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I.T.As. Nos. 1315/KB to 1318/KB, 100/KB, 404/KB and 101/KB of 1980-81; 382/KB, 1314/KB and 1381/KB of 1981-82, decided on 4th July, 1985.
----S. 13--Rejection of accounts--Assessee, a private limited company carrying on business of imports and exports of garments--Garments, apart from stitching had to be completed by various experts Cloth was purchased and supplied on receiving orders by the assessee but no record for supply of cloth was maintained--Held, profit could not worked out from the record of- the assessee and. therefore, accounts of assessee had rightly been rejected.
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-----S. 1:3--Reiectior of accounts--Loss--Held, in order to find out as coy whether assessee had suffered a loss or not or what was the quantum of loss if any, it was necessary for assessing officer to examine the accounts of the assessee in detail and point out, specific defects, if any--When the assessing officer would come to the conclusion that assessee's account books were liable to be rejected or that the purchases were un-vouched, it was only then that assessing officer could legitimately reject the accounts of the assessee--Assessing officer should find independent factual defects and should not be misled by irrelevant considerations--Probability however, strong it might be, could not take place of a fact.
Majority View:
Per Abrar Hussain Naqvi, Judicial Member.
Mian Abdul Khaliq, Judicial Member, agreeing
(Zafar Hussain, Member Accountant Member, Contra)-
---S. 33(6)--Appeal to the Appellate Tribunal--Tribunal's order including the order for setting aside the assessment is final and binding on subordinate Courts for that assessment year and is only subject to the order of the High Court or Supreme Court as the case 'lay be---Mere pendency of reference before High Court does not take 'way the finality of the order of the Tribunal. Review of its earlier order by Tribunal not permitted by law--Tribunal, however, has always the power to reverse the impugned orders following its own view expressed by it earlier--Larger Bench of Tribunal can also 1 value the earlier view of the Tribunal on strong grounds and view expressed by the Tribunal earlier, particularly in the same case, should not be lightly ignored.
Trikamal Maneklal's case (1958)33 1 T R 725 fol.
[Per Zaffar, Accountant Member (Minority view.]
---S. 3--Incomplete project-- Chargeability of Income-tax--Total income of any previous years--Income-tax is chargeable for a particular assessment years on the basis of the relevant Finance Act/Ordinance and in respect of the income of previous yw3r-- assessment of income of one year cannot be postponed to a subsequent year---Never fact that the ultimate profits are not determinable in any year, does not debar or prevent Assessing Officer to make an assessment for that year--Tax liability determined in respect of income from incomplete projects is adjustable against tax liability to be finalised on completion of projects--Duty of assessee and assessing officer in the cases where ultimate profits are not determinable stated.
In re: K . H . Modi (1940) I T R 179, 1941-9 I T R 347; C . I . T . Burma v. A.K.A.R. Family (1941)9 I T R 347; Sasoon (E.17) & Co. Ltd. v. C.I.T. (1954) 26 I T R 27; S.P. Veerapa Chathar v. C.I.T. Madras (1941) 9 I T R 56; Sri Sukhdeo Dad ,Japan v. C.I.T., Behar & Orissa (1954) 26 I T R 61.7; C.I.T. v. Nanduri Suryan Vayana (1962) 46 1 T R 894; P. M. Meera Khan v. C .I . T. Kerala (1969; ITR 735; N. Rengaswami Pillar: v. C.1.T., Madras (1973) 98 I T R 24 and C. I. T. Madras v. K. Sri Nivasan and K. Gopalan ( 1953) 23 I T R 87 ref.
Sri Sukhdeodas .Jalan v. C.I.T.,, Behar, and Orisa (1954) 26 I T R 617 rel.
---Ss. 13 & 3--Chargeability of income-tax Term "advance" --Neither loan nor a debt--Assessee booked apartments, go downs and shops by making an agreement with purchasers--Method of payment of the sale price was that part payments were made not the time of booking and balance sale price was to be paid in number of instalments and finally the entire sales price had to be paid before the delivery of possession of the flats or shops--'ere fact that sale price was being paid through instalments, held, could not take away its character of being a sale price-- Assessee, therefore, could not claim that receipts by it during the year were not part of sale price of the property for which agreements to sell were executed between assessee and purchasers-Where assessee maintained accounts of such receipts on project basis and assessing officer was of the view that assessee's profits were not determinable on yearly basis, rejection of accounts of assessee by assessing officer was justified.
---S. 13--Rejection of accounts--Once the assessee's accounts are rejected, it is for the assessing officer to find out a method to try compute the profits and gains of the assessee--assessee cannot challenge the power of assessing officer to adopt any reasonable method for the determination of his income though he can always object to the reasonableness of the method or income determined by the assessing officer.
---S.--10(2) (vi)--Depreciation, allowance, claim of--Car belonging to assessee company--No disallowance on account of personal use of car by Directors of Company, held, could be made.
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---'Developer'--'Developer' is also a contractor. Muhammad Fareed, AC/DR and M Arshad Javed Tahir Butt, AC/DR for Appellant. Pervez, AC/ DR
Ali Athar and M.A. Noorani for Respondent.
Date of hearing: 17th September, 1984.
These are cross appeals. The assessee has filed appeals in respect of assessment years 1973-74, 1974-75. 1975-76 1976-77, 1977-78 1978-79 and 1979-80 while the department has also filed appeals for the assessment years 1975-76, 1976-77 and 1979-80. All the appeals are disposed of as
under:
2. Assessment of years 1973-74 and 1974-75: The assessee is a private limited company carrying on business of imports and exports of garments and also from business of land development by purchasing land, constructing flats and sealing them. In these two assessment years, the dispute is only in regard to the export business. The assessee had shown export sales for the assessment year 1973-74 at Rs. 121,520 with GP rate of 12.5%. In the assessment year 1974-75, the export sales were shown at Rs.95,130 with GP rate of 14.9%.
3. In the original assessment order, the assessing officer after rejecting the accounts of the assessee estimated the sales and applied GP rate of 25%. However, when the case came up before the Tribunal on appeal, it directed that there was no justification for estimating the sales and directed to accept the declared export sales. In regard to the application of GP rate it was directed by the Tribunal to re-examine the assessee's books of accounts afresh and pass fresh order.
4. Consequently, the ITO re-examined the accounts of the assessee. He found that no proper stock register was maintained nor any day-to-day record of consumption of cloth and production of garments was maintained and the GP rate declared was low. Consequently, accepting the declared export sales, the ITO applied GP rate of 256 as before applied.
5. The learned counsel for the assessee contended that the asses see got garments stitched from one tailor who was a verifiable party. It was however, admitted that the assessee dealt in long garments stitched with mirrors which were specialized items and could not be completed by one tailor. It was conceded by the learned counsel that apart from stitching' it had to be completed by various experts. It was further admitted that the cloth was purchased and supplied on receiving orders but no record of supply of cloth by the assessee. In these circumstances, obviously the profit .could not be worked out from the record of the assessee and therefore, the accounts of the assessee had rightly As for the been rejected deals in specialized of G.P. rate, as stated above, the assessee Specialized items and is a manufacturer and, therefore, G. P. rate of 25% has rightly appeals of the been applied which is maintained. These assessee are therefore dismissed.
6. Assessment ear 1975-76: In this assessment year as well the assessee a exported garments to the tune of Rs.93.931 and the G.P. rate of 23% was declared. For the same reasons as in the assessment years 1973-74 and 1974-75, the rejection of accounts as well as the application of G.P. rate at 25% is maintained.
7. In this assessment year the assessee also completed two projects of land development namely (1) 209 E.I. Lines project and (2) 5 Gizri Road project. The gross receipts and gross loss out of these projects declared by the assessee was as under:
| (1) 209. El Lines gross receipts | Rs.48,38,129 |
| Gross loss | Rs 875,49 |
| (2) 5-Gizri Road project gross receipts | Rs.47.47.521 |
| Gross loss | Rs.1,17,717 |
The original assessment was completed by the assessing officer by an undated order. The assessee's loss was not accepted and for various reasons given by the ITO he rejected the accounts of the assessee and applied a G.P. rate of 20% on gross receipts and income from these two completed projects of the assessee was worked out as under:--
| G.P. at 20% on total receipts from projects 209, E.I. Lines and Rimpa Skyline receipts of Rs.48,38,129. | Rs.9,57,624 |
| G.P. at 20% on receipts of Rs.47,47,571 5-Gizri Road i.e. Rimpa Sunbeam. | Rs.9,49,505 |
| Total G. profit. | Rs.19,17 125 |
| Less: Profits already taxed in past years | Rs.12.73.922 |
| Balance | Rs .6.43, 207 |
7-A. This assessment order was challenged before the learned AAC who vide his order dated 15-11-1978 set aside the order of the ITO and directed him to complete the assessment de novo. In the operating paragraph of the learned AAC's order it was observed:
"there is force in the arguments of the learned counsel for the appellant when he says that G.P. rate of 20% is excessive and the expenses incurred on the Project have been ignored. To my mind, the ITO has rejected the accounts without proper scrutiny of accounts and examination of documents. As discussed above, the appellant claims to have complete records, evidence and documents of purchases, contracts, expenses incurred and the rise in cost which have not been looked into by the assessing officer, therefore, his action for rejecting the books version, applying G.P. rate cannot be sustained. The assessments for all the three years are set aside to be done de novo."
