T.O. Abraham and Co. vs Deputy Commissioner of Income Tax, Central Circle, Trivandrum

C.N. Ramachandran Nair, J.—The connected appeals arise from the common order of the income tax Appellate Tribunal disposing of the appeals filed by the assessee as well as the Department against the modification of the income determined by the Assessing Officer for the assessment year 1997-98 by the CIT (Appeals). The assessee was engaged as contractor in the construction of dams and laying of pipeline. etc. When the returns were scrutinised, the Assessing Officer noticed that even though Profit and Loss Account and the statement of accounts were filed, the assessee has not furnished the balance sheet. The assessee''s explanation was that for the reasons beyond its control, the balance sheet could not be prepared. The Assessing Officer also found that the provision for liability is created for crores of rupees. In order to verify the correctness of the returns filed, the Assessing Officer directed the assessee to produce the books of account. The assessee did not produce the books of account and ultimately, took a stand that some of the books were destroyed in fire at one of the construction sites. The Assessing Officer disbelieved the assessee''s case of loss of books of account and called for written statement on sources of fund, allocation of fund, cash-flow statement etc. The assessee failed to produce any of the records, books of account and the statements called for by the officer. Therefore, he was left with no option, but to make the best judgment, assessment u/s 144 of the income tax Act by making additions to the income shown in the Profit and Loss Account. Major additions are towards the provisions for expenses claimed which was in crores. Similarly, interest income received from the Bank deposits treated as business income was assessed under the head ''Income from other sources''. The assessee filed appeal against the assessment before the CIT (Appeals) who though upheld in principle the best judgment assessment, converted the method of assessment to estimation of income from contract at 8 per cent of gross contract receipts, net of depreciation. Consequently, the addition made by the Assessing Officer to business income in the form of disallowance of provision was deleted by the Commissioner. Both the assessee as well as the Department filed appeals before the Tribunal.

The Tribunal, after hearing both sides, dismissed the appeals by a common order holding that in the absence of books of account and details furnished by the assessee, the officer was left with no choice, but to complete the assessment u/s 144. Therefore, in principle, the order of the CIT(A), rejecting the assessee''s demand for assessment based on returns filed was upheld by the Tribunal. However, the Tribunal found that the over importance assigned by the CIT on section 44AD, which applies to small and marginal contractors below turnover of Rs. 40 lakhs is not justified and so much so, the Tribunal, by taking into account the facts and circumstances, estimated the net income at 10 per cent of the gross contract receipts, net of depreciation to be assessed as income from business. Even though assessee as well as the Department filed appeals before us, against the order of the Tribunal, we do not find any justification to interfere with the same in this appeal u/s 260A. In the first place, there is contradiction in the assessee''s claim for acceptance of return because the assessee did not produce the books of account and even claimed that books of account were destroyed in fire. So much so, the best judgment assessment is the only solution in the assessee''s case and the final fact-finding authority refixed the net income at 10 per cent net of depreciation which is a little over the rate provided for small contractors in section 44AD. This Court has no authority to substitute the estimation by the fact-finding authority. We do not find any substantial question of law arising from the orders of the Tribunal on estimation of income. We, therefore, dismiss the appeals on this issue. The next question raised in the assessee''s appeal is only against the assessment of interest income from Bank deposits as income from other sources. Even though the assessee has canvassed several decisions in their support, we find that the interest received is from Bank deposits maintained by the assessee and the Tribunal decided the matter by relying on the decisions of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd., Madras Vs. Commissioner of Income Tax, Madras, , another decision of the Supreme Court in CIT v. Cormondal Cement Ltd., 234 ITR 412 and a decision of this Court in Nanji Topanbhai and Co. Vs. Assistant Commissioner of Income Tax and Others, . In our view, the assessee''s claim that interest is earned from bank deposits made in the course of business, does not make the interest income as business income because the assessee was not engaged in money-lending business. Interest earned from the Bank''s deposit was rightly held by the Tribunal as income from other sources. Since the position is settled by several decisions and some of which are relied on, we dismiss the assessee''s appeal on this issue as well. Consequently, the two appeals filed by the assessee and the appeal filed by the Department are dismissed.