTION TO TAKE ACTION U/S 263. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 9 . IN THE R ESULT APP EA L FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 8 .11.2014. S D / - S D / - ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 2 8 .11.2014 P.S. - *PK* COPY TO: ( 1 ) APPELLANT ( 2 ) RESPONDENT ( 3 ) CIT CONCERNED ( 4 ) CIT(A) CONCERNED ( 5 ) D.R ( 6 ) GUARD FILE TRUE COPY BY ORDER