IN INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ITA No.1021 to 1027/Chny/2019 /Assessment Year: 2009-10 to 2015-16 Shri S.Ravi, Vs. Assistant Commissioner 22,Beach Road,Seetharam Nagar, of Income Tax, Cuddalore. Corporate Circle 2(1), Chennai. [PAN: AFKPR 8737 ] ( )/Appellant) (*+ )/Respondent) ) , / Appellant by : Mr.Bharath R.Srinivas, Advocate *+ ) , /Respondent by : Mr.Salendra Mammidi, PCIT,D.R , /Date of Hearing : 24.09.2019 , /Date of Pronouncement : 24.09.2019 / O R D E R PER BENCH: These appeals are filed by assessee against common Order of Commissioner of Income Tax (Appeals)-18, Chennai, in ITA Nos.41,42,69,70,71,43 & 72/18-19 dated 09.01.2019 for assessment years 2009-10 to 2015-16. ITA No.1021 to 1027/Chny/2019 :- 2 -: 2. Mr.Bharath R.Srinivas represented on behalf of Assessee, and Mr.Salendra Mammidi represented on behalf of Revenue. 3. Since issue arising out of penalty levied u/s.271A r.w.s 274 of Act is common in all these appeals, we heard these appeals together and dispose of same by this common order. 4. assessee has filed concise grounds of appeal as follows:- 1. Assessment Order passed by AO is without jurisdiction for following reasons: (a) Assessment Orders were passed by AO in respect of AYs 2009-10, 2010-11, 2011-12, 2013-14 and 2014-15 without prior approval of Joint Commissioner of Income Tax (JCIT) as per Sec. 153D of Act. approval dated 27.12.2016 in respect of AYs 2012-13 and 2015-16 u/s 153D(provided to counsel for appellant during hearing dated 11th June 2019 before this Hon 'ble Tribunal) fails to conform to procedure prescribed under Clause 9 of Manual of Office Procedure, Volume II(Technical) issued by Directorate of Income Tax, CBDT. (b) There were no incriminating materials unearthed during assessment proceedings to warrant invocation of Sec. 153A of Act. (c) In view of CIT(A)'s order, assessment under Sec. 144 is not correct, therefore entire assessment is void-ab-initio. 2. Infirmities in order of CIT(A): (a) CIT(A) ought not to have held assessment u/s 153A to be valid while observing that assessment orders cannot be construed as best judged order passed u/s 144. ITA No.1021 to 1027/Chny/2019 :- 3 -: (b) CIT(A) on one hand observes that adoption of 6% of turnover will meet ends of justice, but passes its order by directing AO to adopt 7% instead of 9%. (c) CIT(A) ought to have considered that entire assessment was made on basis of assumption to invoke Sec.153A, as AO states Assessee has not maintained books of accounts but invokes Sec.145(3) to reject books which according to AO does not exist. 3. revised demand of AO sought to be recovered pursuant to CIT(A)'s order vide letter dated 27.02.2019 is incorrect and inconsistent with order of CIT(A). 4. In order dated 09.10.2019 passed by CIT(A) in respect of penalty proceedings imposed by AO under Section 271A rws 274 of Act, following were observed while allowing appeals of Appellant by dropping penalty proceedings for AYs 2009-10 to 2015-16: (a) Assessee was maintaining books of accounts and also kept vouchers for expenditures. (b) No specific books of accounts have been prescribed for business of civil contractor and thus rigor of penalty u/s 271A is not applicable. (c) Reference was made to sub section (2) of Sec. 44AA of Act, to indicate that appellant had maintained books of accounts and other documents that could have enabled AO to compute Assessee's total income in accordance with Act. 5. Revenue Department was aware about income declared by Assessee in returns for subject assessment years. 6. AO / CIT(A) were not having any issue with turnovers declared by Assessee during subject assessment years. This indicates that there was no undisclosed income or any ulterior motive on part of Assessee in respect of declaring profits for subject assessment years. ITA No.1021 to 1027/Chny/2019 :- 4 -: 5. It was submitted by ld.AR that assessee is sole proprietor of business under name of M/s.Sai Construction, which is doing business of civil construction. On account of search on group of JSTV Trust, consequential search u/s.132 of Act had taken place on assessee s premises on 10.11.2014. It was submitted that notice u/s.153A came to be issued on assessee on 16.06.2015. In response to notice