Another finding of the learned AAC was that the method of assessment adopted by the ITO in respect of the incomplete projects on the basis of the receipts and application of G.P. rate on the basis of the Circular No.2 of 1977 of the CBR was correct. It may be mentioned here that under the aforesaid Circular of the CBR, if a project involved more than one year, the assessment was to be completed on yearly basis but final assessment was to be completed on the completion of the project. This finding of the learned AAC was also challenged by the assessee before the Tribunal who while accepting the appeal of the assessee reversed the finding of the learned AAC in regard to the method of assessment for incomplete project. However, the order of the learned AAC was maintained relating to the rejection of accounts and application of G.P. rate in respect of completed projects. The Tribunal in its order in ITA Nos. 1157, 1158 & 1159 of 1978-79 dated 20-5-1979 observed in paragraph 11 of its order as under:
"For the foregoing reasons, we would allow all the three appeals and modify the impugned order of the learned Appellate Assistant Commissioner, quo ad hoc, so as to hold that the Central Board of Revenue's circular No.2 was inapplicable to the appellant's case and remit the cases to the Income-tax officer for de novo assessment in accordance with law, after proper scrutiny of assessees books of accounts pertaining to the three years under appeal. As per directions contained in the order of the, learned Appellate Assistant Commissioner."
The affect of the order of the Tribunal was that the method of assessment relating to the incomplete projects was not approved by the Tribunal and in regard to the rejection of accounts and application of GP rate in respect of the completed projects, the order of the learned AAC was maintained and it was directed that the re-assessment should be framed as per directions contained in the order of the present appeal is that the assessing officer while framing the reassessment has not complied with the directions of the learned A AC as maintained by the Tribunal. It was complained that the assessing officer has merely relied upon the original-assessment order in repeating the defects which was not maintained by the Appellate Authorities. It was further contended that instead of finding actual defects in the accounts of the assessee, the assessment has been framed on the basis of probabilities.
8. The learned DR on the other hand raised two-fold objections to this plea. Firstly that the learned AAC in the earlier appeal had maintained the rejections of the accounts and had set aside the order of the ITO only in regard to the GP rate as he thought it to be excessive. The learned DR in support of his contention made a reference to the following observations of the learned AAC:
It is my considered opinion that the action of the assessing officer for determining the income on the basis of receipts and applying GP rate is proper, and then again "there was nothing wrong when the assessing officer determined income by applying GP rate".
The contention of the learned DR has no force whatsoever as he wants us to read the order of the learned AAC in isolation and out of context. The above observation was made by the learned AAC in regard to the method of assessment of the incomplete projects. The assessing officer had assessed the income on yearly basis even in regard to the incomplete projects. It may not be out of place to mention here that the learned AAC was disposing of the appeals for three years for the assessment years 1973-74, 1974-75 and 1975-76 by his consolidated order and in the assessment years 1973-74 and 1974-75 there were incomplete projects income from which was assessed by the ITO on annual receipt basis on the strength of Circular No.2 of the C.B.R. It was in that context that the learned AAC upheld the order of the ITO as the income had been determined in the light of the Circular of the C.B.R. The learned DR completely ignored the specific working in the learned AAC's order in which he observed that the ITO "had rejected the accounts without a proper scrutiny of the accounts and examination of documents. The learned AAC had further observed:
"therefore, his (ITO) action for rejecting the book version, applying GP rate cannot be sustained:"
Looking at this clear observation of the learned AAC the objection taken by the learned DR cannot be considered as valid.
9. Now it has to be examined as to how for the contention of the learned counsel for the assessee is correct that on re-assessment the Income-tax Officer has merely repeated the same objections as in the earlier assessment order. As pointed out earlier the learned Appellate Assistant Commissioner in its earlier order had given clear directions to the ITO that accounts of the assessee should be properly scrutinised and the documents should be examined as it had not been done by the assessing officer. The assessee claimed before the learned AAC, as before us, that it had complete records, evidence and documents of purchases, contracts, expenses incurred and the details of rise in cost. It was on that account that the learned A AC had remitted the case to the learned ITO to make fresh assessment. The' fresh assessment order does not indicate that these documents were examined as directed by the learned AAC. For instance admittedly the assessee had awarded the civil contract to M/s. Rombay Construction Company. There is no mentioned in the re-assessment order that the payments made to M/s. Bombay Construction Company by 'the assessee were verified by the assessing officer. Similarly the accountant of the assessee has shown to us the purchases of cement made on various dates at higher rate than the fixed rate on which it was supplied to the assessee's contractor. The assessee's grievance was that the assessee had to supply certain materials to the contractors on a fixed rate under the agreement but since he purchased them at a higher rate, he suffered a loss. Therefore, in order to find out as to whether the assessee had suffered a loss or not on this account or, what was the quantum of loss if any, it was necessary for the assessing officer to examine the accounts of the assessee in detail. If the assessing officer would come to the conclusion that its account books were reject able or that the purchases were un-vouched, it is only then that the assessing officer could legitimately reject the accounts of the assessee. From the perusal of the re-assessment order the contention of the learned counsel for the assessee appears to be correct that the assessing officer, instead of finding independent factual defects in the accounts, was misled by irrelevant considerations, For instance at page 2 of his order the assessing officer has given various reasons to arrive at certain conclusion. Most of them are based on probabilities. But a probability however strong it may be, cannot take the place of a fact. The assessee claimed a loss on the ground that the increase in cost was 41.27% in 209 EI Lines Project and 42.25% in Rimpa Project. The assessing officer straight away rejected this plea on the ground that the assessee had himself admitted the increase of cost in its letter addressed to the allottees, to be at 26.47% and 25.67% respectively. Notwithstanding the assessee's admission (it is contested by the assessee as it was claimed that it was an estimated increase). The duty of the assessing officer was to examine the actual expenditure of the assessee. The assessee's receipts were verifiable and have been accepted. Therefore, the only thing, which was to be examined was the expenditure allegedly incurred by the assessee. If the assessing officer had found certain expenditure as unverifiable or un-vouched only--then he would be in a position to say that the accounts were reject able. In the absence of such a verification the assessee's claim that the cost had increased to a certain percentage may or may not be correct but certainly it cannot be rejected on mere conjecture or on logical ground. It was contended by the learned counsel for the assessee that it did maintain the complete accounts. It was submitted that the purchases are completely vouched and regular books of account are maintained to show as to when these purchases were made and supplied to the contractors. It was contended that the ITO objection for non-maintenance of stock register is not valid because the assessee did not keep any material in his own go down and therefore, no stock register was necessary. Whatever purchases were made were directly supplied at site and for that a complete record has been maintained. As stated above, one such register was shown to as in which the purchases and supply of cement was recorded, But this is for the assessing officer to examine as to how, much credibility can be given to such account books and as to whether there are defects in the according books or not.
10. Considering all these facts we are of the view that earlier orders of the appellate authorities have not been complied with and the accounts books have not been thoroughly examined before rejecting the accounts. We, therefore, again set aside the orders of the officers below and remit the case back to the ITO with the direction that the account books of the assessee consisting of the expenditure allegedly incurred by the assessee should be examined. He should point out the specific defects in these account books before rejecting them. If the assessing officer finds solid objections and defects to the account books of the assessee, lie may reject them and apply a reasonable GP rate. The assessee's appeal for the assessment year 1975-76 is partly accepted to the extent indicated above.
