Bombay High Court
Wall Street Construction Ltd. vs Dy. Cit on 6 May, 1999
Equivalent citations: [1999]71ITD47(MUM), (2002)75TTJ(MUMBAI)653
ORDER
H.C. Srivastava, A.M. Both the appeals concern the same assessee and the same assessment year. They are being disposed of together for the sake of convenience.
2. ITA No. 9595/Bom/1995 is decided first. The ground of appeal of department reads as under :
"On the facts and in the circumstances of the case and in law the learned Commissioner (Appeals) erred in directing to allow expenses against 'on money' received by the assessee which were not recorded in the books and also erred in directing to tax 12 per cent of the 'on money' as assessee's income."
3. In the above case, following facts are found :
1. There were two searches in this case on 21-8-1990 and on 24-12-1992, respectively.
2. In the first search, a computer sheet was found, whose pp. 131 and 147 were seized as they gave details of 'on money, receipts amounting to Rs. 1,04,44,834.
3. The assessee submitted that the same was offered for taxation for the assessment year 1991-92 in addition to the regular income.
4. In the second search, in response to question No. 15, the director of assessee-company submitted that company had received total amount of Rs. 1,05,01,345 from prospective flat owners as on 30-11-1992.
5. It was found, that the total gross money receipts which were received relevant to assessment year 1990-91, 1991-92, 1992-93 and 1993-94 totalled Rs. 2,09,46,179. Out of this, Rs. 1,46,97,614 was added to income of 1991-92. For 1992-93, the same money amounted to Rs. 35,85,595. The explanation of the assessee was that this sum of Rs. 35,57,500 has been declared twice in the gross receipts and is included in Rs. 1,04,44,834 of first search and also in Rs. 1,05,01,345 of second search.
6. The contention of the assessee was that the total gross money received would be 17,38,88,679 only. It was discussed the same amount should be spread over the relevant previous years in which they were received. Rs. 1,46,97,614 was taxed in 1991-92. In 1992-93, Rs. 26,91,065 should be taxed and Rs. 24,80,250 should be taxed in 1993-94.
4. The assessing officer, however, held that 'on money' receipts of Rs. 35,85,595 were received from different prospective flat owners and not from the same persons who paid Rs. 35,57,500. He, therefore, taxed 35,85,595 as unaccounted money receipts. The assessing officer also did not accept that any expenditure was incurred in cash with a view to earn 'on money' in the business. The assessing officer found that assessee had declared net profit of Rs. 37,48,843. He noted that assessee was following the completed project method of accounting. The assessee had completed the project and the assessing officer proceeded to apply a gross profit rate of 12 per cent on Rs, 5,86,67,554. He also proceeded to give credit for the amount of gross receipts already taxed in 1990-91 and 1991-92. Thus, the profit for the year concerned was computed at Rs. 40,75,288 after setting off the amounts already taxed in 1990-91 amounting to Rs. 8,58,458 and in 1991-92 Rs. 21,06,360. When the matter was taken to the Commissioner (Appeals), she was of the opinion that the assessing officer was justified in applying a rate of 12 per cent as confirmed by the Tribunal in their order for assessment year 1991-92. She, therefore, confirmed the additions so made. The assessee is in appeal before us.
5. The counsel for the assessee proceeded to submit that the observations of the auditors on their inability to comment on the unrecorded gross receipts and expenses should be restricted only to the gross receipts and expenses unrecorded and should not be applied to the results shown by the assessee on the disclosed turnover and expenses in the book. It was submitted that the auditors of the assessee-company have opined the Pune project was completed and assessee offered the amount for taxation in this year. The income was declared at a loss. The assessing officer found that actual profit on completion of Pune project was 6.72 per cent. He, further, found that in the case of the sister concern M/s Natasha Construction (P) Ltd., a rate of 12 per cent declared. The assessing officer did not accept the plea of assessee that the lower ratio of profits should be applied. He, therefore, applied the rate of 21 per cent on the gross receipts of Rs. 5,86,67,554. This gross profit was thus worked out at 70,40,106, after giving credit for amount already taxed in 1990-91 and 1991-92. When the matter was taken to the Commissioner (Appeals), all the pleas that was raised before the assessing officer were raised before him as well. The Commissioner (Appeals) held that books of account of assessee were not reliable and there is material on record to prove that most of the 'on money' was received outside the books of account. He, therefore, upheld the action of the assessing officer in estimating the rate of 12 per cent to the gross turnover. He, further, proceeded to hold that the assessing officer should allow deduction of 12 per cent out of cash receipts i.e., to say 'on money' receipts and gave the assessee necessary relief. The assessing officer while giving effect to the direction of the Commissioner (Appeals) applied the rate of 12 per cent for taxation purposes in spite of carrying out the directions of the Commissioner "To allow deduction of 12 per cent out of cash receipts i.e., 'on money' receipts". The assessing officer applied a rate of 12 per cent only on the 'on money'. However, the department in this appeal has challenged this order of the Commissioner (Appeals). We have heard the parties in detail. The Commissioner (Appeals) after going through the various arguments raised before him and before the assessing officer came to a conclusion that in view of the profits shown in the sister concern Natasha Construction, it may be reasonable to apply a rate of 12 per cent on 'on money' receipts. Before us, no material has been brought out by the department to prove that a higher rate of gross profit should have been applied on the 'on money' received. We find that notwithstanding the order of Commissioner (Appeals) to allow deduction of 12 per cent out of cash receipts, the assessing officer, has applied a rate of 12 per cent profit on cash receipts. In this regard, it is also seen that Commissioner (Appeals) has followed the decision of the Tribunal in ITA 1759 of 95, dated 7-8-1995. Therefore, it is obvious that the departmental appeal with regard to the above is misconceived and has to be dismissed.
