Shri Gundapaneni Venkateswarlu, ... vs Assessee

This appeal filed by the assessee is directed against the order of learned Commissioner of Income Tax, Vijayawada dated 28.03.2014 passed under section 263 of the Income Tax Act, 1961.

2. The assessee in the present case is an individual who is engaged in the business of running wine shop under the name and style of his proprietary concern M/s. Sri Srirama Wines. The return of income for the year under consideration was filed by him on 30.09.2009 declaring total income of Rs.1,98,650. In the assessment originally completed under section 143(3) vide order dated 20.05.2011 the total income of the assessee was determined by the A.O. at Rs.2,86,770 after 2 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

making addition of Rs.98,620 on account of low gross profit and Rs.40,500 on account of estimated interest income on the transactions reflected in the bank account of the assessee for the period from 01.07.2008 to 31.03.2009. The record of the said assessment was subsequently examined by the Ld. CIT and on such examination, he found that proper and sufficient enquiries were not made by the A.O. on the following issues :

1. "The sale proceeds of M/s. Sri Srirama Wines credited to the P & L a/c for the assessment year 2009-10 represent for 3 months of the year only. As per ITS details, a Bank a/c was maintained towards Sony Wines, whereas the assessee was claimed to be the proprietor of M/s Sri Rama Wines. The A.O. did not call for the relevant details in this respect and not examined them.

2. As per P & L a/c, the turnover is of Rs.44.00 lakhs for which the accounts are to be audited u/s 44AB of the I.T. Act. Neither the assessee furnished the audit report nor the A.O. called for the it and examined.

3. The Bank account reflected business activities for only 3 months and the balance transactions throughout the year were stated as activities on the agricultural lands of assessee's wife. No relevant details of the agricultural transactions have been furnished by the assessee. Also, the A.O. did not call for the relevant details in this respect and examined them.

2.1. The Ld. CIT therefore issued a notice under section 263 pointing out the above errors allegedly committed by the A.O. in the assessment order passed under section 143(3) and requiring the assessee to explain as to why the said order of the A.O. should not be revised being erroneous as well as prejudicial to the interest of Revenue.

3 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

2.2. In reply to the show cause notice issued by the Ld. CIT under section 263, the following submission was made by the assessee in writing :

"It is to submit that Hon'ble Commissioner of Income Tax, Vijayawada vide the above said letter has called objections for revision or cancellation of assessment order dated 31.05.2011 for the assessment year 2009-10. The revision is proposed as per the provisions of sec 263 of the Income Tax Act, 1961. The assessee submits his objections before the judicious authority as follows :

Any order passed by the assessing officer which is erroneous insofar as it is prejudicial to the interests of the revenue, can be reviewed by the Commissioner as per the provisions of section 263. Hence, for any order to be revised, two conditions should be satisfied.

i) The order should be erroneous and

ii) Prejudicial to the interests of the revenue.

In fact in the present assessee's case there is no erroneous assessment as all the books of accounts and bills and vouchers are verified by the assessing officer and assessment was completed.

The deficiencies pointed out for taking up revision are as follows:

1. It has been stated that bank account is maintained for Sony Wines, while Mr. G. Venkateswarlu is proprietor of Sri Rama Wines.

2. The tax audit report u/s 44AB is not furnished.

3. The entries in bank account for 3 months relate to business and the rest of the months transactions have said to have been relating to agricultural transactions of assessee'

The assessee humbly submits that all these aspects have been duly verified by the Assessing 4 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

Officer during the course of assessment proceedings.

The assessee was an employee of M/s Sony Wines during the period 2005-06 and at that time he has opened bank account giving Sony Wines address. The same bank account has been continued by him for his proprietary concern business of Sri Rama Wines also. This aspect has come to discussion during the course of assessment proceedings before the Assessing Officer. I have submitted photo copy of acknowledgment of return of income and statement of total income to the Assessing Officer to clarify this aspect. The assessing officer having satisfied in this aspect proceeded with the proceedings.