Assessment year 1976-77:---In this assessment year the assessee had one completed project and some incomplete project as well. The declared receipts from the completed project were at Rs.38,20,336/ on which G.P. rate of 7.08% was shown. Since the assessee's receipts were verifiable and so were the construction expenses, the assessee's accounts were accepted in respect of the completed project which is not in dispute. The real dispute however is in respect of the incomplete projects in which the declared receipts of assessee were at Rs.1,80.84,147 The assessee company did not submit any trading account on the ground that profit was not determinable in respect of the incomplete projects and could be determined on the completion of the project. This contention of the assessee was not accepted and the ITO follower the order of the assessment for the assessment year 1978-79 which was passed earlier, The ITO gave the same treatment in respect of the receipts of the incomplete projects on which provisionally. G.P. rate of 20% was applied. In appeal, the learned CIT (Appeal) set aside the order of the ITO and directed him to compute the profits of the assessee in terms of the principles of accountancy and method suggested in para 2 paras. 14-15 of the Appellate order No.247/CITA/Z-3/81-82 dated 3-6-82. The order of the learned CIT (Appeal) dated 3-6-1982 was in respect of assessment year 1978-79 in which it was held by her that in respect of the incomplete projects profits were determinable on certain principles of accountancy and the ITO was directed to compute the profits of the assessee on these principles and for that reason that assessment order was set aside. In other words, the assessing officer's method of applying a provisional GP rate of 20 was not approved. The assessee is aggrieved against these orders. The first three grounds of the appeal of the assessee in respect of the incomplete projects are reproduced below:
(1) That the learned Commission& of Income-Tax (Appeals) has erred in holding that income around from the incomplete projects despite the fact that her own order on this point in respect of assessment year 1976-77 was reversed by this Honourable Tribunal and the Honourable Tribunal held that no income can be determined or taxed in respect of incomplete projects.
(2) That the learned Commissioner of Income-tax (Appeals) has misconstrued the order of this Honourable Tribunal in respect of assessment year 1976-77.
(3) That the learned Commissioner of Income-Tax (Appeals) was bound to follow the decision of the Tribunal in respect of incomplete projects against her own order for assessment year 197 6-77.
Here it is necessary to give a little background of this appeal. The first assessment was made by the ITO in respect of this assessment year and a GP rate of 20 was applied with a short and brief observation which is reproduced below:
"in view of the history of the case GP rate at 20% is applied on the total receipts as mentioned above."
When an appeal was filed before the learned AAC, inter alia it was agitated that the Income-tax Appellate Tribunal in respect of the assessment year 1973-74, 1974-75 and 1975-76 to the incomplete projects. Since at the time of assessment it was argued that the Tribunal's order was not before the assessing officer, therefore, he could not follow the Tribunal's order. Dealing with this argument of the assessee the learned AAC observed in his order as under:
I, in my humble opinion, believe that the true facts of the case were not brought before the worthy Members of the learned Tribunal by the Departmental Representative and by the learned counsel for the appellant at the time of hearing for the earlier years whereby the appellant was held to be a land developer and not a contractor."
Then the learned AAC proceeded to give the facts of the case in order to show that the assessee was a land developer and not a contractor. The learned AAC further observed in her order as follows:
"With due respects to the decisions of the Indian High Court (referred to by the worthy Tribunal) and the decision pronounced by the learned and esteemed Members of the Tribunal in the case of M/s. A1-Ahram Builders (ITAs.Nos.1157, 1158, 1159/KB/1978-79, assessment years 1973-74, 1974-75 and 1975-76) and in view of what has been stated in this order where by I have, in my humble view, drawn a line of distinction and also explained the definition of 'contract' and 'contractor' I am of the view that the ITO was justified to tax the appellant according to CBR Circular."
In the operative part of the order it was concluded,
"the ITO was justified in rejecting the construction accounts and estimating the profit by applying G. P. rate on total receipts,, from complete and incomplete contracts."
The assessee is aggrieved against this order of the learned AAC filed an appeal before the Income-Tax Appellate Tribunal. The assessee's main grievance in regard to the incomplete projects was that the Tribunal having determined method of assessment the learned AAC acted illegally to hold a different view on this issue, Ground No.9 of the grounds of appeal of the assessee is reproduced below:
"That the learned Income-tax Officer has erred in estimating gross profit at 20% on receipts from incomplete projects. It is submitted that having regard to the nature of the appellants business as determined by this Hon'ble Tribunal in ITA Nos.1157 to 1159/KB dated 20-5-1979 and having regard to the method of accounting regularly employed by the appellant no profit could possibly be determined or arise out of the receipts for incomplete projects as the receipts were mere advances and deposits. The learned AAC has acted illegally and unjustifiable in taking a view different from the view of the Hon'ble Income Tax Appellate Tribunal on this point."
The Tribunal vide its order dated 19-4-1981 decided this appeal for the assessment year 1976-77 vide ITA No.1462/KB/1979-80 and at page 2 of its order made the following observations in respect of the order of the learned AAC:-
"After hearing respective contentions of the parties and a reasoned appraisal of facts and circumstances of the case, we are of the view that the learned Appellate Assistant Commissioner passed an exhaustive order and touched upon many aspects but completely overlooked the facts that in similar facts this Tribunal had given a definite finding in Appellant's own appeal in the preceding year vide order dated 20-5-79 (Supra)."
Then the learned Tribunal proceeded to reproduce para 10 of its order dated 20-5-1979 for the preceding year in which it was held by the Tribunal that the profits earned by the assessee were finally determinable after the, completion of the projects. Consequently, the learned Tribunal in its order for the assessment year 1976-77 observed as under:-
"The learned Appellate Assistant Commissioner did not point out that in the year-under-consideration the-nature of business had undergone any change or that the "articles of agreement were in any way different than those on which this Tribunal gave the above verdict. We are of the view that the learned Appellate Assistant Commissioner was debarred by the provisions of section 33 (6) from giving any other finding in face of our clear pronouncement unless it should be establishment that the facts and circumstances of the year under consideration had undergone a change or that the modus operandi differed. Therefore, we need not take long to order that as far as incomplete projects are concerned, Central Board of Revenue's Circular No-2 of 1975 is not applicable in the Appellant case, and therefore, we set aside assessment with similar directions as in the preceding year vide our order dated 20-5-1979."
It is in this background that the assessee has taken the plea that in view of the clear finding of the Tribunal in respect of a particular issue i.e. in regard to the incomplete projects, neither the assessing officer nor the CIT (A) could legally question the finding of the Tribunal as its order had become final. The CIT (.Appeals) before whom this plea was first taken by the assessee has brushed aside this argument on the ground that the department had gone in reference against the order of the Tribunal and, therefore that order was not final. It has been further observed by the CIT (Appeals) that in another case the Tribunal had taken a different view in which no reference was filed and therefore that order of the Tribunal was final. However, the learned CIT (Appeals) did not accept the ITO. method of determining income by applying GP rate of 20% provisionally. She set aside the assessment and directed the ITO to work out the profits of the assessee in terms of the principles of accountancy and method suggested in her order for the assessment year 1978-79 dated 3-6-1982."
The learned counsel for the assessee vehemently argued that the Tribunal having once given finding on an issue, the subordinate officers are bound to follow it as under section 33 (6) of the Repealed Income Tax Act it attained finality. The learned D.R. on the other hand contended, firstly that the Tribunal is competent to overrule its earlier order if it could be shown that the earlier order was incorrect. Secondly, it was submitted by the learned D.R. that the Tribunal had only said in the earlier order that Circular No.2 of the CBR of 1975 could not be applied and, therefore, any other method could be applied by the ITO in the assessees case. The third argument of the learned D.R. was that the reference had been filed against the Tribunal's order for the assessment year 1976-77 which, is still pending decision before the High Court and, therefore, the Tribunal's order was not final.
The learned D.R. has also cited some cases, which however to my mind are not relevant. No direct authority had been produced by either party to cite an authoritative decision on the issue as to whether the Tribunal's finding on a particular issue for the same assessment year is binding on the subordinate officers as well as on Tribunal itself.
Section 33 (6) of the repealed Income-tax Act reads as under:
"Save as provided in section 66 order passed by the Appellate Tribunal on appeal shall be final."