ITA 9269/Bom/95
6. Most of the facts of this appeal have been discussed by us in order in ITA No. 9595 of 95 dated today. The main ground of the assessee relates to the profit to be obtained and taxed from the completed project at Pune namely Natasha Enclave. In the audited books of account, on a turnover of Rs. 5,86,66,554, a gross profit of Rs. 35,89,659 has been shown which is 6.12 per cent. On the examination of the accounts the assessing officer noted that the chartered accountants of the assessee-firm, in their report, expressed their inability to comment on the unrecorded gross receipts and expenses. As discussed in the order in ITA 9595/Bom/95 dated today, during a search, it was found that besides the turnover shown in the books of account, the assessee had additional turnover outside the books of account. The assessing officer was of the opinion, that the accounts of assessee are unreliable inasmuch as a large amount of turnover has been kept outside the books of account. He, therefore, did not accept the results shown by the assessee though company has maintained proper books of account and the director of the company Shri Marathe, in his statement, submitted that the net profit on the receipt should be approximately 10 per cent. Inviting our attention to the statement of Shri Marathe, it was submitted that Shri Marathe's statement has nothing to do with the recorded receipt. Attention was also invited to the fact that in the Pune project, the possession was not taken by the government nominee, over which men assessee had no control resulting into lower ratio of profit. Regarding application rate of 12 per cent in the earlier years by the Commissioner (Appeals), it was submitted that in the earlier years, the Pune project was not completed and therefore, the assessment was made on higher rate. In 1992-93, Pune project has been completed and the chartered accountants have not made any adverse remarks on the books of accounts maintained by the assessee company. Similarly, no challenge has been made on the allotment of certain flats to the certain Government nominees at much lower rates. It was, therefore, submitted that there is no justification of applying the rate of 12 per cent to the entire turnover. It was also submitted that applying the provisions of section 40A(3) to the expenses incurred out of cash business receipts cannot apply in view of the decision Sham Dass Inder Raj v. ITO (1988) 27 lTD 314 (Del), Our attention was invited to the decision in CIT v. S. C. Kothail (1971) 82 ITR 794 (SC) to submitting that the incidental expenses even of illegal business is to be deducted while taxing profit from illegal activity. It was also submitted in view of the several decisions, including decision Shapoorji Pallonji & Co. (P) Ltd. v. ITO (1994) 49 ITD 479 (Bom), the project completion method should be accepted and should be applied. The Departmental Representative, however, supported the order of assessing officer and Commissioner (Appeals) to submit that the results shown by the assessee are unreliable, the books cannot be accepted and have to be rejected. Accordingly, it was submitted that the application of rate of 12 per cent on the proceed including the unrecorded profit should be upheld.
7. We have heard the parties. We find that we have already dismissed the departmental appeal, challenging application of rates of 12 per cent to the entire turnover. From the record, it is obvious that the Natasha Enclave, Pune was completed by 31-3-1992. The total area of the project completed was 2,12,536 sq. ft. out of which 16,800 sq. ft. was reserved for government nominees. No sale was affected to the government nominees' flats and the same formed part of the closing stock valued at selling price of Rs. 130 per sq. ft as on 31-3-1992. The other closing stock was valued at cost i.e. to say at Rs. 285.80 per sq. ft. Thus, out of total area of the closing stock of 27,567 sq.ft. area reserved for government nominees, 16,800 sq. ft. remained to be sold. As per profit and loss account gross profit of Rs. 35,89,659 has been shown on a turnover of Rs. 5,86,67,554. It the increased in the value of the closing stock by valuing the government nominees flats of 1.283.80 sq. ft. is taken, it will result into an addition of Rs. 25,83,840 resulting in a gross profit of Rs. 61,73,499 which comes to approximately 10.5 per cent. We are, therefore, of the opinion that the facts for the assessment years 1992-93 cannot be compared with the facts for the assessment year 1991-92 inasmuch as the project at Pune was completed in this year and not in earlier year. There is no denial of the fact that the auditors have been commented adversely on the turnover shown in the books of account. We are, therefore, of the opinion that in view of the facts and circumstances of the case, the gross profit of 6.12 per cent shown by the assessee for this year cannot be changed into gross profit rate of 12 per cent on the overall turnover. While, the application of the rates of 12 per cent on the unrecorded turnover has to be upheld, we are of the opinion that the results shown by the assessee in the books of account have to be accepted. There is no dispute that the cash receipts of 'on money' for this year is Rs. 35,00,000 approximately. We are, therefore, of the opinion that on this turnover, a rate of 12 per cent should be applied following the order of the Tribunal for assessment year 1991-92. As far as the balance of the turnover is concerned, the rate as shown 12 per cent by the assessee should be accepted.
8. Regarding the charging of interest under section 234B, we are of the opinion that it has consequential effect and necessarily relief may be allowed to the assessee.
9. In the result, appeal of the assessee is allowed in part.
G.C. GUPTA, J.M. :
20 July, 1998 These cross-appeals by the revenue and the assessee for the assessment year 1992-93 are directed against the order of the Commissioner (Appeals). I have the benefit of the order passed by my learned brother but I could not persuade myself to agree with the same and accordingly a separate order is being passed. Since the cross-appeals relate to the same assessee and same assessment year, these are being disposed of by a common order.ITA No. 9595/Mum/95
2. This appeal has been preferred by the revenue. The only ground of the revenue is that :
"On the facts and in the circumstances of the case and in law the learned Commissioner (Appeals) erred in directing to allow expenses against the 'on money' received by the assessee which were not recorded in the books and also erred in directing to tax 12 per cent of the 'on money' as assessee's income."