The Assessee has submitted tax audit report during the course of assessment proceedings and the assessment is completed after due verification of the same. I have explained the Assessing Officer the withdrawals and deposits in the bank account relate to agricultural operations. The Assessing Officer having not satisfied with my explanations that the circulation relates to agricultural operations, the AO has estimated interest on circulation of funds and added the interest so estimated to the income returned.

The reasons on which revision is proposed cannot be considered as deficiencies, as all the aspects have been duly examined and considered during the course of assessment proceedings. It is clear from the above that the Assessing Officer has not simply accepted what the assessee has stated. Hence, the order cannot be considered as erroneous.

The Hon'ble High Court of Madras in the case of Venkata Krishna Rice Co. Vs. Commissioner of Income Tax (1987) 163 ITR 129 (Mad) held "when CIT clearly conceded that order of assessment was in accordance with law, same could not therefore be regarded as erroneous. No material stated in order of CIT to suggest in what way prejudice to interest of Revenue, CIT did not therefore assume jurisdiction validity".

5 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

In the instant case the AO has verified the books of accounts, vouchers and .bills and called for the required information and explanations. Re- examination of books of accounts under the guise or grab of revision is unjust and unwarranted. Hence, the invocation of powers u/s 263 is unjust and unwarranted both on facts and as per the provisions of law. And the assessee prays to drop the proceedings initiated.

Considering the above submissions, the assessee requests the authority Commissioner of Income Tax to drop the revision proceedings initiated u/s

263."

In addition to the above submissions, further submissions were made on behalf of the assessee from time to time during the course of proceedings under section 263 before the Ld. CIT as required by the later.

2.3. Ld. CIT did not find the submissions made by the assessee to be acceptable and proceeded to hold that the order passed by the A.O. under section 143(3) was erroneous as well as prejudicial to the interests of the Revenue on the following grounds :

(i) "The A.O. has not examined the sources of investment/expenditure in/of the business.

(ii) The A.O. has not examined the nature & sources of credits in the bank account as required u/s 68 or 69, as the case may be, of the Act

(iii) When the assessee did not produce an audit report and in the absence of any verification of the stock as on 31.03.2009, he adopted the 'cost of goods sold' as the base for estimation.

(iv) The A.O. has not conducted any enquiry or collected any material either from the assessee nor from any other person in the same locality or in the same trade to ascertain the likely % GP 6 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

that was prevailing in that area but adopted the GP @ 21%, that when the APBCL grants GP between 20 to 27% based on the products.

(v) The A.O. accepted assessee's explanation for the credits appearing in the bank accounts between 01.07.2008 to 31.03.2009, i.e., for the period in which the assessee was not in business, that they are out of assessee's wife's agricultural activities without obtaining the required materials & examining them or the assessee's wife, as the case may be, to find out the genuineness of the claim."

On the basis of the above grounds, the order passed by the A.O. under section 143(3) was set aside by the Ld. CIT holding the same to be erroneous and prejudicial to the interests of the Revenue vide his order passed under section 263 with a direction to the A.O. to re-do the assessment de novo on the matters pointed out by him in accordance with law by following the established procedure. Aggrieved by the order passed by the Ld. CIT under section 263, assessee has preferred this appeal before the Tribunal.

3. I have heard the arguments of both the sides and also perused the relevant material on record. As rightly contended by the Ld. Counsel for the assessee, the order passed under section 263 by the Ld. CIT can stand or fall on the basis of errors pointed out by him in the notice issued under section 263 and not on any other ground extraneous to the notice issued under section 263. Even the learned D.R. has not been able to dispute this position. In the present case, only three mistakes were allegedly pointed by the Ld. CIT in the order of the A.O. in the solitary notice issued under section 263 and the issue that requires my consideration is whether the order of the A.O. actually suffered from such errors calling 7 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

for revision by the Ld. CIT under section 263. In this regard, the Ld. Counsel for the assessee has clarified that assessee is proprietor of M/s. Sri Srirama Wines and since he was earlier working with another concern namely Sony Wines, the care-of address of that concern was given while opening the bank account. This being the factual position, no enquiry on this aspect of the matter was required to be done by the A.O. and it cannot be said that the order of the A.O. passed under section 143(3) was erroneous as alleged by the Ld. CIT on the basis of point No.1 raised in the notice issued under section 263.

