1975 (10) TMI 39 - AT - Income Tax

Issues Involved:
1. Validity of ex parte assessments under Section 144 of the IT Act, 1961.
2. Rejection of petitions under Section 146 of the IT Act, 1961.
3. Determination of gross profit rate and income for assessment years 1967-68 and 1968-69.
4. Additions and disallowances made by the Income Tax Officer (ITO).
5. Appeals and cross objections filed by the assessee and the Department.

Detailed Analysis:

1. Validity of Ex Parte Assessments under Section 144 of the IT Act, 1961:
The assessee, a Private Limited Company involved in civil engineering contracts, failed to comply with notices issued under Sections 142(1) and 143(2) of the IT Act, 1961. Consequently, the ITO completed the assessments ex parte to the best of his judgment under Section 144 of the IT Act, 1961, determining the income at Rs. 87,619 for 1967-68 and Rs. 1,34,284 for 1968-69.

2. Rejection of Petitions under Section 146 of the IT Act, 1961:
The assessee filed appeals to the AAC and petitions under Section 146 of the IT Act, 1961, to reopen the assessments. The ITO rejected these petitions, and the AAC upheld the ITO's decision. The Tribunal confirmed the orders of the ITO refusing to reopen the assessments under Section 146 and dismissed the appeals filed under this section.

3. Determination of Gross Profit Rate and Income for Assessment Years 1967-68 and 1968-69:
The Tribunal found that the ITO had not made the assessments on a proper basis, considering the past record of the appellant. The Tribunal restored the matter to the ITO for a reasonable estimate of the income, adopting a reasonable gross profit rate and allowing reasonable overhead expenses. The ITO, upon re-examination, adopted a gross profit rate of 14% for both years. He made an addition of Rs. 18,370 to the gross profit shown by the assessee for 1967-68, determining the loss at Rs. 6,147. For 1968-69, the ITO disallowed Rs. 51,662 claimed as a loss in D-Type quarters due to lack of details and made an addition of Rs. 5,263, determining the total income at Rs. 39,078.

4. Additions and Disallowances Made by the ITO:
The AAC found that the gross profit margin of 13.8% shown by the assessee for 1967-68 was not low compared to the 9% gross profit accepted by the Tribunal for 1965-66. Therefore, the AAC deleted the addition of Rs. 18,370 for 1967-68. For 1968-69, the AAC held that the ITO was not bound to make inquiries to ascertain the nature of the loss as it was an assessment under Section 144. Even treating it as a trading loss, the resultant gross profit worked out to 10.8%, higher than the 9% approved for 1965-66. Hence, the AAC deleted the additions of Rs. 51,662 and Rs. 5,263, totaling Rs. 56,925.

5. Appeals and Cross Objections Filed by the Assessee and the Department:
The Department appealed against the AAC's orders, contending that the gross profit rates taken by the AAC were based on actual receipts excluding work in progress. The Department argued that the gross profit rates were low compared to the 15.07% admitted by the assessee in 1966-67 and that the AAC should not have relied solely on the 1965-66 rate. The assessee supported the AAC's order, arguing that lower rates quoted by the assessee and increased labor costs justified the lower gross profit margins.

Tribunal's Final Decision:
The Tribunal, considering the rival submissions and materials, found that the peculiar factors affecting the assessee's margin of profit in 1965-66 were also present in the years under appeal. The Tribunal concluded that the gross profit margins disclosed by the assessee were fair and reasonable compared to the 1965-66 assessment year. The Tribunal confirmed the AAC's orders, finding no basis for the ITO's estimate of a 14% gross profit rate. The Department's appeals were dismissed, and the assessee's cross objections were treated as allowed for statistical purposes.

Conclusion:
The Tribunal upheld the AAC's decision, confirming the deletion of additions and disallowances made by the ITO, and dismissed the Department's appeals. The assessee's cross objections were allowed for statistical purposes.

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