3. In this case there were two search operations under section 132 of the Income Tax Act, 1961, on 21-8-1990 and on 24-12-1992. In the first search carried out on 21-8-1990, a computer sheet was found whose pp. 137 and 147 were seized as they gave details of 'on money' receipts and the assessee submitted that the same was offered for taxation for the assessment year 1991-92 in addition to the regular income. In the second search, in response to question No. 50, the director of the assessee-company submitted that the company had received total amount of Rs. 1,05,01,345 from perspective flat owners as on 30-11-1992. For the assessment year 1992-93 under appeal, the 'on money' amounted to Rs. 35,85,595. The explanation of the assessee that this sum of Rs. 35,57,500 has been declared twice in the gross receipt and has included in Rs. 1,04,44, 834 of the first search and also in Rs. 1,05,01,345 of the second search. The assessing officer, however, held that 'on money' receipt of Rs. 35,85,595 were received for different perspective flat owners and not from the same persons who paid Rs. 35,57,500. He, therefore, taxed Rs. 35,85,595 as unaccounted money received. The assessing officer also did not accept that any expenditure was incurred in cash with a view to earn 'on money' in the business. In appeal the case of the assessee was that the cash expenses incurred in respect of 'on money' has to be allowed to the assessee. The assessee stated that the substantial expenses had to be incurred in cash for business expenses such as cost of land, brokerage, interest payment, cost of control and secured material and other business related expenses. It was claimed on behalf of the assessee that the documents which were seized clearly indicated that apart from cash collection there were cash expenses also. It was further contended on behalf of the assessee that according to cardinal principle of taxation, only the real income is required to be taxed and accordingly the assessing officer has to consider and give weightage to the related business. expenses incidentally if it is required to be incurred out of such business receipts and in view of the fact that during search operations no cash was found, the cash expenses should have been allowed. Referring to the application of provisions of 40A(3) to expenses incurred out of cash business receipts, reliance is placed on decision of Hon'ble Supreme Court in the case of CIT v. S. C. Kothari (1971) 82 ITR 794 (SC) wherein incidental expenses have been of illegal business is to be deducted while taxing a profit from illegal activities. The learned counsel relied upon the decision of Tribunal Mumbai Bench in Pranav Construction Co. v. Asstt. CIT (1998) 96 Taxman (Mum) 323. Commissioner (Appeals) held that although his view in the matter for the impugned assessment order is identical with that of earlier assessment year. But in view of the decision of the Hon'ble Tribunal in ITA No. 1759/Bom/1995 dated 7-8-1995, in the assessee's own case wherein held that the entire amount of 'on money' received by the assessee could not be taxed in its hand and they have directed the assessing officer to take only 12 per cent of gross receipts as income of the assessee out of 'on money' and accordingly in view of the decision of the Tribunal (supra), the Commissioner (Appeals) allowed the contention of the assessee-company and assessing officer was directed accordingly. The revenue is in appeal before us against the order of the Commissioner (Appeals). In my considered view, there is no universal law that expenses have to be allowed out of 'on money' in such type of cases. In this type of case expenses can be allowed where there is evidence of expenses having been incurred with relation to the 'on money' received by the assessee. In this case the Tribunal in ITA No. 1759/Bom/95 dated 7-8-1995, have opined that the entire amount of on money' received by the assessee could not be taxed in its hands and they have directed the assessing officer to take only 12 per cent of gross receipts as income of the appellant out of 'on money' and this order of the Honble Tribunal has been followed by the Commissioner (Appeals) for the assessment year 1992-93 under appeal. Accordingly there seems to be no mistake on the part of the Commissioner (Appeals) in following order of the superior appellate authority for an earlier assessment year, no interference in his order is called for and accordingly the ground of the revenue is dismissed.
4. In the result the appeal of the revenue is dismissed.
ITA No. 9269/Bom/95This appeal has been preferred by the assessee. The ground of the assessee is as follows :
"(1) The Commissioner (Appeals) XXV, Bombay erred in rejecting 'The Project completion method' adopted by the appellant and followed regularly and consistently for computing the profits and accepted by the department in the past.
(2) The Commissioner (Appeals) XXV Bombay, erred, in facts and in law in upholding the action of assessing officer who rejected the book results of your appellant and estimated profits of Rs. 70,40,106 at 12 per cent on gross turnover of Rs. 5,86,67,554 pertaining to Project Natasha Enclave completed during the year at Pune as against actual profits of Rs. 35,89,659 being 6.12 per cent on the total project receipts of Rs. 5,86,67,554.
(3) The Commissioner (Appeals) XXV erred in facts and in law in directing the assessing officer to allow deduction on account of expenses of 12 per cent out of cash receipts amounting to Rs. 35,85,595 instead of directing the assessing officer to take only 12 per cent of gross cash receipts of Rs. 35,85,595 as income in accordance with Tribunal Bombay's order in your appellant's own case for assessment year 1991-92. Without prejudice that no income be taxed in assessment year 1992-93 as the project to which such receipt relate has not been completed during assessment year 1992-93 following the project completion method consistently followed by your appellant.
(4) The Commissioner (Appeals) XXV, Bombay, erred in facts and in law in rejecting the contention of your appellant to the effect that interest under section 234B of Income Tax Act, 1961, if at all leviable, be restricted upto the date of passing an intimation under section 143(1)(a) of the said Act.
Your appellant therefore prays :
(i) The method of accounting viz., 'project completion method' followed consistently and regularly and accepted by the department be accepted.
(ii) That actual profits of Rs. 35,89,659 derived as per books on the basis of project completion method be taxed instead of estimated profits of Rs. 70,40,106 made by the assessing officer and upheld by Commissioner (Appeals) XXV, Bombay.
(iii) That only 12 per cent of gross cash receipts i.e., 'on money' of Rs. 35,89,659 be taxed as income following Tribunal order in your appellant's own case in ITA No. 1759/Bom/1995 dated 7-8-1996, for assessment year 1991-92 without prejudice that no income be taxed during assessment year 1992-93 as submitted in the relevant ground of appeal.
(iv) Amendment made in section 234B of Income Tax Act, 1961, by Finance Act, 1995, by applied prospectively and accordingly interest under said section for assessment year 1992-93 be limited into the date of passing an intimation under section 143(1)(a) of the said Act."
(v) The appellant craves liberty to add, to amend, or alter any of the above grounds of appeal."
5. The main issue in this appeal is the action of the assessing officer in rejecting the results of the assessee and estimating profits of Rs. 70,40,106 at 12 per cent on gross turnover of Rs.5,86,67,554 pertaining to project "Natasha Enclave" completed during the year at Pune as against profit of Rs. 35,89,659 being 6.12 per cent on the total receipts of Rs. 5,86,67,554 declared by the assessee. Most of the facts of the case have been discussed in order supra in ITA No. 9595/Bom/1995 dated today. The assessing officer rejected trading results by holding that account books as not reliable on the plea that the seized material (seized at the time of search) shows that there are substantial amount of receipts which are not recorded in the books of accounts and also the arguments of the assessee that the substantial amount of 'on money' received were spent outside the books, clearly establishes that the assessee's books results are not reliable. Another reason advanced by the assessing officer for rejecting the accounts books of assessee is that during the course of assessment for the assessment years 1990-91 and 1991-92 vide letter dated 25-8-1990, Shri S.R. Marathe, director of the assessee-company had stated that the net profit on the gross receipts would be around 10 per cent. The assessing officer has observed that in the case of sister concern namely, Natasha Construction Co. which is in the same line of business, profits were shown at the rate of 12.12 per cent and this also shows that the rate of profit declared is not acceptable. Another reason for rejection of account books by the assessing officer is that even the auditors of the assessee-company are not convinced about reasonability of the profits disclosed by the assessee-company since the auditors of the assessee-company have shown their inability to comment on the unrecorded gross receipts and expenses on profits, cash in hand and tax provision by the assessee-company in respect of disclosures made by it. During the course of search, the computer sheet was seized and the 'on money' received by the assessee is proved on record and accordingly the accounts books maintained by the assessee cannot be relied upon and a rate of 12 per cent on the gross receipts was applied by the assessing officer. For adopting the rate of 12 per cent on the gross receipts, the assessing officer observed that during the assessment for the assessment years 1990-91 and 1991-92 profits were taken at the rate of 12 per cent of the gross receipts and the same has been confirmed in appeal by the learned Commissioner (Appeals) vide order dated 5-12-1994. The assessee's appeal with Commissioner (Appeals) remained unsuccessful and that no ground against it was taken in appeal to the Tribunal.
