9911796707
TMI Blog1986 (8) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... timating gross profit against receipts. For the assessment year 1980-81 the assessee returned gross profit of 18 per cent as against which the ITO completed the assessment estimating the net profit at 20 per cent of the gross receipts as income of the assessee. During the accounting year relevant to the assessment year 1981-82 the assessee had received advance deposits amounting to Rs. 32,27,000. The names of the purchasers of flats, the date of the agreements entered into with each of them, the various dates on which advance amounts are received from each of the purchasers during the relevant accounting year and the particulars of the amounts of advances received from each of the purchasers during the relevant accounting year are all furnished in a tabular form on behalf of the assessee. It would show that the assessee had received advances of Rs. 32,37,000 during the relevant accounting period. During the enquiry before assessment the assessee addressed two letters dated 29-12-1983 and 7-1-1984 wherein the assessee-firm had explained that even though there is increase in cost of labour, cost of material they could not increase the price of flats agreed upon with the purchasers as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he held that the completion of assessment on protective basis is not justified. He ordered that the assessment made should be treated as regular assessment and further ordered that credit for the income assessed in this assessment should be given in computing the income when the sales of the flats are finally effected. 4. Aggrieved by the impugned order of the Commissioner (Appeals) the revenue filed the second appeal. It is contended by the learned departmental representative that no flats were sold to the intending purchasers and, therefore, the assessee could not be said to have made profits out of itself. Profit will arise only in the year when the sale is effected. Since the assessee had filed a return admitting a profit the ITO correctly accepted the return on a protective basis. The learned Commissioner (Appeals) ought not to have confirmed 9 per cent gross profit after finding that it was accepted by the ITO. At the outset the learned Commissioner (Appeals) could have set aside the assessment for finding out the real profit earned by the assessee. Firstly, it was argued by the learned departmental representative that no appeal lies against protective assessment under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be assessed. The controversy which in fact arises from out of the impugned assessment order is whether the income offered for assessment is assessable either now or in future. 6. After considering the arguments on both sides we are of the opinion that the arguments advanced on behalf of the assessee are to prevail against those of the learned departmental representative for the following reasons. In Smt. Tara Devi Aggarwal's case the following is held : "The learned advocate for the assessee contends that under section 33B the Commissioner had no jurisdiction to cancel the assessment made by the ITO inasmuch as it cannot be said that where an assessee has been assessed to tax it was prejudicial to the interests of revenue on the ground that no assessment could have been made in respect of the income of which she made a voluntary return. This contention in our view is unwarranted by the language of section 33B...Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to assist someone else who would have been assessed to a larger amount, an assessment so made can certainly be erroneous an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply to the facts of the case before us. We accept this argument and the point of distinction drawn and hold that it is valid and correct. Commenting upon another Supreme Court decision cited on behalf of the revenue, viz., Kanpur Coal Syndicate's case Shri Ratnakar argued that the ratio of the Hon'ble Supreme Court in that case helps the assessee more than the department. In that case an AOP had been assessed. The assessee filed the appeal contending that it would be more appropriate if the individual members of the association were assessed. The revenue was contending that the assessee which is an AOP had no right of appeal, as it cannot deny its liability to tax. When the matter went to the Supreme Court the following is held : "...Under section 30 an assessee objecting to the amount of income assessed under section 23 or the amount of tax determined under the said section or denying his liability to be assessed under the Act can prefer an appeal against the order of the Income-tax Officer to the Appellate Assistant Commissioner. It is said that an order made by the Income-tax Officer rejecting the plea of an association of persons that the members thereof shall be assessed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 246(1)(c). 9. It is contended by the learned departmental representative that when the assessee itself filed the return in which a certain amount of income was offered for tax the ITO cannot but complete the assessment. Shri. Ratnakar countered the argument by submitting that there is nothing like protective assessment recognised under the Act and the so-called protective assessment is as good as a regular assessment and an appeal lies against it. He cited before us an unreported decision of the Andhra Pradesh High Court rendered in Case Referred Nos. 75 and 169 of 1979. The Andhra Pradesh High Court by its decision dated 12-2-1981 held as follows : "The assessment against the other three assessees was made in the status of individuals for the assessment year 1973-74, but labelled a protective assessment. It was argued that a protective assessment is an assessment which acquires no finality and which can be varied later on. But in support of this agreement, no statutory provision has been shown to us. The provisions of the Income-tax Act would only permit the levying of assessment within the period of limitation. The assessment so made by the Income-tax Officer cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee did not execute regular registered sale deeds in favour of any one of the purchasers the sale of flats cannot be considered to be complete and the amount reflected in the books of account of the assessee cannot be taken to be gross receipts on which profit is derived and unless profit is derived the assessment cannot be made on the business income. Shri Ratnakar countered this argument both factually as well as legally. Firstly, he invited our attention to the fact that in the case of this very assessee when certain amount was offered as profit derived from the business for the assessment year 1980-81 the ITO felt that 18 per cent gross profit disclosed was not enough and completed the assessment adopting 20 per cent gross profit. He never stated that the assessee is not liable to tax because he did not earn any business income inasmuch as the sale was not complete. When in the same way profit derived by the assessee was returned for the assessment year 1981-82 how can the ITO treat this income differently ? Further, Shri Ratnakar filed several assessment orders where the other builders were assessed on the gross receipts by estimating their profits at certain percentage o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from the purchasers and even though the sales were not complete by any registered documents. So estimating the profit even while the work was in progress was not foreign to the line of business conducted by the builders. Shri Ratnakar argued that the ITO can reject the accounts of the assessee only if the real income derived by the assessee cannot be culled out from those accounts and not otherwise. He further argued that profits and gains must be computed in accordance with the method of accounting regularly employed by the assessee. But the assessee must show that he has followed the method regularly for his own purposes. Section 145(1), proviso, clearly makes such method of accounting regularly employed by the assessee a compulsory basis for computation unless in the opinion of the ITO the income, profits and gains cannot properly be deduced therefrom. Whenever a regular method of accounts maintained by the assessee they should form part of the basis of computation of income. In this connection Shri Ratnakar cited the following decisions : 1. In CIT v. Mcmillan Co. [1958] 33 ITR 182 (SC) it is held as follows : "The section enacts that for the purposes of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner (Appeals) had requisite authority to entertain the appeal which was culminated in the impugned orders. So also we hold that estimating the profits even before the sale was not technically complete by execution of registered sale deed is correct and this method is also followed by the revenue not only in the case of the assessee in earlier years but also in other cases of builders and so we hold that the method of accounting maintained by the assessee during the course of its business as builder cannot be found fault with. We further hold that the learned Commissioner (Appeals) is correct in finding that the completion of assessment on protective basis is not justified. It is not as if the ITO blindly accepted the returned income simply because he felt that under law that there was no other go or alternative except accepting the returned income estimated at 9 per cent of the gross receipts. If the above is to be accepted as correct it cannot be explained as to why the ITO questioned the adequacy of the returned income which should alone led the assessee to explain its stand by means of the letters dated 29-12-1983 and 7-1-1984. In those letters the assessee explained that thou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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