N T A KAREEM Vs. ASSISTANT COMMISSIONER OF INCOME TAX
LAWS(IT)-1994-7-1
INCOME TAX APPELLATE TRIBUNAL
Decided on July 13,1994

Appellant
VERSUS
Respondents

JUDGEMENT

G.SANTHANAM, A. M. : - (1.) THESE appeals are by the assessee.
(2.) ITA No. 21(Coch) /1990 : The assessee is an individual. Financial year is the previous year. We are concerned with the asst. yr. 1985-86 in this appeal. The assessee is a contractor. He had undertaken several works mainly in Trichur and Calicut. His residence and business premises were searched on 29th June, 1987 and books and documents were seized. The Assessing Officer (AO) noticed that he had valued the work-in-progress at Rs. 35,000. According to him, this amount was low as compared to the bills raised after 31st March, 1985. He noticed that a bill for Rs. 1,64,011 was raised on 1st April, 1985 in respect of a hotel complex and another bill for Rs. 42,870 was raised on 5th April, 1985 in respect of a Sangham work. Therefore, the AO held that the work-in-progress was suppressed to an extent of Rs. 1.2 lakhs. The assessees explanation that in respect of the bills raised against the hotel, the assessee made debits for the purchase of materials only after 1st April, 1985 was not accepted by the AO. Thus he held that a sum of Rs. 1,64,011 is to be included and deducting 25% gross profit on the above bill amount of Rs. 1,64,011 he made an addition of Rs. 1,20,000 towards suppression in the work-in-progress of the assessee for the asst. yr. 1985-86. The AO noticed that the assessee had continued the work of Jose Theatre, Trichur and had raised bill amounts for Rs. 4,54,363, whereas his account showed only a contract receipt of Rs. 1,03,594. Thus there was difference in contract receipts amounting to Rs. 3,50,768, On this, the AO proposed to estimate the gross profit at 25%. The assessee contended that there was a mishap with the crashing of the balcony and, therefore, he had to redo the work for which he had incurred heavy expenditure and, therefore, no profit was derived on that portion of the work. Even if profit is to be estimated, only a low gross profit percentage should be adopted. This contention was negatived by the AO and accordingly he made an addition of Rs. 87,692 being the gross profit at 25% on the difference in the contract receipts of Rs. 3,50,768, The AO noticed certain deposits in the name of the assessee with Nedungadi Bank, Mankavu Branch, Calicut, on 7th Jan, 1985 and 5th March, 1985 and there was no corresponding cash balance on those dates. However, the books of the assessee showed these deposits as having been made on 23rd March, 1985 and 30th March, 1985. In view of the discrepancy between the dates in the entries in the books of accounts and the deposits with the bank, he proposed an addition of Rs. 1,05,000 as unexplained investment. The assessee explained that these deposits were made from out of advance of Rs. 55,000 received by him on the sale of a house, not accounted for in the books of accounts, and another sum of Rs. 22,000 was taken as loan from his wife. The balance amounts were taken as loans from his relatives. The AO noticed that the advance received for the sale of the house was otherwise spent, according to another version of the assessee himself, and, therefore, the impugned advance could not be available for deposits with Nedungadi Bank. He did not accept the contention of the assessee that he took a loan of Rs. 22,000 from his wife. In this view of the matter, the AO made an addition of Rs. 1,05,000. The assessee appealed in vain and is in second appeal. Sri. R. Srinivasan, the learned Chartered Accountant, vehemently contended that there was no suppression in the work-in-progress. Though the assessee had raised a bill in respect of Hotel Zamorin Complex on 1st April, 1985 the assessee had not accounted for the expenditure till 31st March, 1985. In other words, he submitted that the raising of the bill and the debiting of the expenditure had all taken place in the succeeding assessment year. Therefore, it would not be proper to relate the bill only for the purpose of work-in-progress of the preceding assessment year, without, at the same time, considering the expenditure thereon. Further he submitted that the estimate of gross profit at 25% was based on the calculations made in respect of the succeeding asst. yr. 1986-87 and it had no relevance to the impugned assessment year. Thus, the addition of Rs. 1,20,000 towards deficiency in work-in-progress was totally uncalled for. Turning to the estimate of gross profit at 25% in respect of the additional contract receipts not accounted for in the books, Sri. Srinivasan submitted that in the course of the previous year relevant to the asst. yr. 1984-85, the balcony building collapsed on 2nd Nov., 1983. The assessee had to reconstruct the balcony incurring heavy expenditure. Therefore, the additional contract receipts which did not figure in the accounts should be set off against such expenditure. Further, even in respect of the rework done by the assessee in balcony construction, the AO had estimated the gross profit at 25% as if it is a normal circumstance. Therefore, Sri Srinivasan submitted that no addition is called for in a sum of Rs. 87,692. With regard to the unexplained deposits with Nedungadi Bank he submitted that wife of the assessee was not examined at all, still the loan from her has been disbelieved. The other explanation of the assessee was only disbelieved because of apparent contradiction in his statements. Factually these deposits were made from out of the loans and advance received on the sale of the house. At any rate, the addition in a sum of Rs. 1,05,000 towards unexplained deposits was not called for. Sri Srinivasan further submitted that the assessee did not want to have a protracted litigation on the issues in this appeal and, therefore, decided to go in before the Settlement Commission in the interest of purchasing peace with the Department and to avert vexatious litigation. Therefore, he prayed that either the addition should be deleted or atleast the order of the CIT(A) may be set aside to enable the assessee to approach the Settlement Commission. Sri C. Abraham, the learned Senior Departmental representative supported the order or the CIT(A) and did not appear to have serious objection to setting aside of the assessment to enable the assessee to have a settlement of the disputes by the Settlement Commission.
(3.) WE have thus heard rival submissions. Avoidance of vexatious and protracted litigation will by itself further the cause of justice and reduce the burden of arrears in Courts of law. Keeping this in view and having regard to the submissions made before us, we set aside the order of the CIT(A) and restore the issues to the file of the AO to enable the assessee to approach the Settlement Commission for settlement of the outstanding disputes, without prejudice to the right of either party to revive the appeal in case the petition for settlement is rejected by the Settlement Commission. Thus, the appeal is allowed for statistical purposes.;


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