ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem IN INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER I.T.A.No.140/Vizag/2015 (Assessment Year: 2010-11) Sri T. Naga Mohan Reddy, ACIT, Circle-2(1), Ravulapalem Vs. Rajahmundry PAN: AFGPT4735E] (Appellant) ( Respondent) Appellant by : Shri C. Subrahmanyam, AR Respondent by : Shri M.B. Reddy, DR Date of hearing : 24.08.2016 Date of Pronouncement : 07.10.2016 O R D E R PER G. MANJUNATHA, Accountant Member: This appeal filed by assessee is directed against order of CIT, Rajahmundry u/s 263 of Income Tax Act, 1961 (hereinafter called as 'the Act') for assessment year 2010-11. 1 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem 2. brief facts of case are that assessee, individual engaged in business of civil contracts filed his return of income for assessment year 2010-11 on 29.9.2010 declaring total income of ` 17,02,790/-. return was processed u/s 143(1) of Act and subsequently, case was selected for scrutiny through CASS. Statutory notices u/s 143(2) & 142(1) of Act were issued. In response to notices, authorized representative of assessee appeared from time to time and produced books of accounts and bills and vouchers. assessment for year has been completed u/s 143(3) of Act and determined total income of ` 21,02,790/- by making adhoc disallowance of ` 4 lakhs towards expenditure like gravel purchase, labour charges and sand purchased for want of bills and vouchers. 3. CIT, Rajahmundry issued show cause notice dated 5.2.2015 and asked to explain why assessment order passed by assessing officer u/s 143(3) of Act dated 9.1.2013 shall not be revised under provisions of section 263 of Act. CIT, proposed to revise assessment order for reason that on examination of assessment records, certain omissions and commissions were noticed which render assessment order erroneous in so far as it is prejudicial to 2 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem interest of revenue in terms of section 263 of Act. CIT in said show cause notice, observed that A.O. has not verified issues mentioned in show cause notice at time of completion of assessment. CIT, further, observed that A.O. has completed assessment without examining issues such as correctness of contract work expenses claimed by assessee, depreciation claimed on mobile phones, details of unsecured and secured loans, sub contract works received from GVPR Engineers Limited, and amount advanced to M/s. M.R. Constructions. A.O. without examining above issues, simply completed assessment by making certain adhoc disallowances which rendered assessment order erroneous in so far as it is prejudicial to interest of revenue. Therefore, issued show cause notice and asked to explain why assessment order shall not be revised under provisions of section 263 of Act. 4. In response to show cause notice, assessee submitted that order passed by A.O. u/s 143(3) of Act, dated 9.1.2013 is not erroneous in so far as it is prejudicial to interest of revenue, as A.O. has examined all issues pointed out in show cause notice at time of completion of assessment. assessee further submitted that it has furnished books of accounts and other relevant 3 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem information before A.O., A.O. has issued show cause notices on various occasions and specifically asked details about expenditure debited in profit & loss account, such as work contract expenses, details of depreciation claimed on fixed assets, secured and unsecured loans, sub contract details and loans and advances given to various parties. assessee further submitted that as regards sub contract work expenses and other expenses debited in Profit & loss account, A.O. after verified with books of accounts has chosen to disallow adhoc disallowance of ` 4 lakhs in absence of proper bills and vouchers. As regards depreciation on fixed assets, A.O., at time of assessment has called for specific details of bills and vouchers of additions made to fixed assets and having satisfied with details filed by assessee has accepted claim. As regards unsecured loans and secured loans, assessee has filed ledger account copies of loan accounts along with bank statements, wherever secured loans are borrowed from bank. Similarly, with regard to advance given to M/s. M.R. Constructions, assessee has given amount of ` 5 lakhs on 26.3.2010, however your allegation that amount of ` 45 lakhs was withdrawn in name of M/s. M.R. Constructions through cheque no.46685 is not correct, as said amount of ` 45 lakhs was self- withdrawn by assessee vide cheque no.46685. A.O. after 4 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem considering details furnished by assessee, accepted explanations and completed assessment, therefore, assessment order passed by A.O. cannot be held as erroneous in so far as it is prejudicial to interest of revenue. 5. CIT, after considering explanations of assessee held that assessment order passed by A.O., u/s 143(3) of Act, dated 9.1.2013 is erroneous in so far as it is prejudicial to interest of revenue, as assessing officer has failed to examine issues pointed out in show cause notice with reference to books of accounts and relevant details. CIT, further, observed that A.O. has completed assessment by making adhoc disallowance of expenditure of ` 4 lakhs without examining specific points referred to in show cause notice with regard to work contract expenses, depreciation of fixed assets, secured and unsecured loans, loans and advances, applicability of TDS provisions and low net profit declared by assessee, which shows that A.O. has never applied his mind before completion of assessment which caused prejudice to interest of revenue. Since, A.O. did not verify issue and did not examine issues properly at time of completion of assessment, assessment order dated 9.1.2013 needs to be revised as prejudice was 5 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem caused to interest of revenue because of errors committed by A.O. With these observations, set aside assessment order passed by A.O. u/s 143(3) of Act and directed A.O. to re-do assessment on lines discussed in his order within time allowed after giving opportunity of being heard to assessee. 