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TMI Blog2009 (5) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee of the earlier year were also made under similar circumstances under section 143(3) of the Income-tax Act and the trading results have always been accepted. (4) That worthy CIT-I, Amritsar has grossly erred in concluding that the Assessing Officer has made no proper investigation in respect of static credit entries of Sh. Noor Pal Singh & M/s. P.S. Builders. (5) That worthy CIT-I, Amritsar has grossly erred in not appreciating that the credits pertaining to Noor Pal Singh & M/s. P.S. Builders had originated in earlier year and same could not be treated as cash credit under section 68 of the Income-tax Act." 3. The brief facts of the case are that the assessee is a Government Contractor engaged in the business of construction work of laying roads, civil construction work of paving the roads for Government agencies like Municipal Corpn., Improvement Trust, Ministry of Shipping & Highways, Department of Road Transport & Highways, Chandigarh. The assessment of the assessee was completed under section 143(3) on 17-8-2006. After scrutiny of books of account, the Assessing Officer made an addition of Rs. 25,000 towards telephone and car depreciation expenses for unvouching of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04. The only issue for which the matter was sent back to the Assessing Officer was to look into the advance paid by SGPC amounting to Rs. 2,50,000. He further submitted that ITO passed the revised order on 15-4-2008, where the advance was also accepted. 4.1 He further submitted that the assessee has reworked the net profits in accordance with the law and the same have been placed in the Paper Book-II. The net profit has been computed before allowing salary, interest to partners and depreciation. The Gross Receipts have been computed excluding material supplied by the Government because no profit accrues to the assessee on material supplied by the Government. The Net Profit Rates are reproduced as under : Assessment year Gross receipts (excluding material supplied by Govt.) Net profit before salary, interest to partners and depreciation Net profit Rate(%) 2002-03 35,40,725 2,14,232 6.05% 2003-04 1,52,23,771 6,86,765 4.51% 2004-05 1,62,07,936 7,78,090 4.80% 2005-06 20,10,07,514 17,26,542 8.58% 4.2 He further submitted that the net profit rate during the year 2005-06 is 8.58 per cent, which is much higher than the earlier years Net Profit Rates. As such, no preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o Sh. Noor Pal Singh in his Capital Account as ex-partner and amount due to M/s. P.S. Builders is unsecured loan. These amounts were received in the earlier years. As such, section 68 of the Income-tax Act, 1961 is not applicable. The CIT observed that the Assessing Officer should have applied the provision of section 41 of the Income-tax Act, 1961 to these static creditors. 4.8 He further submitted that section 41(1) has no application to unsecured loans. The CIT has, therefore, completely misdirected himself in making this observation and the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue as the Assessing Officer could not make any addition under section 41(1) of the Act. He drew our attention to the judgment of Hon'ble Bombay High Court in the case of Mahindra & Mahindra v. CIT [2003] 261 ITR 501 1. 4.9 In the end, he requested to quash the order of CIT-I under section 263. 5. The ld. DR relied on the order of the CIT-I, Amritsar. 6. We have heard both the parties, considered the rival contentions and carefully gone through the material placed on record. In the present case, the assessee is a contractor engaged in the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of accounting is entirely upon the assessee. The assessee having adopted such a method of accounting and has been regularly employing such method and the department has accepted the same method in previous years as well as subsequent years as a proper method for arriving at the income, in such a situation, it is not open to the department to choose one intermediary and try to distort the whole assessment and adding certain portion of works done by the assessee as income of the assessee. Apart from distorting the income of the present assessment year, such assessee may also have an impact on the other subsequent year where the total income from such works have been disclosed by the assessee by the method of accounting regularly employed by it. When once choice is made by the assessee of a system, i.e., recognised by the production of accounting or by assessees of the same class, the assessee cannot be taken away from that class, just for the purpose of bringing the some income to tax by arbitrary making addition to the disclosed income. It is not case of the department that the assessee has not followed this method in its true requirement nor the department has found any mistake i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT, the order in question is prejudicial to the interests of the revenue. But that by itself would not be enough to vest the CIT with the power of suo motu revision because the first requirement, namely, that the order is erroneous, is absent. Similarly if an order is erroneous but not prejudicial to the interests of the revenue, then the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. Moreover, in the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Therefore, taking into account all the above facts, section 41(1) of the Act was not applicable." In the present case, on account of amount standing in the name of Sh. Noor Pal Singh, the assessee has not obtained any deduction in any assessment year in respect of loss, expenditure or trading liability and static credit of that credit cannot be treated as cessation of trade liability. This liability is not being in the nature of trade liability, section 41(1) is not applicable. Hence, the judgment cited by the ld. counsel for the assessee strongly supports the case of the assessee. 8. Regarding credit in the name of M/s. P.S. Builders, the liability still not ceased to exist as it is still appearing in the books of account of the assessee. There is no finding by the CIT that such entry in the balance sheet extended the period of limitation under section 19 of Limitation Act and the liability had not ceased to exist and as such, the amount cannot be taxed as deemed income. In our opinion, unless and until there is cessation of said liability, section 41(1) was not applicable in the present case. There is no evidence of cessation of liability and the amount cannot be taxed as de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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