AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2003 (9) TMI 18
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....on a percentage basis, when the assessee maintains books of account and filed audited accounts in the prescribed Form No. 3CD? 3. Whether, on the facts and in the circumstances of the case, and in view of the Tribunal's finding that 'looking to the facts and circumstances of the case brought on record, we find it difficult to accept the proposition of the assessee that the assessee has made payment to the sub-contractors', the Tribunal is right in law and facts in holding that the Commissioner of Income-tax (Appeals) rightly estimated the profit at 8 per cent, and we agree with this estimation as it is realistic? 4. Whether, on the facts and in the circumstances of the case, should not the Tribunal, if at all, have only allowed deduction of expenditure incurred for cutting and removing of metamorphic rock which work was not there in the agreement from the arbitration award? 5. Whether, on the facts and in the circumstances of he case and in the light of the findings at page 28 (line 13)-'For this work done and other work and for other reasons such as the non-completion of the work before the expiry of time on May 23,1985, due to the other parties failure to make available ....
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....work that it was made to execute, etc. 47,31,791 (b) Compensation for loss and damage suffered by the contractor on account of the lapses on the part of the authorities. 16,76,500 (c) Interest at the rate of 12 per cent. 23,42,801 Total 87,51,092 Here it must be noted that the assessee had received a total sum of Rs. 1,15,47,873 which includes contract receipt for the work executed during the accounting year 1992-93 Rs. 27,96,781. The main dispute in the appeal filed by the Department relates to the substitution of the method of estimation of the income made by the Assessing Officer and the adoption of estimation of income based on a percentage of the profit. Though the assessee has produced the books of account and other documents along with a special audit report under section 44AD of the Act, the Assessing Officer did not accept the book results and estimated the income by disallowing the expenditure incurred by the assessee for payments to seven sub-contractors totalling Rs. 68,43,650. The Assessing Officer relying on the balance-sheets of the assessee for the years 1985-86 to 1988-89 wherein the assessee had shown the liabil....
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....er the receipt of the award. Looking to the facts and circumstances of the case brought on record, we find it difficult to accept the proposition of the assessee that the assessee had made payments to the sub-contractors. Of course, the Commissioner of Income-tax (Appeals) has not proceeded on that basis also. As rightly observed by the Commissioner of Income-tax (Appeals), the Revenue was harping only on the payments to the sub-contractors but not the work done which was not in the contract agreement. The above-quoted portion of the award makes it clear that the assessee had to spend for cutting and removing of metamorphic, which work was not there in the agreement. Therefore, we are unable to say that the entire amount of the award is a profit to the assessee and taxable as contended by the Department. The Commissioner of Income-tax (Appeals) rightly estimated the profit at 8 per cent, and we agree to this estimation as it is realistic." Shri P. K. R. Menon, learned senior counsel appearing for the Revenue, submits that the Tribunal had entered a clear finding that it is "difficult to accept the proposition of the assessee that the assessee had made payments to the sub-contrac....
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....ferred to in the assessment order itself. Counsel also submitted that the assessee did not disclose its liability in the balance sheet for the assessment years 1985-86 to 1988-89 only because the liability due to the sub-contractors had not been quantified. Counsel further submitted that the assessments of the assessee for the earlier years were completed on estimate basis after rejecting the books and that the first appellate authority has rightly held that when the book results are rejected the appropriate course is to estimate the income and that it is one of the well-known methods of estimating the income from contract A receipts by adopting a percentage of such receipt as the profit. Counsel also submitted that the assessing authority had treated the entire sum of Rs. 87,51,092 as income from business whereas the Tribunal for the first time on the basis of the contention raised by the Department has treated the sum of Rs. 23,42,801 representing the interest under the award as income from other sources. The counsel submitted that with regard to the interest income it is concluded by the decisions of the Supreme Court that the interest income should also have the characteristics....
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....ge basis. Here, it must be noted that the first appellate authority did not thereafter make any reference to the books of account and other documents relied on by the assessee for the purpose of estimation of income. In other words, he had totally discarded the materials available in the form of books of accounts and other documents. He had resorted to the estimation on percentage basis. On an overall view with regard to the profit that can be derived from a contract business, the first appellate authority felt that it is strange to think that out of the total contract receipt of Rs. 1,15,47,373 there may be a profit to the tune of Rs. 87,51,092, which will come to more than 75 per cent, of the contract receipt. According to us the first appellate authority was not justified on the facts of this case to totally discard the books of account and other documents relied on by the assessee in the matter of estimation of income. As held by the Supreme Court in CST v. Girja Shanker Awanish Kumar [1997] 104 STC 130, even after rejection of the books of account for technical and other reasons, it is for the Assessing Officer on the facts of each case to consider the materials disclosed to a....