Murlidhar Corporation Vs. Assistant Commissioner of Income - Court Judgment

Excerpt:
1. all these appeals relating to the same assessee are disposed of by this common order for the sake of convenience.2. the learned counsel for the assessee submitted that in the impugned orders the learned cit(a) had restored the matters to the file of the ao. fresh assessments have been made on the basis of that direction. in these circumstances, the assessee does not want to press these appeals.4. in these cross-appeals the main contention of the assessee and the revenue is against estimation of gross profit. after examining the books of accounts the ao was of the view that quantitative details in respect of the materials purchased, issued, etc. are not available and there is no stock check for quantity of materials purchased. he applied the provisions of s. 145(1) and adopted a gp rate of 20 per cent for the asst. yr. 1985-86, 15 per cent for asst. yr. 1986-87 and 20 per cent for the asst. yr. 1988-89. the learned cit(a) after considering the submissions of the assessee directed to estimate gp rate at 6 per cent for asst. yrs. 1985-86 and 1986-87 and 6.5 per cent for asst. yr.1988-89. both the assessee and the revenue are aggrieved.5. the learned counsel for the assessee submitted that regular books of accounts had been maintained and no specific defect or discrepancy therein had been detected by the ao. he submitted that in the construction activities record of issuance and consumption of materials cannot be maintained in practice. he therefore, submitted that what is impossible cannot be directed to be maintained and for want of the same the books of accounts cannot be rejected. he further argued that the assessee was engaged in construction of 974 small tenements and for this a scheme was planned way back in 1979. the whole scheme was meant for weaker section of the society for which the areas for the tenements and rates to be charged were fixed in accordance with the relevant regulations of the govt. and the intention was to complete the whole scheme expeditiously. the whole scheme of 974 tenements was booked very fast obviously because it was very attractive looking to the rates fixed. unfortunately, a litigation ensured in regard to the ownership of the land resulting in stay order from the court and the entire scheme was in dol-drums. the stay was vacated in 1984 but in the intervening five years the cost of road and building materials had gone up so high that it was impossible to execute the scheme as per original specifications and rates. the scheme was completed in 1992. it is pointed out that in the relevant years only small work had been done and the profit was estimated on the basis of valuation of work-in-progress. he argued that the margin shown by the assessee was reasonable. moreover, the learned cit(a) did not properly appreciate the escalation of the cost of construction from the date of obtaining the contract and construction made in these assessment years.6. the learned departmental representative, on the other hand, submitted that in the absence of complete quantitative details and periodical records of issue and consumption of materials the gp shown by the assessee was rightly rejected by the ao and the learned cit(a) reduced the same drastically without properly considering the observations of the ao.7. we have considered the rival submissions, facts and materials on record. we hereby note the observations made by the ao in the asst. yr.1985-86 regarding the estimate of gp as follows : "3. the assessee has not maintained any quantity details in respect of the material purchased and issued at the site and under such circumstances, there is no check over the quantity of material purchased and that consumed. considering these facts, the book result of the assessee is rejected by applying provision to s. 145(1) of the it act and the gp at 20 per cent is adopted ..." in the asst. yr. 1988-89 similar estimate had been made by the ao but in the asst. yr. 1986-87 though he mentioned that the gp is estimated on the basis of receipt but from the body of the order it is noticed that it is nothing but work-in-progress. it is clear that he has only given the reasons for estimating the gp but did not give any basis for adopting the rate of gp at 20 per cent or 15 per cent. in our opinion, this is erroneous. the hon'ble madras high court in mysore fertiliser co. vs. cit (1966) 59 itr 268 (mad), held that while estimating the profit applying s. 145 the ito took for comparison of gp disclosed by the assessee at 14.9 per cent against 16.7 per cent in comparable cases, but made an addition at the rate of 18.3 per cent is not justified and it is a wrong method in the sense that the method was not one which was likely to result in the true profit and gains being ascertained. here, in this case, no comparable case even had been brought into record. the hon'ble madhya pradesh high court in the case of dinanath dubey vs. cit (1986) 160 itr 1 (mp) had held that where the rejection of books of accounts of the assessee is not in controversy application of profit in accordance with that applied in the earlier years adopted by the tribunal is justified. it is further noted that in the asst. yr. 1983-84 which was originally completed under s. 143(1) assessee declared gp at 4.66 per cent and the assessment was reopened and though the fresh assessment which has been concurrently made with the present assessments under appeal, no addition has been made in respect of gp. in these circumstances, we do not find any reason to interfere with the gp shown by the assessee in relation to the work-in-progress as the gp disclosed by the assessee are similar to the earlier assessment year when the same type of accounts were kept by the assessee.7.1 in respect of extra work done by the assessee, in our opinion, the same was rightly included by the ao as income of the assessee in view of the fact that the details of the expenses incurred towards them had not been produced by the assessee. in these circumstances, it has to be taken that the cost incurred for that purpose had already been included in the trading account disclosing the gp which has been accepted.7.2 coming to the interest under ss. 139(8), 215 and 217 we are of the opinion that liability of interest cannot be denied in these cases.however, the same should be restricted on the basis of calculation after giving effect to this appellate order.8. in the result, the assessee's appeals are partly allowed, the revenue's appeals are dismissed.

