Kadalur Ramakrishna Mahesha Vs PCIT (ITAT Bangalore)
AO’s 6% Profit Estimation Upheld -Difference of Opinion on Estimation Not Enough – Bang Trib Tribunal Rejects 263 Revision- PCIT Cannot Substitute His View for AO’s – ITAT Applies SC Rulings on 263
Assessee is a civil contractor & did the contract works to the various Govt. agencies & received the payment through the Banking channels. The Government deducted the TDS amount u/s. 194C which was also duly reflected in Form 26AS. Assessee filed his return of income in Form ITR 2 even though his income comprises of business income since the portal had not accepted the return in ITR 4 without any audit report where the gross receipts exceeds Rs. 2 crores. In order to avoid delay in filing the return, Assessee filed the return in ITR 2 within the extended time & shown the income as income from other sources. In any event, the entire contract receipts are reflected in Form 26AS on which TDS was deducted.
AO issued detailed notices u/s 143(2) & 142(1), raised multiple queries, & after considering replies & evidence, accepted estimation by Assessee at 6% & completed assessment u/s 143(3).
PCIT later invoked section 263, holding that
- The estimation of income u/s. 44AD is not applicable to income from other sources
- Assessee had not maintained regular books
- AO should have rejected the method of estimation & make a best judgment assessment.
- AO should have atleast estimated the correct income at 8%.
Before Tribunal, Assessees argued that AO had made proper enquiries, considered replies & consciously accepted estimation. PCIT merely substituted his view of profit percentage, which is impermissible u/s 263. Tribunal referred to SC rulings in Malabar Industrial Co. Ltd. Vs CIT (243 ITR 83) & CIT Vs Max India Ltd. (295 ITR 282), & Karnataka HC ruling in CIT Vs Chemsworth (P) Ltd. (119 taxmann.com 358), to hold that unless AO’s order is both erroneous & prejudicial, section 263 cannot be invoked.