6. Before us, the learned counsel for the assessee argued that the facts of the earlier assessment year are not comparable with that of the relevant year for the following reasons :
(1) That this is the year when the projects launched by the assessee were completed and in the earlier years the projects were in progress. The assessee is following the project completion method.
(2) The auditors of the assessee-company have not passed any adverse comments/remarks against the assessee and have merely shown their inability to make any comments on the profits earned by the assessee. The accounts of the assessee are audited year after year.
(3) It is in this. year that the assessee was expected to hand over the government control flats at Pune at fixed rates and it was not so in the earlier years. The rates of the flats at Pune were approved by the Government of Maharashtra which has resulted in the lesser profit to the assessee-company. The assessee-company cannot be expected to earn the same rate of gross profit as prevailing in the earlier years.
(4) The unaccounted cash for the year is Rs. 35.85 lakhs approximately and the books turnover is of Rs. 5.86 crores and the rate applicable to Rs. 35.85 lakhs cannot be applied to book turnover of Rs. 5.86 crores.
7. The learned counsel for the assessee argued that in view of the above facts the rate applied to the earlier assessment year could not be applied to the year under appeal for the reason that the facts of the earlier assessment year are not comparable with that of the valuer year. He argued that the accounts books of the subsequent years have been accepted by the department. The learned counsel submitted that the assessing officer have overlooked fundamental fact that in Pune project about 20 per cent of the total areas was sold to government nominee over which the assessee had no control resulting into lower profitability. He submitted that there is no justification in adopting 12 per cent rate of profit and disregarding the book profits.
8. The learned Departmental Representative have relied upon the order of the Commissioner (Appeals) and the assessing officer. The learned Departmental Representative submitted that this year the book results have not been rejected merely on suspicion but have been rejected on the basis of some documents seized at the time of search. The learned Departmental Representative pointed out that at the time of search, the director of the assessee-company conceded the rate of profit at 10 per cent of the gross receipts. The learned Departmental Representative argued that there is no valid distinction between the facts of the year under appeal with that of the earlier year. The auditor of the assessee-company has shown their inability to make any comments on the profits earned by the assessee for the simple reason that they are not satisfied with the correctness of the account books of assessee. The 'on money' was detected at the time of search and the assessee has admitted the fact of 'on money' receipts from the buyers of the flats. The assessee has also admitted that the expenses have been made outside the books of accounts. The learned Departmental Representative argued that the rate of 12 per cent was applied in earlier assessment year 1990-91 and 1991-92 which has been confirmed in appeal by the Commissioner (Appeals) and no ground against the application of 12 per cent rate of profit was taken in appeal before the Tribunal.
9. I have given careful thoughts to the rival submissions. In my considered view, the accounts books of the assessee are liable to be rejected for the following reasons :
(I) As a result of two search operations under section 132 of the Income Tax Act, 1961 on 21-8-1990, and on 24-12-1992, a computer sheet was found, which gave details of 'on money' receipts and the assessee himself offered the same for taxation for the assessment year 1991-92 in addition to the regular income. During the second search, in response to question No. 50, the director of the assessee-company admitted that the company had received total amount of 'on money' Rs. 1,05,01,345 from prospective flat owners as on 31-11-1992. For the assessment year 1992-93 under appeal, the 'on money' amounted to Rs. 35,85,595 and accordingly the fact that 'on money' was received by the assessee is proved on record.
(II) The assessee has claimed that it had incurred expenses out of 'on money' which are not recorded in the books of accounts and accordingly it cannot be said that the books of accounts reflects the correct state of affairs of the assessee.
(III) The director of the assessee-company has conceded during the search that the normal rate of profit is 10 per cent on the gross receipts.
(IV) The auditor of the assessee-company have shown their inability to make any comments on the profits earned by the assessee, which shows that even the auditors was not satisfied about the correctness of the accounts of the assessee.
(V) The accounts books of the assessee for the earlier assessment year 1990-91 and 1991-92 were rejected by the assessing officer and a rate of 12 per cent on gross receipts was applied by the assessing officer which was confirmed in appeal by the Commissioner (Appeals) and in the appeal filed before the Tribunal for the earlier assessment years, no ground against the rate of 12 per cent applied by the revenue, was taken by the assessee.
(VI) In the case of the sister concern M/s Natasha Construction, the rate of 12.12 per cent of profit was declared, which is in the same line of business.
(VII) On unrecorded receipts, i.e., 'on money' a rate of 12 per cent is applied and there is no reason to apply a lesser rate of profit on recorded receipts. The rate has to be applied on whole of the receipts and not on part of it. In the case of the assessee for part of the receipts, books cannot be relied upon while rejecting the books of accounts of the assessee for the same assessment year, for the other part of the receipts.
(VIII) The total area of completed project by the assessee is 2,12,536 sq. ft. out of which only 16,800 sq. ft. was reserved for government nominees and accordingly it cannot be said that this small portion can affect the profitability of the entire project of the assessee.
10. The distinction sought to be drawn on behalf of the assessee with regard to the facts of the case of the assessee for the year under appeal with that of the facts of the earlier assessment years, wherein a rate of 12 per cent of profit was applied and upheld by rejecting the books of accounts, is also not sustainable. The assessee is following the project completion method and there is no dispute regarding the same. The auditors of the assessee-company have expressed their inability to make any comments on the profits earned by the assessee, which shows that they were not convinced about the correctness of the accounts maintained by the assessee or about reasonability of the profits disclosed by the assessee-company. The total area of government control flats at Pune at fixed rate was 16,800 sq. ft. only where the total area of completed project was 2,12,536 sq. ft. which cannot affect the profitability of the entire project of the assessee. The assessee was in appeal before the Tribunal for the earlier assessment year 1991-92 and the assessee choose not to agitate the issue of application of profit rate of 12 per cent before them. The only issue which they had agitated before Tribunal was regarding claim of expenses against estimate of income from 'on money' of Rs. 1,44,52,775. In this case as a result of search, a computer sheet was found, which gives details of 'on money' receipts from the buyers of the flats (which were not recorded in the books of accounts) and assessee admitted the fact of receipt of 'on money'. The assessee has claimed expenses out of 'on money', which are not recorded in the books of accounts. The fact of receipt of 'on money' which was substantial, is sufficient to hold that the assessee's books were not reliable. By no stretch of imagination it can be conceived that such books of accounts would reflect the correct trading results. In this view of the matter, I have no hesitation in holding that the account books of the assessee do not reflect the correct trading results and accordingly are liable to be rejected. No convincing reason has been advanced on behalf of the assessee for application of a lesser rate of profit on gross receipts and accordingly in my view the application of rate of 12 per cent on gross receipts by the assessing officer which was applied and upheld in appeal in the earlier assessment years 1990-91 and 1991-92 is justified and the action of the Commissioner (Appeals) in upholding that action of the assessing officer in applying the rate of 12 per cent on gross receipts is confirmed and ground of appeal of the assessee is rejected.
