CHOTANAGPUR BUILDERS Vs. INCOME-TAX OFFICER

JUDGEMENT

(1.) The assessee-firm derives income from contract business. In respect of the assessment year 1976-77, the firms assessment was completed on a total income of Rs. 1,05,310 as against income shown of Rs. 1,02,114. The Commissioner on scrutiny of the records found that there was discrepancy of Rs. 22,000 in the value of the closing stock of materials as shown in the trading account and the balance sheet drawn up for the year ending 5- 2-1976. He accordingly, initiated proceedings under section 263 of the Income-tax Act, 1961 (the Act). During the course of hearing before the Commissioner, the assessees learned counsel, Shri A. K. Moitra, admitted that he was not able to reconcile the discrepancy as pointed out in the Commissioners show-cause notice under section 263. The Commissioner was, accordingly of the opinion that the ITOs order of assessment in respect of the assessment year 1976-77 was erroneous insofar as it was prejudicial to the interests of the revenue. The Commissioner held in his order under section 263 that the assessee has taken credit of Rs. 87,000 on account of opening stock as shown in the trading account at Rs. 65,000, therefore, appears to be patently incorrect. He, accordingly, set aside the assessment and directed the ITO to reframe the same after ascertaining as to how did the assessee manage to tally the balance sheet. Against the said order of the Commissioner dated 11-8-1980, the assessee has filed the present appeal.

(2.) The learned counsels objection is mainly two-fold, viz., (i) the assessment having been merged with the Commissioner (Appeals) the Commissioner had no jurisdiction to exercise his powers in terms of Section 263, and (ii) that even though, according to the Commissioner, the ITOs order was erroneous, there was nothing to show that the same was prejudicial to the interest of the revenue. According to the learned counsel, the assessee being a firm of contractors, its income as computed in the assessment at Rs. 1,05,089 came to about 9.73 per cent on gross contract receipts of Rs. 10,79,909, which should have been considered by the Commissioner as reasonable considering the profit margin disclosed by similar other contractors. Another objection raised by the learned counsel was that the Commissioner had powers under section 263 to enhance the assessment and since he was satisfied that there was a mistake in the accounts furnished by the assessee, he could direct the ITO to reframe the assessment by taking into account the mistake as pointed out by the Commissioner. The Commissioner, according to the learned counsel, was not at all justified in setting aside the entire assessment which resulted in great miscarriage of justice, inasmuch as in the reassessment completed on the basis of the Commissioners direction the ITO made a thumping Commissioner under section 144 of the Act on a total income of Rs. 3,02,850. The learned counsel, in this connection, filed before us a paper book containing 18 pages. He also submitted that on the question of merger itself, the assessee was entitled to the relief claimed in view of the Full Bench decision of the Madhya Pradesh High Court in the case of CIT v. Mandsaur Electric Supply Co. Ltd., 1983 140 ITR 677. In regard to the action of the Commissioner in setting aside the whole of the assessment order, the learned counsel relied on a Delhi High Court decision in the case of Addl. CIT v. J. K. DCosta,1982 133 ITR 7.

(3.) In reply, the departmental representative pointed out that the assessee disclosed a net profit of Rs. 90,419 in its profit and loss account for the year ending 5-2-1976. The mistake noticed in the value of closing stock shown in the profit and loss account and balance sheet came to Rs. 22,000. The actual profit thus worked out to Rs. 1,12,419 (Rs. 90,419 + Rs. 22,000) which obviously was in excess of the income assessed at a sum of Rs. 1,05,310. It was thus evident, according to the departmental representative, that the ITOs order was prejudicial to the interests of the revenue. It has been stated that since the assessees learned counsel admitted the mistake before the Commissioner, the Commissioners jurisdiction in terms of section 263 could not be questioned. The departmental representtive also referred to paragraph 4 of the Commissioners order, wherein the Commissioner observed that as desired by Shri Moitra the assessment was set aside. It could not be said, therefore, that the assessee was aggrieved by the Commissioners order and, consequently, the appeal before the Tribunal was incompetent. For this proposition, he relied on two High Courts decision in Ramanlal Kamdar v. CIT, 1977 108 ITR 73. and CIT v. Ram Kumar Agarwalla Bros., 1977 108 ITR 457. On the point of merger, the departmental representative referred to a Full Bench decision of the Madhya Pradesh High Court in CIT v. R. S. Banwarilal, 1983 140 ITR 3. and another Madhya Pradesh High Court decision in Alok Paper Industries v. CIT, 1983 139 ITR 1064. The departmental representative also referred to a Gujarat High Court decision in Karsandas Bhagwandas Patel v. G. V. Shah, ITO,1975 98 ITR 255. and to a Supreme Court decision in State of Madras v. Madurai Mills Co. Ltd., 1967 19 STC 144. He particularly drew our attention to their Lordships observation wherein has been observed as under :