Commissioner of Income Tax vs Roshan Lal Talwar

Sushil Harkauli and Rakesh Sharma, JJ.—Both these appeals raising identical questions, are by the Income Tax Department against the same assessee. The appeal No. 201 of 2001 is in respect of the assessment year 1991-92 and the appeal No. 205 of 2001 is in respect of the assessment year 1990-91.

In both the appeals, the assessee who at the relevant time was a civil contractor working for Military Engineering Services (MES) had failed to maintain proper books of accounts, the expenses were found to be unverifiable. The Assessing Officer rejected the assessee''s books of accounts u/s 145 (1) of the Income Tax Act, 1961 and estimated assessee''s net profit at the rate of 12% of the gross receipts. In appeals by the assessee, the CIT (Appeals) restricted the addition made by the Assessing Officer and allowed some relief in respect of the additions. He also directed that depreciation should be allowed.

The orders of the CIT (Appeals) were unsuccessfully challenged by the department before the Tribunal. Now, the department has preferred these appeals against the orders of the Tribunal raising two similar questions of law in each appeal. The substance of the questions is as follows in respect of each of the two assessment years involved:

(1) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal and the CIT (Appeals) were legally correct in allowing relief to the assessee, without appreciating the facts that the assessee''s bonks of accounts were found unreliable and were rejected u/s 145 (I) of the Income Tax Act, 1961?

(2) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in upholding the decision of the CIT (Appeals) in directing the Assessing Officer to allow depreciation, without appreciating the facts that the assessee''s net profit was computed after applying the flat rate of net profit?

So far as the second question reproduced above is concerned, it is covered against the department and in favour of the assessee by the decision of a Division Bench of the Allahabad High Court in the case of Commissioner of Income Tax Vs. Bishambhar Dayal and Co., We have not been shown any cogent reason to take a view different front the view taken in the aforesaid decision of Allahabad High Court and therefore following that decision the second question narrated above must be answered in favour of the assessee and against the department.

So far as the first question above is concerned, we find from the order of the Assessing Authority that the assessee had disclosed a profit of 8.88% for the assessment year 1990-91 and a profit of 8.66% for the assessment year 1991-92.

While rejecting the books of accounts u/s 145 (1) of the Income Tax Act, the Assessing Officer estimated the assessee''s net profit at the rate of 12% of the gross receipts solely on the ground that another contractor of M.E.S. viz. M/S Jethanand Bhatia had shown a profit of 13% of the gross receipts.

Having considered the matter, we are of the opinion that picking out one isolated contractor merely on the ground that he is also working with M.E.S. and ''estimating the assessee''s profit merely upon a comparison with that solitary contractor is not sustainable. There may be a host of reasons on the part of a contractor for making a bid for a contract on a lower profit margin. To illustrate, a professional rivalry with a competitive bidder, the desire to get the particular contract On account of the prestige involved in executing that contract, a desire to continue working without break for a particular organization particularly an important government organization, are some of the normal considerations which businessmen often take into consideration while deciding the amount of their tender bids for contracts.

The situation may have been different if, after rejecting the assessee''s books of accounts, the Assessing Authority had examined the cases of a reasonable number of the contractors working for the same organization in executing contracts of similar nature, and had found that none of those contractors had shown profit margin of less than 12%, and if on that basis the Assessing Authority had arrived at the opinion that in case of the present assessee also the profit could be reasonably estimated at the rate of 12%.

In these circumstances, we find ourselves in agreement with the order of CIT (Appeals) as well as the Tribunal that an isolated and solitary case picked out by the Assessing Officer for comparison, and basing the estimate of the assessee''s income upon such comparison, was not sustainable, because on the facts of the case it could not be demonstrated by the learned Counsel for the appellant Department that the two cases were comparable.

In the circumstances, we answer the first question also in favour of the assessee and against the department and uphold the order of the Tribunal. Both the appeals are, accordingly, dismissed.