TMI Blog2006 (3) TMI 247X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nauratan Mertia, Adv. For the Respondent : B.S. Mathur, Adv. ORDER R.S. Syal, A.M. 1. These two appeals by different but connected assessees emanate from the orders passed by the CIT under s. 263 on 28th Nov., 2005 in relation to asst. yr. 2004-05. Since the both the appeals are based on identical facts, we are therefore, proceeding to dispose them of by this common order for the sake of convenience. M/s Hanuman Construction Co.-ITA No. 802/Ju/2005 2. Briefly stated, the facts of this case are that the return of income was furnished on 31st Oct., 2004 declaring an income of Rs. 1,56,308. The AO observed that the assessee, a transport contractor, had not properly maintained the books of account. It was further noted that in the year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich necessitated the revision action under s. 263 by the CIT is the showing of lower net profit. It is true that the books of account maintained by the assessee were defective and hence it was not possible to deduce the correct total income. The Jodhpur Bench of the Tribunal is consistently holding that where books of account are rejected, the AO should be guided by the profit rate assessed in the immediately preceding year unless facts justify departure therefrom. The learned Authorised Representative has placed on record a copy of the order passed by the Tribunal in assessee's own case for the immediately preceding year in ITA No. 572/Ju/2005 in which it was directed to apply GP rate of 3 per cent on the declared receipts. As against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y manner affect the GP rate whether it is considered as business income or income from other sources. We further note from the P L a/c that the major expenses claimed are remuneration to partners and interest to partners, both of which have been subjected to tax in the hands of the respective partners. Apart from depreciation of Rs. 46,177, which is a statutory deduction, the other expenses claimed are nominal and regular in nature being salary and wages, bank charges, etc. When these factors are considered in totality, it becomes apparent that the application of GP rate at 5 per cent by the AO in comparison with 3 per cent GP rate finally held to be applicable in the immediately preceding year, cannot be said to be on lower side by any sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicability of provisions of s. 40A(3). 7. Here again, we find that the consideration of expenses by the CIT for the purpose of making disallowance under s. 40A(3) is directed towards the direct expenses of Rs. 1.94 crores 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 under s. 40A(3). The Hon'ble Allahabad High Court in the case of CIT vs. Bhanwari Lal Bansidhar (1998) 148 CTR (All) 533 : (1998) 229 ITR 229 (All) has categorically held that where the AO has made trading addition after rejecting books of account and applied GP rate, no separate additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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