u/s.153A, return came to be filed on 16.07.2015. assessment came to be completed u/s.153A of Act r.w.s.144 on 29.12.2016 wherein Assessing Officer had invoked provisions of section 145(3) of Act and rejected books of accounts as maintained by assessee and estimated income of assessee at 9% of gross receipts by applying principles of section 44AD of Act. It was submitted that in course of search, no books of accounts were found at business premises, only cash vouchers were found and seized. assessee had claimed that books of accounts are maintained by his Auditor and assessee was only submitting his receipts, bank statements and bills pertaining to expenditure, etc., to his Auditor. assessee had categorically mentioned that he was not aware of cash ITA No.1021 to 1027/Chny/2019 :- 5 -: book, bank book, individual ledger accounts for expenses, trial balance, etc. It was submitted that Auditor had also been called and statements recorded u/s.131 of Act. Auditor had appeared and had stated that he was not in possession of any of books of account except tally back up accounts based on data provided by assessee. It was submitted that on account of non-maintenance of books of accounts, penalty proceedings u/s.271A of Act has also been levied on assessee. It was further submission that against levy of penalty u/s.271A of Act, assessee had filed appeal before ld.CIT(A). It was submitted that ld.CIT(A) had in his impugned order under appeal reduced estimation of income to 7% from 9% as estimated by Assessing Officer. It was submitted that no estimation was liable to be made. It was submitted that in respect of penalty levied u/s.271A of Act, ld.CIT(A) had allowed assessee s claim by holding that: assessee is civil contractor and is not involved in specified business for which specific books of account and documents are statutorily required to be maintained in terms of Section 44AA read with Rule 6F(1) of income Tax Rules, 1962. It is fact that books of account as contemplated in Sec.44AA are not maintained by assessee. This being case, even though specified ITA No.1021 to 1027/Chny/2019 :- 6 -: books of account as per Act are not maintained, assessee was maintaining bank accounts, keeping vouchers for expenditure. Provisions which Assessing Officer could rely upon is sub-section(2) of section 44AA of Act which enjoins upon Appellant to keep and maintain such books of account and other documents as may enable Assessing Officer to compute Appellant s total income in accordance with provisions of Act. No specific books have been prescribed for business of civil contractor carried on by assessee and thus rigour of levy of penalty u/s.271A is not applicable in Appellant s case. It was thus submission that there was no requirement of maintaining of books of accounts and consequently, rejection of assessee s books, and estimation of income of assessee was not permissible. It was submitted that estimation as done by Assessing Officer and as reduced by ld.CIT(A) at 7%, was liable to be deleted and returned income accepted. 6. In reply, ld.DR vehemently supported orders of Assessing Officer and ld.CIT(A). It was submitted that in course of search on assessee, incriminating materials have been found and as assessee was unable to substantiate expenditure claimed, Assessing Officer had rejected assessee s books of accounts maintained on tally back up accounts by Auditor. It was ITA No.1021 to 1027/Chny/2019 :- 7 -: submitted that assessee was also not maintaining any books from which true and correct income of assessee could be determined properly. It was submitted that estimation done by ld.CIT(A) was liable to be upheld. 