1983 (4) TMI 68 - AT - Income Tax

Summary

Issues Involved:
1. Assessment of income before project completion.
2. Jurisdiction of IAC to enhance income u/s 144B.
3. Validity of second draft assessment order.
4. Computation of income for assessment years 1977-78 and 1978-79.

Summary:

1. Assessment of Income Before Project Completion:
The assessee, a firm engaged in constructing and selling multi-storeyed buildings, argued that income could only be properly assessed after the project was complete. The firm relied on precedents like K.H. Mody, In re [1940] 8 ITR 179 and CIT v. A.K.A.R. Family [1941] 9 ITR 347. The Tribunal, however, held that under the Income-tax Act, each year is a self-contained unit and profits must be computed year-wise unless it is impossible to do so. The Tribunal referenced cases such as Sri Sukhdeodas Jalan v. CIT [1954] 26 ITR 617 and P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 to support this view.

2. Jurisdiction of IAC to Enhance Income u/s 144B:
The ITO initially computed the income for the assessment year 1977-78 at Rs. 1,45,038, which the IAC later increased to Rs. 4,60,983 without giving a specific opportunity to the assessee as required under the proviso to section 144B(4). The Tribunal found that the IAC exceeded his jurisdiction by issuing such directions, as he was not empowered to enhance the income under section 144B. The assessment made in conformity with these directions was deemed invalid.

3. Validity of Second Draft Assessment Order:
For the assessment year 1978-79, the ITO issued a second draft assessment order after the first was objected to by the assessee. The Tribunal held that once a reference is made under section 144B, the operation of section 144A is excluded, and thus, the second draft assessment order was invalid. However, the Tribunal noted that the invalidity of the second draft did not affect the validity of the final assessment order, which was completed within the statutory time limit.

4. Computation of Income for Assessment Years 1977-78 and 1978-79:
For the assessment year 1977-78, the Tribunal accepted the assessee's contention that no profits or losses should be estimated as the project was not complete and the net sale proceeds were less than the total expenditure. Consequently, the assessment for this year was cancelled. For the assessment year 1978-79, the Tribunal confirmed the computation of income at Rs. 8,27,064, noting that the construction was complete, and a substantial portion of the area was sold, resulting in net receipts far exceeding the total cost.

Conclusion:
The appeal for the assessment year 1977-78 was allowed, the cross-objections by the department for the same year were dismissed, and the departmental appeal for the assessment year 1978-79 was allowed.