High Court Of Kerala
Maliyekkal Construction Co. vs. CIT
Section 40(b), 145, 254(1)
Asst. Year 1993-94, 1994-95
G. Sivarajan & C.N. Ramachandran Nair, JJ.
IT Appeal Nos. 171 & 193 of 2000
4th October, 2002
Counsel Appeared
P. Balachandran, for the Appellant : P.K.R. Menon, for the Respondent
JUDGMENT
C.N. RAMACHANDRAN NAIR, J. :
The assessee, a civil construction firm, is the appellant before us against the common order of the Tribunal for the asst. yrs. 1993-94 and 1994-95. The assessee admittedly did not maintain books of accounts. However, returns were filed estimating the net income at 7 per cent of the contract receipts. The AO taking note of the net profit returned for the earlier years at 10 per cent of the contract receipts, fixed the net income at 8 per cent of the contract receipts. It was specifically mentioned by the AO that the net income fixed at 8 per cent is inclusive of all deductions towards payment of salary and interest to partners. In other words, the net income so fixed is after excluding all deductions which are available to the assessee. The assessee, however, contested the assessment in the first appeal and pressed for deductions towards payment of salary and interest to partners as provided under s. 40(b) of the IT Act. The CIT(A) dismissed the appeal. The assessee filed second appeal before the Tribunal. The Tribunal noticed that the assessee is entitled to deduction under s. 40(b) of the Act towards payment of salary to partners and interest on advances. However, the Tribunal, taking note of the fact that the assessee did not maintain books of accounts, and that the assessee returned a higher rate of profit for the earlier years at 10 per cent, fixed the net income at 10 per cent and allowed the deductions claimed by the (sic-assessee) under s. 40(b) of the Act. It is against this order of the Tribunal that the assessee filed the above two appeals.
We have heard Sri P. Balachandran, counsel appearing on behalf of the assessee, and senior counsel Sri P.K.R. Menon, on behalf of the Revenue. The assessee’s counsel contended that the order of the Tribunal has resulted in enhancement of tax for one year, for which they have no powers. Admittedly, the first appellate authority dismissed the appeal, and, therefore, the only option open to the Revenue was to file cross-appeal when assessee filed appeal before the Tribunal. In the absence of cross-appeal by the Revenue, the Tribunal has no power to enhance the tax demanded, is the contention of the assessee’s counsel.
We have not seen the recomputation of the order of the Tribunal. However, we are informed that for one year there is enhancement of tax consequent on the order of the Tribunal. Enhancement of estimated income of the assessee is from 8 per cent to 10 per cent. On going through the orders of the Tribunal, and after hearing counsel for the assessee, we find that the assessee pressed for deduction towards payment of salary and interest to partners. The Tribunal also noticed that the estimation of income at 8 per cent. by the AO was after reckoning the deductions otherwise eligible to the assessee. Therefore, the only option to the Tribunal on appeal by the assessee was to reduce the net income if the Tribunal found reasons for the same. There was no scope for enhancement of net income in the absence of any cross-appeal by the Revenue. Therefore, we feel the Tribunal committed an error in enhancing the income from 8 per cent. to 10 per cent. without a cross-appeal by the Revenue demanding such enhancement. We also find that the assessee has not maintained books of accounts. There is no material before the Tribunal to arrive at a profit at 10 per cent. even though the assessee might have returned profit at 10 per cent. for the earlier years. When the officer himself fixed the income at 8 per cent. covering a deductions, and when the Tribunal did not find any ground to interfere with the same, there was no necessity for the Tribunal to enhance the income and simultaneously grant deductions without realising its tax effect so far as the assessee is concerned.
We, therefore, find that the order of the Tribunal resulting in enhancement of tax effect is not sustainable. Counsel for the assessee also pressed before us for grant of deductions under s. 40(b) of the Act after retaining the net income fixed by the officer. We have already noticed that the AO himself fixed the net income only at 8 per cent. as against 10 per cent. returned by the assessee for the earlier years, and it is inclusive of all deductions. When such a conditional order was passed and in the absence of any material to vary the same, we feel the assessee is not entitled to further deductions under s. 40(b) of the Act. We, therefore, allow the appeal setting aside the order of the Tribunal and restoring that of the AO confirmed in first appeal. The balance Court fee, if any, will be recovered from the appellant.
Appeals are allowed.
[Citation : 260 ITR 333]