1991 (7) TMI 129 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of books of account and profits shown by the assessee.
2. Addition of Rs. 10 lakhs in respect of structures sold by the appellant.

Summary:

Issue 1: Rejection of Books of Account and Profits Shown by the Assessee

The assessee, a builder, appealed against the CIT(A)'s confirmation of the ITO's decision to reject the books of account and the profits shown, and the addition of Rs. 6,61,504 as alleged profit earned on a project. The assessee followed the Project Method of accounting, capitalizing all expenses until project completion. The ITO, invoking section 145(2) of the I.T. Act, 1961, estimated a 15% profit on the work-in-progress, less the value of land, resulting in a taxable amount of Rs. 6,61,504. The CIT(A) upheld this decision. The Tribunal found that the assessee consistently followed the completed contract basis, an accepted method of accounting, and no construction activity or sales occurred during the relevant period. The Tribunal noted that the ITO had accepted nil business income for the previous year under similar circumstances. Therefore, the Tribunal reversed the CIT(A)'s order, rejecting the ITO's estimate of profit on work-in-progress.

Issue 2: Addition of Rs. 10 Lakhs in Respect of Structures Sold by the Appellant

The CIT(A) confirmed the ITO's addition of Rs. 10 lakhs for structures sold, which the assessee had purchased along with the land. The Tribunal found that this amount was received in 1985, as part of an agreement with Vidhi Construction, and not during the accounting year under appeal. The Tribunal deemed the CIT(A)'s directions vague and conditional, and concluded that the amount should not be taxed in the year under appeal. Consequently, the Tribunal directed the deletion of this addition.

Conclusion:

The appeal was allowed, with the Tribunal reversing the CIT(A)'s order on both issues, rejecting the ITO's profit estimate on work-in-progress, and deleting the addition of Rs. 10 lakhs.