TMI Blog2022 (5) TMI 1128X X X X Extracts X X X X X X X X Extracts X X X X ..... drew our attention to para 4 and 5 of the AO s order where the AO has clearly acknowledged that the assessee has used the % specified in 44AD and that the said section is not applicable in assessee s case. It is because of this reason the AO has adopted a higher % for estimation viz., 10% which fact is not correctly noticed by the PCIT. PCIT has also misinterpreted the reliance placed by the assessee and considered by the AO in the case of Sammurai Techno Trading Co Ltd. [ 2009 (11) TMI 938 - KERALA HIGH COURT] PCIT had stated that when reliance is placed on this decision on the applicability of 44AD then the assessee ought not to have claimed interest and depreciation and the AO should have allowed the claim. This is a gross misconception on the part of the PCIT, since the assessee had relied on the decision only to justify the applicability of 8% as a profit estimate even when section 44AD is not applicable in his case. The AO though accepted the estimation proceeded to enhance the % to 10% after considering the facts and the details furnished. Therefore the conclusion of the PCIT that the order passed by the AO is erroneous is not tenable as the assumption of the PCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of interest and depreciation in the assessment and also the deletion of penalty by the AO are erroneous to the interest of the revenue. 3. Aggrieved by the order of the PCIT the assessee is in appeal before the Tribunal. 4. The assessee raised the following grounds 1. The order of the learned principal Commissioner of income tax passed u/s. 263 of the act insofar as it is against the appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the appellant s case. 2. The notice issued for initiation of proceedings u/s. 263 of the act is bad in law 3. The learned CIT is not justified in law in invoking the jurisdiction u/s. 263 of the act and setting aside the order of the AO as being erroneous and prejudicial to the interest of the revenue which is contrary to facts and the facts and circumstances of the case. 4. The learned CIT is not justified in law in holding that the order passed by the AO is bad in law without appreciating that there was no error in the order passed much less prejudicial to the interest of revenue on the facts and circumstances of the case. 5. The learned CIT failed to apprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and in order to filed his return he estimated income before depreciation and interest at 8% on gross receipts as per 26 AS that worked out to Rs. 35,02,385. From this the assessee had claimed an expenditure towards depreciation and interest totaling to Rs.10,75,432. The assessee expressed his inability before the AO to give the breakup of direct and indirect expenditure incurred by him to arrive at the estimate of 8% of profit prior to depreciation and interest. The assessee relied on the decision of the Kerala High Court in the case of Samuel Techno trading Co Ltd vs CIT (2010) (37 DTR 386) (KER) where it was held that even where books of accounts are not maintained section 44AD percentage of 8% can be guideline for estimation of income from civil works though section 44AD is not applicable 6. The AO proceeded to estimate the income of the assessee as a percentage of gross receipts as per form 26AS in the absence of any evidence furnished by the assessee for expenditure incurred apart from depreciation and interest. The AO estimated the income of the assessee at 10% on turnover of Rs.4,37,79,817 as per 26AS. The AO after taking into account the other details furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the income computed u/s.44AD by the AO is erroneous on prejudicial to the interests of the revenue whereas the revision is done on the sole reason of difference of opinion of the AO and the PCIT. (v) The penalty u/s.271A is deleted by the AO after due consideration of the submissions of the assessee and the reliance placed on the decision of jurisdictional court in the case of Babu Reddy (supra). The same decision is quoted by the PCIT in a different manner to hold that the AO s order deleting the penalty is erroneous and prejudicial to the interest of the revenue. When two views are possible in the interpretation of a judicial pronouncement, the impugned assessment order cannot be termed as prejudicial to the interest of the revenue. 11. The learned DR relied on the order of the PCIT 12. We heard the rival submissions and perused the materials on record. Before proceeding further, we may refer to the celebrated decision of Hon'ble Supreme Court rendered in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC), wherein the scope of revision proceedings u/s 263 has been explained succinctly by Hon'ble Supreme Court as under:- 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iel India Ltd. [203 ITR 108] and the High Court of Gujarat in Commissioner of Income-tax v. Smt. Minalben S. Parikh [215 ITR 81] treated loss of tax as prejudicial to the interests of the revenue. ** ** ** ** 9. The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the AO accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi Vs. Commissioner of Income-tax [67 ITR 84] and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the correct facts of the case, as the assessee has clearly submitted that 44AD is not applicable to him and this fact has been acknowledged by the AO in his order. The PCIT has substituted his view with that of the AO to state that the deduction of interest and depreciation is allowed u/s.44AD by the AO and concluded the order of the AO as erroneous. The learned AR drew our attention to para 4 and 5 of the AO s order where the AO has clearly acknowledged that the assessee has used the % specified in 44AD and that the said section is not applicable in assessee s case. It is because of this reason the AO has adopted a higher % for estimation viz., 10% which fact is not correctly noticed by the PCIT. 16. The PCIT has also misinterpreted the reliance placed by the assessee and considered by the AO in the case of Sammurai Techno Trading Co Ltd (supra). The reliance was placed to the extent where the court held that even where books of accounts are not maintained section 44AD percentage of 8% can be guideline for estimation of income from civil works though section 44AD is not applicable (emphasis applied) 17. The PCIT had stated that when reliance is placed on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s case is covered by the above decision. The AO dropped the proceedings accepting the contention of the assessee. The PCIT distinguished the applicability of the facts of the said case to assessee. The PCIT stated that 7. The assessing officer initiated penalty proceedings u/s 271A in the assessment order. Subsequently, the penalty was dropped relying on the decision of CIT Vs. Babu Reddy (2010) 38 0TR147 (Kar). I have gone through the decision of the Hon'ble High Court. The decision of Hon'ble Karnataka High Court is distinguishable on facts of the case and in fact is not applicable to the assessee. The above case related to an assessee who maintained books of accounts. To quote from the judgment: pursuant to the notice issued to the assessee, a reply was given that the books were maintained in the usual course of computations and that penalty could not be levied. The Assessing Officer, however held that the accounts were not maintained in the prescribed format and accordingly levied penalty. In page 8 of the order, Hon'ble High Court observes This is not a case where no books were maintained at all . The issue was books of accounts were ..... X X X X Extracts X X X X X X X X Extracts X X X X
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