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TMI Blog2014 (11) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... bills and vouchers are not available, AO proposed to reject the book result and estimate the profit and accordingly assessment was completed by estimating the profit at 5.5% clear of deductions and expenses - it cannot be said that books of account of assessee were not rejected - CIT(A) was correct in holding that once books of account are rejected, the AO cannot reopen the assessment for making specific disallowances relying upon the same books of account – relying upon Indwell Constructions Vs. CIT [1998 (3) TMI 121 - ANDHRA PRADESH High Court] - initiation of proceeding u/s 147 of the Act is not valid, thus, the order of the CIT(A) is upheld – Decided against revenue. - ITA No. 296/Hyd/2014 - - - Dated:- 29-10-2014 - Shri P. M. Jagtap And Shri Saktijit Dey,JJ. For the Petitioner : Shri B. Rama Krishna For the Respondent : Shri T. Chaitnya Kumar ORDER Per Saktijit Dey, J. M. This is an appeal by the Department against the order dated 28/10/2013 of the CIT(A)-V, Hyderabad for the assessment year 2007-08. 2. The effective grounds raised by the department are as under: ii. The CIT(A) not correct in holding the AO cannot reopen the assessment u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the payments of ₹ 3,88,33,495 to sub-contractors, but, AO rejecting submissions of assessee, completed the assessment vide order dated 07/01/.2013 by disallowing the amount of ₹ 3,88,33,495 u/s 40(a)(ia) of the Act. Being aggrieved of such disallowance made by AO, assessee preferred appeal before the CIT(A) by challenging the assessment order both on the issue of validity of proceeding u/s 147 as well as on the merits of the disallowance made u/s 40((a)(ia). 4. In course of hearing of appeal, assessee challenged the validity of proceeding initiated u/s 147 and submitted that the original assessment u/s 143(3) of the Act was completed by AO by estimating the net profit after rejecting books of account without making any disallowance u/s 40(a)(ia) of the Act. It was submitted that CIT though initiated proceeding u/s 263 of the Act for alleged non-consideration of disallowance u/s 40(a)(ia) on the sub-contract payments by AO, but, after considering submissions of assessee, CIT dropped the proceeding u/s 263. Thus, it was submitted by assessee that the higher authority i.e. CIT having dropped the proceeding initiated u/s 263 on the very same issue the AO could not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed AR submitted that even though the issue was also considered by CIT while initiating proceeding u/s 263 of the Act, however, after considering the assessee s detailed explanation, CIT dropped the proceeding u/s 263 by accepting assessee s explanation. Thus, it was submitted that when a higher authority has dropped the proceeding on the very same issue, AO could not have reopened and completed the assessment again on the same issue. Further, learned AR submitted that once the books of account were rejected and assessment was completed by estimating the profit, all the statutory disallowances/deductions as provided u/s 30 to 43D is deemed to have been taken care of in view of the ratio laid down in the decision of Indwell Constructions Vs. CIT (supra). Therefore, it was submitted, AO was not justified in making disallowance u/s 40(a)(ia) when profit has been estimated by rejecting books of account. In this context, he relied on the decision of ITAT, Hyderabad Bench in case of Teja Constructions Vs. ITO. 7. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. We have also examined the decisions r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming from the ledger account enclosed with the return. For failure to deduct tax u/s 194C of IT Act the entire expenditure was required to be disallowed u/s 40(a)(ia) of IT Act, 1961. As can be seen from the reasons recorded, the issue relating to reopening of assessment is same as the issue on which revision proceeding was initiated by CIT. It further transpires from record that CIT after considering the submissions of assessee in reply dated 19/09/11 to the show cause notice issued u/s 263, dropped the proceeding initiated u/s 263, which was communicated to assessee vide letter dated 19/02/13, a copy of which is placed at page 1 of assessee s paper book. Therefore, when CIT has dropped the proceedings u/s 263 on the very same issue on which reopening of assessment was made, AO was not correct in either initiating proceeding u/s 147 or completing the assessment by making disallowance u/s 40(a)(ia) on subcontract payments. Furthermore, on a perusal of the reasons recorded, extracted hereinabove, it is to be noted that AO has reopened the assessment on the basis of P L account, and ledger account copies enclosed along with return of income, which not only formed part of the reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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