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TMI Blog2008 (8) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... en made in cash, as found by AO on subsequent inquiry which framing assessment u/s 263/143(3). There is also no justification for computing the profit at the rate of 8 per cent when the reasonable addition has already been made by the AO after taking into account various facts and circumstances of the case Including nature of assessee s business, reason for decline in GP rate, possibility of over statement of expenses or that of unverifiable nature of expenses etc. Hence, the order passed by CIT u/s 263 is set aside and the appeal of the assessee is allowed. In the result, the appeal of the assessee stands allowed. - I.P. BANSAL, JUDICIAL MEMBER AND R.C. SHARMA, ACCOUNTANT MEMBER For the Petitioner : Ashwani Kumar For the Respondent : L.M. Pandey ORDER R.C. Sharma, Accountant Member. This is an appeal filed by the assessee against the order passed by CIT under section 263, dated 28-9-2007 for the assessment year 2005-06. 2. Rival contentions have been heard and records perused. Brief facts are that the assessee is a partnership firm engaged in the business of civil contractor. For the relevant assessment year 2005-06, under consideration, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessment framed by the Assessing Officer is erroneous in as much as prejudicial to the interest of revenue. One of the issues raised by the Commissioner was with respect to not making of inquiry by the Assessing Officer with regard to the genuineness of expenses claimed and the disallowance to be made under section 40A(3). The assessee filed written reply to the show cause notice dated 6-9-2007 and 17-9-2007. The contention of the Ld. A.R. was that during the course of scrutiny assessment, the Assessing Officer has called for the books of accounts, which were produced and the same was examined by the Assessing Officer. The Ld. A.R. drawn our attention to the order sheet the assessment proceedings, as placed in the paper book which, indicates that during the course of scrutiny assessment the assessee was called upon to produce vouchers of expenses, which were produced before the Assessing Officer, other details called by the Assessing Officer with regard to expenses under various heads like freight expenses, salary to staff, interest charged by the bank on loan and the bank certificate showing balance as at the year ending 31-3-2005 and 31-3-2004, the same was furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed cumulatively and severally by referring to the various decisions, Ld. A.R. contended that no recourse to the provisions of section 263 was called for and warranted as the said twin conditions were not fulfilled. As per the Ld. A.R., the exact error discovered by the CIT have to be intimated by him to the assessee while passing the order under section 263, the Commissioner cannot travel beyond the error which he feel he has discovered on the file. He. relied on the ratio laid down by the A.P. High Court in the case of CIT v. G.K. Kabra [1995] 211 ITR 336 wherein their lordships have held that exact error discovered should be intimated to the assessee. Further reliance was placed on the Madras High Court in the case of Silver Clouds Estates (P.) Ltd. v. State of Tamil Nadu [1996] 219 ITR 244, wherein their lordships have clearly held that Commissioner of Income-tax must come out with the relevant material and the assessee must be afforded opportunity to be heard. He also relied on the ratio laid down by the Hon ble Supreme Court in case of Malabar Industries Co. Ltd. v. CIT [2000] 243 ITR 83 wherein it was held that every loss of revenue as a on sequence of the order of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven for issuance of notice under section 263. As regards the disallowable item under section 40A(3), Ld. A.R. submitted that there was not even a single payment which was made, in cash exceeding ₹ 20,000. Audit report under section 44AB was duly attached along with returned income and the auditors had not pointed out any instance of cash payment having been made in the excess of ₹ 20,000. The CIT had sought to take some item in the show cause notice out of the details of purchases made by the assessee firm and while drawing the list, Commissioner referred to all items mentioned in the list exceeding ₹ 20,00 as if all such items were such which warranted disallowance under section 40A(3). As per Ld. A.R., in the list of expenses, it was only the total amount of purchases made by the party vide a particular bill and not entire payment had been made in cash exceeding ₹ 20,000. As per the Ld. A.R., the assessment was framed by the Assessing Officer was a sort of agreed assessment in which addition of ₹ 5.60 lacs was made subject to no penalty. In case of CIT v. Satpal Agarwal [2007] 293 ITR 90, lordships of Punjab Haryana High Court held that wherein ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estigation/inquiry with regard to the fall in GP rate and the expenses so incurred with respect to the contracts executed. He placed reliance on the decision of Tara Devi v. CIT [1973] 88 ITR 323 (SC), Gee Vee Enterprises v. Addl CIT [1975] 99 ITR 375 (Delhi) and Duggal Co. v. CIT [1996] 222 ITR 456 (Delhi). He further relied oil the various observations made by the CIT in his order dated 28-9-2007 and contended that in view the assessee fails to produce books of accounts before CIT, no fault can be found in the order of CIT for directing the Assessing Officer to apply net profit rate of 8 per cent which is permissible under section 44AD of the Income-tax Act, 1961. 6. We have considered the rival contentions carefully and gone through the orders of authorities below and also deliberated on the case laws cited by Ld. A.R. Ld. D.R. and also the case laws referred by Cit in his order passed under section 263, and found from the record that assessee s case was selected for scrutiny because of gross contract receipt exceeded ₹ 2.00 crores and net income declared was less has 5 per cent of gross contract receipts. As per the observations of the Assessing Officer in his orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, without showing that addition of ₹ 5. 60 lakhs made by the Assessing Officer was not correct. Profit rate of at the rate of 8 per cent is to be applied where assessee does not maintain books of accounts and the turnover is less than ₹ 40 lakhs. However, in the instant case, the turnover was 6.21 crores and assessee has maintained proper books of accounts which were duly audited and free from any adverse comments from auditors, Audited P L account, balance sheet etc., were also filed along with the return of income and the Assessing Officer has also called the assessee to produce these books of accounts which were produced before him and test checked. Merely because after completion of scrutiny assessment the assessee has destroyed the same, and consequently could not he produced before of, will not disprove the facts that these books of accounts were not maintained or not audited, or not produced before the Assessing Officer, or not verified by the Assessing Officer. Action of CIT for applying 8 per cent net profit, which application under section 44AD, was not justified. The Hon ble Rajasthan High Court in the case of Sriram Jhawarlal v. ITO 175 DET 229, observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer is found to be not sustainable in law. Where an Assessing Officer acting in accordance with law passes some order, same cannot be branded as erroneous by the Commissioner if he is of other view or in the opinion of the Commissioner the order passed by the Assessing Officer is weak or should have made detailed order. Section 263 does not visualize a case of substitution of judgement of Commissioner for that the Assessing Officer who passed the order, unless the order of Assessing Officer is held to be erroneous causing prejudice to the interest of revenue. The intention of the legislature under section 263 is to empower the CIT to have a supervisory jurisdiction, and the same can be exercised only if both the circumstances specified therein exist. The CIT alleged that in the initial stage as per notings in the order sheet, the Assessing Officer has proposed disallowance of ₹ 7,73,380, accordingly he intended of make addition of ₹ 7,73,380, where as finally Assessing Officer choose to make addition of ₹ 5,60,000. As per our considered view this can not be made the basis for substitution of order of Assessing Officer by the CIT, in so far as in the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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