7. We have heard rival contentions and perused material available on record. In reply to very specific query as to whether assessee s turnover exceeded amount prescribed for applicability of provisions of section 44AD of Act, it was submitted by ld.PCIT D.R that turnover of assessee for each of assessment year far exceeded limit for applying provisions of section 44AD of Act. 8. perusal of facts in present case clearly shows that there is search in case of assessee, and no regular books of accounts required for determination of income of assessee was found available. assessee as well as his Auditor has categorically admitted that books are prepared on tally software on basis of vouchers and details submitted by assessee. It is also admitted fact that Revenue has not filed any appeal against order of ld. CIT(A) in respect of deletion of penalty levied u/s.271A of Act. perusal of order of ld. CIT(A) in para 5.5. of his order in respect of penalty levied u/s.271A of Act clearly ITA No.1021 to 1027/Chny/2019 :- 8 -: shows that ld.CIT(A) has gone on record with finding that assessee being civil contractor, is not involved in specified business for which specific books of account and documents are statutorily required to be maintained in terms of section 44AA read with Rule 6F(1) of Income Tax Rules, 1962. perusal of pra 5.4 of ld.CIT(A) s order cancelling penalty levied u/s.271A of Act shows that: Appellant s explanation that profits could be worked out by preparing income and expenditure statement , is plausible. In fact, Assessing Officer could disallow such expenditures ig he comes to conclusion that they are not substantiated or are not incurred wholly and exclusively for purpose of Appellant s business. In fact, I have in quantum appeals vide order in ITA Nos.279 to 285/18-19 dated 09.01.2019. I have given partial relief to Appellant by holding that 7% of turnover as income from contract business would meet ends of justice. Ld.CIT(A) has categorically given finding that Assessing Officer could disallow such expenditure, if he comes to conclusion that they are not substantiated or are not incurred wholly and exclusively for business of assessee. In present case, admittedly there are incriminating materials alleged to have been found in course of search. There is nothing talked about incriminating materials in assessment order. How incriminating materials have been used for purpose of determining income of assessee, is not coming out. When turnover of assessee exceeds limit prescribed for applicability of provisions of section 44AD of ITA No.1021 to 1027/Chny/2019 :- 9 -: Act, then obviously provisions of section 44AD cannot be applied. In fact, perusal of provisions of section 44AD of Act also clearly shows that assessee could disclose lower income, if he maintains books of accounts and is able to substantiate claim of lower income. In present case, there are records available from which income of assessee could be reasonably determined. In any case even audit of account u/s.44AB of Act being Audit report submitted by Auditor are on basis of tally accounts maintained, and cash vouchers have been found in course of search. True, substantial effort would be required for determining correct income, but that would not be ground enough for rejecting books of accounts of assessee and estimating income directly. Even if estimation was to be adopted, then comparative study would have to have been done. This is not done in present case. Obviously, assessee s accounts for earlier and subsequent years could be based as comparative study. This being so, as assessment has been done for estimating income and ld.CIT(A) has reduced said estimate. estimation itself is impermissible under law, especially in view of fact that incriminating materials have been found in course of search. Consequently, assessment order and impugned order of ld.CIT(A) in respect of present appeals are set- ITA No.1021 to 1027/Chny/2019 :- 10 -: aside and issues in appeals are restored to file of Assessing Officer for re-adjudication and for determination of correct income of assessee on basis of materials available and found course of search. Assessing Officer shall not resort to short cut method of applying provisions of section 44AD of Act, when turnover of assessee exceeds prescribed limit u/s.44AD of Act. 9. In result, all appeals of assessee are partly allowed for statistical purposes. Order pronounced in open Court after conclusion of hearing on 24th September, 2019 in Chennai. Sd/- Sd/- ( ) ( ) (INTURI RAMA RAO) (GEORGE MATHAN) /ACCOUNTANT MEMBER /JUDICIAL MEMBER /Chennai, 3 /Dated: 24th September, 2019. K S Sundaram , * 4 5 6 5 /Copy to: 1. )/Appellant 4. 7 /CIT 2. *+ )/Respondent 5. 5 * /DR 3. 7 ( )/CIT(A) 6. /GF S.Ravi v. Assistant Commissioner of Income-tax, Corporate Circle2(1), Chennai