Samant Construction (P.) Ltd. vs Commissioner of Income Tax

A.K. Mathur, C.J.—This is an application u/s 256(2) of the income tax Act, 1961 (''the Act'') at the instance of the assessee whereby he has prayed that statement of case be called for from the Tribunal on the following question of law: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the initiation of reopening of assessment u/s 147(b) was valid and legal?"

It is not necessary to go into detailed facts. Suffice it to say that the assessee is a private limited company, carrying on the business of civil contractors. Original assessment for the assessment year 1982-83 was completed on 31-3-1984 in which the Assessing Officer had allowed depreciation as claimed by the assessee at Rs. 49,847 which, inter alia, included depreciation on shuttering materials at 20 per cent. Since the depreciation was allowed on materials and particulars furnished by the assessee, the allowance of the said depreciation of Rs. 49,847 was given by the Assessing Officer. The claim u/s 80J of the Act was allowed by the Commissioner (Appeals) by order dated 1-11-1985 and no second appeal was filed by the revenue.

Then the original assessment for the assessment year 1983-84 was passed on 29-9-1984 and in that also, investment allowance at Rs. 1,30,530 and also depreciation at Rs. 2,07,840 which, inter alia, included depreciation on shuttering materials at 20 per cent. Claim u/s 80J was also considered in the order and the same was allowed.

It is alleged that despite the fact that the Assessing Officer allowed the allowances in respective assessment years which were confirmed in appeals, no second appeal was filed by the revenue. The ITO issued notices u/s 148, read with section 147(b), for the assessment years 1982-83 to 1984-85 which the assessee challenged that this could not have been done.

All the facts were placed on record and were explained in the course of hearing of the appeals. Thereafter the matter was taken up before the appellate authority and the Tribunal and the same was confirmed. The Commissioner exercising his revisional jurisdiction called for the assessment records and found that the order passed by the Assessing Officer on 30-6-1986 for all the three assessment years was erroneous and it was not in the interest of the revenue and a common notice on 21-11-1986 was issued to the assessee. It was brought out that rate of income tax charged on the total income of the corporate/assessee in the assessment years 1982-83, 1983-84 was 55 per cent while correct rate of tax chargeable on the income of the company which is non-industrial company was 65 per cent and it was brought out that in the assessment year 1984-85 again tax charged was less at 55 per cent when it should have been 60 per cent. The ITO sought to rectify such mistake in charging of tax in three assessment years by passing a common order u/s 154 of the Act. This order was further found to be defective and unsustainable in law inasmuch as the ITO had not given any reasons as to why she had passed such order revising the rate of income tax in the first two years from 55 per cent to 65 per cent and in the assessment year 1984-85 from 55 per cent to 60 per cent. Accordingly, a show-cause notice was given to the assessee of the intention to vacate such order which was not only wrong but also prejudicial to the interest of the revenue as on the basis of such illegal order, the additional amount of tax charged in the three years might not have been sustained by any higher authority in appeal or revision.

The matter was revised by the order of Commissioner u/s 263 of the Act and this order was confirmed by the Tribunal. Thereafter, the ITO issued a notice u/s 148 of the Act, read with section 147(b), of the Act and that was also challenged before the Assessing Officer which was rejected and the matter was taken up in appeal at the instance of the assessee before the Commissioner (Appeals) and the same was rejected. Thereafter the appeal was filed before the Tribunal and the Tribunal also rejected the appeal. The assessee approached the Tribunal praying for referring the matter to this Court u/s 256(1). The Tribunal rejected the application and, hence, this application has been filed u/s 256(2).

Basic question is whether the contractor who is engaged in civil contract can fall within the definition of section 2(17) of the relevant Finance Act. This question is no more res Integra as the Supreme Court has held that the construction companies are not industrial companies in the case of CIT v. N.C. Budharaja & Co. [1993] 204 ITR 412 / 70 Taxman 312. It has been decided that the benefit of ''industrial company'' will not be available to contractors engaged in construction works. It has been pointed out that the construction of a dam or any other civil construction does not amount to production of an article. Therefore, they cannot be said to be industrial companies. In this case, as a matter of fact, the benefit was given by the authorities erroneously treating the assessee as an industrial company; whereas in view of decision in the case of N.C. Budharaja & Co. (supra), the question is no more res integra and any construction company involved in civil construction cannot be said to be an industrial company. Hence, the notice of reopening issued by the Assessing Officer in this background cannot be said to be bad in law. We do not think that this is a fit case where statement of the case should be called for from the Tribunal as the issue has been decided by the Supreme Court in the case of N.C. Budharaja & Co. (supra). Application u/s 256(2) is, consequently, rejected.