TaxTMI 
TaxTMI 
2010 (7) TMI 490
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....ome of the assessee from the contract business being not deducible from its books of account, he estimated the same. The ld. CIT(A), in appeal, though confirmed the AO' s finding in this regard in principle, allowed the assessee relief by reducing the AO's estimation of net profit from 8% (of the gross receipt) to 6.5% thereof. The assessed account for the year revealed contractual receipts at Rs. 193.96 lakhs, besides income from hire charges at Rs. 7.42 lakhs; disclosing the net profit at Rs. 9.55 lakhs. The AO was of the view that the same, at 4.91% of the turnover was on the lower side. In fact, if the hire charges credit of Rs. 7.42 lakhs were to be excluded therefrom, being a separate source of income, the assessee's declared profit would stand to be reduced to a be minimum. Examining the assessee's account, he observed that the expenses under the principal heads of account, viz. labour expenses; site expenses; and conveyance expenses, which constituted a substantial component of the total expenses, were booked through self-made vouchers and, as such, not cross-verifiable. The assessee was further, found to have incurred Rs. 10 lakhs towards cost of soil and another Rs. 1.5 l....
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.... reckoning the turnover after excluding therefrom the cost of the material supplied, and contribution towards Kerala Construction Workers Welfare Fund. The profit from the hire charges was sustained as that estimated by the AO. Aggrieved, the assessee is in appeal. 4. Before us, like submissions stood made by either side, with the assessee relying on the hearing note. 5. We have heard the parties and perused the material on record. 5.1 The First issue is in respect of the addition on account of estimation of income, by the application of section 145(3) of the Act, The question of estimation of income of the business would arise only where the finding of the books of account not yielding correct income due to their being not correct or complete, is upheld. In this regard, we find that the Revenue has raised three pertinent objections. The first relates to the booking of a substantial portion of the expenses through self-vouchers. The assessee has cited the nature of its business as a reason for the same, as also contending that in view of the signatures by the payees, the same must be regarded as external evidence. We find merit in the argument, though, the matter in our view, r....
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....all we know the assessee may well have valid reasons for observing such a differential, qua different projects, in eliminating the excess over cost in arriving at the 'cost' of its WIP; the matter is entirely factual, the relevant facts as obtaining for the year were required to be inquired into and thus ascertained, and the onus for which is only on the Revenue. In fact, in view of the AO himself assessing the income from hire charges at Rs. 74, 209, his observation that reduction of hire charges income from the returned profit figure (Rs. 9.55 lacs) would stand to be reduced to a minimal amount, stands disproved. Under the circumstances, we, therefore, uphold the non-acceptance of the account by the AO only on the first ground. Here we may also add that the returning of a lower profit, which is itself a relative term, cannot by itself form a reason for the rejection of account, but can only lead to a reason to suspect the account as being not correct and complete, leading to further inquiry, and, further could be relevant while estimating the income, i.e., in case followed by an actual rejection of the account. 5.2 Coming, next, to the estimation of the income. White the AO est....
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....h. He relied for this purpose on the decisions in the case of Raja Mustafa Ali Khan v. CIT 16 ITR 330 (PC); CIT v. Raja Benoy Kumar Saha Roy, 32 ITR 466 (SC); CIT v. Kannan Devon Hill Produce Company Ltd. 200 ITR 453, 460 (Cal.); and M. Ramalakshmi Reddy v. CIT 232 ITR 281 (Mad.). The assessee explained that the trees had been sold along with the roots and, as such, (here was no scope for re-generation of the trees, which form part of the capital structure and, thus, the sale proceeds thereof represented a capital receipt. Reliance stood placed by him on the decision in the case of A.K.T.K.M. Vishnudatta Antharjanam v. Commissioner of Agricultural Income-tax (1970) 78 ITR 58 (SC). The AO deputed the Inspector to make an enquiry in the matter. It was reported by him that the trees were sold to two brothers, Shri C.C. Varghese and Shri C.C. Jacob, who are related to the assessee, and had purchased the trees for wood for use in the construction of their building. It was reported by him that the portion of the various trees was still lying at the site. The AO confronted the position to the assessee, who replied that the trees were in fact sold with roots. The same did not find favour w....