11. Regarding the charging of interest under section 234B, the same is of consequential effect only.
12. In the result, the appeal of the assessee is rejected.
REFERENCE UNDER Section 255(4) OF THE INCOME TAX ACT, 1961, 5th Aug., 1998 As in the above-mentioned appeal there is a difference of opinion between the JM and the AM on one point we are referring the following question to the President of the Tribunal for referring the same to a TM for his opinion :
"Whether on the facts and in the circumstances of the case, the book results shown by the assessee in accounted business should be accepted or a rate of 12 per cent should be applied both on accounted and unaccounted turnover of the assessee.
R. V. Easwar, J.M. (As a Third Member) :
6-5-1999 The following question has been referred to me under section 255(4) of the Income Tax Act :
"Whether, on the facts and in the circumstances of the case, the book results shown by the assessee in accounted business should be accepted or a rate of 12 per cent should be applied both on accounted and unaccounted turnover of the assessee."
2. The assessee is engaged in construction. In respect of the assessment year 1992-93, for the previous year ended on 31-3-1992, the assessee had declared profits in respect of transactions recorded in the books of account at Rs. 37,48,843. The assessing officer noted that there were two searches in the assessee's case under section 132(1) of the Act on 21-8-1990, and 24-12-1992, that in the course of the search the director of the assessee-company had stated that the assessee had received a total amount of Rs. 1,05,01,345 from prospective purchasers as on 30-11-1992, and that in the course of the first search a computer sheet showing on money receipts of Rs. 1,04,44,834 was found. He further found that the total on money receipt during the relevant previous year amounted to Rs. 35,85,595. He proposed to add the on money receipts as the income of the assessee. The assessee objected by saying that the amount has already been included in the on money receipt unearthed during the two searches. Nothing that the on money receipts of Rs. 35,85,595 has been received from different persons and not the same persons who paid monies earlier, the amount was brought to tax as unaccounted on money receipts. The claim of the assessee that expenses made in cash should be deducted from the aforesaid amount of on money receipts was rejected.
3. As regards the transactions which were recorded in the assessee's books of account, in respect of which the assessee had shown net profit of Rs. 37,48,843, the assessing officer was of the view that the same cannot be accepted. According to him, the very fact that the seized material shows that there were substantial unrecorded receipts clearly established the fact that the assessee's book results are not reliable. He further observed that the percentage of profit as per the books of account amounted only to 6.72 per cent as against 10 per cent admitted by the director of the assessee-company in the course of the assessment proceedings for the assessment years 1990-91 and 1991-92. He further, noted that in the case of a sister-concern by name Natasha Construction (P) Ltd., which was engaged in the same business, the rate of profit was 12 per cent. Further the auditors of the assessee-company were unable to comment on the unrecorded gross receipts and expenses on the profits, cash in hand, tax provision, etc., which, according to the assessing officer, showed that the auditors were not convinced about the reasonableness of the profits declared by the assessee-company. He further found that the estimate of the profits at 12 per cent of the gross receipts for the assessment years 1990-91 and 1991-92 had been confirmed in appeal by the Commissioner (Appeals). For these reasons, he concluded as follows :
"(6) In view of the reasons mentioned above, I see no reason in not adopting the rate at 12 per cent of the gross receipts in respect of the Pune project and bring the same to tax. This is being done after rejecting the books of accounts under section 145 of the Income Tax Act, in light of the unaccounted receipts and expenses recorded in a separate set of accounts which were found in the course of search. Therefore, the gross profits has taken at Rs. 70,40,106 (being 12 per cent of 5,86,67,554). Credit is being given for the amount already taxed in the assessment years 1990-91 and 1991-92."
4. The assessee appealed to the Commissioner (Appeals). The Commissioner (Appeals) directed the assessing officer to allow certain expenses against the on money received by the assessee which were not recorded in the books of account and adopt 12 per cent of the on money as the assessee's income. As regards the recorded transactions, the Commissioner (Appeals) rejected the assessee's contention and upheld the action of the assessing officer in estimating the profits at Rs. 70,40,106 at the rate of 12 per cent on the gloss turnover as against the actual profits of Rs. 37,48,843 declared by the assessee at the rate of 6.72 per cent on the gross turnover. In other words, so far as the recorded transactions are concerned, the action of the assessing officer was upheld.
5. Both the revenue and the assessee filed appeals before the Tribunal. So far as the appeal by the revenue is concerned, both the Members of the Tribunal were agreed that the Commissioner (Appeals) was justified in directing the assessing officer to allow expenses against the on money receipts and in directing the assessing officer to tax only 12 per cent of the money receipt as income. There is no difference of opinion so far as unrecorded transactions are concerned.
6. However, as regards the recorded transactions, the learned AM accepted the assessee's contention that in respect of the recorded transactions the book results have to be accepted in toto and no estimate of the profit at 12 per cent of the recorded turnover could be made. The learned JM however agreed with the Income Tax Authorities and held that they were justified in estimating the profits in respect of the recorded transactions at Rs. 70,40,106.
7. The Members having differed in their conclusion in respect of the assessee's appeal, the difference of opinion, formulated by the question extracted by me in the beginning of this order, has been referred to me by the Hon'ble President for decision.
