BISHNU TALKIES Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS reference arises out of the order dated October 27, 1994, passed in I.T.A. Nos. 446, 447 448 and 449 (Gau) of 1992 passed by ? the Income -tax Tribunal, Guwahati Bench at Guwahati. The Tribunal, on application by the assessee under Section 256(1) of the Income -tax Act, 1961, referred the following questions before this court:

(2.) THE assessee started construction of a cinema hall at Dhubri, Assam in the financial year 1984 -85 and the construction was more or less completed in the financial year 1987 -88. The assessee filed its return of income for the assessment year 1988 -89 showing loss. The assessment was completed on a total income of Rs. 4,29,610. The assessment order was set aside on appeal and the matter was referred to the valuation cell of the Department for determining the cost of construction. On the basis of the executive engineer's valuation report, proceedings under Section 147 were initiated and notices under Section 148 were issued for the assessment years 1985 -86 to 1987 -88. Returns were filed in response to the notices showing losses. The assessee submitted its objection against the valuation report claiming that regular books of account, profit and loss accounts and the balance -sheets were maintained for the relevant assessment years. The Assessment Officer not being satisfied with the explanation added the differential value in the respective assessment years under reference to the total income of the assessee under Section 69 of the Act. The assessee preferred an appeal before the Commissioner of Income -tax (Appeals) challenging the valuation report on the ground that the books of account were maintained properly and the same were not rejected by the Assessing Officer and, therefore, there was no scope for application of reproduction method for determination of the cost of construction. The assessee also pointed out that the costs of building materials as well as labour charges were much less in Dhubri than in other bigger cities. It was also pleaded that 10 per cent, margin should have been allowed for personal supervision. The Commissioner of Income -tax (Appeals) considered the submission of the assessee and held that the cost of construction as worked out by the Valuation Officer is reasonable considering the type of construction, materials used, value of the furniture and fixtures. The Commissioner of Income -tax (Appeals), however, directed the Assessing Officer to reduce the cost of construction by 10 per cent, for self -supervision. The assessee preferred an appeal before the learned Tribunal which passed the consolidated order on October 27, 1994, out of which the present reference has arisen.

(3.) WE have heard Mr. N. Choudhury, learned Counsel for the assessee, and Mr. U. Bhuyan, learned Counsel for the Revenue.