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.... the controversy between the assessee and the Revenue is with regard to whether the trees stood sold along with the roots, or not. This question of fact assumes relevance in view of the decision by the apex court in the case of Vishnudatta Antharjanam (supra). The assessee claims that the trees stood sold along with the roots, though the purchasers left the secondary coots, which have application only as firewood, at the site itself. It is not in dispute that some roots, which have not been quantified in relation to the trees cut and sold, or qualitatively evaluated as being primary or secondary or both, by any of the parties, (the assessee's submissions in this regard being also unsubstantiated and, in fact, rendered only after the Inspector's report), were lying at the place from where the soil stood extracted by the assessee for use in his contract work or for sale, even months after the sale (of trees). As such, it is clear that whether the trees stood sold along with the roots or not the same stood uprooted. If that be so, it is only understandable that the assessee would have realised the value in its respect. As such, it is only logical to infer that roots stood sold either ....
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....was a part of land itself. However, the trees under reference are not sold together with the land, which remains unsold, but after uprooting them. Thus, though an erstwhile constituent thereof, and not mainland itself, it would nevertheless, where severed from the land and realized as such, stand to be categorized as a capital asset in specie. The receipt on their sale would, thus, be a capital receipt, though only qua a capital asset, on its transfer, and therefore, exigible to capital gains tax under the Act. In this context, we find that the assessee claims that its land is not an agricultural land and, as such, is a capital asset under the Act, so that reducing its value by the notional sale value of soil realized by use in own business, would lead to an enhanced, i.e., to that extent, capital gains on its sale. Firstly, we observe an inconsistency in the assessee's stand in this respect. While the soil used for own business stands credited to the land account, that sold (Rs. 6.50 lacs) stands credited to the capital account, and not to the land account. A uniform approach, consistent with its argument, would warrant the entire credit to the land account; the two processes, of ....
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....ns any trees, etc., would fetch a lower value vis-a-vis that bearing them, and for the simple reason that, if nothing else, the same could be sold and, thus, encashed, i.e., apart from the land which remains intact; its fertility or potential being not diminshed. Even if allowed to grow further, wood, a natural product, matures with age, so as to gain disproportionately in value vis-a-vis time. In other words, the increase in value is not linearly related with time. The land value would depend largely on the purpose for which the land is being purchased. The hon'ble apex court in the case of Dhun kapadia v. CIT, 63ITR 651 (SC), had an occasion to consider the cost of acquisition of right shares sold by the assessee. Holding it to be a capital asset, which stood embedded in the parent (original) shares, the hon'ble court opined that the fall in the value of the original shares immediately after the issue of rights shares would represent a fair estimate of the 'cost' of those (right) shares. The same could not be considered as without cost, as the parent shares, which represented the capitalized value of the issuing-company, suffer a decline in value, as the same (said value) stands....
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....otentiality in any manner by the removal of the trees. Also, the analogy of the sale of right shares has a marked similarity in this respect also. This is as it is nobody's case that the decline in the market value of shares directly corresponds, in that ratio, with the value of the right shares, or even corresponds with the decrease in the per share capitalized value of the company. This is as if that were the case, just as in the case of trees, rather more so as the trees could also be sold without the intent to sell the land, the issue of right shares should not lead to any increase in the shareholder value or wealth. The diminution in the fair market value of the land, thus, would only represent a reasonably good approximation of the assessee's loss of value of his capital structure/complex on the sale of trees, and thus the deemed cost thereof in his hands. We are aware, and only acutely, that the matter of valuation is viewed is imbued with practical constraints, and does not admit of ready answers. However, the difficulty in the estimation cannot withhold or obstruct the course of law, which must prevail, applying the same in the best possible manner under the circumstances.....