TMI Blog2013 (2) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 of non-applicability of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers 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 on the basis it could be ascert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sec. 143(3) of the Act on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.10% 2005-06 10,72,60,304 1,02,84,068 9.60% 3.33% 2006-07 12,01,60,520 1,01,33,809 8.50% 2.21% It was submitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper enquiries which however was not correct because the AO after examining the books of account and records found various defects therein and on that basis rejected the same and decided to apply the GP rate of 9.5 per cent. It was contended that in the asst. yr. 2005-06, the turnover of the assessee was ₹ 1,072.60 lacs and 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for other reasons as stated by him in his assessment order and the alleged objections in respect of various contracts as discussed by learned CIT were merely his suspicion and not based on any evidence. Even otherwise, when the books of account had been rejected to which the learned CIT had also agreed and the GP rate had been applied, 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 sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of 10 per cent was applied, however, he applied the GP rate of 9.5 per cent. Therefore, the assessment order passed by AO was prejudicial to the interest of Revenue and as he had not made the proper enquiries regarding deduction of TDS and outstanding liability etc., therefore, the assessment order was also erroneous. 14. We have, considered 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 consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f TDS was not rebutted. Similarly, the explanation of the assessee that the trucks were on hire and there was no contract, as such provisions of TDS were not applicable had also not been rebutted so there was no need of TDS for transport payments. In the present case, the assessee had done work for CPWD and FWD which are the Government departments 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 per cent. On the contrary, the AO by keeping in view this fact that there was increase in the turnover of the assessee by more than ₹ 2 crores in the year under consideration in comparison to the preceding year, considered it fair and reasonable to apply the net profit rate of 9.5 per cent instead of 10 per cent applied in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sec. 263, it was not open for the CIT to take such a different view. There was nothing on record to suggest that the view taken by the AO was unsustainable in law. 18. In the present case also, the AO categorically stated that the required details were filed and the books of account consisting of cash book, 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 expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 from ₹ 10,72,60,304 in the preceding year. In the present case, even the learned CIT himself after initiating the proceedings for revision under sec. 263 of the Act came to the conclusion that the AO ought to have applied the GP rate of 10 per cent instead of 9.5 per cent and to make a de novo assessment, therefore, the learned CIT wanted to complete the assessment in a manner he likes which is not permissible since the AO framed the assessment after examining the records and the details which were called for by him and also after applying his mind came to a particular conclusion, therefore, the assessment order passed by him cannot be said to be erroneous or prejudicial to the interest of the Revenue. 21. Considering the totality of the facts and circumstances of the case and the ratio laid out in the aforesaid referred to cases, we are of the view, that the order passed by learned CIT under sec. 263 of the Act deserves to be set aside. Accordingly, the same is set aside and the original order passed by the AO vide order dt. 14th March, 2006 is restrored. 22. ITA No. 196/Jd/2012 relating to asst. yr. 2006-07 is arising out of the order dt. 9th March, 2012 of CIT(A), ..... X X X X Extracts X X X X X X X X Extracts X X X X
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