TaxTMI 
TaxTMI 
2011 (4) TMI 506
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....cture due to specialization in structural engineering. b) Previously, the appellant used to debit the total cost of work-in-progress to the profit and loss account. The realizable value of the completed work for which bills were not submitted was taken as the value of the work-in-progress. The appellant then used to deduct from the valuation of work-in-progress, 10% of the estimated profit as contingent liability to accommodate probable loss in future in course of completion of the particular contract. Such set off at the estimated rate of 10% of the profit to accommodate future losses against the work-in-progress account was not accepted by the Department and the Assessment for the Years 1978-79 and 1979-80 had been completed by the Income-tax Officer by accepting the aforesaid method of valuation of work-in-progress. Both the assessments were subsequently cancelled under Section 163 of the Act. c) With effect from the Assessment Year1986-87 another method was adopted by the appellant. The valuation of work-in-progress was made in two steps. In the first step, work-in-progress was valued by adopting the contracted rate. In the second step, a deduction was made by a....
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.... was of the view that the National Accounting Standard Committee and the Indian Institutions of Chartered Accounts have only suggested that a provision should normally be made for loss that are likely to be incurred on the unfinished part of the work and such a suggestion was made only to ensure that accounts of the company engaged in execution of civil works contract reflected a realistic financial position. A profit in a particular year may simply be swallowed by losses in future. The Assessing Officer, thus, held that the undervaluation of the work-in-progress to the extent of Rs.1,31,88,000/- representing provision for contingent liability should be rejected. f) The appellant on May 9, 1989 filed an application for rectification under Section 154 of the Income-tax Act by taking the following plea: "Your honour have not allowed deductions as follow in computing the total income, on the basis of departments own treatment of provision for loss on incomplete contracts as reduced from work in progress in earlier years - Asst. Year Closing figure of Provision (In Lakhs) Deduction to be allowed allow....
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.... Commissioner of Income-tax (Appeals) and the said appellate authority dismissed the appeal with the following observations: "The ground of appeal/statement of facts only says that the assessing officer rejected the petition u/s. 154 that had been moved for rectification of mistake apparent from record. The mistake, if any, was however, not specified. In reply to the query in appeal the A/R. refers to the persisting conflicting between the Department and the appellant regarding the method of accounting that is being followed by the appellant which has not been accepted conclusively by the Department. The appellant sometime in the past adopted the International Accounting Standard - 7 and gave up the earlier method of accounting. Such adoption was rejected as it was not in tandem with the charging sections of the Act read with section 145 of the Act. Thus, and quite natural in order to identify the mistake, which according to the appellant was committed in the return, the A/R. refers to the Chain re-action that has been set emotion on I.T. record for the past few years. Consequently, the reply of the A/R. called for a probe by way of deep application of mind. It is settled that whe....
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....sing and opening stock positions, the two assessments telescoped into each other. According to Mr. Khaitan, the authorities below erred in law in not taking into consideration the fact that in this case, there was a mistake apparent on the face of record inasmuch as the valuation of the closing stock of the previous year did not result in the same opening stock for the subsequent year. According to Mr. Khaitan, the aforesaid error was one apparent on the face of record and thus, the authorities below should have rectified the said mistake in terms of Section 154 of the Act. 7. Mr. Bhowmick, the learned counsel appearing on behalf of the Revenue, has, on the other hand, opposed the aforesaid contention of Mr. Khaitan and has supported the assessment orders passed by the Assessing Officer, and the orders passed by the CIT (Appeals) and the Tribunal. 8. Mr. Bhowmick points out that the assessee submitted the annual income-tax return for the relevant Assessment Years 1987-88 and 1988-89 along with the profit and loss and balance-sheet and the auditor's report and the said account was dully audited by the Chartered Accountant as per provision of Section 44 AB of the Inco....
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....1986-87. 10. By the order of Assessment made on February 7, 1989 for the Assessment Year 1986-87, the Assessing Officer did not accept the changed method and increased the closing value of the work-in-progress by Rs.1,31,88,000/- by adding back the adjustment made for the losses. It appears from record, that the assessee preferred an appeal against such order, but was unsuccessful up to the Tribunal. The Committee on disputes did not permit the assessee to pursue the matter before this Court under Section 260A of the Act and, thus, the order dated February 7, 1989, passed by the Assessing Officer for the Assessment Year 1986-87 has since attained finality. 11. For the Assessment Year 1987-88 and 1988-89, the assessee had prepared its accounts according to the changed method and submitted its income-tax return accordingly and in respect of the said returns, on March 23, 1989, the Assessing Officer passed order under Section 143(1) of the Act accepting the returned income. It further appears from record, that on May 9, 1989 the assessee made an application under Section 154 of the Act for the Assessment Years 1987-88 and 1988-89 requesting the Assessing Officer to rectify the asses....
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....03 = (AIR 1958 SC 875) and Khem Chand's case 6 ITR 414 = 65 Ind App 236 = (AIR1938 PC 175) (supra) in support of the view taken by it. Counsel for the then appellant sought to distinguish those cases on the ground that the record there considered was the assessment record of that year and the Income-tax Officer did not have to go to the records of the previous year. This argument was repelled in these terms: "That is a distinction without a difference. If, for instance, the Income-tax Officer had found that in the assessment year 1952-53 there was an apparent arithmetical mistake in the account of the Written Down Value of the properties which resulted in a corresponding mistake in the assessment of the year in controversy could he not take the corrected figure for the purposes of the assessment and could it be said that the mistake was not apparent from the record. A fortiori if he discovered that the very basis of the different assessments was erroneous because of an initial mistake in determining the Written Down Value could it be said that this would not be a mistake apparent from the record. And if in order to determine the correct Written Down Value the Income-tax Officer mak....
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....y because in the original return, there was a mistake on the part of the assessee, such fact cannot be a ground for refusing the prayer of rectification, when the mistake is apparent from the record and the dispute is also not debatable in view of the law settled by the Supreme Court long ago. As pointed out by the Supreme Court in the case of Commissioner of Income Tax. Madras vs. V. MR. P. Firm Muar reported in AIR 1965 SC 1216, if a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law and if a particular income is not taxable, the Income-tax Officer has no power to impose tax on the said income. 16. We now propose to deal with the decisions cited by Mr. Bhowmick. 17. In the case of Mepco Industries Ltd. (supra), the Supreme Court was dealing with a case of rectification under Section 154 of the Act where the question was whether subsidy was a revenue receipt when in the order sought to be rectified it was held to be capital receipt. In such a case, the Supreme Court held that in order to determine whether subsidy is revenue receipt or not, the natur....