6. Ld. A.R. submitted that assessment order passed by A.O. u/s 143(3) of Act, is not erroneous in so far as it is prejudicial to interest of revenue, as A.O. has examined all issues pointed out by CIT, right from verification of expenditure to loans and advances, secured and unsecured loans and applicability of provisions of TDS on various expenditure. A.O. has called for specific details about all issues, at time of completion of assessment by questionnaire and assessee has replied point by point to issues raised by A.O. A.O. after satisfied with explanations offered by assessee, chosen to make adhoc disallowance of ` 4 lakhs to cover up deficiencies in form of proper bills and vouchers, except that has accepted return of income filed by assessee. A.R. further submitted that CIT has failed to point out any specific defects in assessment order to invoke jurisdiction u/s 263 of Act. Without pointing out any specific 6 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem defects, as to assessment order passed by A.O. is erroneous in so far as it is prejudicial to interest of revenue, simply directed A.O. for further verification of issues which have been already examined by A.O. at time of completion of assessment. A.R. further submitted that A.O. has issued questionnaire on 16.11.2012 calling for information of issues which were subject matter of revision proceedings by CIT and assessee vide his letter dated 29.11.2012 has submitted all details with regard to expenditure debited to P&L account, loans and advances, secured and unsecured loans, sub contract details, details of TDS and also explained net profit declared for year with necessary evidences. As regards allegation of CIT that assessee has purchased different asset and claimed depreciation of some other assets, assessee submitted that assessee has purchased air compressor for amount of ` 6,40,000/-, however by oversight mentioned as cell phone in schedule of depreciation. But, fact is that assessee has purchased air compressor for which copy of bill issued by supplier has been furnished to CIT, CIT has brushed aside evidences filed by assessee and invoked jurisdiction of section 263 of Act which is not correct. 7 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem 7. A.R. referring to consequential order passed by A.O. u/s 143(3) r.w.s. 263 of Act, submitted that assessing officer has passed consequential order wherein he had accepted explanations offered by assessee with regard to allegations made by CIT in proceedings u/s 263 of Act, except to extent of disallowance of further sum of ` 10,27,780/- under head contract work expenses by invoking provisions of section 40A(3) of Act by stating that assessee has made cash payments beyond specified limit provided under Act. Except this, A.O. has accepted explanation with regard to other issues pointed out by CIT, therefore, revision order passed by CIT is incorrect. 8. On other hand, Ld. D.R. strongly supported order of CIT. D.R. referring to consequential order, submitted that when assessee does not have any grievance with regard to issues pointed out by CIT has accepted further addition of ` 6,27,780/- towards expenditure account, challenged revision order passed by CIT. D.R. further submitted that when assessee himself has agreed for further addition, then there is valid reason for CIT to revise assessment order which is erroneous and prejudicial to interest of revenue, therefore, CIT order should be upheld. 8 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem 9. We have heard both parties, perused materials available on record and gone through orders of authorities below. CIT assumed jurisdiction to revise assessment order for reason that A.O. has not conducted proper enquiry before completion of assessment, thereby assessment order passed by A.O. is erroneous in so far as it is prejudicial to interest of revenue. CIT revised assessment order for reason that A.O. has completed assessment without examining issues pointed out in his show cause notice which caused prejudice to interest of revenue. CIT has observed various issues in revision proceedings. According to CIT, A.O. has failed to examine expenditure debited to P&L account. CIT, further, observed that A.O. has not called for any details with regard to acquisition of fixed assets and claim of depreciation, secured and unsecured loans, loans and advances, applicability of TDS provisions and low net profit declared by assessee. A.O. not only failed to examine issues, but also failed to apply his mind on various issues which rendered assessment order erroneous in so far as it is prejudicial to interest of revenue. 9 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem 10. It is contention of assessee that A.O. has examined issues pointed out by CIT in show cause notice. assessee further contended that all issues pointed out by CIT, have been examined by A.O. at time of assessment by specific questionnaire which was duly answered by assessee with necessary evidences. A.O. after considering explanations furnished by assessee chosen to accept explanations and completed assessment by making adhoc disallowances of ` 4 lakhs for want of proper bills and vouchers in respect of certain expenditure debited to P&L account. assessee further contended that CIT assumed jurisdiction to revise assessment order without pointing out any specific defects in assessment order passed by A.O. CIT has not spelt out as to how order passed by A.O. is erroneous and prejudicial to interest of revenue. Without making any allegation as to order of A.O. to say that it is erroneous and also prejudicial to interest of revenue, CIT simply assumed jurisdiction for further verification of issues which have already been examined by A.O., therefore, revision order passed by CIT is incorrect. 