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2006 (3) TMI 247 - AT - Income TaxRevision action u/s 263 by the CIT - lower net profit - MAT - Erroneous And Prejudicial Order - non-examination by the AO of the applicability of provisions of s. 40A(3) - HELD THAT:- We find that the consideration of expenses by the CIT for the purpose of making disallowance u/s 40A(3) is directed towards the direct expenses and odd, which were debited to the trading account. Obviously, when the GP rate of 5 per cent was applied by rejecting the books of account, the AO became powerless to again go through the books of account and make separate additions u/s 40A(3). It is pertinent to note that the CIT gets revisional power u/s 263 where assessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The twin conditions are required to be satisfied simultaneously. If an order is only erroneous and not prejudicial to the interest of the Revenue, that case does not fall within the sweep of s. 263. In the like manner, if the assessment order is not erroneous but prejudicial to the interest of the Revenue, the same also goes out of the ambit of the revisional power of the CIT u/s 263. Adverting to the facts of the instant case; we find that the view of the AO on all the three points, considered by the learned CIT for invoking the provisions of s. 263, is not erroneous. He has adopted a reasonable view, which cannot be disturbed by the CIT. As the very assessment order is held to be not erroneous, there can be no question of invoking the provisions of s. 263. We, therefore, set aside the impugned order on this count. In the result, the appeal is allowed. The nature of business of the present assessee is similar to that of its sister-concern and the order of the learned CIT u/s 263 also proceeds on the same basis. To be more particular, we find that this assessee had declared GP rate of 3.75 per cent as against 4.39 per cent of the preceding year. The AO while finalizing the assessment rejected the books of account and applied GP rate of 4.86 per cent, which resulted into an addition of Rs. 2,71,118. The other factors, which were considered by the learned CIT to brand the assessment order as erroneous and prejudicial to the interest of Revenue are non-consideration of the applicability of provisions of s. 40A(3) by the AO and improper examination of genuineness of outstanding liabilities. Both the sides, are in agreement that the basic facts of this assessee, mutatis mutandis are similar to that of M/s Hanuman Construction Company. By adopting the same reasons, as discussed supra, we hold that learned CIT was not justified in setting aside the assessment order passed by the AO u/s 143(3). We, therefore, overturn the impugned order. In the result, the appeal is allowed.
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