9911796707
TMI Blog2004 (11) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax under section 256(2) of the Income-tax Act, 1961 ('the Act') seeking opinion on the following four questions: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act and thereby restoring the order passed by the Income-tax Officer? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee-company is an industrial company? (3) Whether, the Tribunal has not erred in law in allowing the claim of the assessee with regard to the receipt of Rs. 11,78,950 as being provision for contingencies? (4) When Rs. 11,78,950 is a receipt by the assessee from the contractors in the course of carrying on of the business, whether the Tribunal's order to exclude the same is vitiated in law by irrelevant considerations on the basis of the so called standard accounting matters?" The respondent is a private limited company. The assessment year is 1982-83 and the relevant accounting period is the year ended on June 30, 1981. The respondent-assessee declared the total income of Rs. 2,52,040 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aside and the appeal was allowed in relation to both the grounds. It is in the aforesaid circumstances that the reference has been brought before us by the Revenue. Mr. M. R. Bhatt, learned senior standing counsel appearing on behalf of the applicant-Revenue submitted that the Tribunal's finding in relation to the status of the assessee-company being an "industrial company" was erroneous in law inasmuch as the Tribunal had failed to record any finding regarding the activities carried out by the assessee-company. That the Tribunal had merely held in favour of the assessee on the basis that the Assessing Officer had granted investment allowance of Rs. 87,803 while computing the total income of the assessee and hence, according to the Tribunal, it could safely be concluded for the purpose of revisional jurisdiction that once the assessee was granted investment allowance in respect of the plant and machinery engaged in the same business it cannot be said that the assessee was not engaged in the business of manufacturing activity or processing of goods while deciding upon the status of the assessee-company. According to Mr. Bhatt the controversy was now no longer res integra in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income by treating the same as a provision for contingencies. It was submitted by Mr. Bhatt that the Tribunal had taken into consideration irrelevant factors on the basis of the so called standard accounting practice without appreciating that section 4 of the Act provides for charge of income-tax and the said charge was in respect of the total income of the previous year. That under Chapter IV, Part D, "profits and gains of business or profession" were to be computed in accordance with provisions of sections 28 to 43A of the Act. That while computing profits and gains of business or profession income referred to in section 28 of the Act had to be computed in accordance with the provisions contained in sections 30 to 43A of the Act as provided under section 29 of the Act and if no deduction was provided for in the said group of sections, it was not possible for an assessee to claim any deduction of any sum de hors the said provisions. Mr. Bhatt also relied upon the decision in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) in support of the proposition that accountancy principles and practice cannot determine taxability of an amount if su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der any other provision of the Act. It was further submitted that even on the merits, once it was held that the assessee was involved in the manufacture or production of articles or things not falling within the Eleventh Schedule of the Act, it could not be held against the assessee that for the purpose of being treated as "industrial company" it was not manufacturing or processing goods as required under section 2(7)(c) of the Finance Act. In relation to the second issue regarding taxability of a sum of Rs. 11,78,950, it was submitted that the Tribunal had taken into consideration the accepted standard accounting practice after taking into consideration the commentary by various authors on accountancy and held that the assessee-company had adopted and consistently followed a prescribed and recognised method of accounting in the case of a contractor involved in civil construction work, i.e., percentage completion method. That the said method was a scientific method and there was no dispute as regards the same. Therefore, according to Mr. Shah there being no error in the order of the Tribunal the reference of the Revenue was required to be rejected in relation to both the issues. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the Assessing Officer has granted investment allowance while computing the total income of the assessee and the said action has not been challenged or disturbed in any manner whatsoever. It is further found by the Tribunal that investment allowance is granted in respect of the plant and machinery engaged in the same business. In the light of the aforesaid findings of fact recorded by the Tribunal it is deemed proper not to opine on the merits of the controversy between the parties and the finding of the Tribunal that once the assessee is granted investment allowance in respect of the plant and machinery utilised in the same business it cannot be said that the assessee was not engaged in the business of manufacturing activity or processing of goods while deciding upon the status of the assessee-company is upheld. It is also necessary to record that such investment allowance had been granted in the case of the same assessee for the assessment year under consideration and the same remains undisturbed, hence, it is not possible, on the peculiar facts of the case, to take a different view of the matter. The assessee was in receipt of a total sum of Rs. 1,54,82,953 comprised cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is permitted to intervene, in case it is found that true income, profits and gains cannot be arrived at by the method employed by the assessee. The position of law is further well-settled that a regular method adopted by an assessee cannot be rejected merely because it gives benefit to an assessee in certain years. In the present case, the Tribunal has categorically found that "the assessee has followed the standard accounting method as this being the first year of the business it was the sole choice of the assessee to adopt a particular method of accounting contemplated under section 145 of the Act". It is further admitted by the learned advocates appearing for the parties that the said method has been constantly followed by the assessee and in subsequent years the Revenue has accepted the same. In the case of Badridas Daga v. CIT [1958] 34 ITR 10, the hon'ble Supreme Court has enunciated the following propositions (headnote): "While section 10(1) of the Indian Income-tax Act, 1922, imposes a charge on the profits or gains of a business, it does not provide how these profits are to be computed. Section 10(2) enumerates various items which are admissible as deductions but th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