It is clear from the bare reading of this provision that Tribunal's order (including the order for setting aside the assessment) is final and is only subject to the order of the High Court or Supreme Court as the case may be. Since no such order has yet been passed by the High Court, therefore, notwithstanding the reference filed by the department, the order of the Tribunal passed by it on 19-4-1981 is final, so far as it is related to the income from incomplete projects is concerned. Mere pendency of reference before the High Court does not take away the finality of the order of the Tribunal. This question came into consideration before the Bombay High Court in case of Trikamal Maneklal which is reported as (1958)-33 ITR 725 one of the following questions were referred to the High Court for decision:
"Whether on the facts and in the circumstances of the case the question regarding allow ability of the interest of Its.9,3071 could be agitated by the Department before the Tribunal hearing the appeal after the order dated 12th January,1954.. "
What happened in that case was that for the assessment year 1951-52 the assessment was completed. The assessee's claim in regard to the interest paid on borrowed capital amounting to Rs.9,404/- was disallowed by the ITO as well as by the learned AAC. In appeal, the Tribunal accepted the contention of the assessee that the claim was allowable. However the claim was not straightway allowed by the Tribunal but it set aside the order and remitted back the case to dispose it of on merits after verification. Following, the directions of the Tribunal, the learned AAC verified from the balance-sheet and allowed the claim from deduction of Rs.9,307/- as interest paid on capital borrowed. The department filed an appeal before the Tribunal who held that the question having been decided by itself earlier could not be re-agitated in the appeal. It was in. these circumstances, that the department filed a reference and aforementioned question was referred to the High Court for decision. While disposing of this issue, the High Court at page 732 observed as follows:
"We are therefore, of the view that the Tribunal was not entitled once having delivered a judgment which had by the operation of law become final, to review its decision in proceeding for assessment for the same year in a subsequent appeal filed against .the order made pursuant to its earlier directions:"
It was also argued that the Tribunal could review its earlier judgment based upon an erroneous view under its inherent power. Dealing with this argument the High Court observed as under:
"It may be that if a court or a Tribunal decides a case before it on an assumption of fact and remands the proceeding to the court of first instance to decide it according to the view expressed by it, the court or Tribunal may be entitled to ignore the previous decision if it transpires that the previous decision was given on an assumption which cannot he sustained (See Balvant Ramchandra v. Secretary of State). But in the present case the earlier decision was not given by the Tribunal on any erroneous assumption of fact. The Tribunal considered the merits of the contention urged before it and arrived at a certain decision. That decision is made by the Legislature final, and the Tribunal had no inherent authority to review that decision it the light of fresh arguments or authority."
In view of the clear provision of law as well as law laid down by the Bombay High Court. we have no alternative but to hold that the assessing officer and Commissioner of Income-tax (Appeals) , had clear in violated the established principle of practice and procedure, as well as the law, in not following the decision of the Tribunal. Therefore. irrespective of our view as to whether the earlier view taken by the Tribunal was legally correct or not, we have no alternative but to follow the Tribunal's earlier decision for the same assessment year in t respect of all questions decided by it earlier including the one in respect of method of assessment relating to the incomplete projects, Since the Tribunal had already laid down for the assessment year 1976-77 that income from incomplete projects is not to be assessed in this assessment year, it was incumbent upon the ITO as well as the CIT (Appeals) to comply with its order and no other view could be taken by them unless the High Court in reference proceedings reverses that view. Even then 'Tribunal cannot reverse the view taken by it earlier for the same assessment year as it will amount to reviewing its earlier order which is pct permitted by law. We, therefore, respectfully following the earlier order of the Tribunal for this assessment year hold that the ITO as well as the learned CIT (Appeals) have erred in not complying with the Tribunal's order and we, therefore, vacate their orders, and direct that the Tribunal's order passed earlier should be complied with and re-assessment should be completed accordingly.
The next grievance of the appellant is in regard to the disallowance of salaries of engineering and technical purchase staff at Rs.1,75.071/-. The ITO disallowed the claim or the ground that an amount of Rs.1,43,421/- were paid to the engineering and technical staff and Rs.1,31,650/- paid to the purchase stiff which was covered by the GP rate applied. This disallowance was maintained by the CIT (Appeals) following the Tribunal's decisions in I T A No. 1196/ KB/1980-81 dated 27-4-1982, The expenses no doubt relate: to the trading account and is covered by the GP rite and therefore had rightly been disallowed which is maintained.
The next grievance of the assessee is in regard to the application of GP rate of 25% on export of Garments. On appeal the learned C.I.T (Appeals) found that the export sale were of garments as well as of carpets. Consequently, she directed the ITO to break up the sales of garments and carpets and apply separate GP rate. It was further directed that en export garment sales. GP rate of 25 is to be applied hut on carpet export sales the ITO was directed b apply GP rate as in other parallel cases. No exception could be taken to the order of the learned CIT (Appeals) as GP rate apply at 25% on garment export is reasonable.
The last grievance of the assessee was in regard to tit disallowance of Rs.74,735/- on account of good conduct award. The learned ITO has not given the nature of the claim nor did the C11 (.Appeals) while confirming it. The appellant did not also throw any light as to the nature of the claim. We therefore, cannot adjudicate on this issue. The disallowance is therefore, maintained.
Assessment year 1977-78.--In this assessment year as well the assessee had completed as well as incomplete projects, We deal with the complete projects first. The assessee in this assessment year completed one project on Plot No.l/T and 2/T Rimpa Twin Star, Main Drigh Road, Karachi. Total receipts of the completed projects were declared at Rs.76,69,901/-. The G.P. rate worked out on these receipts was at 3.38%. The assessing officer found a number of defects in the accounts of the assessee including the low G.P. rate declared as compared to the earlier year. Consequently after rejection of accounts. (1.P. rate of 201, was applied on the receipts shown by the assessee. On appeal, the learned A AC maintained, this treatment which hay been agitated in this appeal.
The learned counsel for the assessee contended that account, have been maintained on the same pattern as in the earlier year i.e. assessment year 1976-77. But in that year the assessees accounts for the complete projects were accepted by the department. It was further submitted that the complete details of expenditure have beet' maintained by the assessee while the receipts of the assessee have already been accepted by the department. It was therefore contended that there was no justification for rejecting the accounts.
It may be mentioned here that in our order for the assessment year 1975-76 for the reasons recorded therein we have already set aside the orders of the officers below and have remitted back the case to the ITO for fresh decision after making a detailed enquiry and examining the accounts of the assessee. It may further be noted that the learned CIT (Appeals) has also set aside the order in regard to the complete projects for the assessment year 1978-79. Thus, the assessment year 1977-78 is the only year in which the ITO order of rejection of accounts has been maintained by CIT (Appeals). We therefore, have no hesitation in setting aside the order of the officers below. In this assessment year as well and direct that the assessee's accounts should be examined afresh and after making a detailed inquiry in regard to the expenditure of the assessee, fresh order should be made.
.--During this assessment year the assessee had in hand four incomplete projects which are detailed below:
| (1) Rimpa Plaza | Receipt during the year. |
| Godown | Rs.10,07.334/- |
| Shops | Rs.52.07,408/ |
| Polyclinics | Rs.20,57,21.0/ |
| Offices | Rs.23, 49, 5.141- |
| (2) Rimpa Constellation Apartments: | Rs.17,20.596/- |
| (3) Rimpa Mayflower Apartments: | Rs.3,93, 750/- |
| (4) Capital Development authorities, Islamabad Sector C/9/2: | Rs.47,88.772/- |
| |
The ITO while making assessment on incomplete projects applied a GP rate of 20 with the following observations:
"Keeping in view history of the case GP at 20% shall be applied on total receipts subject to the finalisation of projects when actual profit/loss can be ascertained. This treatment was given in the preceding year and upheld by the learned .AAC."
It appears that while making this assessment it was not the ITO' knowledge that the learned AAC order for the preceding year had been reversed by the Tribunal. As a matter of fact this is the sole plank of arguments of the learned counsel for the assessee. It was contended by the learned counsel that once the Tribunal has given in unequivocal terms a verdict that the assessment on incomplete projects could pct he made, the assessing officer was not competent to apply a G.P. rate tentatively on gross receipts of the assessee. It was contended that the Tribunal's order passed in a particular assessment year is binding on the officers below even in the subsequent assessment years. The learned D.R. on the other hand contended that the Tribunal's order is not binding as each year is a separate and independent year. We have examined this question but could not persuade ourselves to agree with the counsel for the assessee on the proposition of law. We have already held above, that the Tribunal's order for the same assessment year is final (of course subject to the order of the High Court or Supreme Court as the case may be) but the do not find any authority on the proposition that the Tribunal's Order is binding on the subordinate courts even for the subsequent assessment years. No doubt the views expressed by the Tribunal deserve utmost respect and its finding should normally be followed by the officers below. However, it is not technically binding on the officers below so as to make their orders legally invalid for such violation, nor the officers below could be directed to follow the Tribunal's order in the subsequent assessment years. The Tribunal however has always the power to reverse the impugned orders following its own view expressed by it earlier.