10 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem 11. CIT assumed jurisdiction to revise assessment order on ground that there is lack of enquiry on part of A.O. in examining issues referred to in show cause notice. CIT questioned issues right from examination of expenditure debited to profit & loss account to low net profit declared by assessee. assessee has filed paper book which contains details filed before A.O. at time of assessment. On perusal of paper book filed by assessee, we find that assessee has listed out issues pointed out by CIT in show cause notice in tabular form. On further verification of details filed by assessee, we noticed that assessee has submitted all details with regard to each and every issues raised by CIT in show cause notice and explained before A.O. A.O. after satisfied with explanations furnished by assessee completed assessment by making adhoc disallowance of ` 4 lakhs towards certain expenditure for want of proper bills and vouchers. We further observed that A.O. has passed consequential order u/s 143(3) r.w.s. 263 of Act, wherein he had accepted explanation offered by assessee with regard to all issues pointed out by CIT in revision proceedings, except further disallowance of ` 6,27,780/- in respect of certain cash expenditure incurred under head work contract expenses for which assessee s A.R. has 11 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem agreed. Except this, A.O. has accepted all issues pointed out by CIT, therefore, we are of view that CIT is incorrect in holding that A.O. has not conducted proper enquiry of issues before completion of assessment. In our considered view, issues pointed out by CIT have been thoroughly examined by A.O., therefore, there is no reason for CIT to revise assessment order. 12. CIT has power to revise assessment order u/s 263 of Act, but to invoke provisions of section 263 of Act, twin conditions must be satisfied i.e. (i) order of A.O. is erroneous (ii) further it must be prejudicial to interest of revenue. Unless both conditions are satisfied, CIT cannot assume jurisdiction u/s 263 of Act. It is not necessary that every order which is erroneous may be prejudicial to interest of revenue or vice versa. In some cases, order passed by A.O. may be erroneous, but it may not be prejudicial to interest of revenue or vice versa. Unless order passed by A.O. is erroneous and prejudicial to interest of revenue, CIT cannot assume jurisdiction to revise assessment order, this is because twin conditions i.e. order is erroneous and same is prejudicial to interest of revenue are co-exist. 12 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem 13. In present case on hand, on perusal of facts available on record, we find that A.O. has conducted detailed enquiry and also examined all issues pointed out by CIT in his show cause notice. assessee has explained each and every item with necessary evidences, therefore, we are of view that CIT was incorrect in assuming jurisdiction to revise assessment order, once assessee explained that it had filed all details before A.O. on issues on which CIT wants further verification. It is general presumption of law that A.O. has considered all details before completion of assessment and CIT cannot presume that enquiries conducted by A.O. is insufficient and also A.O. has not applied his mind, unless CIT categorically proves that assessment order passed by A.O. is erroneous. Though, A.O. made further disallowance of ` 6,27,780/- in consequential proceedings towards cash expenditure under head contract work expenses which earns more revenue to department which is only disallowed on estimation basis for want of further bills and vouchers. To this extent, order passed by A.O. may be prejudicial to interest of revenue, but it is not erroneous, because A.O. has examined above issues at time of completion of assessment u/s 143(3) of Act, which is evident from assessment order, wherein A.O. has specifically discussed about 13 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem work contract expenditure. Under provisions of section 263 of Act, CIT can assume jurisdiction once assessment order passed by A.O. is erroneous and also it is prejudicial to interest of revenue. In present case on hand, though order passed by A.O. is prejudicial to interest of revenue but it is not erroneous, therefore, CIT cannot assume jurisdiction to revise assessment order passed by A.O. u/s 143(3) of Act. 14. Considering facts and circumstances of this case, we are of view that assessment order passed by A.O. u/s 143(3) of Act dated 9.1.2013 is not erroneous in so far as it is prejudicial to interest of revenue. Therefore, we quash order passed by CIT u/s 263 of Act and restore order passed by A.O. u/s 143(3) of Act. 15. In result, appeal filed by assessee is allowed. above order was pronounced in open court on 7th Oct 16. Sd/- Sd/- (V. DURGA RAO) (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER Visakhapatnam: Dated : 7.10.2016 VG/SPS 14 ITA No.140/Vizag/2015 Sri T. Naga Mohan Reddy, Ravulapalem Copy of order forwarded to:- 1. Appellant Sri T. Naga Mohan Reddy, D.No.8-979, Near Adilakshmi Temple, Ravulapalem, E.G. Dist. 2. Respondent ACIT, Circle-2(1), Rajahmundry 3. CIT, Rajahmundry 4. CIT (A), Rajahmundry 5. DR, ITAT, Visakhapatnam 6. Guard file BY ORDER // True Copy // 1 2 . (Sr.Private Secretary) ITAT, VISAKHAPATNAM 15 T. Naga Mohan Reddy v. ACIT, Circle-2(1), Rajahmundry