8. The argument of Mr. Trivedi, the learned counsel for the assessee, ran like this. The audit report on which reliance was placed by the Income Tax Authorities, has given a clean chit for the recorded transactions and the auditors have not made any comment in respect of the same. Their comment in para. 2 of their report related only to the unrecorded transactions and, therefore, no reliance can be placed on the report to justify any addition made in respect of the recorded transactions. He pointed out further that in respect of the unrecorded receipts, both for the assessment years, 1991-92 and 1992-93, the assessee has no grievance against the adoption of 12 per cent thereof as profit. The dispute relates only to profits in respect of recorded transactions. Whereas according to the assessee the declaration of the profit at 6.72 per cent of the turnover was fair and reasonable, according to the assessing officer the books cannot be relied upon and have to be rejected under section 145 of the Act in view of the fact that there was certain unaccounted receipts and expenses recorded in a separate set of accounts which were found in the course of the search. According to Mr. Trivedi, since a separate set of accounts was maintained in respect of the unrecorded transactions perhaps the assessing officer was justified in estimating the profits therefrom by rejecting them, whereas he is not so justified in refusing to accept the results reflected by the books which were meant for the Income Tax Authorities. According to him, the question is whether the same percentage of profits should be applied both in respect of unrecorded transactions as well as recorded transactions. He pointed out in this connection that the provisions of section 145(2) have not been specifically invoked by the assessing officer, that there is only a general reference to section 145 of the Act, that the assessment itself has not been made under section 144 of the Act but has been made admittedly under section 143(3) and further that at any rate the assessing officer has not commented on the correctness of the recorded transactions, nor have the auditors made any adverse comments in respect of such transactions. Mr. Trivedi also submitted that all the eight reasons given by the JM in para 9 of his order in support of his conclusion that the Income Tax Authorities were justified in rejecting the book results in respect of the recorded transactions and in resorting to an estimate of the profits even in respect of such transactions, were irrelevant and had no bearing on the recorded transactions of the assessee. He further submitted that if even the profits in respect of recorded transactions are to be estimated and the book results are not to be accepted, there is no purpose in maintaining accounts. In this connection he contended that the stigma attached to the assessee for indulging in unrecorded transactions should not be permitted to affect the attitude towards even the recorded transactions.
9. In support of his contentions, Mr. Trivedi drew my attention to the paragraph entitled "Low gross profit, whether book result can be rejected", at page 3504 of the Commentary of Chaturvedi and Pithisaria, Fourth Edition, Vol. 3. In addition, he cited the following judgments and orders :
(1) Himachal Shoddy Mills (P) Ltd. v. Dy. CIT (1994) 50 TTJ (Del-Trib) 398;
(2) Chandra Timber Traders v. Dy. CIT (1996) 54 TTJ (De-Trib) 544;
(3) Nishant Housing Development v. Asstt. CIT (1995) 52 lTD 103 (Pat-Trib);
(4) Asstt. CIT v. Mewar Polytex (P) Ltd. (1995) 51 TTJ (JP-Trib) 698;
(5) Aluminium Industries (P) Ltd. v. CIT (1995) 80 Taxman 184 (Gau);
(6) Jagdish Oil Mills v. ITO (1995) 52 TTJ (Ind-Trib) 102; and (7) R.J. Trivedi (HUF) v. CIT (1983) 144 ITR 877 (MP).
10. Mr. Raj Kumar, the learned Senior Departmental Representative, submitted that the assessee has been searched twice and in the course of these searches materials had been found indicating on money transactions. According to him, if part of the transactions are not recorded by the assessee in his books of account, the books did not have any sanctity and the assessing officer is not bound to accept the same while completing the assessment. He pointed out that omission of a part of the transaction is itself a major defect which would fully justify the rejection of the book results. In this connection he drew my attention to para 5.2 of the assessment order wherein the assessing officer has brought out that substantial amount of receipts has not been recorded in the books of account. As regards the contention of Mr. Trivedi that the assessing officer had not specifically invoked the provisions of sub-section (2) of section 145, Mr. Raj Kumar submitted that the very fact that the assessing officer has mentioned the reasons for rejecting the book results clearly implies that he had in mind the specific provisions of section 145(2) and merely because the sub-section was not specifically noted in the assessment order, it does not mean that the rejection of the books were unjustified. As regards the applicability of section 145(2), he cited the judgment of the Bombay High Court in the case of Bastiram Naraindas Maheshwari v. CIT (1994) 210 ITR 438 (Bom). For these reasons he submitted, placing strong reliance on the order of the learned JM, that the action of the assessing officer must be upheld.
11. In reply, Mr. Trivedi submitted that if the assessing officer had in mind the provisions of sub-section (2) of section 145, he would have also invoked the provisions of section 144 specifically and not having done that, the argument of the learned Departmental Representative that the book results were rejected only by invoking section 145(2) cannot be accepted. He contended that the assessing officer should have made a composite assessment by applying a percentage on the aggregate of the unrecorded and recorded receipts but not having done so and having himself segregated the unrecorded transactions from the recorded transactions, it was not open to him to reject the results disclosed in the books in respect of the recorded transactions. My attention in this connection was drawn to page 3457 of Chaturvedi and Pithisaria's book, Vol. 3, Fourth Edition. Mr. Trivedi finally pointed out that the assessing officer had not given any show-cause notice as to why the assessment cannot be made in the manner provided under section 144 as postulated by section 145(2) and this vitiated the assessment.
12. I have carefully considered each one of the rival contentions advanced before me. The short question which arises, as formulated by the question referred to me, is whether the book results shown by the assessee in respect of the business whose transactions are recorded should be accepted or a rate of 12 per cent should be applied on the same, as was applied in the case of the unaccounted transactions. Before I examine this point of difference between the learned JM and the learned AM, it is necessary to see whether the assessing officer has invoked the provisions of section 145(2) at all. It is not in dispute that there were two sets of transactions with regard to the business of the assessee. In one, the transactions were not disclosed to the Income Tax Department, though some record was maintained by the assessee for its own purposes. The other was represented by transactions which were both recorded as well as disclosed to the Income Tax Department. In respect of the former, the assessing officer had brought the entire unrecorded receipts of Rs. 35,85,595 to tax. On appeal, the Commissioner (Appeals) had held that certain expenses have to be allowed against the same and, therefore, only 12 per cent thereof can be assessed as income. The department's appeal on this point has been rejected by the Tribunal and on this issue there is no difference. So far as the transactions that are recorded and disclosed to the department are concerned, the turnover amounted to Rs. 5,86,67,554. The net profit as per the books came to Rs. 37,48,843. This worked out to 6.72 per cent of the turnover. The assessing officer was of the view that the very fact that the seized material disclosed that there were substantial amount of receipts not recorded in the books of account and that substantial amount of on money received was spent outside the books of account clearly established that the book results were not reliable. These observations are found at para 5.2 of the assessment order. The assessing officer has also noted that as per the statement of the director in the course of the assessment proceedings for the assessment year 1990-91 and 1991-92, the net profit in the business was around 10 per cent. He also has noted that the assessee's sister-concern which is in the same line of business has shown a net profit of 12 per cent. These observations are found at para. 5.3 of the assessment order. In para 5.4, the assessing officer has taken note of the inability of the auditors to comment on the unrecorded gross receipts and expenses on the profits, cash in hand and tax provision. According to the assessing officer the effect of this is that the profits disclosed by the company are not reasonable. After so observing, in para 6 of the assessment order he has rejected the books of accounts under section 145 of the Act. He has not mentioned the specific sub-section under which he has rejected the books of account. However, reading the entire para 6 as a whole, it is clear that he has rejected the books only under sub-section (2) of section 145. This is strengthened by the fact that in para 6 itself the assessing officer has referred to the unaccounted receipts and expenses recorded in a separate set of accounts which were found in the course of the search. Therefore, in my opinion, the assessing officer has rejected the books only under sub-section (2) of section 145 and that too only because of the fact that a part of the receipts and expenses were kept separately without being disclosed to the Income Tax Authorities. In my view, the fact that the rate of profit declared by the assessee was much less at 6.72 per cent as compared to 10 per cent as per the director's statement and 12 per cent as per the comparable case of Natasha Construction (P) Ltd are only supporting facts for rejecting the book results. Even the report of the auditors referred to by the assessing officer is only an additional reason for rejecting the book results. In my opinion, reading the entire paras 5 and 6 of the assessment together, it is clear that the main reason for rejecting the books under section 145(2) was that a part of the receipts and expenses was kept away from the knowledge of the Income Tax Authorities.
