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TMI Blog2013 (2) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee are directed against order dt. 29th Oct., 2009 of CIT-II, Jodhpur and dt 9th March, 2012 of CIT(A), Jodhpur for the asst. yr. 2006-07. 2. The appeal against the order dt. 29th Oct., 2009 relates to the order under sec. 263 while the another appeal is against the order passed by CIT(A) on the appeal of the assessee against the assessment framed subsequently by giving effect to the order under sec. 263 of the Act dt. 29th Oct., 2009. 3. These appeals were heard together, so these are being disposed of by this common order for the sake of convenience. 4. First we will deal with the appeal in ITA No. 119/Jd/2012. 5. Following grounds have been raised in this appeal: "1. That the order passed by the learned CIT under sec. 263 of the Act is illegal, unwarranted and is uncalled for and therefore, needs to be quashed because there is no evidence or material or basis to arrive at the conclusion that the AO passed his order in a casual manner in undue hurry and further erred in arriving at the conclusion that the learned AO did not consider the applicability of sec. 40(a)(ia) and sec. 194C(2) of the Act. The learned AO has applied his mind and did arrive at the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned CIT exercised the powers under sec. 263 of the Act. Accordingly, a notice under sec. 263 dt. 6th March, 2009 was issued calling upon the assessee to explain as to why the assessment order should not be modified/set aside/cancelled or enhanced. The learned CIT pointed out that the balance sheet as on 31st March, 2006 revealed a sum of ₹ 1,33,62,907 as liability on account of creditors for labour and staff which consisted of 47 parties with various amounts each exceeding ₹ 1 lakh. According to him, the Explanation filed and names itself showed that all the parties were the sub-contractors to whom various works were assigned and the assessee did not maintain any wages register and the question which arose for consideration and which escaped the attention of the AO was the deduction of tax at source since the assessee made payment to the sub-contractor/supervisors, tax was admittedly required to be deducted as per provisions of sec. 194C of the Act. The learned CIT also pointed out that the major work of the assessee related to wire fencing at the border where major component of cost was contributed by barbed wires and poles, etc. but there was nothing on record o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest of Revenue. 18. To sum up, I hold that the assessment order under reference is erroneous as also prejudicial to the interest of Revenue to the extent as stated above in the preceding paras. The assessment order is accordingly set aside with the direction to the AO to examine the issues as mentioned above afresh and pass a well reasoned fresh order depending upon the facts, inquiries, investigations and legal aspects of the case after providing opportunity of being heard to the assessee. 19. This order is passed under sec. 263 of the IT Act, 1961. If the assessee is not satisfied, he can appeal against this order before the Hon'ble Tribunal, Jodhpur Bench, 69, 1st Polo, Paota, Jodhpur within the prescribed time-limit as mentioned in sec. 253 of the IT Act, 1961." 8. Now, the assessee is in appeal. 9. The learned counsel for the assessee submitted that the learned CIT had not given any basis and also had not recorded any finding to the fact that the order of the AO was erroneous or it was prejudicial to the interest of Revenue, therefore, it does not satisfy both the prerequisites of sec. 263 of the Act. It was contended that the AO completed the assessment under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that as against the approach as adopted by the AO, the learned CIT chose to suggest item-wise additions and accordingly suggested for an abnormally high estimation of the assessee's income which was not at all justified. It was pointed out that the learned CIT issued notice under sec. 263 of the Act on 6th March, 2009, However, none of the issues as raised by him suggested that the order of AO was erroneous. It was stated that the assessee had duly replied to the said notice explaining in details its position. Our attention was drawn at page Nos. 29 to 48 of the assessee's paper book, which is the copy of the reply of the assessee dt. 13th May, 2009 given to the learned CIT. It was emphasised that the AO had pointed out various defects in the books of account of the assessee and he accordingly rejected the books of account and decided to apply GP rate of 9.50 per cent as against 8.50 per cent as declared by the assessee, after examination of the books of account and records and considering the defects therein. It was submitted that once the books of account were rejected and income was estimated by applying the GP rate and allowing certain specific disallowances, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd GP declared was 9.60 per cent as against this in the asst. yr. 2006-07, the turnover was ₹ 1,201.60 lacs and GP declared was 8.50 per cent and the AO in view of the increase in the turnover decided to apply GP rate of 9.50 per cent as against 10 per cent applied in the earlier year and this decision of the AO was after proper examination and evaluation of the facts and there was no discrepancy or error. It was submitted that the AO rejected the books of account and estimated the net income of the assessee. There. was no justification to suggest item-wise addition in respect of the rejected books of account. The reliance was placed on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Ganpat Ram Bishnoi [2005] 296 ITR 292 (Raj). It was stated that the AO had concluded the assessment by rejecting the books of account (and) as against this, the learned CIT in his order under sec. 263 of the Act suggested of doing various inquiries and thereby making addition and had taken altogether different approach of the assessment which is not permitted by the provisions of sec. 263 of the Act. Reliance was placed on the following case law. (i) CIT v. R.K. