2014 (3) TMI 1113 - AT - Income Tax

Revision u/s 263 - Held that - CIT cannot seek to substitute his opinion on the percentage of profit that has to be applied in the place of the opinion of the Assessing Officer under the garb of revisionary proceedings u/s 263 specifically when the AO has at page 4 and 5 of his order discussed the issue in detail and passed an order after due application of mind. Thus, the assessee succeeds on this ground. Whether the interest on deposits made out of funds collected from purchasers / customers is to assess under the head income from business or under the head income from other sources - Held that - We find that the assessee has consistently disclosing the interest income under the head income from business for the last three previous years, and the Revenue has been accepting the same as such. Basically, on the principle of consistency, this should not be disturbed unless the facts warrant such action. Thus, the issue whether interest income on deposits made out of surplus money from advance raised for purchase is assessable under the head income from business or not has been adjudicated in favour of the assessee by those two High Courts. Hence the view taken by the AO is a possible view. Under the circumstances, the learned CIT cannot substitute the possible view of the Assessing Officer with his own view in an order passed u/s 263 of the Act as held by various High Courts as well as the Hon ble Supreme Court. Thus, we uphold the contentions of the assessee and cancel the order of the CIT. - Decided in favour of assessee.

Summary

Issues Involved:
1. Estimation of net profit from construction business.
2. Classification of interest income earned from banks.

Issue-wise Detailed Analysis:

1. Estimation of Net Profit from Construction Business:
The Commissioner of Income-tax (CIT), Vijayawada, revised the Assessing Officer's (AO) order under section 263 of the Income Tax Act, 1961, concluding that the AO erred in estimating the net profit from the assessee's construction business at 8% and allowing depreciation thereon. The CIT argued that the Hyderabad Bench of the Tribunal consistently approved an estimation of profit at 12.5% of the net receipt on the total turnover. The CIT set aside the AO's order and directed a re-assessment with an income estimation at 12.5%.

The assessee appealed, arguing that the CIT exceeded his jurisdiction and that the AO's estimation was a possible view based on the facts and circumstances of the case. The assessee cited various case laws to support the argument that such a revision is not permitted in law. The Tribunal held that the CIT cannot substitute his opinion on the percentage of profit in place of the AO's opinion under revisionary proceedings u/s 263, especially when the AO discussed the issue in detail and passed an order after due application of mind. The Tribunal referenced previous judgments, including Mookambica Construction and V.D.Reddy & Co. v. DCIT, which established that the CIT cannot revise an AO's order if the AO has taken a plausible view after proper application of mind. Thus, the Tribunal ruled in favor of the assessee on this ground.

2. Classification of Interest Income Earned from Banks:
The CIT also concluded that the AO erred in treating the interest income earned by the assessee from banks as business income, asserting that it should be assessed under the head 'income from other sources'. The assessee contended that advances received from customers were invested in fixed deposits for short periods, and the interest earned should be considered 'income from business'. The assessee argued that the interest income had been consistently offered under 'income from business' in the past three years and accepted by the Revenue. The assessee cited decisions from the Bombay High Court and Kolkata High Court supporting the view that interest on deposits made out of advances received from purchasers should be assessable as 'business income'.

The Tribunal found that the assessee had consistently disclosed interest income under 'income from business' and the Revenue had accepted this classification. The Tribunal referenced decisions from the Bombay High Court in the case of LOK Holdings and the Kolkata High Court in Eveready Industries India Ltd., which supported the assessee's position. The Tribunal concluded that the AO's view was a possible view, and the CIT could not substitute it with his own view under section 263. Therefore, the Tribunal upheld the assessee's contention and canceled the CIT's order.

Conclusion:
The Tribunal allowed the assessee's appeal, ruling that the CIT's revisionary order under section 263 was not justified. The AO's estimation of net profit at 8% and classification of interest income as 'business income' were considered possible views based on the facts and circumstances of the case. The Tribunal emphasized that the CIT cannot substitute his opinion for that of the AO when the AO has applied his mind and taken a plausible view.