2021 (8) TMI 21 - AT - Income Tax

Revision u/s 263 - disallowance u/s 40(a)(ia) - HELD THAT - Accounts of the assessee had made the assessment in the manner provided in Sec. 144, and thus, after rejecting the book results had applied the average of the net profit rate of 8.17% to the gross receipts and assessed his income at an estimated figure. We, thus, are of the considered view, that as the A.O while assessing the income on an estimate basis had at no stage considered the assessee s claim for deduction of the impugned expenses on which TDS is alleged by the Pr. CIT to have not been deducted, thus, no disallowance u/s 40(a)(ia) even otherwise could have been made. As the A.O vide his order passed u/s 143(3) r.w.s 147, dated 25.03.2015 had after estimating the assesee s income not separately disallowed the aforementioned expenses u/s 40(a)(ia), thus, by so doing had taken a possible view which as on the date of passing of the assessment order was supported by the aforementioned orders of the Hon ble High Courts and that of the coordinate benches of the Tribunal, therefore, the Pr. CIT was clearly divested of his jurisdiction to have revised the said order in exercise of the powers that were vested with him u/s 263 of the Act. Our aforesaid view that where on the date of framing of assessment two views qua an issue were possible, and the A.O had taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the A.O is unsustainable in law, is supported by the judgment in the case of CIT Vs. Max India Ltd. 2007 (11) TMI 12 - SUPREME COURT - As such, not finding favour with the order passed by the Pr. CIT u/s 263 of the Act, dated 23.03.2017, we herein set-aside the same and restore the order passed by the A.O u/s 143(3) r.w.s 147, dated 25.03.2015.

Issues Involved:
1. Adequate opportunity of being heard.
2. Jurisdiction and legality of the order under Section 263.
3. Erroneous and prejudicial assessment order.
4. Rejection of books of accounts and estimation of income.
5. Condonation of delay in filing the appeal.

Detailed Analysis:

1. Adequate Opportunity of Being Heard:
The assessee contended that the Principal Commissioner of Income Tax (Pr. CIT) erred in passing the order under Section 263 without providing an adequate opportunity of being heard. However, the tribunal did not find any substantial discussion on this issue, indicating that the primary focus was on other grounds of appeal.

2. Jurisdiction and Legality of the Order under Section 263:
The appellant argued that the Pr. CIT's order under Section 263 was bad in law, erroneous, invalid, void, and in excess of jurisdiction. The tribunal examined whether the Pr. CIT was correct in revising the assessment order passed by the Assessing Officer (A.O) under Section 143(3) read with Section 147. The tribunal concluded that the Pr. CIT's revision was not justified as the A.O had taken a possible view supported by judicial precedents, thus the Pr. CIT was divested of his jurisdiction to revise the order.

3. Erroneous and Prejudicial Assessment Order:
The Pr. CIT held that the A.O's failure to disallow expenses under Section 40(a)(ia) rendered the assessment order erroneous and prejudicial to the interests of the revenue. The tribunal noted that the A.O had estimated the business income by applying an average net profit rate to the gross receipts after rejecting the books of accounts. The tribunal held that once the income is estimated, no separate disallowance of expenses debited in the profit and loss account can be made, as it would lead to a distorted assessment. The tribunal cited various judicial pronouncements to support this view, including CIT vs. Banwarilal Bansidhar and CIT vs. Smt. Santosh Jain.

4. Rejection of Books of Accounts and Estimation of Income:
The A.O had rejected the books of accounts due to non-maintenance and lack of supporting documents, estimating the business income based on an average net profit rate. The tribunal upheld that the A.O's method was a reasonable approach given the circumstances. The tribunal emphasized that the A.O could not be expected to separately disallow expenses after rejecting the books and estimating income, as supported by judicial precedents.

5. Condonation of Delay in Filing the Appeal:
The appeal involved a delay of 504 days. The assessee explained that the delay was due to the order being served on his wife, who was ill and bedridden, leading to inadvertent omission. The tribunal found the explanation credible and bonafide, supported by an affidavit and judicial precedents favoring condonation of delay for genuine reasons. The tribunal condoned the delay, allowing the appeal to be heard on merits.

Conclusion:
The tribunal allowed the assessee's appeals for A.Y. 2008-09 to A.Y. 2011-12, setting aside the Pr. CIT's orders under Section 263 and restoring the A.O's assessment orders. The tribunal's decision was based on the principle that once income is estimated, separate disallowances of expenses debited in rejected books cannot be made, and the Pr. CIT's revision was not justified as the A.O had taken a possible view supported by judicial precedents.

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