M.V. Prasad, AR for the Petitioner. D.K. Sonowal. CIT, DR for the Respondent

This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax (Pr.CIT), Vijayawada dated 17.03.2020 for the Assessment Year (A.Y.) 2015-16.

2. All the grounds of appeal are related to the order passed by the Ld.Pr.CIT u/s 263 (of Income Tax Act, 1961) (in short ‘Act’). In this case, originally the assessment was completed u/s 143(3) (of Income Tax Act, 1961), by an order dated 26.12.2017. The assessee is engaged in the business of running rice mill, filed it’s return of income admitting total income of Rs.5,60,910/-.

Subsequently, the case was taken up for scrutiny and the books of accounts, vouchers, bills were examined by the AO. Since, some of the bills and vouchers were unverifiable, the Assessing Officer (AO) rejected the books of accounts of the assessee firm and completed the assessment estimating income of the assessee @0.5% of gross sales of Rs.39,82,03,088/- and thus assessed the total income at Rs.19,91,015/-. Subsequently, the Pr.CIT has taken up the case for revision u/s 263 (of Income Tax Act, 1961) and found that the AO did not examine certain issues which required to be brought to tax separately. The Ld.Pr.CIT was of the view that since the income is estimated on turnover, the following items of receipts are not related to the business and has to be brought to tax separately :

1. Sale of Electricity (Net Profit) : Rs.2,19,36,211/-

2. Other Income : Rs.2,51,82,500/-

3. Lorry Freight Income : Rs.38,65,450/-

4. Private Working Charges : Rs.28,42,000/-

5. Rice Mill Leased Income : Rs.4,16,667/-

Total : Rs.5,42,42,828/-

Hence, the Ld.Pr.CIT viewed that the assessment order passed by the AO is erroneous and prejudicial to the interest of the revenue, therefore set aside the order of the AO dated 26.12.2017 and directed the AO to redo the assessment denovo after affording reasonable opportunity to the assessee.

3. Against the order of the Ld.Pr.CIT, the assessee filed appeal before this Tribunal. Appearing for the assessee, the Ld.AR argued that the items of receipts which were mentioned in the show cause notice such as sale of electricity, other income, lorry freight income, private working charges, rice mill lease income constitute the business income and no separate addition is warranted on account of the receipts mentioned in the notice. The Ld.Counsel submitted that sale of electricity (net profit) of Rs.2,19,36,211/-is relating to co-generation power plant and the firm is utilizing the husk for generating the power. Similarly, he submitted that the assessee generates the power and utilize for own consumption and sells the surplus power. Therefore, argued that the profit derived from such transaction is treated as business income and separate treatment is not justified.

3.1. Similarly with respect to other income, the Ld.AR submitted that other income represents the write off of paddy creditors for which the details were furnished in the paper book. Since the assessee is in severe financial crunch, during the financial year 2012-13 to 2013-14, the assessee firm had written off paddy creditors to the extent of Rs.2,51,82,500/- to the Profit and Loss account to maintain the profit. He further submitted that in fact the credit did not cease and the assessee was liable for payment. Thus submitted that the other income does not represent any income earned by the assessee from other sources except forms part of business income of the assessee.

3.2. With regard to lorry freight, the assessee submitted that the assessee maintains 42 lorries which are being used for own purpose and also for others and received lorry freight charges to the extent of Rs.38,65,450/-. He further stated that it also incurred expenses of Rs.1,04,15,127/-. If the lorry freight income is treated separately, the expenditure incurred for lorry maintenance also required to be allowed as credit.

3.3. In respect of private working charges, the assessee submitted that the assessee has received milling charges from private parties for which the assessee had also incurred the expenses which required to be allowed as expenditure. Therefore, the Ld.AR argued that the receipts mentioned by the Ld.Pr.CIT in the order u/s 263 (of Income Tax Act, 1961) constitute business income. The AO assessed the income of Rs.19,91,015/- against the returned income of Rs.5,60,910/- on estimation basis after examining the complete details.

The Ld.AR further stated that the Ld.Jt.CIT has taken up the case for monitoring u/s 144A (of Income Tax Act, 1961). After having satisfied himself with the details, the AO estimated the income on total turnover, thus argued that there is no case for revision u/s 263 (of Income Tax Act, 1961), hence, requested to set aside the order of the Ld.Pr.CIT and allow the appeal of the assessee.

4. On the other hand, the Ld.DR supported the orders of the Ld.Pr.CIT.

5. We have heard both the parties and perused the material placed on record. In the instant case, the assessment was completed estimating income on total turnover. Subsequently, the Ld.Pr.CIT has taken up the case for revision to assess the following items separately.

