2022 (4) TMI 535 - AT - Income Tax

Tribunal upholds assessing officer's decision on income estimation and deductions, sets aside revision order

Siddappa B.T. Versus Principal CIT-3 Bangalore

The Tribunal found that the assessing officer's decision to estimate income and allow deductions was plausible and not prejudicial to revenue. The ... Revision u/s 263 - A.O. has completed the assessment estimating the gross income @ 9.50% of the turnover and allowed deduction of depreciation and interest - as per CIT AO in granting depreciation and interest expenditure as deduction is not in accordance with provisions of section 44AD(2) - Also dropping of penalty proceeding initiated u/s 271A of the Act was clearly on wrong appreciation of the judgement of the Court - HELD THAT:- A.O. has applied his mind on the impugned issue and has taken a conscious decision to allow deduction of depreciation and interest after estimating gross income @ 9.50% of the gross receipts. We find merit in the contentions of the assessee that the AO has taken a plausible view in this matter and hence it cannot be considered to be prejudicial to the interest of the revenue. We notice that the above said contentions of the assessee finds support from the decision rendered by Hon’ble High Court of Karnataka in the case of CIT Vs. P. Sudhakar [2015 (1) TMI 1473 - KARNATAKA HIGH COURT] In the instant case, there are two views possible with regard to estimation of income from civil contract works and the assessing officer has taken a plausible view. Accordingly, we are of the view that the revision order passed by Ld. PCIT on this issue cannot be sustained. Accordingly, we set aside his order in directing the A.O. to do de-novo assessment. With regard to the observation of Ld. PCIT that the dropping of penalty u/s 271A of the Act was on wrong appreciation of the judgement of the High Court, the Ld. A.R. contended that the Ld. PCIT should have passed separate order on this issue. However, the Ld. A.R. did not cite any authority in support of his contentions. In any case we notice that the Ld. PCIT has given opportunity to the assessee in this regard. Accordingly, we do not find it necessary to interfere with observations made by Ld. PCIT on the second issue. Appeal filed by the assessee is partly allowed Issues Involved:1. Validity of revision proceedings initiated by the Principal CIT.2. Deduction of depreciation and interest expenditure.3. Dropping of penalty proceedings under Section 271A.4. Non-initiation of penalty proceedings under Section 271B.Issue-wise Detailed Analysis:1. Validity of Revision Proceedings Initiated by the Principal CIT:The assessee challenged the revision order dated 30.3.2021 passed by the Principal CIT-3, Bengaluru for the assessment year 2016-17. The Principal CIT initiated revision proceedings under Section 263 of the Income-tax Act, 1961, on the grounds that the assessment order was erroneous and prejudicial to the interests of the revenue. The Tribunal noted that the assessing officer had examined the income declared by the assessee and had taken a conscious decision to estimate the income at 9.50% of the gross receipts. The Tribunal found that the AO's decision was a plausible view and not prejudicial to the interests of the revenue. Thus, the Tribunal set aside the revision order directing a de-novo assessment.2. Deduction of Depreciation and Interest Expenditure:The Principal CIT observed that the AO's action of granting depreciation and interest expenditure as deductions was not in accordance with Section 44AD(2) of the Act. However, the Tribunal noted that the provisions of Section 44AD were not applicable to the assessee as the turnover exceeded the prescribed limit. The Tribunal supported the AO's decision to allow the deductions after estimating the gross income at 9.50% of the gross receipts. The Tribunal cited the decision of the Hon’ble High Court of Karnataka in the case of CIT Vs. P. Sudhakar, which supported the AO's approach. Therefore, the Tribunal concluded that the AO's decision was not erroneous or prejudicial to the revenue.3. Dropping of Penalty Proceedings under Section 271A:The Principal CIT considered the AO's decision to drop the penalty proceedings under Section 271A as erroneous, based on a wrong appreciation of the judgment of the Hon’ble High Court of Karnataka in the case of CIT Vs. Babu Reddy. The Tribunal noted that the Principal CIT had given an opportunity to the assessee regarding this issue. The Tribunal did not find it necessary to interfere with the Principal CIT's observations on this matter, as the assessee did not provide any authority to support his contention that a separate order should have been passed for this issue.4. Non-initiation of Penalty Proceedings under Section 271B:The Principal CIT observed that the non-initiation of penalty proceedings under Section 271B was another error leading to a loss of revenue. However, the Tribunal did not provide a detailed analysis of this issue separately, as it was covered under the broader scope of the revision proceedings.Conclusion:The Tribunal concluded that the AO had taken a plausible view in estimating the income and allowing deductions, and thus, the revision order by the Principal CIT directing a de-novo assessment could not be sustained. The Tribunal set aside the Principal CIT's order on this issue but upheld the observations regarding the dropping of penalty proceedings under Section 271A. The appeal filed by the assessee was partly allowed.