COMMISSIONER OF INCOME-TAX Vs. VINOD KUMAR BHATIA

JUDGEMENT

(1.) THE brief facts giving rise to this petition under Section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), are that Vinod Kumar Bhatia, the respondent (hereinafter referred to as "the assessee"), who is a building contractor, filed an Income Tax return for the assessment year 1984 -85 showing an income of Rs. 1,20,730. The assessee had not maintained any accounts and the income mentioned in the return was arrived at by applying profit at the rate of ten per cent of the payment received by him. The assessee had also claimed deduction on account of interest paid to the banks and the Life Insurance Corporation and depreciation of a truck which was purchased and was used in connection with the construction work. The assessment order dated September 10, 1986, annexure P -2, was passed by the Income Tax Officer, Karnal. He accepted the income on the basis of ten per cent of the total payments received by the assessee as building contractor, but rejected the other part of deduction on account of payment of interest and depreciation of the truck. The assessee filed an appeal, which was dismissed by the Commissioner of Income Tax (Appeals), Karnal, by order, annexure P -3, dated January 13, 1989. The assessee filed a second appeal before the Income Tax Appellate Tribunal. That appeal was partly allowed by order, annexure P -4, dated July 3, 1992. It was noted that admittedly the assessee had paid interest on the amount of loan from the banks and the Life Insurance Corporation and had used the truck for purposes of the business. It was observed that there could not be any rigid formula that where income was estimated by applying a net profit rate, a deduction on account of borrowings and depreciation of machinery could never be allowed. In the facts and circumstances of the case, therefore, the Appellate Tribunal accepted the return and allowed deduction on account of interest paid to the bank as also the amount of depreciation on the truck. The order of the lower appellate authority as also of the Income Tax Officer were accordingly modified. The Department felt aggrieved against the order of the Appellate Tribunal and accordingly moved an application under Section 256(1) of the Act for referring the following question for the opinion of the High Court :

(2.) THE application was dismissed by the Appellate Tribunal by order, annexure P -1, dated December 10, 1992. Hence, the present petition under Sub -section (2) of Section 256 of the Act.

(3.) WE have heard learned counsel for both the parties.