TaxTMI 
TaxTMI 
2008 (8) TMI 921
X X X X Extracts X X X X
X X X X Extracts X X X X
....s attended the proceedings from time to time and fresh details of expenses under the head work expenses paid expenses, salary to staff, interest charged by the bank on loan and bank certificate showing balance as on 31-3-2005 and 31-3-2004. The Assessing Officer further observed in his order under section 143(3), that the assessee produced expenses vouchers for verification and books of accounts for examination. He further noted that books of accounts were test checked. The Assessing Officer also confronted with the assessee on low GP rate and the assessee replied the reasons for low GP rate, which was duly noted by the Assessing Officer in his assessment order. The Assessing Officer also observed that during the year under consideration, the turnover of the assessee has increased from 2.70 crores to 6.21 crores, which is more than double as compared to earlier year. Explanation of the assessee was that increase in the turnover was one of the reason for decline in GP rate. The reason for declining the GP rate as explained by the assessee was found to be general in nature, the Assessing Officer observed that these reasons cannot be accepted in toto. During the discussion, the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in progress on the ground that payment received in the month of April and May would not relate to the year under consideration, but relate to the earlier year. As per the note sheet, the assessee was also confronted on the issue of low GP rate and net profit rate, which were also noted by the Assessing Officer in his note sheet. On 14-3-206, there was also noting by the Assessing Officer that Shri Pankaj, one of the partners attended and produced cash book, ledger and expenses vouchers for verification and examination. On examination of the expenses vouchers, it has been found that some of the expenses are inadmissible in nature. The assessee was also asked to show cause as to why the addition should not be made to cover the possible leakage in trading account to the extent of Rs. 7,33,380. The Assessing Officer further stated that in the beginning, the assessee has denied but to avoid confrontation, he has offered Rs. 5.60 lacs for taxation subject to no penalty under section 271(1)(c). The Assessing Officer further observed as per entry in order sheet dated 14-3-2006, that considering the reasons for low GP rate and the discussion held with the assessee, the Assessing Officer ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iance was also placed on the decision of Coordinate Bench in case of Leisure Wear Exports Ltd. v. ITO [2007] 13 SOT 184 (Delhi), where the Hon'ble Bench held as under :- "Where assessment order has been passed by Assessing Officer after taking into account assessee's submissions and documents furnished by him and no material whatsoever has been brought on record by Commissioner which would show that there was any discrepancy or falsity in evidences furnished by assessee, Assessing Officer was acting in accordance with law and his order cannot be branded as erroneous by Commissioner under section 263 simply because according to Commissioner, order should be written more elaborately." 3. Ld. A.R. further contended that in the present ease, the Ld. Commissioner of Income-tax had raised two grounds while invoking provisions of section 263 but at the time of passing order under section 263, he has directed the Ld. Assessing Officer to work out the income by applying a net profit rate of 8 per cent, which was never there at the time of issue of the impugned notice. Relying on the ratio of Hon'ble Andhra Pradesh High Court judgement and Madras High Court Judgement mentioned su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spondence which has been placed at pages 29-42 of the compilation, perusal of which revealed that not even a single payment was made in cash exceeding Rs. 20,000. In the assessment order so framed, the Assessing Officer has simply followed the directions of CIT and framed the assessment by applying net profit rate of 8 per cent. The Ld. A.R. argued that the decision relied by the CIT for reaching to the conclusion that the order of the Assessing Officer was erroneous or prejudicial to the interest of revenue. Order of Punjab & Haryana High Court in case of CIT v. Export House [2002] 256 ITR 603, as referred by the CIT, was with respect to allowance of deduction under section 35B and the order of Delhi Bench in case of Honda Siel Power Products Ltd. v. Dy. CIT [2007] 77 ITD 123 , issue was with respect to claim of deduction under section 80HHC and 80-I, facts in both the cases are entirely different to the facts of the present case. The ratio laid down in those cases cannot be applied, as per Ld. A.R. in the present case by any stretch of imagination. In view of above discussion, he vehemently submitted that order of CIT deserves to be vacated on all counts i.e., it is not sustainab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o furnished by the assessee, which was not found acceptable by the Assessing Officer in toto. The Assessing Officer observed that eosins for low CP rate submitted by the assessee are general in nature and cannot be considered be accepted in toto. After considering the issue from all angels i.e., from the point of view of GP rate as well as possible leakage in trading account, disallowable nature of expenses and after discussion with the assessee, addition of Rs-5-60 lacs was made to the returned income which was more than 6 times of the returned income. However the allegation of CIT under section 263 basically revolves around no inquiry had been made by the Assessing Officer before the assessment mid there was cash payment exceeding Rs. 20,000 which is required to be considered for disallowance under section 40A(3). The moot question which arises for our consideration is as to whether under the facts and circumstances of the case, the Assessing Officer can be said to have applied his mind while making assessment by asking production of various books of accounts, expenses details etc., and after considering the low GP rate and having detailed discussion with the assessee, made an ad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....justified in adopting the principles underlying section 44AD When it was not applicable. It was further observed that according to the proviso to sub-section (1) applied in cases where no receipt exceeding section more than Rs. 40 lacs. It was not in dispute that in the present case, the said amount exceeded Rs. 40 lacs, provisions of section 44AD, as such, is not applicable. So far as the permissibility of adopting principles underlying therein is concerned, no legal authority has been shown to support the proposition that in this manner, the principles underlying therein can be adopted. With regard to disallowance of expenses under section 40A(3), we found that as per the audit report field along with return of income, there was no any adverse observation by the auditors with regard to any cash payment having been made in excess of Rs. 20,000. After the order of CIT under section 263 was passed, to give effect the Assessing Officer passed order under section 143(3)/263 after making derails inquiry, wherein no addition was made by the Assessing Officer to allege that cash payment in excess of Rs. 20,000 was made by the assessee. Accordingly, no addition on account of section 40A(3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d circumstances of entire case. Merely because in the initial stage of prima facie look on the return of income, the Assessing Officer has proposed an addition at particular amount, but while finally concluding the assessment the amount of addition is revised on the basis of relevant replies of the assessee duly supported by documentary evidence, relevant provisions of law at the particular point to time and judicial pronouncements thereon, the order of Assessing Officer cannot be branded as erroneous merely because CIT think of another amount of addition. In the instant case as per note sheet, the Assessing Officer originally proposed addition of Rs. 7.73 lacs but after checking the books of accounts produced before him and other details of contract expenses filed by the assessee and the replied filed with respect to reason for decline in GP rate, the Assessing Officer finally made addition of Rs. 5.60 lacs, the same cannot be made the reason for holding the assessment order as erroneous. 7. Moreover, the order of the Assessing Officer cannot be set aside for making rowing inquiry without pointing out specific mistake in the order. Furthermore, an order can be revised only when....