4. As regards point No.2 raised by the Ld. CIT in notice issued under section 263 that the A.O. having failed to call for the tax audit report under section 44AB which was required to be filed by the assessee, his order suffered from an error, I find merit in the contention of the Ld. Counsel for the assessee that the action of the A.O. in not calling for the tax audit report under section 44AB cannot be regarded as an error in the order of the A.O. which is prejudicial to the interests of the Revenue.

5. As regards the third point raised by the Ld. CIT in the notice issued under section 263 regarding non- examination of the transactions reflected in the bank account of the assessee for the period from 01.07.2008 to 31.03.2009, it is observed that this aspect was duly examined by the A.O. during the course of assessment proceedings as is evident from the relevant portion of the assessment order which is reproduced below :

"04. Estimate interest income From 01.07.2008 to 31.03.2009 : On verification of the copy of the bank 8 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

account held by the assessee with SBH, Dummagudem branch that there have been certain cash credits for the year under consideration. When questioned about this, the A.R has stated that the said credits represent circulation of business transactions which had been reflected in the books of account. On examination of the statements and other information submitted during the assessment proceedings it is noticed that the assessee offered income from business which was run from 01-4- 2008 to 30-6-2008 during the relevant previous year. In response to the query in respect of the circulation of credits for the period 01.07.2008 to 31.03.2009, it was submitted that the said circulation represent the usage of funds in connection with the agricultural activities pertain to the assessee's wife. However, the assessee could not furnish any relevant details in support of his claim. In the circumstances, it is concluded to estimate the interest receipts @ 12% on the available cash of Rs.4,50,000/- (approx) for the period 01.07.2008 to 31.03.2009 which worked out to Rs. 40,500/-. Accordingly, the amount of Rs.40,500/- is added to the income returned by the assessee."

6. As is evident from the above portion of the assessment order, the issue relating to the transactions reflected in the bank account of the assessee from 01.07.2008 to 31.03.2009 was examined by the A.O. and on such examination, the addition of Rs.40,500 was also made by the A.O. to the total income of the assessee being estimated interest income. A possible view on this issue thus was taken by the A.O. after due examination and application of mind and even if the same was not acceptable to the Ld. CIT, he cannot exercise the powers conferred upon him under section 263 to substitute his own view for the possible view taken by the A.O.

7. In the light of the above discussion, I am of the view that there were no errors in the order of the assessment passed by the A.O. which were prejudicial to the interests of 9 ITA.No.982/Hyd/2014 Mr. Gundapaneni Venkateswarlu, Vara Ramachandrapuram, Khammam District.

the Revenue as alleged by the Ld. CIT calling for revision under section 263. In that view of the matter, I set aside the impugned order passed by the Ld. CIT under S.263 and restore that of the A.O. passed under section 143(3) of the Act.

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

Order pronounced in the open Court on 08.04.2015.

Sd/-

(P.M. JAGTAP) ACCOUNTANT MEMBER Dated 08th April, 2015.

VBP/-

Copy to

1. Mr. Gundapaneni Venkateswarlu, Vara

Ramachandrapuram, Khammam District.

C/o.Mr. M. Chandramouleswara Rao, Chartered Accountant, C.-3, Skylark Apartments, Basheerbagh, Hyderabad - 29.

2. The Income Tax Officer, Ward-2, Kothagudem.

3. The Commissioner of Income Tax, Vijayawada.

4. Addl. Commissioner of Income Tax, Khammam Range, Khammam.

5. D.R. ITAT "SMC" Bench, Hyderabad.

6. Guard File.