TMI Blog2003 (9) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ice is ordered in the appeal filed by the Department - - - - - Dated:- 1-9-2003 - Judge(s) : G. SIVARAJAN., KURIAN JOSEPH. JUDGMENT Both these appeals arise from the common order of the Income-tax Appellate Tribunal, Cochin Bench in I. T. A. No. 552/Coch/1998, dated October 26, 1999, in respect of the assessment year 1993-94. I. T. A. No. 32 of 2000 is filed by the Revenue and I. T. A. No. 124 of 2000 is filed by the assessee. While admitting I. T. A. No. 32 of 2000 notice was ordered on the following five questions of law: "1. Whether, on the facts and in the circumstances of the case, the Tribunal is right and had material in confirming the finding of the Commissioner of Income-tax (Appeals) determining the percentage of profit at 8 per cent, of the gross receipts? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in estimating the income from the total contract receipt on a percentage basis, when the assessee maintains books of account and filed audited accounts in the prescribed Form No. 3CD? 3. Whether, on the facts and in the circumstances of the case, and in view of the Tribunal's finding that 'looking to the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Irrigation Project, Kottarakkara as per agreement No. 1/SE KCQ-84-85 dated May 9, 1984. The work done under the agreement was KIP Formation of L. B. Main Canal from Ch. 47005 of 48254 including cutting and covering open flumes C. D. Works and driving a tunnel from Ch. 57690 to 47815 metres, including stripping of both the faces of the tunnel. The work was started in 1984 and completed in the year 1992. The total amount of PAC was Rs. 31,24,778. There were disputes and difference of opinion between the assessee and the Irrigation Department. The matter was referred to arbitration. The arbitrator has passed an award on March 14,1989. As per the said award the assessee had obtained an additional amount of Rs. 87,51,092. This amount comprised of the following: Rs. (a) Fixation for the underpayments made to the contractor for the works done for the period 1st May, 1984 to 30th June, 1987, for the additional and extra work that it was made to execute, etc. 47,31,791 (b) Compensation for loss and damage suffered by the contractor on account of the lapses on the part of the authorities. 16,76,500 (c) Interest at the rate of 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for belated payments of the award amount cannot be treated as business income and that it has to be assessed only as income under the head "Income from other sources". The Tribunal had adverted to the assessment order and the first appellate authority's order and in para. 16 of the appellate order considered the matter as follows: "The stand of the Revenue is that the entire amount of award and the interest thereon is taxable. The entire amount that was payable to the sub-contractors has been paid earlier and there was nothing due to them. The later events, such as the complaint to the Police Commissioner and the settlement arrived at, opening of the bank accounts and making payments to the sub-contractors, etc., was a clever device by the assessee to defraud the amount due to the Revenue. The persons who are said to have received the amount after the award as a consequence of the police complaint initially denied having received any amount after the receipt of the award. Looking to the facts and circumstances of the case brought on record, we find it difficult to accept the proposition of the assessee that the assessee had made payments to the sub-contractors. Of course, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the assessee and the sub-contractors. Counsel submits that an amount of Rs. 68,43,650 was paid to the said sub-contractors by crossed cheques from the amount of Rs. 87,51,092i received pursuant to the award of the arbitrator. Counsel submits that though the said sub-contractors had given a statement to the Assessing Officer on a surprise visit denying the receipt of the crossed cheque and factum of execution of sub-contract, in cross-examination by the assessee the sub-contractors had deposed that they had entered into sub-contract with the assessee, that they had executed the work, that they have received cheques for payment of the work done and that they have deposited the said amount in their pass book and also spent it. Counsel submitted that the assessee had thus discharged the burden of establishing the payment of amounts to the sub-contractors for the work done by them under the contract between the assessee and the sub-contractors referred to in the assessment order itself. Counsel also submitted that the assessee did not disclose its liability in the balance sheet for the assessment years 1985-86 to 1988-89 only because the liability due to the sub-contractors had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not allowed as deduction from the gross receipt. The Assessing Officer was also of the view that there was nothing to be deducted from the gross receipt of the sum of Rs. 87,51,092 received under the award of the arbitrator. It is in that view of the matter he has treated the entire sum of Rs. 87,51,092 as income. The first appellate authority had adverted to the contentions of the assessee with reference to the payments made to the sub-contractors. However, the first appellate authority has taken the view that this is at the most a case for rejection of the accounts and that if the accounts are rejected the income has to be estimated. The first appellate authority was of the view that when the income is being estimated there is no question of making separate additions in the light of certain decisions of the other courts. The first appellate authority, therefore, after rejecting the books, had resorted to the estimation of income on percentage basis. Here, it must be noted that the first appellate authority did not thereafter make any reference to the books of account and other documents relied on by the assessee for the purpose of estimation of income. In other words, he had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the Tribunal for justifying the estimate made on profit basis. We note that, apart from the general observations made by the Tribunal on the merits of the matter, there is no due consideration of the case of the assessee or of the Department in regard to the acceptance of the books of account or the estimation of the income which reference to all the materials available on record including the books of account and documents. The question on which notice was issued in the Departmental appeal relates to the justification for interfering with the order of the Assessing Officer in estimating the income with reference to the books of account and other documents by substituting it with determination of profit on percentage basis. As we have already noted, the first appellate authority, without considering the case of the assessee based on the books of account and other records, had straightaway thought that this is a fit case for estimation of profit on percentage basis. We do not think that on the facts of this case the first appellate authority was justified in adopting such a course. The Tribunal has also committed the mistake in approving the estimation of income adopted by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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