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TMI Blog1997 (9) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Appellate Commissioner, while passing the appellate order, has not given any comment in respect of the ground Nos. 1, 9 and 10. In this regard, we have read the ground Nos. 1, 9 and 10 taken in first appeal and we find that the same are of general nature and do not require any comments or decision from the Appellate Commissioner. The first ground taken in this appeal is, therefore, rejected as of no consequence. The effective grounds are, therefore, ground Nos. 4 to 8 which we shall decide accordingly. 3. In ground No. 4, the grievance is that the Appellate Commissioner erred in confirming the disallowance of Rs. 41,850 made by the Assessing Officer towards lack of evidence and supporting vouchers towards material consumed in contract work. 4. In the fifth ground, the grievance is that the Commissioner erred in confirming the addition of Rs. 61,083 being 10 per cent estimated disallowance in labour expenses claimed of Rs. 6,10,838 in Singrauli account. 5. In the sixth ground, the grievance is that the Appellate Commissioner erred in confirming the addition of Rs. 2,348 being medical expenses disallowed and added as not being for business purposes. 6. In the sevent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... highly disproportionate to the contract receipt and, hence, 10 per cent of the expenses is being disallowed and added back. It is very apparent from the observations of the Assessing Officer that the addition has been made in an arbitrary and ad hoc manner and, as such, this type of addition cannot be made or sustained in law. The Appellate Commissioner, therefore, erroneously confirmed the addition of Rs. 61,083 in Singrauli branch a/c. We direct deletion of the same. 10. Regarding the confirmation of addition of Rs. 2,348, we do not agree with the Appellate Commissioner that medical expenses were not incurred for business purposes. The assessee is a contractor and in the course of executing contract work, medical attention is required to be given to labourers as well as other field officers and employees and it cannot be said that medical expenses are not incurred for business purposes. In our view, they are very much related to business and are allowable. The Appellate Commissioner committed an error in confirming the addition. We direct the Assessing Officer to delete the addition of Rs. 2,348 made by him. 11. The addition of Rs. 3,944 has been made by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., assessment years 1989-90 and 1990-91 the book results were rejected under proviso to section 145(1) and income from contract was estimated in the following manner : Gross Receipt of contract work Rs . .................. Less : Deductions for value of materials supplied by the contractee Rs . .................. ------------------------------- Balance Rs . .................. Less : Value of work-in-progress of the immediately preceding year already considered in that year while computing income for that year Rs . .................. ------------------------------- Balance Rs . .................. Added : Value of work-in-progress relating to the year of assessment for which payments received from the contractee in the following year Rs . .................. ------------------------------- Total Rs . .................. Less : Work executed through sub-contractors Rs . .................. ------------------------------- Value of self-executed contract Rs . .................. Computation of profit from contract business by adopting the norm noted below : (i) Net profit applied @ 10 per cent for self- executed work subject to depreciation Rs . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No watch was kept on the extent of increase of net profit on contract on account of these disallowances. Although there is no specific mention of proviso to section 145(1), it is apparent that the disallowances were made only under it. Otherwise, under section 145(1) of the Act, income chargeable under the head 'Profits and gains of business' has to be computed necessarily in accordance with the method of accounting regularly employed by the assessee. In my opinion, whether disallowances are made in the above manner, or overall net profit rate is applied, both are under proviso to section 145(1). 7. Of the two methods, it is preferable to apply an overall rate of net profit, the reason being that the disallowance should be made to such an extent that the net profit is made reasonable. In the circumstances, the proposal made by the learned counsel for the assessee before us in paras 4 5 of the paper book is considered fair and reasonable and the Assessing Officer is directed to apply the procedure followed in assessment years 1989-90 and 1990-91. The accounts will be rejected under proviso to section 145(1) and net profit will be estimated @ 10 per cent on self-executed work a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e came up before the Tribunal. Although not related to the dissent part of the orders rendered by the two learned Members but only with a view to complete the records, it may be stated that the Appellate Tribunal noted that some of the points taken by the assessee before the learned CIT(A) had not been disposed of which were directed to be re-heard and decided. 5. Coming to the controversy before the Third Member, it may be stated that the learned Judicial Member who has authored the order took the view that it was not possible to agree with the stand of the assessee that income from contract business should have been computed in the manner as done in respect of the assessment years 1989-90 and 1990-91. The principal reason at the back of this view is that in respect Of these two and assessment year 1992-93, the account books maintained by the assessee were rejected by the Assessing Officer by applying the provisions of section 145(1) of the Act. As against this, the learned Judicial Member held that in respect of the year under consideration, the books of account of the assessee were not rejected by the Assessing Officer nor were the provisions of section 145(1) of the Act invok ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business was required to be computed in accordance with the method of accounting regularly employed by the assessee. The Id. Accountant Member eventually preferred to apply overall rate of net profit on the premise that "the disallowance should be made to such an extent that the net profit is made reasonable". He, therefore, directed the Assessing Officer to apply the procedure followed in respect of the assessment years 1989-90 and 1990-91 by rejecting the accounts of the assessee under the proviso to sub-section (1) of section 145 and charging the net profit @ 10 per cent on self-executed works and 7 per cent on works executed through its sub-contractors, depreciation to be allowed separately. 7. Supporting the view taken by the learned Accountant Member, the learned counsel for the assessee contended before me that the directions given by him were in order and if item-wise disallowances were made as affirmed by the learned Judicial Member, it would result in abnormal profits which would be unrealistic. On the other hand, the learned D.R. contended that with the non-application of the proviso to sub-section (1) of section 145 the view taken by the learned Judicial Member abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not properly be deduced. By following the method adopted by the assessee, reaching the requisite determination is a question of fact, namely, as to whether or not income chargeable under the Act could properly be deduced from the books of account and such an opinion must be formed with reference to the relevant material and in accordance with the correct principles. In saying so, the view taken by the Apex Court in the case of CIT v. British Paints (India) Ltd [1991] 188 ITR 44 may be referred. However, with reference to this decision of the Summit Court, it must be said that whatever method the assessee adopts it should disclose a true picture of his profits and gains. Their Lordships of the Supreme Court even went to the extent of saying that in a case where an assessee adopted a system which did not disclose the true state of affairs for the determination of tax, even it was ideally suited for other purposes of his business such as creation of reserve, declaration of dividends, etc., it was the duty of the Assessing Officer to adopt any such method as he deems appropriate for the proper determination of the true income of the assessee. What, therefore, follows is that the me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 93. I am unable to appreciate as to what was the occasion under which a different method should have been adopted in respect of the intervening year, i. e., the year under consideration. It is not meant to lay down that in respect of a particular assessment year a different method could not be adopted but there must be some cogent and convincing reason to make a departure from a procedure/system followed by the Assessing Officer in the past as well immediate future. Incidentally, going through the assessment order under consideration, it transpires that disallowance of Rs. 41,850 was made in the purchase of raw-material to "cover up any possible omissio". Similarly an amount of Rs. 61,083 was disallowed out of labour expenses shown by the assessee to the tune of Rs. 6,10,838.83. Medical expenses were disallowed and added back and so were subscription and donation amounts. Several other amounts out of the head "Machinery and maintenance" and "motor car running', etc., were also disallowed and added back. In such a situation and looking to the immediate past and future, I am of the view that the method adopted by the assessee was not found compatible by the Assessing Officer by which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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