The next contention of the learned counsel for the assessee was that the Tribunal having taken a certain view, subsequently it cannot change it and overrule its earlier view in the same case. I am afraid that there is no principle of practice and procedure under which subsequently larger Bench cannot overrule the earlier view of the Tribunal. Of course this is an established practice of the Tribunal that a Single Bench would normally follow Division Bench's view. Similarly a D.B. would also follow the views expressed by a Full Bench. However, a larger Bench can always overrule an earlier decision of a Single Bench or a Division Bench. There is no dearth of case-law on the point that a Division Bench could overrule a Single Bench's decision. However, this has to be done on strong grounds and the view expressed by the Tribunal earlier, particularly in the same case, should not be lightly ignored.
Coming to the merits of the case the learned counsel's main contention was that the assessee had maintained the accounts on projects basis and, therefore, the assessee could not ascertain or determine its profits annually. The ultimate profits of the assessee could only be ascertained on the completion of the projects. Therefore, tentative assessment, as has been made by the assessing officer, is not only against law but also impracticable. The learned counsel for the assessee has cited a number of cases in support of his contention. He has relied upon the following cases:
(1) (1940)-ITR page 179 (K.H. Modi in re)
(2) 1941-9 ITR page 347 (CIT Burma vs. A.K.A.R. Family).
(3) (1954) -26 ITR Page 27 (Sasoon (E.17) & Co. Ltd. vs. CIT
(4) (1941) 9 ITR page 56 (S.P. Veerapa Chatliar vs. CIT Madras).
The learned DR on the other hand contended that the income-tax is an annual charge and, therefore, tax has to be determined each year on the income assessed annually. It was submitted that the assessment of income cannot be postponed to the subsequent years to be finalized on the completion of projects. The learned DR inter alia cited the following cases:
(1) (1954)-26-ITR Page 617 Sri Sukhdeo Das Jallan v. CIT Behar & Orissa.
(2) (1962) -46-ITR page 894 CIT vs. Nanduri Suryan Vayana.
(3) (1969)-73-ITR Page 735 P.M. Meera Khan vs. CIT Kerala.
(4) (1973)-98-ITR-24 N.Rengaswami Pillar vs. CIT Madras.
We have given careful consideration to this issue. We have also gone through the orders of the Tribunal passed in the assessment years 1973-74, 1974-75, 1975-76 and 1976-77. After considering the arguments of the parties we could not persuade ourselves to agree with the learned counsel of the assessee and view expressed by the Tribunal for the earlier assessment years. Our reasons for holding this view are as follows:
"Where any Central Act enacts that income-tax shall be charged for any year at any rate or rates (XX) tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income, of the previous year or the previous years, as the case may be of every person."
This section lays down clearly that the income-tax is chargeable "in respect of the total income of the previous year". Similarly section 4 of the repealed Income-tax Act also talks about total income of "any previous years". Thus the whole scheme of the Income-tax Act is to charge tax for a particular assessment year on the basis of the relevant Finance Act, and in respect of the income of the previous year. In case CIT. Madras Vs. K. Srinivasan and K. Gopalan reported as (1953) 23-ITR page 87, the Supreme Court of India while dealing with section 3 observed as under:
"the scheme of the Act is that by the charging section, i.e. Section 3, income--tax is levied for a financial year at the rate prescribed by the annual Finance Act on the total income of the previous year of every individual, etc. Each previous year's income is the subject of separate assessment in the relative assessment year, Though the year of assessment is the financial year, the previous year of an assessee need not necessarily be the previous financial year, for this expression is to be understood as defined by Section 2 (11) (a) of the Act."
It is therefore clear that the assessment of income one year cannot be postponed to a subsequent year. This is neither permissible under the law nor practicable in all cases. Supposing a big project is taken in hand by an assessee, which requires say 30 years or 50 years to complete, can it be said that the assessment of income has to be postponed till the completion of the project Obviously the answer is in the negative the ultimate profit/loss no doubt can only be determined on the completion of the project if the accounts are maintained on the project basis. However, it is not the ultimate profits, which is the concern of the Revenue. It is the annual profits, which are to be charged and taxed. Therefore, mere fact that the ultimate profits are not determinable in any year, does not debar or prevent the assessing officer to make an assessment for a particular year. Firstly it was the duty of the assessee to maintain accounts in such a manner that annual profits or loss could be determinable. If the assessee could not or did not adopt such a method of accounts, the assessing officer is duty bound under the law to reject the accounts of the assessee and to adopt such a method under which the assessee's annual profits/loss is determined. This question came under discussion in the leading case of Sri Sukhdeodas Jalan Vs. CIT Behar and Orissa reported as (1954) 26-ITR-page-617. The facts of that case were that the assessee had obtained a contract from the Public Works Department and from the Defence Department. The assessee executed two contracts for the Public Works Department which were taken on 14th April, 1943 and completed on 12th May, 1944. The contract for the Defence Department was started on, 14th April, 1943 and was completed on 3rd December, 1944. The 'assessee's accounting period was from 1st April, 1943 to 31st March, 1944. When the return was filed by the assessee for the assessment year 1944-45 the assessee did not disclose any income from the aforesaid contracts. The assessee's plea before the ITO was that since the contracts were not finalized within the accounting period therefore no income was shown from these contracts in the relevant assessment year. This plea was not accepted by the ITO and the income of the assessee was determined on the basis of the receipts. After decision of the learned AAC and the Tribunal, the following question of law was referred to the High Court for determination.
"Whether the proviso to section 13 of the Income-tax .act is applicable in regard to the accounts maintained for the contract business, which were not closed to profits at the end of each previous year but were closed to profit only after the completion of a contract "
While dealing with this question the Patna High Court observed under:
"The scheme and structure of the Income-tax .Act is therefore to make the tax an annua', tax for the purpose of assessment Section 3 makes each 'previous year' a distinct unit of time for purpose of assessment and the profits made before or after that unit of time are entirely immaterial in assessing the profits of that year."
While dealing with the argument of the assessee (as in the present case) that in case of incomplete contract it was not possible to determine the profits of the assessee for the accounting year, the High Court observed at Page 626 of the report as under:
"I do not agree with the argument of the learned counsel that the profits of the assessee for the accounting year in question cannot be ascertained in such a case. It is also fallacious to argue that merely because the military contract was completed after the accounting year no profits arose or accrued to the assessee in the accounting year."
Then their Lordships referred to the Judgment of the Privy Council in British South Africa Co v. CIT reported as (1946)-14-ITR Supplementary 17 and referred to their Judgment reproduced various paragraph, in support of their view.
The Judicial Committee while rejecting the plea of the assessee that the profits could not be ascertained and therefore company was entitled to have the assessments of its profits postponed until the whole of the up recouped balance of expenditure had been made good.
The Judicial committee observed as under:
"The Judicial Committee rejected this argument and held that the mere fact that it was not convenient or easy to allocate receipts as against various items of trading assets is no reason for holding that profits emerge only after the entire expenditure and receipt had been recouped and that the allocation of expenditure and receipt must somehow be made on a reasonable basis and the debts and trading assets should be valued as it stood on the closing date of the accounting year."
It may be pertinent to note here that the three cases relied upon by the learned counsel for the assessee namely K. H. Mody reported as (1940)-8-ITR-179, S. P. Veerappa Chettiar v. Commissioner of Income-tax Madras (1941)-9-ITR- 56 and CIT Burma v. A.K.A.R. Family (1941)-9-ITR-347 have been discussed and distinguished by the Madras High Court in this case. In a subsequent decision the Andhra Pradesh High Court expressed the same view in the CIT. v. Nanduri Suryan Vayana reported as (1962) 46-ITR 894. In that case it was held that there was provision under which the profits earned by an assessee in one year could be assessed in a subsequent year. In that case also the two cases relied upon by the learned AR namely A . K. A . R. Family's case and Mody's case were referred and distinguished by the High Court. In another case P.M. Meera Khan v. CIT. reported as (1969) 73-ITR page 735 the Supreme Court of India thoroughly examined this question. The facts of that case were that the Company had hold a rubber estate on 18-5-1955 to one Mr. A.V. George. The area of the estate was 477 acres and 71 cents. Mr. A.V. George had entered into the agreement in his own name and on behalf of another company called the Kalias Rubber Co Ltd. The necessary conveyance was to be executed in favour of Mr. A.V Ceorge or his nominees. On 15-8-1955, Muhammad Meera Khan entered into an agreement with Mr. A.V. George to purchase 477.71 acres Rubber Estate for Rs.6,00.000 out of which Rs.11,000 was paid and balance was to be paid before we 21-9-1955. Subsequently, the assessee divided the area of 477.71 acre, in 23 plots. Out of these plot,, he sold 22 plots comprising of 37:3.58 acres for a consideration of Rs.5,18,500. The 22 plots were conveyed in the name of the purchasers while 23rd plot was conveyed in Meera Khan's own name. Meera Khan's plot measured 104.13 acre. The (TO worked out the profits of the assessee as under;----
| Sale price of 373 acres: | Rs.5,18.500 |
| Value of 104 acres retained by the assessee at Rs.2,000 per acres.. Rs. 2.08,000 | Rs.7,26,500 |
| Less, costs: | Rs.6,00.000 |
| Earned profits: | Rs.1,26,500 |
In round figures the income was assessed at 'Rs.1,25,000 by the ITO. The assessee lost upto the Tribunal's stage and the following question was referred to the High Court for its opinion.
