2014 (7) TMI 1100 - AT - Income Tax

Deduction on account of interest and remuneration to partners - Commissioner of Income-tax give a show-cause notice under section 263 alleging that there was inability to produce evidence in support of its claim of expenses and acceptance of net profit of 5.58 per cent. of the gross receipts - Held that - Assessing Officer called for the information as submitted vide order sheet entry dated March 16 2009 which was responded by the expressing inability to provide the said evidences of expenses and the fact is noted by the learned Assessing Officer in his assessment order. In the opinion of the learned Assessing Officer books of account were not reliable and accordingly he proceeded after rejecting the books of account and estimating the income by applying certain percentage of profit on the gross receipts. To this extent we are of the view that he has not committed any error though the enquiries has to be closed at some stage and the learned Commissioner of Income-tax cannot transgress the jurisdiction under section 263 by mentioning that no proper enquiry has been made and he is not authorised to substitute his opinion for that of the learned Assessing Officer. Commissioner of Income- tax is not justified in cancelling the assessment since we do not find the order of the learned Assessing Officer as erroneous in so far prejudicial to the interests of the Revenue and also the assessment has not been made in the present case under section 144 so as to warrant no deduction under section 184(5) of the Act and such deduction of interest and remuneration were available under section 40(b) of the Act. Accordingly we cancel the order of the Commissioner of Income-tax under section 263 of the Act - Decided in favour of assessee.

Summary

Issues:
Assessment based on estimated profit percentage - Jurisdiction under section 263 - Lack of proper enquiry by Assessing Officer - Validity of cancellation of assessment order - Deduction of interest and remuneration under section 40(b) of the Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Patna arose from the order of the Commissioner of Income-tax, Patna, for the assessment year 2007-08. The assessee challenged the assessment, contending that it was unjust, unwarranted, and bad in law. The Assessing Officer had estimated the assessee's net profit at 5.58% of gross turnover from civil contract work, added interest income separately, and allowed deductions for interest and remuneration to partners based on a previous Tribunal decision. The Commissioner issued a show-cause notice under section 263, questioning the lack of evidence for expenses and the acceptance of the profit percentage. The Assessing Officer's failure to conduct further inquiries and the subsequent cancellation of the assessment led to the appeal.

During the proceedings, the assessee's counsel argued citing various authorities, while the senior standing counsel relied on the Commissioner's order. The Tribunal analyzed the case in light of the Jain Brothers v. Union of India case, emphasizing the need for an error resulting in prejudice to the Revenue to invoke section 263. It was noted that the Assessing Officer had sought information, which the assessee failed to provide satisfactorily, leading to profit estimation based on gross receipts. The Tribunal held that the lack of proper inquiry did not render the Assessing Officer's order erroneous, citing the decision in CIT v. Girdhari Lal. The Tribunal found the Commissioner unjustified in canceling the assessment, as the order was not prejudicial to Revenue interests and deductions were correctly made under section 40(b) of the Act.

In conclusion, the Tribunal allowed the assessee's appeal, canceling the Commissioner's order under section 263. The decision was based on the lack of error by the Assessing Officer and the validity of deductions under the relevant section of the Act. The judgment was pronounced on July 4, 2014, in favor of the assessee.