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TMI Blog2019 (12) TMI 1425X X X X Extracts X X X X X X X X Extracts X X X X ..... Year (A.Y.) 2010-11. 2. The brief facts of the case are that the assessee-firm, a civil contractor, filed its' return of income for the relevant year on 15.10.2010, disclosing an income of Rs. 8,76,920/-. The assessee not producing it's books of account, which formed the basis of it's return, in the assessment proceedings before him, the Assessing Officer (AO) invokedsection 145(3) of the Act, and noting the assessee to be a habitual defaulterand not cooperativein the assessment proceedings, estimated the 'net' profit of its' contract business at 5% of the turnover of Rs. 365.44 lacs, i.e., at Rs. 18,27,177, and allowing deduction toward interest and salary to the partners thereafter, at Rs. 2,49,557/- and Rs. 1,30,000/- respectively, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emuneration to the partners, assessing, thus, the assessee's total income for the year at Rs. 31,20,757/-. 2.2 In appeal, the ld. CIT(A) was of the view that the ld. CIT had given a specific direction to the AO, who therefore could not have travelled outside the mandate of the section 263 order, which had become final on account of it having not been appealed against by the assessee before the Tribunal. The AO, however, had gone wrong in increasing the net profit rate to 8%, qua which there was no direction. In any case, the same was sans any basis or material on record. He, accordingly, directed the AO to restrict the addition to Rs. 5,69,330, i.e., as stated by the ld. CIT. Aggrieved, the assessee is in further appeal. 3.1 The ld. couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y restricted in first appeal, no further relief is called for. 4. We have heard the parties,and perused the material on record. 4.1 The first thing that therefore needs to be clarified is qua the scope of the assessment in the set aside proceedings. This is in view of the Revenue's claim ofthe same having been determined per the section 263 order, i.e., to enhancing the income as originally assessed by Rs. 5,69,330, even as held by the ld. CIT(A). We, however, do not think so; the revision clearly requiring a fresh consideration of the stated issues as per law after hearing the assessee. The use of the words 'do novo' by the ld. CIT may not be very apt, but without doubt there is no foreclosure, as being suggested by the Revenue. Like-wis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount reflected in the books, i.e., Rs. 365.44 lacs. 4.3 The second issue is with regard to the allowance of interest and remuneration to the partners upon estimating the net profit of the contract business at 5% of the turnover. This is as once the net profit has been estimated, there is presumably no question of any separate allowance of any expenditure debited to the profit and loss account. Toward this, the matter, in our view,is purely factual, the answer to which depends upon whether the AO, while estimating the said profit (of the business), is estimating the same before or after the said expenditure which, though deductible in computing a firms' income, represents, in essence, the manner of working the share of the individual par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction on account of interest and remuneration to the partners, i.e., as claimed, being otherwise admissible. A lower estimate by him would not by itself make his order erroneous, particularly considering that the ld. CIT had not found his order erroneous on account of a lower estimate per se, but due to his having allowed, after estimation, deduction on account of interest and remuneration to the partners. Why, he himself directs for applying a net profit rate of 5% on the 'escaped' turnover (of Rs. 2.50 lacs), so that he found the same as reasonable. The AO, accordingly, had no jurisdiction to revisit his said estimate in the set aside proceedings. This also answers the assessee's additional ground, challenging the revision in estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income from other sources u/s. 56, i.e., as assessed. The assessee's business income shall continue to be at Rs. 14,47,620/-, i.e., as original assessed. We are conscious that the allowance of deduction for remuneration to partners, allowed at Rs. 1,30,000, is to be w.r.t. 'book profit' (Explanation 4 to s. 40(b)(v)), so that the enhancement in income upon estimation would have no bearing on the quantum of the said deduction.
The same, however, has been considered w.r.t. the assessee's book profit, and found allowable at the claimed amount of Rs. 1,30,000. We decide accordingly.
6. In the result, the assessee's appeal is partly allowed.
Order pronounced in the open court on December 24, 2019. X X X X Extracts X X X X X X X X Extracts X X X X
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