M/S Sree Satya Sai Transport,, Warangal vs Assessee

M/s. Sree Satya Sai Transport, V/s. Income Tax Officer Ward-1, Kothagudem Kothagudem

(PAN - ABTES 8147 A)

(Appellant) (Respondent)

Appellant by : Shri G.Manikya Prasad

Respondent by : Smt. G.Aparna Rao Date of Hearing 27.03.2015 Date of Pronouncement 08.04.2015

ORDER

This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax, Vijayawada dated 27.3.2104 passed under S.263 of the Income Tax Act,1961.

2. The assessee in the present case is a partnership firm which is engaged in the business of transport contractor. The return of income for the year under consideration was filed by it on 20.9.2009 declaring total income of Rs.1,53,890. During the course of assessment proceedings, the books of account and other supporting documents maintained by the assessee were verified by the Assessing Officer. On such verification, the Assessing Officer found that the bulk of the expenditure claimed by the assessee was not supported by proper vouchers/bills and therefore, the genuineness and quantum of expenditure claimed by the assessee as well as authenticity of the said books of account maintained by the assessee was not verifiable. He therefore, rejected the books of account of the assessee and estimated the income of the assessee from the business of transport contracts by applying a net profit 2 ITA No.996/Hyd/2014 M/s. Sree Satya Sai Transport, Kothagudem

rate of 10% to the gross receipts of Rs.56,75,546 subject to the deductions towards remuneration to partners and interest on partners' capital. Accordingly, the total income of the assessee was determined by the Assessing Officer at Rs.3,14,340 in the assessment completed under S.143(3) vide order dated 31.5.2011.

3. The record of the assessment subsequently came to be examined by the learned Commissioner of Income-tax and on such examination, he found that huge amounts were paid by the assessee to various persons other than its partners from the bank account maintained with Andhra Bank, Manuguru, which attracted the provisions of S.40A(3) of the Act. He also found that huge withdrawals were made by the partners of the assessee firm from the said account. According to him, the Assessing Officer however, had not call for and examine the relevant details in respect of these transactions reflected in the bank account of the assessee with Andhra Bank, Manuguru Branch. The learned Commissioner therefore, issued cause notice under S.263 requiring the assessee to show cause as to why such order should not be considered as erroneous and prejudicial to the interests of the Revenue and revised under S.263. In reply, the relevant details were furnished by the assessee before the learned Commissioner which according to the latter, reveal that there were following two more issues which the Assessing Officer had failed to examine-

(a) Partners' withdrawals are insufficient

(b) Huge payments are made to S/Shri Pitchaiah, K.Srinivasa Rao, Vidyasagar, Sudhakar, Naveen etc, as reflected in the bank statement.

3 ITA No.996/Hyd/2014 M/s. Sree Satya Sai Transport, Kothagudem

4. The learned Commissioner therefore, issued a further notice requiring the assessee to offer its explanation in respect of the above two issues. In reply, a letter dated 25.1.2014 was filed by the assessee offering its explanation as under-

"Domestic drawing o{the partners:

It is submitted that the partners Sri Mohammed Raft and' Shaik Beebijan happened to be the couple and the aggregate drawings made by them amounted to Rs.25,OOOI-. They got only one son. As per the confirmation letter filed by him his wife undertakes tailoring and earns about Rs.80,OOO pa. In the circumstances, it is requested that the domestic drawings may be treated as reasonable.

In relation to the other partner viz., Sri Abdul Azad Kalam, it is reported by Sri T.Md.Rafi that Azad Kalam is his own brother and that he earns a monthly salary of Rs.10,OOO . In the circumstances, it is prayed that the drawings reported by him may be treated as adequate.

In relation to the other partner, Sri P.Srinivasa Rao, he withdrew Rs.15,OOO pa during the year from the above said firm and besides the same, he also earns about Rs.10,OOO pm. Hence, his drawings may kindly be treated as adequate.

In the relation to the other partner Sri P. Venkata Ramana also withdrew from the above said firm to the extent of Rs.15,OOO pa and he is an agriculturist, holding about 2 Acres of agricultural land hence his drawings may kindly be treated as adequate. .

;

Further, it may be pertinent to point out that against the returned income of Rs.l,53,8901-, the Id. AD determined the total income of assessee in the order u/s 143(3) dated 3110512011 at Rs.3, 14,3401- and the above asst. order reached the stage of finality. Thus, if still it is left that the drawings are inadequate, it is earnestly prayed that taking note of the assessee income, the element of telescoping for the notional difference, if any, may kindly be considered.

