TMI Blog1983 (4) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... 78-79 Rs. Rs. Rs. 1. Cost of construction 20,81,431 43,10,168 47,91,111 2. Sale value of Nil 30,73,216 58,02,516 flats/other (out of which actual (net) accommodation amount received was Rs. 29,00,759) It is also common ground that the total area to be constructed in this regard was 61,396 sq. ft. and that the building was complete by the end of the assessment year 1978-79. However, the total area sold by the end of the previous year relevant for the assessment year 1978-79 was 49,065 sq. ft. only. It was 52,426 sq. ft. up to the end of the next previous year, i.e., up to the end of the assessment year 1979-80 which position continues up to date. In other words, the position is that shops on the ground floor and two flats on the top floor covering an area of about 8,700 sq. ft. still remain unsold. 2. The assessee filed returns for both the assessment years showing nil income on the ground that until all the flats and other accommodation in the multi-storeyed building were sold, and the building is conveyed to a co-operative society to be formed by all the purchasers of flats and other accommodation, the correct taxable profit would not be ascertained and, therefore, nothi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-3-1981 and 30-3-1981. The ITO prepared a second draft assessment order in which he computed the assessee's income at Rs. 8,27,064 as against Rs. 8,74,515 as per the original draft assessment order mainly by applying net profit rate of 30 per cent on the value of the thirty-eight flats sold during the year as distinct from what was done originally, i.e., application of net profit rate of 15 per cent on the value of the eighty-three flats sold during both the years. The assessee's objections to the second draft assessment order are dated 7-4-1981. The ITO again forwarded the draft order together with the objections to the IAC who issued his directions to the ITO in this regard vide his order dated 26-9-1981. On this very date, the ITO has completed the regular assessment in conformity with the directions given by the IAC under section 144B(4) for the assessment year 1978-79. 3. It is pertinent to mention that when the appeal for the assessment year 1977-78 came up for hearing before the Commissioner (Appeals), the IAC requested the Commissioner (Appeals) to enhance the assessment by applying net profit rate of 30 per cent as against 15 per cent applied originally on the sale proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invited our attention to the Board's instructions being 'No. 1167 XXIV/1/14 sections 144A and 144B of the Income-tax Act, 1961, Clarification regarding' to show that the Board's view was that the IAC cannot issue directions for enhancement of income in a reference under section 144B(4) and that though the IAC could issue directions under section 144A during the pendency of reference before him under section 144B(4), such directions can be issued within the normal time limit for completion of assessment provided under section 153 of the Act. It is, thus, contended that the IAC was not at all justified in directing the ITO to compute the assessee's income at Rs. 4,60,983 as against Rs. 1,45,038 proposed by him by issuing directions on 25-9-1980 for two reasons, namely : (i) instructions were not issued under section 144A, and (ii) if it is assumed that these instructions are issued under section 144A, these instructions could not have been issued after 31-3-1980, i.e., the normal time limit within which the assessment could have been completed under section 143 of the Act. Our attention, in particular, is invited to the fact that even otherwise a specific notice as required under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convenience we will dispose of the legal contentions first. There is no dispute that for the assessment year 1977-78, the ITO prepared the draft assessment order on 15-3-1980 computing the assessee's income at Rs. 1,45,038 as against the nil income shown by it and, thus, the variation in the income returned and the income proposed to be assessed exceeded the amount fixed by the Board under sub-section (6) of section 144B. The provisions of section 144B were obviously attracted and the ITO was justified in forwarding and serving the draft assessment order on the assessee as required under sub-section (1) of section 144B. The assessee, admittedly, filed its objections to the proposed assessment order on receipt of the draft assessment order and the ITO forwarded the draft assessment order together with the objections to the IAC as required under sub-section (4) of section 144B. In this connection, it may be necessary to mention that the IAC can issue such directions as he thinks fit for the guidance of the ITO to enable him to complete the assessment after considering the draft order and the objections and after going through, wherever necessary, the records relating to the draft or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 144B(4) seems to have been given to the assessee. In our this view we find support from the instructions issued by the CBDT, referred to us in paragraph 6 above. We also find support for the view we have taken in the order of the Special Bench of the Tribunal in the case of Rex Cinema Co-owners v. Sixth ITO [1983] 3 ITD 633 (Bom.) where referring to the scope of the ITO's powers under section 144B(4) the Special Bench held that section 144B is procedural section. Having regard to the above discussion, we are inclined to hold that the directions given by the IAC in this regard are invalid and, consequently, the assessment made in pursuance of the directions is also invalid. 