Chander Singh, Accountant Member - (1.) THESE six appeals, three from the assessee and three from the Revenue, for assessment years 1981-82, 1982-83 and 1983-84, are combined for the sake of convenience.
(2.) We first take up the appeals from the assessee. The assessee is a company in which public are not substantially interested. In the years under consideration, it had undertaken a project of construction of a multi-storeyed building. For assessment years 1981-82 and 1982-83, the assessee had sold 11 flats in each year and had respectively realised amounts of Rs. 5,89,500 and Rs. 2,39,488. For assessment year 1983-84, the sale proceeds of flats realised by the assessee worked out to Rs. 8,20,833. For these three years, however, the assessee had not shown any profit. For assessment year 1981-82, the Assessing Officer had completed the original assessment on 24-2-1984 but it was reopened by issue of notice under Section 148 on 12-3-1986. Despite the service of notice on the assessee on 14-3-1986, no return was filed by the assessee and, therefore, the Assessing Officer, after issue of notice under Section 142(1), had completed the assessment under Section 144 of the IT Act. For assessment years 1982-83 and 1983-84, the assessee had filed the return of income but, however, the income for both the years was declared at nil. The contention of the assessee before the Assessing Officer was that the assessee was engaged in construction of flats and no profit accrued during these three years as the project was not complete. The assessee had taken a stand before the Assessing Officer that in the case of a building contractor, the profits should not be assessed on year-to-year basis and the ascertainment of the profit should be done at the end of the contract work. Thus, the assessee was of the view that the profit in its case should be assessed only after the contract work was completed. It was, therefore, accordingly, pleaded before the Assessing Officer that no profit for the years under consideration should be computed. Hence the assessee had requested the Assessing Officer to accept the returns for the assessment years under consideration. The Assessing Officer was, however, of the view that the method of accounting followed by the assessee was defective and incomplete. The method of accounting followed by the assessee, therefore, did not lead to the correct computation of income. The Assessing Officer took cognisance of the note No. 4 in Schedule VII of the Annual Accounts forming part of the balance-sheet, in which the auditors had mentioned: "the work-in-progress has been not technically evaluated and is represented by the balance figure of profit and loss account". In other words, the Assessing Officer found that while preparing the profit and loss account for the years under consideration, the assessee-company had debited opening stock, work-in-progress (opening), purchase of construction material, salaries, labour charges and other incidental expenses. The credit side of the profit and loss account contained the amount of sales, closing work-in-progress and closing stock of construction material. However, the assessee had manupulated the closing work-in-progress. The closing work-in-progress in the opinion of the Assessing Officer, was not valued by the assessee by following any method. The assessee would put on credit side any amount which will bring the profit to 'Nil'. The'assessee had followed this method on the ground that the profit does not accrue to the assessee from year to year and it accrues only after the completion of the contract. The Assessing Officer was, therefore, of the view that the method of accounting followed by the assessee was defective and hence he rejected the same. With a view to arrive at the reasonable profit for the years under consideration, the Assessing Officer applied the provisions of Section 145 and computed the business income of the assessee at 8 per cent of the receipts mentioned above. This resulted in the assessment of profit of Rs. 47,160 for assessment year 1981-82, Rs. 19,160 for assessment year 1982-83 and Rs. 65,666 for assessment year 1983-84.
(3.) IN addition to the estimate of profit mentioned above, the Assessing Officer also found that the interest payment to certain extent was also to be disallowed under the provisions of Section 40A(8) of the IT Act. By applying the said provisions, the Assessing Officer added the interest of Rs. 44,473 for assessment year 1981-82, Rs. 86,798 for assessment year 1982-83 and Rs. 65,834 for assessment year 1983-84. Thus, the total income of the assessee was computed at Rs. 91,630 for assessment year 1981-82, Rs. 1,25,370 for assessment year 1982-83 and Rs. 1,71,140 for assessment year 1983-84.;