13. At any rate, section 145(2) authorises the assessing officer to reject the book results if he is not satisfied about the correctness or the completeness of the accounts of the assessee. In the present case it cannot be disputed that a part of the receipts and expenses, though recorded in a separate set of accounts, were not disclosed to the Income Tax Authorities and therefore, it was perfectly open to the assessing officer to come to the conclusion that the accounts of the assessee were not complete. If they are not complete, they cannot be correct. Therefore, in my opinion, the assessing officer was perfectly justified in invoking the provisions of section 145(2), to reject the books of accounts for this reason alone.
14. I am unable to accept the contention of the learned counsel for the assessee that the provisions of section 145(2) were not invoked. As I have already pointed out, the observations in para 5.2 and para. 6 of the assessment order, read together, clearly show that the provisions of section 145 were invoked only because a part of the receipts and payments were kept away from the knowledge of the Income Tax Authorities. Though the provisions of section 145(2) were not specifically referred to in the assessment order but it is clear that the power to reject the book results under the circumstances is referable only to sub-section (2) of section 145 and merely because the precise sub-section has not been mentioned in the assessment order, it cannot be stated that the assessing officer had not invoked the sub-section.
15. I am not also inclined to accept the contention of the learned counsel for the assessee that the assessing officer having himself segregated the accounted receipts from the unaccounted receipts, was not justified in rejecting the results disclosed by the accounted part of the business. In this connection, I see much force in the contention of the learned Senior Departmental Representative to the effect that if a part of the transactions are kept away from the knowledge of the Income Tax Authorities, the books of accounts lose their sanctity and that the omission of a part of the transactions is itself a serious defect, justifying the assessing officer's conclusion that the accounts are not correct or complete. The resort to section 145(2) in that case would be fully justified. I also do not see merit in the contention of the assessee that so far as the disclosed portion of the business is concerned, the assessing officer has no power to reject the same by invoking section 145 of the Act. The contention, if accepted, would render the provisions of section 145(2) otiose. In every case where a part of the transactions is kept away from the knowledge of the Income Tax Authorities, it would be open to the assessee to say that the part of the transactions which have been disclosed to the department are correct and complete and, therefore, they should be accepted. Such a contention would obviously render the provisions of section 145(2) unworkable. By completeness of accounts, what is meant is that no part of the transactions relating to the business is kept away from the books of accounts disclosed to the Income Tax Authorities. There has to be a faithful and true recording of all the transactions of the business in the books of accounts which are meant for the scrutiny of the Income Tax Authorities. It is no doubt true that any insignificant or immaterial omission may not justify the resort to section 145(2) but that is not the position in the case before me. In the present case, it has been clearly found that a substantial amount of Rs. 35,85,595 has been kept away from the books of accounts produced before the Income Tax Authorities. This is a substantial omission and, therefore, the assessing officer cannot be faulted if he is not satisfied about the correctness or completeness of the accounts of the assessee. The mere fact that the assessing officer has himself segregated the transactions which were disclosed to the department and those which were not disclosed does not help the assessee in its contention that the provisions of section 145(2) are not attracted. Such a segregation has been made by the assessing officer only because the assessee itself has resorted to such segregation and from that fact it cannot be stated that the assessing officer cannot impeach the correctness or completeness of the transactions that were disclosed to the Income Tax Authorities. Undoubtedly a part of the transactions relating to the business was kept away from the books of accounts produced before the Income Tax Authorities and this is sufficient, in my opinion, to justify the resort to section 145(2).
16. The other reasons given by the assessing officer viz., the comments of the auditors, the comparable case of Natasha Construction (P) Ltd. and the statement made by the assessee's director and independent reasons, in my view. These reasons may or may not justify the resort to section 145(2) but that question need not detain me because the very fact that a part of the transactions was omitted from the books of accounts produced before the Income Tax Authorities ipso facto would justify the resort to section 145(2) of the Act.
17. The learned counsel for the assessee had cited several authorities in support of his contentions. I have looked into each one of them. In the case of R.J. Trivedi HUF (supra) the facts were different. There the account books were rejected by the Tribunal for want of quantitative tally and evidence as to payment to sub-contractors. The assessee had maintained accounts properly in accordance with Mineral Concession Rules and were checked by Governmental authorities. Annual and monthly returns were submitted in accordance with the coal mine regulations. The coal produced was despatched by rail which was a check against manipulation of accounts. The payment was made to the subcontractor, at a certain rate per ton of coal. The High Court held that on these facts the Tribunal's finding that the account books could be rejected was vitiated because it failed to consider certain relevant facts and circumstances indicated above. This is not the position in the case before me. Here admittedly a part of the transactions relating to the assessee's construction business has been kept outside the knowledge of the Income Tax Authorities and did not find a place in the books of accounts produced before them. This decision is, therefore, not applicable.
18. The judgment of the Gauhati High Court in the case of Aluminimum Industries (P) Ltd. (supra) it also distinguishable because in that case the Tribunal upheld the resort to section 145(2) on the only ground that the gross profit was low, without giving any specific finding that the accounts were not correct or complete. The facts before me are quite different and here a part of the transactions have been kept outside the books of accounts and thereby the books are open to the charge of being incomplete or incorrect. This judgment is also not applicable to the assessee's case.