"Whether on the facts and in the circumstances of the case, the transactions constituted a venture in the nature of trade the Surplus of Rs.1,25,000 was assessable to tax
The High Court decided the question against the assessee why went in appeal to the Supreme Court. The argument of the assessee before the lower Court as well as before the Supreme Court was that the profits of the assessee could only be determined at the time of completion of the sale of the entire estate. Dealing with this argument the Supreme Court observed at page 743 of the report:
"In our opinion, there is no justification for this argument. It is not correct proposition to say that the profits of the assessee cannot be ascertained even on the assumption that the transaction of the adventure of trade was not completed Under tie Income-Tax Act for the purpose of assessment each year is a self-contained unit and in the case of it trading adventure the profits have to be computed in the manner provided by the statute."
On the same page it was further observed:
It was the duty of the Income Tax Officer to find out what profit the business had made according to the true accountancy practice. As a normal rule, the profit should be ascertained by valuing the stock-in-trade at the beginning and at the end of the accounting year.
The last case, which need to be referred is that of Rengaswami Pillar v. CIT Madras, reported as (1975) 92-ITR-24. In that case as well the assessee's contention was that the profits of his business of Real Estate could be properly calculated only after all the estate had been sold. Dealing with this argument, the Madras High Court at page 27 observed:
"If such a contention is accepted, the assessment of income can only be made after art assessee finally winds up his business to real estates. Obviously, this cannot be the position under the provisions of the Income-tax Act. Whether an assessee ultimately makes a profit in his business is riot a matter which is the concern o; the revenue. The revenue is concerned with income, gains or profits earned during the year of account, and even if all the assets of the business had not been sold, the assessee could be taxed on such of those profits as computed under the provisions of the Act in the year of account.
Mr. Ali Athar, the learned counsel had however alternatively contended that even if the proposition that the income i5 to be annually determined and taxed, is accepted, since no income had accrued or received by the assessee, therefore, no such assessment, as has been made by the assessing officer, could be made. The assessee's case was that the receipts of the assessee were in fact advances, which could not be treated as income. Here, it may be pointed that the assessee booked apartments, go downs rind shops by making an agreement with the purchasers. The method of payment of the sale price was that part payments were made at the time of booking and the balance sale price was to be made in number of instalments and finally the entire sales price was to be made in number the delivery of possession of the flats or shops. The amounts received by the assessee at the titre of booking or in various instalments, were termed by the assessee as advances. The learned counsel however, could not elaborate as to what he actually meant by the term advances. Ire legal terminology this was obviously neither a loan nor a debt. No other term could be assigned to such advances except that it was part of the sale price. It is a matter of mutual agreement as to how the sale price had to be paid. The sale price obviously can be paid either in lump--sum or instalments. Mere fact that the safe price is being paid through instalments cannot take away its character of being a sale price. The learned counsel's argument was that the sale price can only be completed when a conveyance is made through a registered deed. The learned counsel has ignored the fact that the question before us not in regard to the transfer of the corpus of the property No doubt the transfer of at immovable property would only take place when the conveyance deed is executed and registered. But here we re only concerned with the payment of the sale price and not with he transfer of the immovable property. It is nowhere provided that the mode of payment of the sale price would determine its character of being a sale price or receipts by a vendor would only assume the character of a sale price or; the; completion of transfer of corpus of the immovable property. Even if the entire sale price had been received by a vendor even then the corpus of immovable property cannot be held to be transferred unless a registered conveyance feed has been made. Therefore, the transfer of immovable property cannot be linked with the mode of payment of the sale price would only assume that character when ultimately immovable property would be transferred the vendor through registered sale-deeds. Each instalment received by the assessee is for a particular property, which is to be transferred to the assessee. As a matter of fact where an agreement is made with vendee by the assessee an inchoate right is created and subject to the payment of the balance sale price, the vendee is entitled to enforce this agreement by way of specific performance of contract. After executing the agreement, the assessee was not in a position to refuse to transfer the property to the vendee if the vender was prepared to pay balance of the sale price in accordance with the contract. Therefore, the assessee cannot say that receipts by it in the year under consideration were not the part of the sale price of the properties for which agreement to sell has been executed between the assessee and the vendees. In Rengasawami Pillar (Supra) at Page 3l of the Madras High Court observed:---
"In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss; on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under sections 3 and 4 of the income-tax Act. The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law."
Admittedly the assessee maintained the accounts on projects basis and according to him the assessee's profits are not determinable on yearly basis. Therefore, in such a case the assessee accounts had to be rejected under 13 of the repealed Income-tax Act. Once the assessee's account: are rejected, it is for the assessing officer to find out a method to compute the profits and gains of the assessee. The assessee therefore, cannot challenge the power of assessing officer to adopt any reasonable method for the determination of his income though he can always object to the reasonable of the method or income determined by the ITA. The learned AAC in this assessment year had maintained the order of the ITO but in our view that order is not correct. The same appellate authority as CIT (Appeals) in the subsequent assessment year i.e,., for the assessment year 1978-79 has not approved the method assessment of profits on incomplete projects adopted by the assessing officer. We are inclined to agree with the learned CIT (Appeals) with her view expressed for the assessment year 1978-79 relating to the incomplete projects. While holding that the ITO is right to reject the accounts and compute and determine the profits and gains of the assessee for each year on e annual basis we do not approve the method of working out the profits adopted by the assessing officer by applying a GP rate of 20% tentatively. We, therefore, set aside the orders of the officers below and remit the case back to the ITO for making fresh assessment as directed by the CIT (Appeals) for the assessment year 1978-79.
The next grievance of the assessee in regard to the disallowance of Rs.350,000 out of salaries paid to the employees. The disallowance has been made out of the total claim of Rs.955,953 which included the payment made to Mr. D.D. Jangal Wala as salary amounting to Rs.88,513. The ITO had disallowed the claim of Rs.350,000 on the ground that the claim of the assessee includes salary of the technical staff, Engineers, Designers, and Supervisors etc. The learned CIT (Appeals) has maintained this addition.
The learned counsel contended that the CIT (Appeals) has wrongly observed that in the assessment year 1976-7 7 this disallowance was maintained in appeal as the entire assessment order was set aside by the Tribunal. This contention is without any merit and is not correct. The learned AAC did confirm the addition in the assessment year 1976-77 but the Tribunal did not discuss this issue and, therefore, it cannot be said that the order of the learned A AC was reversed on this issue by the Tribunal. However, we feel that the assessing officer should have bifurcated the salaries of technical staff and non-technical staff and then disallowance of exact amount paid to the technical staff should have been disallowed. Accordingly, we set aside the orders of the officers below on this issue as will and direct that the ITO should re-examine this issue and only those salaries should be disallowed which were paid to the technical staff and would be covered by the G.P. Rate.
Export Account:---The assessing officer found that the purchase of the assessee were made from the local parties which were not verifiable and details of stitching of garments had not been furnished and that G.P. rate declared was low. The learned AAC confirmed this treatment. The learned counsel contended that the assessee filed complete details of purchases and other expenses, which were fully vouched. In view of the defects pointed out by the ITO and the history of the case for rejection of account which had been maintained by the Tribunal for the earlier years, we maintain the rejection of accounts as well the application of G.P. rate which is reasonable. No other ground was pressed in this assessment year.
