TMI Blog2022 (11) TMI 442X X X X Extracts X X X X X X X X Extracts X X X X ..... 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] 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 9% 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 that the AO has estimated the profits by applying the provisions of section 44AD and allowed interest and depreciation on the estimated profit, is not correct interpretation of AO s order. Penalty proceedings initiated u/s.271B for non-maintenance of books of accounts being erroneous and prejudicial to the interest of the revenue - As relying on the case of Siddappa [ 2022 (4) TMI 535 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and circumstances of the case. 5. The learned CIT failed to appreciate that the provision of section 263 of the act shall be attracted only when the order is both erroneous and prejudicial to the interest of the revenue and since the order passed under section 143(3) of the act was not erroneous much less prejudicial the invoking of section 263 was not warranted on the facts and circumstances of the case. 6. The learned CIT failed to appreciate that the appellant has not returned estimated income under section 44AD of the act in form saral 4S and the return is based on the reasonable estimate alone and thus the depreciation and interest where allowable deduction in computing the income for the year on the facts and circumstances of the case. 7. The learned CIT failed to appreciate that the AO has made inquiries during the course of assessment proceedings and accepted the explanation of non-availability of books to estimate the income on percentage of turnover in view of the above the order of assessment was not erroneous on the facts and circumstances of the case 8. The learned CIT failed to appreciate the details filed before the AO and also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee at 9% on turnover of Rs.19,32,08,001 as per 26AS. The AO after taking into account the other details furnished by the assessee allowed depreciation and interest as claimed by the assessee from the profits or estimated. 7. The AO also initiated the penalty proceedings u/s. 271A on the assessee for not maintain books of accounts. But later deleted the same relying on the decision of the jurisdictional High Court in the case of CIT vs Babu Reddy (2010) 38 DTR147 (KAR). 8. The PCIT initiated proceedings u/s. 263 stating that grant of depreciation and interest was not in accordance with the provisions of section 44AD(2). The PCIT also stated that the non-levy of penalty for not maintaining books of accounts u/s. 271A has resulted in loss of revenue. The PCIT concluded that the order of the AO is erroneous by stating that even though section 44AD is not claimed to be applicable to the assessee the AO should have noticed that allowance of depreciation and interest distort the net profit. On the issue of non-levy of penalty for not maintaining books of accounts the PCIT stated that the facts of assessee is distinguishable from the case relied by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein the scope of revision proceedings u/s 263 has been explained succinctly by Hon'ble Supreme Court as under:- 5. To consider the first contention, it will be apt to quote Section 263(1) which is relevant for our purpose:- 263. Revision of orders prejudicial to revenue.-( 1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the AO is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 6. A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi Vs. Commissioner of Income-tax [67 ITR 84] and in Smt. Tara Devi Aggarwal v. Commissioner of Income-tax, West Bengal [88 ITR 323]. 13. The Hon ble Supreme Court has clearly laid down that both the conditions, viz., the assessment order is erroneous and further it is prejudicial to the interests of revenue are required to be satisfied for the purpose of revision u/s.263 of the Act. It was further held that 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. 14. We will have to examine the facts of the present case to see whether the order passed by the AO is both erroneous and prejudicial to the interest of the revenue warr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... works though section 44AD is not applicable (emphasis applied) 17. The 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 9% after considering the facts and the details furnished. The Hon ble Delhi High Court in the case of PCIT vs M/S BRAHMA CENTRE DEVELOPMENT PVT. LTD (ITA 116/2021 ITA 118/2021) has held that 11.1. Therefore, the error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and therefore, by the very nature of the power, does not allow for supplanting or substituting the view of the AO. The appreciation of material placed before the AO is, exclusively within his domain which cannot be interdicted by a superior officer while exercising powers u/s. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Hon'ble High Court observes This is not a case where no books were maintained at all . The issue was books of accounts were not maintained in the prescribed format. Since no prescribed format has been issued by Revenue, various sectors as stated in the said section are entitled to maintain books of accounts in terms of nature of the business or profession. ...... 8. In the instant case the assessee has submitted in his return of income itself that he has not maintained books of accounts. Therefore, the decision of the A.O. to drop the penalty proceedings based on this judgment is perverse. This is not a situation where two views are possible on one judicial order. It is a case where a non-applicable court order has been applied stating that it is applicable, and the penalty proceedings were dropped. The only presumption possible is that the assessing officer has not has not read the court order in its entirety The decision to drop the penalty proceedings based on d non- applicable court decision is erroneous. It has caused loss of revenue. 21. The learned AR submitted that the AO has dropped the penalty proceedings accepting the submissions made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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