19. The orders of the Tribunal on which reliance was placed on behalf of the assessee were also rendered on different facts. In (1994) 50 TTJ 398 (Del) (supra), no defects had been pointed out in the books of accounts so as to apply the provisions of section 145(1). The Tribunal, therefore, held that the gross profit rate disclosed by the assessee should be accepted. There are two differences between the facts of this case and the facts of the case before me. The first is that in that case section 145(1), and not section 143(2), was considered. Secondly, no defects had been pointed out in the account books. In the case before me, however, a major defect has been pointed out in the sense that a part of the receipts have been kept outside the books of accounts.
20. In (1996) 54 TTJ (Del) 544 (supra), the Tribunal found that the assessing officer did not point out any specific defect in the maintenance of the books and no instances were given to prove the allegation that some of the entries recorded in the seized documents were not entered in the regular books of accounts. As already noted, in the present case it cannot be disputed, nor was it sought to be disputed, that a part of the receipts were kept outside the regular books of accounts. Therefore, this order is also not helpful to the assessee.
21. In (1995) 52 ITD 103 (Pat) (supra) the Tribunal held that without rejecting the regularly maintained accounts either under section 145(1) or under section 145(2), no additions could be made on estimate basis simply by rejecting the cost of construction of certain buildings. It may be noticed that in the case before me, the assessing officer has given a specific reason for rejecting the books of accounts under section 145(2), viz., that some of the transactions relating to the business have not been entered in the regular books of the assessee. Since the facts are distinguishable, no reliance can be placed on this order.
22. In (1995) 51 TTR (Jp-Trib) 698 (supra), mere low gross profit rate by itself was held not a ground at all for rejection of books. In the present case though the assessing officer has referred to the gross profit rate being low, the major reason for rejecting the books under section 145(2) is the omission of some receipts from the regular books of accounts produced before the assessing officer. Therefore, this order is not of much assistance to the assessee.
23. In (1995) 52 TTJ (Jp-Trib) 102 no defects had been found by the assessing officer in the account books and it was held that mere low rate of gross profit cannot justify the wholesale rejection of the books. As would be evident, this order is also not helpful to the assessee in the present case.
24. In Prahlad Das Hari Kishan v. Asstt. CIT (1998) 60 TTJ (Ind) 27, another order of the Indore Bench of the Tribunal cited before me the facts are similar to the facts in (1995) 51 TTJ (JP) 698 (supra), and therefore, the order does not assist the assessee's case.
25. Thus none of the judgments or orders cited on behalf of the assessee advances its case.
26. In the course of the arguments before me, the learned counsel for the assessee submitted that even if it is assumed that the assessing officer had resorted to section 145(2) of the Act, still the rejection of the books cannot be upheld because he had not made the assessment under section 144 as contemplated by section 145(2). He also submitted that if the assessing officer were to complete the assessment under section 144 read with section 145(2), he should have given an opportunity to the assessee as contemplated by the proviso to section 144(1). First of all this question is being raised before me for the first time. There is no discussion on this aspect of the matter in the orders of the Members and I have not had the benefit of their views in this matter. The question referred to me does not comprehend this aspect of the matter, namely, as to whether having invoked the provisions of section 145(2), it is incumbent on the part of the assessing officer to give an opportunity to the assessee of showing cause as to why the assessment should not be completed to the best of his judgment according to the first proviso to sub-section (1) of section 144. This proviso has been inserted with effect from 1-4-1989. Since this is a matter which has been raised before me for the first time, I am afraid I have no jurisdiction to examine and adjudicate upon the same.
27. I have also gone through the Commentary of Chaturvedi and Pithisaria (Fourth Edition), Vol. 3, per page 3457 and 3504, on which reliance was placed on behalf of the assessee. At page 3504 it has been said that mere low rate of gross profit does not justify rejection of the books. I have already held that the reason for rejecting the books in the present case is the omission of a substantial part of the receipts from the books of accounts. Therefore, the observations at page 3504 of the authors do not advance the assessee's case. As regards the observations of the authors at page 3457, under section 144(1) relating to opportunity of being heard, I have already held that this point cannot be canvassed before me and I have no jurisdiction to entertain the same.
28. Arguments were then advanced on behalf of the assessee to the effect that the profit of 6.72 per cent declared by the assessee is reasonable having regard to the fact that in the Pune project (Natasha Enclave) the assessee had to reserve 16,800 sq. ft. for government nominees to be sold to them at a very low rate, which brought down the rate of profit. In this connection the learned counsel referred also to a letter written by the assessee to the assessing officer. The contention was that since the profit rate was reasonable, the books cannot be rejected. As against this, the learned Senior Departmental Representative had submitted that the profit-rate of 12 per cent is very reasonable since in the assessment year 1991-92 the same percentage was accepted by the assessee as reasonable. In reply, the learned counsel for the assessee had submitted that in view of the method followed by the assessee, the acceptance of 12 per cent in the earlier year even in respect of recorded transactions, was not very relevant.
29. I have pondered over the question as to whether it is within my "diction to examine whether the percentage adopted by the Income Tax Authorities is fair and reasonable. After considering the matter, I have reached the conclusion that I have no jurisdiction to do so. The question proposed leaves only two options to me. The first is to hold that the book results shown by the assessee in the accounted business should be accepted. I have not exercised this option. I have held that the book results cannot be accepted. The only other option left to me, by the question formulating the difference between the two learned Members, is whether the rate of 12 per cent should be applied both on accounted and unaccounted turnover of the assessee. The question does not permit me to examine whether the rate of 12 per cent is fair and reasonable : Either I accept the book results shown by the assessee in the accounted business or I hold that the rate of 12 per cent should be applied both on accounted and unaccounted turnover of the assessee. Since I have not accepted the book results, I have to necessarily hold that the rate of 12 per cent should be applied both on accounted and unaccounted turnover of the assessee. Further no arguments appear to have been advanced before the learned Member as to what would be the reasonable percentage of profits, assuming that the book results cannot be accepted. The case would appear to have proceeded on the basis that either the book results are accepted or a rate of 12 per cent is adopted as the profits from the accounted business. Therefore, I am afraid that I am precluded from examining the question as to what would be the reasonable percentage of profit in respect of the accounted business.
30. I, therefore, agree with the order proposed by the learned J.M.
31. The matter will now go before the Bench for passing orders in conformity with the majority opinion.