Commissioner Of Income Taxbathinda v. Inderjit Mehta

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 431 of 2006Date of decision: 9.5.2011 Commissioner of Income TaxBathinda --- Appellant Versus Inderjit Mehta --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELACTING CHIEF JUSTICEACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Ms. Savita Saxsena, Standing Counselfor the appellant-revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the revenue against theorder dated 13.1.2006, passed by the Income Tax Appellate TribunalAmritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 400(ASR)2003, relating to the assessment year 2000-01. 2.The appeal was admitted by this Court for determination of the following substantial questions of law: “(i)Whether the expenditure claimed is allowableagainst the receipts which have been received afterthe assessee ceased to be in the business?against the receipts which have been received afterthe assessee ceased to be in the business? (ii)Whether on the facts and circumstances of thecase, the Hon’ble ITAT is justified in allowing therelief by ignoring the provisions of Section 176(3A)of the Income Tax Act, 1961?”case, the Hon’ble ITAT is justified in allowing therelief by ignoring the provisions of Section 176(3A)of the Income Tax Act, 1961?” 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that at the relevant time the assessee was acontractor. On 25.10.2000 he filed return for the assessment year2000-01 declaring an income of Rs. 16,70,780/-. The return wasprocessed under Section 143(1) of the Act on 24.11.2000 and wassubsequently selected for scrutiny. The assessee had received Rs.34,81,182/- on account of arbitration award in respect of contractagreement No. E/CHZ-6/88-89 with Garrison Engineer, Hisar Cantt.whereas Rs.31,83,944/- as MES receipts had been shown in theprofit and loss account. The assessee had claimed that Rs.2,75,000/- related to contract agreement No. 6 and Rs. 22,238/- tocontract agreement No.31. Both the amounts had been shown aswork in progress in the profit and loss account for the assessmentyear 1991-92. The assessment under Section 143(3) was completedat an income of Rs.36,69,130/- and the assessing officer madecertain additions and disallowances vide order dated 26.3.2003. TheCIT(A) granted partial relief to the assessee in the appeal filed,whereby the disallowance of expenses of labour, wages and materialamounting to Rs. 10,29,625/-; other expenses in the sum of Rs.6,46,490/-; Rs.2,75,000/- on account of difference in MES receipts aswork in progress shown in the profit and loss account in theassessment year 1991-92 relating to contract agreement No.6 andRs. 25,000/- on account of standard deduction were allowed, vide order dated 11.7.2003. The CIT(A) while accepting the plea of theassessee had concluded that the assessee was justified in excludingRs. 2,75,000/- from the award amount of Rs. 34,81,182/- as thesame had been shown as work in progress against contract No.6 inthe profit and loss account relating to the assessment year 1991-92. 4.The Revenue carried appeal before the Tribunal. TheTribunal upheld the order of the CIT(A) vide order dated 13.1.2006.This is how the revenue is in appeal before us. 5.We have heard learned counsel for the appellant andhave perused the record. order dated 11.7.2003. The CIT(A) while accepting the plea of theassessee had concluded that the assessee was justified in excludingRs. 2,75,000/- from the award amount of Rs. 34,81,182/- as thesame had been shown as work in progress against contract No.6 inthe profit and loss account relating to the assessment year 1991-92. 4.The Revenue carried appeal before the Tribunal. TheTribunal upheld the order of the CIT(A) vide order dated 13.1.2006.This is how the revenue is in appeal before us. 5.We have heard learned counsel for the appellant andhave perused the record. 6.Learned counsel for the appellant-revenue submitted thatthe entire award amount of Rs. 34,81,182/- received by the assesseeinstead of Rs. 31,83,944/- shown by the assessee during the currentassessment year against the contract, execution of which wascompleted on 12.1.1990, was exigible to tax in the year of receiptthereof even if the business had been discontinued in any year. Itwas also argued that the CIT(A) and the Tribunal were not right inallowing deduction of Rs. 2,75,000/- from the receipt of award moneyof Rs. 34,81,182/- on account of receivable amounts and theawarded money did not pertain to the same contract. The arbitrationaward also did not contain any reference as to whether thereceivable amount had been taken into account while determiningthe amount of compensation. The assessee had failed to produceany evidence to substantiate his claim. It was urged that the CIT(A)and the Tribunal while reversing the finding of the assessing officer inthis regard had mentioned in the order that the documents had beenexamined but it was essential for the appellate authority to refer to the details of those documents to record any finding in favour of theassessee. According to the learned counsel, sub-section 3A ofSection 176 of the Act was over-looked by the CIT(A) and theTribunal and, therefore, the order of the Tribunal is not sustainable in law. 7. It would, at this stage, be expedient to notice the provisions of the aforesaid sub-section which reads thus: (3A) Where any business is discontinued in any year,any sum received after the discontinuance shall bedeemed to be the income of the recipient and charged totax accordingly in the year of receipt, if such sum wouldhave been included in the total income of the person whocarried on the business had such sum been receivedbefore such discontinuance.” 8.The legislature by virtue of enacting this sub-section hasincorporated a legal fiction whereby the sum received after thediscontinuance of business has been treated as deemed income ofthe recipient. A plain reading of the aforesaid provision clearlyindicates that where any business is discontinued in any year andany sum is received thereafter, it shall be deemed to be the incomeof the recipient and charged to tax accordingly in the year of receipt.However, the amount so received is charged to tax, if such sumwould have been included in the total income of the person whocarried on the business had such sum been received before suchdiscontinuance. The CIT(A) and the Tribunal while accepting the pleaof the assessee that Rs. 2,75,000/- was credited as work-in-progress in assessment year 1991-92 relating to pending dues of contractNo.6 has only mentioned that the documents of the assessee hadbeen examined without reference to any particular document. Theappellate authority was required to specify the details of thedocuments and the material relied upon in the order to upset thefindings of the assessing officer. 9. In view of the above, we after setting aside the findings ofthe CIT(A) and the Tribunal on this issue, remand the case with adirection to the CIT(A) to decide the same in accordance with law. 10.The appeal stands disposed of. (AJAY KUMAR MITTAL) JUDGE May 9, 2011*rkmalik* (ADARSH KUMAR GOEL) ACTING CHIEF JUSTICE