TaxTMI 
TaxTMI 
2004 (11) TMI 49
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.... 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 for the year under consideration. The assessee is a newly incorporated company registered on March 31, 1980 and the accounting year is the first year of its operations. The business of the assessee consists of undertaking contracts in respect of construction of buildings and during the year, it was awarded a contract of Effluent Channel Project for GIDC as well as CIDCO, Bombay. The assessment was framed on June 29, 1984 at a total income of Rs. 2,81,610 under section 143(3) of the Act. The Commissioner of Income-tax, Baroda, felt that the assessment order was erroneous and prejudicial to the interests of the Revenue because: (i) the assessee-company was treated as an "industrial company" though it was not engaged in manufacturing activities, and (ii) a sum o....
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.... 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 light of the apex court decision in the case of CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412 as well as the Bombay High Court decision in the case of Shah Construction [1983] 142 ITR 696 relied on by the Commissioner of Income-tax. That definition of "industrial company" in terms did not permit a company to be treated as an "industrial company" if such company was involved in the business of construction other than construction of ships. That the activity of constructing buildings, dams, canals, etc., could not be said to be manufacture or production of articles or things as held by the apex court in the case of N. C. Budharaja and Co. [1993] 204 ITR 412 and applying the same ratio it could not be stated that the construction activities carried on by the a....
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.... 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 such principles and practice cannot be justified by any provision of the statute or is contrary to it. Mr. Bhatt, in support of his stand, invited attention to the statement which is available at page 183 of the paper book showing the calculation of profit according to the percentage completion method to submit that the profit for the year under consideration was actually Rs. 15,16,542 and the sum of Rs. 11,78,950 had been deducted therefrom on the basis of the so-called standard accounting practice. This exercise was not permissible and the Revenue was justified in treating the said sum of Rs. 11,78,950 as income chargeable to tax for the year under consideration. Thus, according to Mr. Bhatt the provision for anticipated loss, made by the assessee-company, wa....
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....tently 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. Mr. M.R. Bhatt submitted in rejoinder that question No. 1 would take within its sweep the challenge to the finding of the Tribunal about the absence of error in the order of the assessment. In this connection he placed reliance on the decision of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC). He reiterated his submission that merely because investment allowance had been granted and no remedial action had been subsequently taken that by itself should not be sufficient to hold that the assessee should be treated as an "industrial company". In the case of Malabar Industrial Co. Ltd. [2000] 243 ITR 83 the hon'ble apex court has held that before the Commissioner can exercise jurisdiction under section 263 of the Act he has to satisfy two prerequisite c....
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....e 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 certified work as well as uncertified work including reimbursements. As against such receipts, during the accounting period the assessee incurred expenses to the tune of Rs. 1,39,66,411 leaving a difference of Rs. 15,16,542. The assessee reduced the said figure by a sum of Rs. 11,78,850 on the basis of the method of accounting employed by the assessee, viz., percentage completion method by working out the said sum as more than one-fourth but less than one-half of contract being completed and offered profit of Rs. 3,37,592 as profit of the year. It becomes further clear from the calculation statement available on record that for the next accounting period, i.e., year ended June 30, 1982 the assessee similarly reduced a sum of Rs. 44,440 towards more than one-half ....
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....t 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 they are not exhaustive of all allowances which could be made in ascertaining the profits of a business taxable under section 10(1). Profits and gains which are liable to be taxed under section 10(1) are what are understood to be such under ordinary commercial principles. When a claim is made for a deduction for which there is no specific provision under section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business and be incidental to it. The loss for which a deduction is claimed must be one that springs directly from the carrying on of the business and is incidental to it, and not any loss sustained by the assessee even....