LABELLA CONSTRUCTION COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal, Ahmedabad, has referred the following two questions to this court under section 256(1) of the Income -tax Act, 1961 :

(2.) THE assessee is a building contractor. It had entered into contracts with Ashishnagar Society, Amit Society and Ankoor Society in the year 1966. It had also entered into contracts with Arunesh Society part I and Arunesh Society part II in the financial year relevant to the assessment year 1970 -71. In the return filed for the assessment year 1970 -71, the assessee described the 1966 contracts as old contracts and the other two as new contracts. It had filed a consolidated trading account and profit and loss account disclosing Rs. 1,35,262 as total income. The Income -tax Officer noticed that the assessee had not maintained quantity stock register and other relevant registers and a works -in -progress account which would have enabled him to verify the correctness of the book results. He, therefore, decided to estimate the income by considering the profits made in earlier assessment years. He noticed that the assessee itself in the previous years had disclosed higher gross profits. He also took note of the fact that the margin of profit in this kind of business is more than what was disclosed by the assessee. It appears that the assessee had disclosed the gross profit at 10.2 per cent. In the previous year, the assessee had disclosed the gross profit at the rate of 15.4 per cent. The Income -tax Officer, therefore, after considering the explanation of the assessee that the old contracts were in the last stages of completion, assessed the gross profit in respect of the old contracts at 12 per cent. and at the rate of 15 per cent. in respect of the new contracts. The Income -tax Officer then made an addition of Rs. 27,184. The assessee did not prefer any appeal. On November 2, 1974, the Income -tax Officer received an audit note wherein it was pointed out that in respect of the contract for Ashishnagar Society, the account books of the assessee disclosed a profit of 14.5 per cent. On the basis of the said information, the Income -tax Officer issued notice to the assessee under section 147(b) of the Act for reassessing its income. The assessee again filed a return disclosing its total income at Rs. 1,35,262. The Income -tax Officer computed the gross profit in respect of the contract of Ashishnagar Society at 15 per cent. and added Rs. 26,216 to the income and assessed the tax accordingly. The assessee then preferred an appeal before the Appellate Assistant Commissioner. The contention which was raised on behalf of the assessee was that the Income -tax Officer had all the details before him while making the original assessment for the first time and, therefore, it was not open to him to review the whole question afresh and single out one of those three old contracts and take the view that, in respect of that contract, the gross profit should be estimated at the rate of 15 per cent. This contention found favour with the Appellate Assistant Commissioner and, therefore, he allowed the appeal and annulled the order of assessment passed by the Income -tax Officer. The Revenue, being aggrieved by that order, preferred an appeal to the Tribunal. After perusing the record, the Tribunal found that the Appellate Assistant Commissioner had not calculated the profit rate correctly and if the account books of the assessee in this behalf are read correctly, then that would show that the total profit in respect of the three contracts was Rs. 1,41,500 approximately. As against that, the Income -tax Officer had estimated the profit at Rs. 1,23,156. Thus, the books maintained by the assessee showed more profit than what the Income -tax Officer had assessed. According to the Tribunal, this factual information was brought to the notice of the Income -tax Officer by the audit note and, therefore, the reopening of the assessment was valid. Taking this view, the Tribunal allowed the appeal.

(3.) WE have already pointed out that the relevant material in the shape of book results was not considered by the Income -tax Officer on the ground that the books of account were not properly maintained by the assessee. Thus, this is not a case where it can be said that the Income -tax Officer had considered the material while making the original assessment. This is a case where the Income -tax Officer had not considered the said material and only subsequently he came to know about that material when his attention in that behalf was drawn by the audit note. Thus, this case would squarely fall within the scope of section 147(b) of the Act and the submission made by learned counsel for the assessee to the contrary cannot be accepted.