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied, there was no justification of going for separate additions on the alleged basis of high expenditure on material and labour. It was stated that the assessee had been consistently following the practice of not taking any closing stock and there was no opening stock and besides that the closing stock of the current year will reduce the income of the next year, thus overall, there was no chance of any loss of the revenue. It was pointed out that the bank accounts were duly reconciled and there was acceptance of the deposit in cash, the auditors had given the details of the loans/deposits in the tax audit report. There was no adverse comment, this aspect was also examined by the AO while completing the assessment, there was no violation of provisions of sec. 40A(3) of the Act, therefore, the directions given by learned CIT are merely on the basis of suspicion. It was submitted that the AO had examined the complete books of account and records and also copies of account of the parties and thus completed the assessment. Therefore, the valuation of the parties account was also a suspicion of the learned CIT. As regards to the transport payments, it was stated that the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the submissions of both the parties and carefully gone through the material available on record. In the present case, it is an admitted fact that the AO framed the assessment under sec. 143(3) of the Act and while doing so he rejected the books of account by invoking the provisions of sec. 145(3) of the Act. The AO scrutinised the case, raised various queries and when he was not fully satisfied, books of account were rejected. After rejecting the books of account, the income was determined by adopting net profit rate of 9.5 per cent. However, the learned CIT thereafter exercised the powers under sec. 263 of the Act. He felt that the assessment order passed by the AO was erroneous insofar as prejudicial to the interest of the Revenue. The learned CIT pointed out that the assessee firm had not maintained stock register and material consumed on day-to-day basis. In the absence thereof, the consumption of material was not fully verifiable. The learned CIT was of the view that separate addition was to be made, for non-part disclosure of closing stock of raw material and/or work-in-progress. However, this fact was already verified by the AO while framing the assessment and this defect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artments and the TDS was deducted from all the payments of the assessee. The learned CIT(A) did not doubt the receipts of the assessee, however, pointed out certain defects which were already considered and pointed out by the AO while framing the assessment under sec. 143(3) of the Act as the learned CIT(A) pointed out certain defects in the books of account and similarly the AO also pointed out various defects in the books of account and rejected the books of account by invoking the provisions of sec. 145(3) of the Act. The learned CIT categorically stated in para 4 of the impugned order that "once the books of account are rejected in any case, the most appropriate GP to be applied is the rate which exists/applied in the immediately preceding assessment year. Alternatively, a particular GP rate can be applied on the basis of results of similar cases. However, in the instant case, neither the AO nor the assessee placed on record results of any comparable cases. Thus, the only alternative available with the AO was to look into the past records of the appellant. This view has beer consistently followed by the Hon'ble jurisdictional Tribunal Bench as well as various other Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the preceding year. So it cannot be said that the AO had not applied his mind while applying the GP rate of 9.5 per cent. The Hon'ble Rajasthan High Court in the case of Ganpat Ram Bishnoi (supra) held as under : "The jurisdiction under sec. 263 of the IT Act, 1961, is wide and is meant to ensure that due revenue reaches the public treasury. If it does not on account of some mistake of law or fact committed by the AO, the CIT can cancel that order and require the concerned AO to pass a fresh order in accordance with law after holding a detailed enquiry. Jurisdiction under sec. 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more Enquiry ought to have been conducted to find something." It has further been held as under : "That when enquiry had been conducted and the AO had reached a particular conclusion, though reference to such enquiries had not been made in the order of assessment, it was apparent from the record, without anything to show how and why the enquiry conducted by the AO was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledger, journal and vouchers etc. were produced which were examined on test-check basis and the case was discussed with the assessee, thereafter the AO had taken a particular view by rejecting the books of account. However, the learned CIT, in revisional proceedings had taken a different view; on the one hand he said that the books were not reliable as there were various defects in those books but on the contrary he suggested to make the different addition on the basis of defects in the books of account and simultaneously suggested to apply the GP rate of 10 per cent instead of 9.5 per cent applied by the AO, therefore, the order passed by learned CIT under sec. 263 of the Act is not sustainable 19. The Hon'ble Supreme Court in the case of Gabrial India Ltd. (supra) held as under : "The ITO in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given a detailed explanation in that regard by a letter in writing. All these were part of the record of the case. Evidently, the claim was allowed by the ITO on being satisfied with the explanation of the assessee. This decision of the ITO could not be held to be ..... 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