Assessment year 1978-79:- In this assessment year as well as the assessee had complete as well as incomplete projects. The assessee also declared receipts from construction business. In this assessment year the assessee undertook his own construction work besides working as contractor in C . D . A . Islamabad. The receipts were declared in regard to complete and incomplete projects as under:
Complete Projects.
| (1) Rimpa Constellation | Rs.79,24,958 |
| (2) Receipts from CDA Islamabad | Rs.64,72,138 |
Incomplete Projects:
| Rimpa Plaza | Rs.1,29,867 |
The facts and circumstances as well as the issues both for the complete projects and incomplete projects are the same as discussed for the assessment year 1977-78. For the same reason and on the same grounds, the orders of the officers below both in regard to the incomplete projects and incomplete projects are set aside and the case is re-admitted back to the ITO with the same direction as for the assessment year 1977-78.
Export Account:- The ITO has rejected the accounts of the assessee but t29e earned CIT (Appeals) has set aside the order of the ITO and has directed to follow the direction of the Tribunal for the assessment year 1976-77. We do not find any thing wrong with the order of the learned CIT (Appeals) and therefore, her order is maintained.
Disallowance of Salary:.
The assessee claimed salary and wages at Rs.9,01,074 out of which Rs.300,000 were disallowed by the ITO for the reason that this being the salary of technical staff was covered by the G.P. rate. We have also set aside the orders of the officers below in the assessment year 1977-78 and the same order holds good in this assessment year as well. In the result the orders of the officers below stand set aside and the ITO shall bifurcate the salary of technical and non-technical staff and then to make a disallowance.
Repair: The assessing officer had disallowed an amount of Rs.1,13, It of maintenance and repairs being unconnected with the business and on account of personal use of car by the directors. The learned CIT (Appeals) set aside the order of the ITO and directed him to verify the contention of the assessee that all the details were supplied to the ITO anti that the amount spent on personal use of cars by the directors has also been deducted and included in the excess perquisites. Since CIT (Appeals) has already set aside the orders of the ITO to examine this question no interference is called for in her order which is maintained.
No other question was in issue in the appeal of the assessee.
Assessment year 1979-80:- In this assessment year the assessee declared the receipts from incomplete projects of Rimpa Plaza at Rs.1,26,42,088. In this regard the same issue, which has already been decided is involved. The order passed by us for the assessment year 1977-78 therefore holds good for this assessment year as well and the orders of the officers below stand set aside and as directed for the assessment year 1977-78 re-assessment in regard to the incomplete projects shall be made by the ITO.
Add Back on account of Salary:- In this assessment year add back of Rs.4,19,438 has been made by the ITO on the ground that the salary paid to the technical staff was debatable to the trading account and, therefore was covered by the G.P. rate. As Order for the assessment year 1977-78 the ITO order is set aside on the point to comply with the direction issue for the assessment 1977-78.
Carpet Trading Account:- The assessee declared local sales at Rs.2,00,348 and G.P. rate of 1.5% Sales were found to have been made in cash and were unverifiable. The ITO therefore estimated the sales at Rs.2,75,000 and applied G.P. rate of 15%. The learned CIT (Appeals) in his Appellate Order while discussing this issue for the assessment year 1976-77 directed the ITO to break up the sales of garments and carpets and apply G.P. rate of 25% on garment sales and G . P. rate as in other parallel cases should be applied in the case of export of carpet case. For the assessment year 1979-80 she observed "similar method should be followed for the assessment -Near 1979-80 as well". However, from the perusal of the order of the I TO it appears that the assessee had made local sales of carpet on which G.P. rate of 15% was applied. Since there is confusion because of conflicting finding by the two officers below, this issue is also set aside and the case is sent back to the ITO for re-assessment.
Car-Depreciation:- The assessing officer made 50% disallowance out of car depreciation on account of personal use of the car by they directors which was restricted by the learned CIT (Appeals) to 14th of the total depreciation. Since the car belongs to the company therefore no disallowance on account of personal use car could be made. The car is an asset of the company and, therefore, irrespective of the fact use of the car full depreciation is allowable. We, therefore, direct that the full depreciation should be allowed and the addition made by the officers below is directed to be deleted.
The assessee has also contested the disallowance out of travelling expenses at Rs.5,911 which, being reasonable, is maintained. Similarly the expenses of Rs.4,800 on account of Membership :,nit subscription of the directors was disallowed being expenses of personal nature,, are also maintained. Out of repairs and maintenance of car an amount of Rs.1,20,000 was disallowed by the ITO out of the total claim of Rs.2,64,498. The learned CIT (Appeals) set aside the order, of the ITO to re-examine this issue. We have no reason to disagree with the order of the CIT (Appeals), which is maintained.
The department is aggrieved against the deletion of Rs.12,9Ct on account of depreciation eon car for personal use. The learned CIT (Appeals) had deleted the addition on the ground that such disallowance has not been approved by the Appellate Authority. We entirely agree with the learned AAC: As has already been held in our order in the assessee's appeals or the assessment year 1979-80, no disallowance depreciation of car on account of persona: use of it by the directors could be made. The order of the learner; CIT (A) is therefore maintained and departmental appeal for the assessment year 1975-76 is dismissed.
In this assessment year ground No.3 has been withdrawn and ground No.2 is vague. In ground No.4 the department has contested the order of the learned CIT(A) in regard to the incomplete projects. It was contended that the ITO's order for applying of G.P. rate of 20% tentatively was correct. In view of our finding in assessee's appeal in regard to the incomplete projects for the assessment year 1976-77 the departmental appeal on this issue is also disposed of.
In regard to the levy of surcharge, the learned CIT (Appeal) has directed to follow the directions contained in Tribunal's decision reported in 1979-80 40 Tax P-47. We have no reason to disagree with this view. The order of the CI T (Appeals) on this issue is therefore maintained.
Ground No.3 has been withdrawn and ground No.2 is vague. In ground No.4 the department has- contested the order of the learned CIT(A) in regard to the incomplete projects. It was contender that the ITO's order for applying G.P. rate of 20% tentatively applied was correct. In view of our finding in assessee's appeal in regard to the incomplete projects for the assessment year 1979-80, tire departmental on this issue is also disposed of as that order also holds good for this appeal as well.
: The same order as in the assessment year 1976-77.
The assessee's appeal for the assessment years 1973-74 and 1974-75 are dismissed. The assessee's appeal for the assessment years 1975-76, 1976-77, 1977-78, 1978-79 and 1979-80 are partly accepted to the extent indicated above.
The departmental appeal for the assessment year 1976-77 is dismissed. The department appeal for the assessment years 1976-77 and 1979-80 are disposes of as above.
.--I agree with the finding of my learner, brother (Abrar Hussain Naqvi, J.M) on all issues except in regard to the decision relating to the method of assessment in respect of incomplete projects. On this issue he has taken the view, relying on the view of the Tribunal taken earlier with regard to the assessment year 1976-77, that the income from incomplete projects relating to the assessment year 1976-77 was not to be assessed in the assessment year 1976-77.
2. The facts relating to this issue are that the assessee disclosed receipts of Rs.55,95,197 from incomplete projects besides receipts and income from projects which had been completed. The ITO computed the income from incomplete projects by applying a G.F. rate of 20% to the declared receipts on the basis of past history. The assessee appealed against this order to the AAC who upheld the treatment accorded to the assessee regarding computation of income from the incomplete projects. The departmental view was that Income Tax is annually charged and the charging section casts duty on the ITO to determine the profits annually. Relying on the case of Sri Sukhdeo Das Jain v. C.I.T. reported as (1926) I TR 617, he concluded that such determination of income cannot be postponed to subsequent years. He also stated the tax liability determined in respect of income from incomplete contracts is adjustable against the tax liability to be finalised on the completion of the projects. The ITO while doing so also followed the instructions of the Central Board of Revenue contained in their Circular No.2 of 1975.
3. The assessee filed an appeal before the Tribunal. The Tribunal in their order in ITA No.1462/KB of 1979-80 (Assessment year 1976-77) dated 19-4-1981 referred to the decision of the AAC who had held that the assessee was not a developer of land, but an ordinary contractor, in whose case a G . P . rate of 20% could be applied. The Tribunal, however, came to the conclusion that the assessee was not a contractor and that the C.B.R. Circular No.2 of 1975 did not apply. They accordingly set aside the assessment holding that the income from incomplete projects relating to the assessment year 1976-77 was not to be assessed in the assessment order for 1976-77.