1. Sale of Electricity (Net Profit) : Rs.2,19,36,211/-

2. Other Income : Rs.2,51,82,500/-

3. Lorry Freight Income : Rs. 38,65,450/-

4. Private Working Charges : Rs.28,42,000/-

5. Rice Mill Leased Income : Rs. 4,16,667/-

Total : Rs.5,42,42,828/-

The Ld.AR submitted that the above issues were examined by the AO before completing the assessment and taken a conscious decision that no separate addition is warranted. Taking our attention to page No.14 of the paper book, the Ld.AR stated that the AO has called for the explanation of the assessee in respect of the income received from Southern Power Distribution Company, Sri Balaji Raw and Para Boiled Rice Mills Private Ltd. and from Vanditha Agrotech Private Limited and the working charges.. With regard to husk and sale of power was also called for by the AO in question No.11. The assessee submitted the explanation to the AO vide letter dated Nil which is filed in paper book pg. No.13 and 14. From the above, it is evident that the entire information was called for by the AO vide questionnaire dated 10.11.2017 which was placed before the AO and after having examined the details, the AO viewed that estimation of income @0.5% would meet the ends of justice, covering all the aspects. The AO did not view that separate addition was warranted in respect of sale of electricity, other income, lorry freight income, private working charges, rice mill leased income etc. Accordingly, the AO assessed the income of Rs.19,91,015/- against the returned income of Rs.5,60,910/- was inclusive of all the items of receipts mentioned in the show cause notice. Since the AO has called for explanation and examined the issue in detail and taken a conscious decision that estimation of income on total turnover would meet the ends of justice, though the assessment order was silent, since, the questionnaire was issued and explanation was furnished by the assessee, it shows that the AO had examined the issue and taking up the case for revision u/s 263 (of Income Tax Act, 1961) on the same issue which was examined by the AO tantamount to difference of opinion and on difference of opinion, invoking the provisions u/s 263 (of Income Tax Act, 1961) is not permissible. It is settled issue that on difference of opinion, the Ld.CIT is not permitted to make revision u/s 263 (of Income Tax Act, 1961). This view is supported by the decision of jurisdictional High Court in the case of Spectra Shares and Scrips (P) Limited Vs. Commissioner of Income Tax – III, Hyderabad (supra). The Hon’ble jurisdictional High Court in the case laws cited supra held that merely because of difference of opinion, Pr.CIT cannot invoke his powers u/s 263 (of Income Tax Act, 1961). For the sake of clarity and convenience, we extract relevant part of the order of the Hon’ble Andhra Pradesh High Court in para No.59 which reads as under :

“59. The contention of the Revenue that the Assessing Officer had not applied his mind to the material on record cannot be accepted because the respondent in his order dated 31.03.2011 specifically records a finding at Para 5.1 that there is application of mind by the Assessing Officer. The Revenue cannot raise a plea which is not contained in the order of the respondent and is contrary to it and to the record. The contention of the Revenue that there are no reasons given by the Assessing Officer about the nature of activity of the assessee cannot be accepted because a query was raised by him in the course of the assessment proceedings and was replied by the assessee. Obviously, he was satisfied with the explanation of the assessee and therefore did not think that the issue needs to be specifically mentioned. It is settled law that the Assessing Officer in the assessment order is not required to give detailed reasons and once it is clear that there was application of mind by an enquiry, the respondent, merely because he entertains a different opinion in the matter, cannot invoke his powers u/s. 263 (of Income Tax Act, 1961). It is therefore not correct to say that there was no proper enquiry by the Assessing Officer.”

Similarly, this Tribunal in G.V.R. Associates. v.Income-tax Officer, Ward-1(3), Vijayawada, [2017] 88 taxmann.com 716 (Visakhapatnam - Trib.) held that the estimation of the net profit is one of the permissible methods of assessment of income from business. The Assessing Officer had taken a conscious decision of estimating the net profit from business after considering the nature and complexity of the books of account maintained by the assessee. Once the Assessing Officer had taken a conscious decision and acted in accordance with law and made the assessment, the same could not be branded as erroneous by the Commissioner, simply because according to him, the Assessing Officer should have made further enquiries.

The Ld.DR did not bring any other decision to controvert the decisions relied upon by the assessee. Therefore, respectfully following the view taken by the Hon’ble High Court of Andhra Pradesh and the coordinate bench of this tribunal in the case law cited supra, we hold that there is no case for revision u/s 263 (of Income Tax Act, 1961), hence, we set aside the order of the Pr.CIT passed u/s 263 (of Income Tax Act, 1961) and allow the appeal of the assessee.

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

Order pronounced in the open court on 23rd November 2020.

Sd/- Sd/-

(V. DURGA RAO) (D.S. SUNDER SINGH)

JUDICIAL MEMBER /ACCOUNTANT MEMBER

Dated : 23.11.2020