Huge payments exists in the case of Sri Pichai. K.Srinivas Rao,. Vidvasagar, Sudhakar, Naveen etG .. '

It is pointed out by the Ld. CIT during the course of hearing held on 23rd that there existed huge payments made by the assessee firm to the above persons and directed to explain the nature of the payments. It is submitted that all of them happened to be lorry owners and they individually got one or two vehicles. The payments referred to by the Ld.CIT represent freight charges paid and it is submitted that as a measure of convenience, the assessee used to identify the freights payable to the lorry owners on each occasion and he records the details of payments in the bill book. To analyze the freights payable to each owner are recorded in the above book. But, however, the cheques are given to a particular owner who approached him covering the amounts payable to him and also tu the 4 ITA No.996/Hyd/2014 M/s. Sree Satya Sai Transport, Kothagudem

other owners who as an association with him, for disbursement among themselves. In this pattern Sri Pitchaiah, Srinivasa Rao and others got lump sum payments. But such payments are not attributable to them alone, as the same belonged to a group of vehicle owners.

It is reiterate and submit all the above payments represents freight charges payable to different lorry owners whose vehicles are utilized by the assessee for transportation.

In the above factual background, it is requested that this issue may kindly be taken outside the ambit of section 263 of the Act as such payments did not belong to a single owner but belongs to a group of persons and this pattern of disbursements is adopted as a matter of convenience."

5. The above explanation offered by the assessee was not found acceptable by the learned Commissioner. According to him, the drawings shown by the partners of the assessee firm were not commensurate with the volume of the business carried on by the assessee as well as the cost of living that is justifiably required for persons running such volume of business. He held that the Assessing Officer however, failed to examine this aspect by calling the relevant details. In this regard, he also rejected the contention raised by the assessee that higher income of the firm estimated by the Assessing Officer was available to telescope the drawings allegedly shown by its partners. As regards the explanation offered by the assessee in respect of payments made to Shri Pitchaiah, Shri K.Srinivasa Rao, Vidyasagar, Sudhakar, Naveen etc. that the same constituted lorry freight charges made to group of persons in the transport business, the learned Commissioner of Income-tax did not accept the same in the absence of the relevant details filed by the assessee to support and substantiate it. He held that both these issues were not properly examined by the Assessing Officer by making proper and sufficient enquiries and this lack of enquiry made the order passed by the Assessing Officer under S.143(3) erroneous as well as prejudicial to the interests of Revenue. Accordingly the order passed by the Assessing Officer under 5 ITA No.996/Hyd/2014 M/s. Sree Satya Sai Transport, Kothagudem

S.143(3) was set aside by the learned Commissioner by exercising his power under S.263, with a direction to the Assessing Officer to do the same de novo after examining the issues pointed out by him by making proper and sufficient enquiries. Aggrieved by the order of the learned Commissioner passed under S.263, assessee has preferred this appeal before the Tribunal.

6. I have heard the arguments of both the sides and also perused the relevant material on record. As submitted by the learned counsel for the assessee, similar issue had arisen before the Division Bench of this Tribunal in the case of Shanti Transport V/s. ITO (ITA No.995/Hyd.2014 for assessment year 2009-10), wherein the order of the Assessing Officer passed under S.143(3) rejecting the books of account of the assessee and estimating the income by applying higher rate net profit rate was set aside by the Commissioner of Income-tax by exercising the powers conferred under S.263 for the alleged failure on the part of the Assessing Officer to make proper and sufficient enquiries on certain issues. The Tribunal, vide its order dated 10.10.2014, however, quashed the order passed by the learned Commissioner under S.263 and restored the assessment order passed by the Assessing Officer under S.143(3). The relevant observations recorded by the Tribunal in this context, as contained in paragraph 6 are reproduced hereunder-

"6. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. We have also applied our mind to decisions relied upon by learned AR. As is evident from record, AO in course of assessment proceeding, after examining the books of account and other informations available before him was of the view that expenditure incurred are not fully verifiable, which also raised suspicion with regard to maintenance of books of account as well as its correctness. Therefore, being of the opinion that books of 6 ITA No.996/Hyd/2014 M/s. Sree Satya Sai Transport, Kothagudem

account are not verifiable, AO proceeded to reject the same and estimate the income of assessee @ 10% on the gross receipts. On a perusal of revision order, we find that CIT in specific terms has not disapproved the rejection of books of account by AO. The CIT has pointed out various issues, which according to him was not examined by AO in course of assessment proceeding. However, when the books of account were found to be not reliable and rejected by AO and he invoked the provisions of section 145(3), it is not understood how and why AO M/s Shanti Transport, Kotha gude m should have gone into the specific issues on the basis of books of account. Further, CIT himself has observed in para 5.6 of the order that though AO has called upon assessee in his letter dated 06/01/11 to furnish various information but assessee did not comply to the same. In our view, that itself is reason enough for the AO to reject books of account and estimate the income. When assessee has failed to furnish informations/evidences to support the entries made in the books of account, there is no other course left open to AO, but, to compute the income of assessee on estimate basis.