10. As regards the assessment year 1978-79, factually, the position is that the first draft assessment order was prepared by the ITO on 9-2-1981. This was served on the assessee and the assessee filed its objections on 17-2-1981 itself. However, after the draft assessment order and the objections filed by the assessee were forwarded to the IAC under section 144B(4), the IAC issued directions to the ITO under section 144A on the basis of which the ITO issued a notice to the assessee dated 18-3-1981 requirin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 144A, is not valid in law. But this does not mean that the first draft assessment order and the directions of the IAC under section 144B, to the extent they are valid in the eye of law, can be ignored. In this connection it is worth noting that the net result of the IAC's eventual directions under section 144B(4) is reduction of income from Rs. 8,74,515 to Rs. 8,27,064. It is only the basis of computation of income which may be prejudicial but not the directions taken as a whole. The assessments are also not barred by limitation. Explanation 1(iv) to section 153 provides for exclusion of period [from the date the draft assessment is forwarded by the ITO to the assessee, to the receipt of the IAC's directions under section 144B(4) by him. In case the time taken in these proceedings exceeds hundred and eighty days, the Legislature in its wisdom fixed a ceiling of hundred and eighty days. There being no dispute that in both the years the period between the date of the forwarding of the draft assessment order and the receipt of the directions by the ITO under section 144B(4) is more than hundred and eighty days, the time for completion of assessment gets extended by hundred and eigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le venture can be computed year-wise. In any event, there will be no justification for treating the surplus of receipt after the entire cost/expenditure to the assessee is recouped as the income of the assessee unless the assessee shows that it is under an obligation to meet a heavy liability which might altogether change the complexion of the resultant profit or loss from the venture. In this context it has to be borne in mind that if the proposition as stated by Shri Harish is accepted, it would be very easy for any assessee to evade payment of tax. All that he will need to do is to retain a small portion of the accommodation constructed by him unsold, which will always be possible. 15. It is, thus, desirable to briefly refer to the facts of each case to show why we have come to the aforesaid conclusion. The facts in the Bombay High Court case were that the assessee had purchased about 1,330 acres of land for Rs. 60,000 in the year 1930. Out of this area he earmarked for development and sale as building sites an area of about 266 acres divided into 1,000 plots. He spent about Rs. 20,000 in the development of the area. During the financial year 1936-37 the assessee sold 208 plot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of contracts, if accounts are maintained and completed on contract basis the profits or gains of the previous year cannot properly be extracted from the accounts, for a contract may take several years for being completed and payments in regard to it may also be received by the assessee in several years. It may be convenient from the point of view of the assessee that profit should be ascertained on the completion of the contract and assessment of the profit should take place after the completion of the contract. But section 3 imposes a charge of income-tax upon the profits and gains of the assessee for the accounting year and it is the duty of the income-tax authorities to ascertain the profits and gains accruing to the assessee in respect of the payment received during the accounting year. It cannot be said that merely because a contract was completed after the accounting year, no profits arose or accrued to the assessee in the accounting year. In the case of an incomplete contract there is a well established method of calculating profits accruing in the accounting year which is set out at page 971 of Batliboi's Advanced Accounting. Mathematical certainty is not demanded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court and the High Court decisions referred to by us above, the assessment orders will hardly provide any guidance in the matter. 17. Having regard to the case law discussed by us hereinabove, we hold that it is not a correct proposition to say that profits of the assessee from a single venture/project in the nature of trade cannot be ascertained until the venture/project has come to an end. Under the Act each year is a self-contained unit and unless it is impossible to compute the profits or losses of each year reasonably if necessary by estimating the value of the liabilities to be incurred, valuing the work-in-progress, stock-in-trade, etc., the profits should be computed year-wise and taxed. The acceptance of a bald proposition put forward by Shri Harish would amount to giving the assessee a licence to put off his tax liabilities for a unlimited period by seeing to it that the venture/project never comes to an end in the sense something or the other always remains to be done. That will be a very unsatisfactory state of affairs. Moreover, when the entire cost/expenditure to the assessee is recouped and/or major portion of the venture/project is complete, there is rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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