4. The ITO reframed the assessment following earlier method of computing income from incomplete projects by applying a G.P. rate of 20% to be finally adjusting on completion of the projects, reiterating the arguments regarding the annual charge, as laid down in section 3 of the Income Tax Act, 1922 and corresponding section 9 of the Income Tax Ordinance, 1979, the assessee again came up in appeal before the learned C. I . T . (Appeals) who vide her order dated 6-2-1983 observed that on the question of whether the assessee was a developer or a contractor the Department had gone in reference to the High Court. The C.I.T. (Appeals) agreed with the ITO view that the assessee was a contractor and that the Tribunal in the earlier order has in no way held that section 3 of the Income Tax Act was not applicable to the present case. In regard to the postponement of computation of income relating to incomplete projects she approved the view that each year's assessment had to be made in that year and the computation of income could not be postponed and quoted the following view taken from the judgments of the Tribunal and the High Court:
"In our opinion, it is not possible to do so without doing violence to the provision of the charging section 3 of the Act which imposes a charge of Income Tax upon the profits and gains of the assessee for the accounting year and cast a duty upon the Income Tax authorities to ascertain profits and gains according to the assessee in respect of payments received during the previous year."
I would like to add in this regard that a developer is also a contractor. One of the meanings of the word 'develop' as per 1976 Edition of the Concise Oxford Dictionary, is to construct the building etc. on land. On this issue the exclusion of the applicability of the instructions contained in CBR Circular No.2', of 1975 is, therefore, not based on sound footing. The learned CIT (Appeals) accordingly upheld the division of the ITO for computing the income from incomplete projects and to assess it in the assessment year 1976-77.
5. The present appeal to the Tribunal is against that order and the Judicial Member has taken the view that a question having been decided by the Tribunal earlier could not be agitated again in appeal. In coming to this conclusion he has relied on the case of Bombay High Court, known as Trikam Lal Manek Lal reported as (1958) 33-ITR, 725. The Bombay High Court has inter alia observed as follows:
"It may be that if or a Tribunal decides the case before it on an assumption of fact and remands the proceeding to the Court of first instance to decide it according to the view expressed by it, the Court of Tribunal may be entitled to ignore the previous decision if it transpires that the previous decision, was given on an assumption which cannot be sustained. (See Balvant Ramchandra v. Secretary of State)."
6. A second look at the decision of the Bombay High Court would show that the Court has not ruled out the possibility of reviewing its own order of the Tribunal and the judgment supports the view that it is competent to review its order under certain circumstances. Keeping the circumstances of the present appeal before us, I am of the view that not only the Tribunal was competent to review its earlier decision, but that no exception could be taken to the ITO's decision to compute the income from the incomplete projects of 1976-77 and to assess it in the year 1976-77, as this was his duty under section 3 of the Income Tax Act.
7. Two points out of the Bombay High Court judgment need to be emphasized. First, in the case decided by the Bombay High Court no reference application had been made to the High Court from the order of the Tribunal. On the other hand the position in the case before us is that a reference application has been made to the High Court on the issue before the Tribunal. The second fact of importance is that the Bombay High Court in this case also observed that:
" ....The Court or Tribunal may be entitled to ignore the previous decision, if it transpires that a previous decision was given' on an assumption which cannot be sustained. (See Balvant Ramchandra v. Secretary of State)
It is, therefore, clear that the Tribunal is not entirely prohibited from reviewing its order. The case before us is obviously such a case where it could and should have reviewed its earlier decision. In the earlier decision after taking the view that the CBR Circular No.2 of 1975 was not applicable, the Tribunal set aside the case and decided that income from incomplete projects of 1976-77 assessment year could not be assessed in the assessment order of 1976-77. Assuming for the sake of argument, but not conceding, that the Circular No.2 of 1975 was not applicable the provisions of section 3 of the Income Tax Act, which are substantial provisions, being the charging section, could not be bypassed under any circumstances, In the case reported as Sri Sukhdeo Das Jalan v. C.I.T. Bihar & Orissa referred to above and reported as (1954) 26-ITR-617 it was held as following as indicated in the head notes of the judgment. The scheme and structure of the Income Tax Act is to make the tax an annual tax for the purpose of assessment. Section 3 makes each "previous year" a distinct unit of time for the purpose of assessment and the profits made before or after that unit of time are entirely immaterial in assessing the profits of that year. If the provisions of section 3 are read in the context of section 13, it is clear that the accounts maintained by the assessee must correctly show the profits of the preceding year. If the method of accounting adopted by the assessee does not reflect the true profits of the preceding year the proviso to Section 13 will apply and the Income Tax Officer will be entitled to compute the profits upon such basis and in such manner as he may determine.
In the case of contracts, if accounts are maintained and completed on contract basis the profits or gains of the previous year cannot properly be extracted from the according for a contract may take several years for being completed and payments in regard to it may also be received by the assessee in several years. It may be convenient from the point of view of the assessee that profit should be ascertained on the completion of the contract and assessment of the profits should take place after the completion of the contract. But section 3 imposes a charge of income-tax upon the profits and gains of the assessee for the accounting year and it is the duty of the Income-tax authorities to ascertain the profits and gains accruing to the assessee in respect of the payment received during the account year.
It cannot be said that merely because a contract was completed after the accounting year, no profits arose or accrued to the assessee in the accounting year. In the case of an incomplete contract there is a well established method of calculating profits accruing in accounting year which is set out at page 971 of Batliboi's Advanced Accounting. Mathematical Certainty is not demanded in a matter of this description.
"The Tribunal finally held that the proviso to section 13 was applicable to the case and the assessee's profits had to be determined by estimate."
The Bombay High Court held that the proviso to section 13 had been rightly applied by the Appellate Tribunal.
8. The proposition laid down in this decision is that the scheme and structure of the Income Tax Act made it obligatory on the part of the ITO to compute the income of every year in respect of the transactions which took place during the previous year. This decision is obviously applicable in respect of both the contractors and non-contractors.
9. In the case before us it was not a question of following its earlier decision by the Tribunal but it way is matter pertaining to the applicability of the provisions of the charging section 3 of the Income Tax Act, So far as the applicability of section is concerned, the ratio decide ding of the Sukhdeodas's case referred to above is squarely applicable to the present appeal. There is, therefore, no question of escape from, the provisions of section 3 of the Act.
10. It will be pertinent to note that while disposing of the appeal for the assessment year viz. 1977-78 in this case before us my learned brother (Abrar Hussain Naqvi, J. M .) has finally agreed with the view that the assessment of an income year cannot be postponed to the subsequent year. In support also he relied upon the judgment in the case of C . I . T . Madras vs. K . Sri Nivasan n rk2ported as (1933 ) 23-ITR page 87 (S.C. India). The relevant extract quoted in this order can bear repetition. It reads as follows:
"The scheme of the Act is that by the charging section, i.e. section 3, income-tax is levied for a financial year at the rate prescribed by the annual Finance Act on the total income of the previous year of every individual etc. Each previous year's income is the subject of separate assessment in the relative assessment year. Though the year of assessment in the financial year, the previous year of an assessee need not necessarily be the previous financial year for this expression is to be understood as defined by section 2 (II) (a) of the Act."
11. In view of the above I feel no hesitation in arriving at a conclusion that the Income Tax Appellate Tribunal can review its own decision and in this case, particularly for the reasons stated in paras 7 & 8 of this dissenting order, the legal view that income from incomplete projects could not be assessed in the year to which they relate, would be unfair and block the way for the Income Tax Appellate Tribunal to take legal decisions. In. fact the Bombay High Court has pointed out that the door is not closed and it can review its decision and in the circumstances of the case it could legally be held that income from the incomplete projects relating to the assessment year 1976-77 is to be assessed in that year. The question as to whether it should be computed by application of a G.P. rate of 20% to the receipts made in the previous year relating to the assessment year 1976-77 or by any other method has been left open by my brother as the orders for subsequent year have been set aside on this issue. The same view should apply to the assessment order for 1976-7 7.
I have gone through the proposed order and the view taken by my brother the learned J.M, and the learned A.M. Both the learned Members agree that in the case of incomplete projects, income is to be computed and determined for each year on annual basis. I fully endorse this view. However, both the Members have differed only on one issue i.e. whether the Tribunal could sit in judgment and review its earlier order on the same issue for the same assessment year. While the learned J.M. has held that irrespective the correctness or otherwise of the view expressed earlier the Tribunal in the subsequent proceedings cannot reverse the views already expressed for the same assessment year. The learned A.M. is of the , view that such a review is permissible under the law. After going through the orders of both the learned Members I feel inclined to agree with the view and reasons expressed by the learned J.M.
In conformity with the opinion of the majority of the appeals are set aside as indicated in the order of Mr Abrar Hussain Naqvi:, Judicial Member.
M.B.A./425/T . Order Accordingly.
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