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TMI Blog2019 (10) TMI 1177X X X X Extracts X X X X X X X X Extracts X X X X ..... ed u/s 143(3) of the Act on 21.12.2016 at total income of Rs. 1,81,75,760/- by making certain additions to the returned income. Subsequently, a show cause was issued by the Pr. CIT u/s 263 of the Act on 19.11.2018 raising certain specific matters which as per the ld. Pr. CIT has resulted in the assessment order passed by the AO as erroneous and prejudicial to the interests of the Revenue. Thereafter, considering the submission of the assessee filed on 28.01.2019, the ld. Pr. CIT was of the opinion that order passed by the Assessing Officer is based on mistaken view of law/erroneous application of provisions of the Act. He accordingly directed the cancellation of the assessment order passed u/s 143(3) with the directions to the AO to pass a fresh and speaking assessment order after considering the matters raised in the show cause notice and other matters which may come to the notice of the Assessing officer, after making proper enquiries and after affording adequate opportunity of being heard to the assessee. Against the said order of the ld. Pr. CIT, the assessee is now in appeal before us. 3. In the following paragraphs, we refer to the various matters raised by the ld. Pr. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se in the margins, in order to achieve higher turnover. It was submitted that reason for decrease in the GP% was duly conveyed to the AO and he accordingly made estimation on the basis of past history of the assessee. It was further submitted that under the scheme of the Income Tax Act, no authority which is superior to the AO can prevail over his mind. If based on the judgment of the AO, certain additions were made by him, they cannot be challenged by any superior authority. This is specifically applicable to a case wherein by way of his own judgment, the AO made addition on estimation basis which cannot be doubted or found to be erroneous, in the proceedings u/s 263 of the Act. 6. Another related matter raised by the ld. Pr. CIT relates to possibility of violation of provision of section 40A (3) of the Act. In this regard, ld. Pr. CIT observed that in the trading account, the assessee has debited contract expenses to the tune of Rs. 57,78,08,195/- which includes expenses incurred amounting to Rs. 37,48,82,448/- relating to GRIT, BAJRI and MITTI & MORAM. Keeping in view the possibility of violation of provisions of section 40A(3) of the Act, the AO should have called for the led ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the profit and loss account, directly credited the respective profits to each of the partner of the assessee firm in their respective profit sharing ratio. It was accordingly submitted that in substance, there is no loss to the Revenue, even considering the fact that different accounting treatment was adopted by the assessee firm, or the amount credited in the Partners' Capital Account doesn't remained unsubstantiated during the assessment proceedings. It is a trite law that the assessment order can be revised under section 263 only if the twin conditions of error in the assessment order and prejudice caused to the Revenue. It was submitted that the necessary documents in form of return of income and the financial statement of the Joint Venture were furnished during the course of assessment proceedings and are available on record. 10. Another issue raised by the ld. Pr. CIT relates to loans and advance in favour of the M/s HGIEPL-RPS(JV) capital account amounting to Rs. 3.94 crore. In this regard, the ld. Pr. CIT observed that the nature and source of such transactions should have been ascertained by the AO from the assessee in the form of respective ledger account of M/s HG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. AO during the course of assessment proceedings and the assessee is only required to prove the source from which such loan has been received. 14. Regarding the last issue raised by the ld Pr CIT regarding the reflection of individual partner's bank accounts in the balance sheet of the assessee firm, the ld. AR submitted that all the relevant information including all the Bank Statements of the assessee firm, Capital Account of partners were before the ld. AO during the relevant previous year. It was submitted that since all the transactions to and from the assessee firm were through proper Banking Channel, there was no further enquiry was required to be made by the ld. AO. 15. The ld CIT DR is heard who has vehemently argued the matter and taken us through the findings of the ld Pr CIT which we have already noted above and the same not been repeated for the sake of brevity. He submitted that it is a clear case of lack of enquiry on the part of the Assessing officer on various counts and which have been duly highlighted by the ld Pr CIT in his order. He supported the findings of the ld Pr CIT. 16. We have heard the rival contentions and perused the material available on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the past years which the Courts have held as reliable and reasonable basis/guidance for best judgment. It seems that the Assessing officer was swayed by the action of his predecessor in the earlier year which he had made an adhoc addition, however, the Assessing officer failed to take into consideration the declared G.P in the past year (11.68%) which is substantially higher as compared to current year (5.95%). Having said that, where there is a substantial increase in the turnover (Rs. 61.21 Crores) as compared to the past year (Rs. 6.08 Crores), the same is a material change which has happened during the year and it was incumbent on part of the Assessing officer to examine and consider the impact thereof while carrying out the best judgment. It is not that the Assessing officer was not aware of the said development and in fact, the assessee in its submission during the course of assessment proceedings has submitted the said fact before the Assessing officer. Besides that during the year, the assessee was also engaged in sub-contract work which was awarded by a Joint Venture by name of HGIEPL-RPS JV of which the assessee is one of the members. The fact of increase in turnover an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. In this regard, the ld. AR has submitted that the increase in the partner's capital account is on account of share of the assessee in the joint venture profit (post tax) which has been credited directly in the accounts of the partner's capital account of the assessee firm instead of rooting it through profit and loss account of the assessee firm. It was further submitted that since the joint venture profits have already suffered taxation in the hands of the joint venture(AOP) at maximum marginal rate, the same would not suffer any further taxation in the hands of the assessee firm and therefore, there is no loss caused to the Revenue by such accounting treatment done by the assessee firm. 19. Undisputedly, the matter relating to increase in the partners' capital account has not been examined by the Assessing Officer. Therefore, when the matter has not been examined at first place by the Assessing Officer, it would be difficult to hold that the order of the Assessing Officer is not erroneous and as far as whether the order is prejudicial to the interest of the Revenue or not, the same is subject matter of examination and had the matter been examined by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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