TMI Blog1976 (2) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee arising out of constructional work of bridges and estimated the positive income of Rs. 65,182 at 20% gross profit on receipts. There was thus an addition of Rs. 1,31,919 in the computation of the total income of the assessee. The assessee preferred an appeal against the said assessment order and the AAC granted reduction in the total income. The total income, as sustained by the AAC, was Rs.2,04,440. On further appeal before the Tribunal, there was a further reduction in the total income. The Tribunal also deleted the addition of profits but sustained the disallowance of loss in the following terms : " The learned counsel next submitted that in the case of a continuing contract an overall picture should be taken after the completion of the contract and the reasonableness of the gross profit shown this year should be tested in the background of the overall result. It was submitted that the assessee-company was mainly engaged in two contracts of bridge construction. One was the construction of Singharan Bridge started in the assessment year 1961-62. The total receipts for the three years amounted to Rs. 20,93,949 and the overall gross profit amounted to Rs. 3,75,316, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the year of completion, there would be no objection to its being so determined if the assessee is able to explain what the adverse factors were which gave rise to this loss. In the result, we would maintain the disallowance of loss of Rs. 66,737 as reflected by the account books but delete the further estimate of profit of Rs. 65,182." Thereafter, in the proceedings under s. 23A of the Indian I. T. Act, 1922, the ITO was of the opinion that loss of Rs. 66,737 having been rejected it was a commercial profit for the purpose of calculating the distributable surplus. The AAC has allowed the appeal filed by the assessee. The Appellate Tribunal has, however, allowed the appeal filed by the department under s. 23A of the Act in the following terms : " In our opinion, the Appellate Assistant Commissioner was not correct in the view that only in cases where it is shown that the assessee had deliberately understated its income or suppressed its income that the book results could be said not to represent the commercial profit. Even in a case where there is no deliberate attempt at suppression of profit or under-statement thereof, the method of accounting adopted may be such as not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be sustained. The contention, on the other hand, of Mr. B. L. Pal, the learned counsel for the revenue, is that irrespective of the question as, to whether the ITO has acted under the proviso to s.13 of the Indian I. T. Act, 1922, in the assessment proceedings, it must be held that, since the claim for loss of Rs. 66,737 was disallowed in the assessment proceedings, this amount was a commercial profit, for, according to him, in the assessment proceedings, the ITO must proceed, firstly, on the book profits as shown by the assessee and thereafter would add and make adjustments to it on the basis of disallowances made by him and, therefore, the amount disallowed must be held to be the commercial profit of the assessee for the purpose of s. 23A of the Act. In this connection, Mr. Pal has relied on an unreported judgment of this High Court dated September 24, 1974, in Income-tax Reference No. 69 of 1970 intituled Mehar Singh Co. (P.) Ltd. v. CIT (since reported in [1977] 108 ITR 607). He has also cited the decision of the Supreme Court in the case of Gobald Motor Service (P.) Ltd. v. CIT [1966] 60 ITR 417 and the decision of the Madras High Court in the case of CIT v. Mettupal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly laid down by their Lordships of the Madras High Court in the case of CIT v. Mettupalayam Coonoor Service (P.) Ltd. [1975] 99 ITR 49 in the following terms : " Wherever it is found that the book results do not represent the real commercial or accounting losses of the earlier years, then the additions made to the book profits at the stage of the assessment have to be taken into account. But it is not all the additions that have been made to the total income in the course of the assessment that can be treated as really commercial or accounting profits and that it is only those additions which have been made on the basis that the assessee has suppressed the income or inflated the expenditure, that have to be taken into account. " Further, the opinion expressed by their Lordships of the Gujarat High Court and Bombay High Court in the cases cited by Mr. Ray substantially conform with the views we have taken in this matter. The law is well settled by the decisions of this court on s. 23A of the Act in the case of CIT v. Jalan Investment (P.) Ltd. [1976] 103 ITR 198 (Cal). It is the settled law that the ITO must determine the actual commercial profits of the company on the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the major claim on loss related to the construction of Singharan Bridge and it was held that it was not proved in the quantum appeal on the ground already stated. The submission of Mr. Ray is that the actual use of cement or any material is never entered in the stock register. Though there is some force in this contention, it being a pure question of fact, we do not express any opinion on it. As already stated, the income-tax authorities, while acting under s. 23A of the Act, must determine the commercial profit of the company by applying the commercial principles. And it has not been done in the present case. In other words, the Tribunal has not applied the commercial principles nor has ascertained the basic facts in order to determine whether these losses were really, the commercial profits or business losses for the purposes of s. 23A of the Act. Since the Tribunal has not found nor stated the primary facts on question No. 1, we are unable to answer it. Therefore, it must go back to the Tribunal for its determination in the light of this judgment. The Tribunal shall ascertain the primary facts and in order to do so shall give opportunity to both parties to adduce evidence and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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