Judgment:
1. All these appeals relating to the same assessee are disposed of by this common order for the sake of convenience.

2. The learned counsel for the assessee submitted that in the impugned orders the learned CIT(A) had restored the matters to the file of the AO. Fresh assessments have been made on the basis of that direction. In these circumstances, the assessee does not want to press these appeals.

4. In these cross-appeals the main contention of the assessee and the Revenue is against estimation of gross profit. After examining the books of accounts the AO was of the view that quantitative details in respect of the materials purchased, issued, etc. are not available and there is no stock check for quantity of materials purchased. He applied the provisions of s. 145(1) and adopted a GP rate of 20 per cent for the asst. yr. 1985-86, 15 per cent for asst. yr. 1986-87 and 20 per cent for the asst. yr. 1988-89. The learned CIT(A) after considering the submissions of the assessee directed to estimate GP rate at 6 per cent for asst. yrs. 1985-86 and 1986-87 and 6.5 per cent for asst. yr.

1988-89. Both the assessee and the Revenue are aggrieved.

5. The learned counsel for the assessee submitted that regular books of accounts had been maintained and no specific defect or discrepancy therein had been detected by the AO. He submitted that in the construction activities record of issuance and consumption of materials cannot be maintained in practice. He therefore, submitted that what is impossible cannot be directed to be maintained and for want of the same the books of accounts cannot be rejected. He further argued that the assessee was engaged in construction of 974 small tenements and for this a scheme was planned way back in 1979. The whole scheme was meant for weaker section of the society for which the areas for the tenements and rates to be charged were fixed in accordance with the relevant regulations of the Govt. and the intention was to complete the whole scheme expeditiously. The whole scheme of 974 tenements was booked very fast obviously because it was very attractive looking to the rates fixed. Unfortunately, a litigation ensured in regard to the ownership of the land resulting in stay order from the Court and the entire scheme was in dol-drums. The stay was vacated in 1984 but in the intervening five years the cost of road and building materials had gone up so high that it was impossible to execute the scheme as per original specifications and rates. The scheme was completed in 1992. It is pointed out that in the relevant years only small work had been done and the profit was estimated on the basis of valuation of work-in-progress. He argued that the margin shown by the assessee was reasonable. Moreover, the learned CIT(A) did not properly appreciate the escalation of the cost of construction from the date of obtaining the contract and construction made in these assessment years.

6. The learned Departmental Representative, on the other hand, submitted that in the absence of complete quantitative details and periodical records of issue and consumption of materials the GP shown by the assessee was rightly rejected by the AO and the learned CIT(A) reduced the same drastically without properly considering the observations of the AO.7. We have considered the rival submissions, facts and materials on record. We hereby note the observations made by the AO in the asst. yr.

1985-86 regarding the estimate of GP as follows : "3. The assessee has not maintained any quantity details in respect of the material purchased and issued at the site and under such circumstances, there is no check over the quantity of material purchased and that consumed. Considering these facts, the book result of the assessee is rejected by applying provision to s.

145(1) of the IT Act and the GP at 20 per cent is adopted ..." In the asst. yr. 1988-89 similar estimate had been made by the AO but in the asst. yr. 1986-87 though he mentioned that the GP is estimated on the basis of receipt but from the body of the order it is noticed that it is nothing but work-in-progress. It is clear that he has only given the reasons for estimating the GP but did not give any basis for adopting the rate of GP at 20 per cent or 15 per cent. In our opinion, this is erroneous. The Hon'ble Madras High Court in Mysore Fertiliser Co. vs. CIT (1966) 59 ITR 268 (Mad), held that while estimating the profit applying s. 145 the ITO took for comparison of GP disclosed by the assessee at 14.9 per cent against 16.7 per cent in comparable cases, but made an addition at the rate of 18.3 per cent is not justified and it is a wrong method in the sense that the method was not one which was likely to result in the true profit and gains being ascertained. Here, in this case, no comparable case even had been brought into record. The Hon'ble Madhya Pradesh High Court in the case of Dinanath Dubey vs. CIT (1986) 160 ITR 1 (MP) had held that where the rejection of books of accounts of the assessee is not in controversy application of profit in accordance with that applied in the earlier years adopted by the Tribunal is justified. It is further noted that in the asst. yr. 1983-84 which was originally completed under s. 143(1) assessee declared GP at 4.66 per cent and the assessment was reopened and though the fresh assessment which has been concurrently made with the present assessments under appeal, no addition has been made in respect of GP. In these circumstances, we do not find any reason to interfere with the GP shown by the assessee in relation to the work-in-progress as the GP disclosed by the assessee are similar to the earlier assessment year when the same type of accounts were kept by the assessee.

7.1 In respect of extra work done by the assessee, in our opinion, the same was rightly included by the AO as income of the assessee in view of the fact that the details of the expenses incurred towards them had not been produced by the assessee. In these circumstances, it has to be taken that the cost incurred for that purpose had already been included in the trading account disclosing the GP which has been accepted.

7.2 Coming to the interest under ss. 139(8), 215 and 217 we are of the opinion that liability of interest cannot be denied in these cases.

However, the same should be restricted on the basis of calculation after giving effect to this appellate order.

8. In the result, the assessee's appeals are partly allowed, the Revenue's appeals are dismissed.