Once, AO rejected the books of account there is no need to again refer to the very same books of account for deciding the individual issues of expenditure/deduction claimed. Therefore, in our view, CIT was not justified to invoke power u/s 263 of the Act by holding the assessment order as erroneous and prejudicial to the interests of revenue. Further, CIT though raised certain issues, which according to him were not examined by AO during assessment proceeding, but, he has not established or substantiated with facts and materials that non- consideration of those issues has adversely affected the interests and revenue or has made the assessment order erroneous. While conducting assessment proceeding, AO is the best judge of the situation and has to proceed for completing assessment according to his own wisdom. In the facts of a given case, after considering the materials available before him, when the AO has come to a conclusion that books of account of assessee are not verifiable, hence, profit has to be estimated after rejecting the books of account. It is not understood how such view of AO can be held to be erroneous.

It is well settled that CIT can exercise power u/s 263 of the Act on satisfaction of two conditions cumulatively, which are, the order passed must be erroneous and it must be prejudicial to the interests of revenue. Therefore, before revising the order u/s 263, CIT must establish that assessment order passed is not only erroneous, but, has also caused prejudice to the interests of revenue. In the present case, on perusal of revision order, it appears that CIT himself M/s Shanti Transport, Kotha gude m is neither sure nor certain or has enough evidence before him to establish that the issues on which he has sought to 7 ITA No.996/Hyd/2014 M/s. Sree Satya Sai Transport, Kothagudem

revise assessment order would otherwise have resulted in assessment of income at the hands of assessee. That being the case, the provisions contained u/s 263 cannot be used as a tool to start roving and fishing enquiry. CIT must have strong material/evidence before him, which could indicate that non-consideration of those issues has not only made the assessment order erroneous, but, has also caused prejudice to the interests of revenue. Unless there are material to indicate to that effect, assessment order cannot be held to be erroneous and prejudicial to the interests of revenue empowering CIT to revise it u/s 263. In this context, a reference can be made to the judgment of the Hon'ble Delhi High Court in case of Director of Income-tax Vs. Jyothi Foundations, 357 ITR 388 wherein the Hon'ble Delhi High Court after analyzing several other decisions held that if the revising authority feels that AO has not conducted proper/adequate enquiry, then, he himself should have conducted enquiry to record a finding that the assessment order was erroneous. He should not have set aside the order and directed the AO to do the said enquiry.

Further, in case of CIT Vs. Ramesh Sing, the Hon'ble MP High Court in judgment dated 24/04/2012, held that when the assessment order reveals that AO has conducted enquiry, it cannot be set aside/revised only because the CIT feels that enquiry conducted is not adequate. In the facts of the present case, there is no doubt that AO after examining the books of account and other materials on record has come to a definite conclusion that books of account are not reliable, hence, after rejecting the same has estimated the profit. .......Further, CIT while setting aside the assessment order has also not given any specific direction, but, has simply directed the M/s Shanti Transport, Kotha gude m AO to re- do the assessment denovo after examining the issues. This, in our considered view, is nothing but in the nature of roving and fishing enquiry. ..... For this reason alone, revision order becomes vulnerable and can be held to be invalid. Therefore, considering totality of facts and circumstances of case, we are of the view that exercise of power u/s 263 of the Act, in the present case, is not justified as assessment order passed cannot be held to be erroneous and prejudicial to the interests of revenue.

Accordingly, we quash the impugned order of CIT and restore the assessment order."

7. A perusal of the relevant portion of the Tribunal order dated 10.10.2014 reproduced above, clearly shows that the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of M/s. Shanti Transport 8 ITA No.996/Hyd/2014 M/s. Sree Satya Sai Transport, Kothagudem

(supra) decided by the Division Bench of this Tribunal, and this position is not disputed even by the Learned Departmental Representative. I therefore, respectfully follow the order of the Tribunal in the case of Shanti Transport(supra) and accordingly setting aside the impugned order passé by the learned Commissioner under S.263, restore the assessment order passed by the Assessing Officer under S.143(3).

8. In the result, appeal of the assessee is allowed.

Order pronounced in the court on 8th April, 2015

Sd/-

(P.M.Jagtap) Accountant Member

Dt/- 8th April, 2015

Copy forwarded to:

1. M/s. Sree Satya Sai Transport, (Kothagudem) C/o. M/s. G.S.Madhava Rao & Co., Chartered Accountants, Sudharma Buildings, M.G.Road, Warangal., 1

2. Income Tax Officer Ward 1 Kothagudem

3. Commissioner of Income-tax, Vijayawada

4. Departmental Representative, ITAT, Hyderabad. B.V.S