M/S.VEDICATTU ENGINEERING COMPANY vs. THE COMMR. OF INCOME TAX, ALAPPUZHA

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ITA/185/2000HC KeralaKLHC01015266200021 January 2008Bench: HONOURABLE MR.JUSTICE T.R.RAMACHANDRAN NAIR,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Commissioner was justified in invoking powers under Section 263 of the Income Tax Act. The court found that the assessee's contention that the order was not prejudicial to the revenue was not acceptable. The reasoning was that if 90% of expenses were allowed in the computation of income from the original contract, then a further claim of 90% against the arbitration award amount was not tenable. The court observed that if the Commissioner had not exercised revisional power, it would have resulted in a loss of revenue. The issue of determining additional income from the arbitration award was left open by the Commissioner, allowing the assessee to contest it on merits. Therefore, the appeal was dismissed.

What were the facts?

The assessee, M/s. Vedicattu Engineering Company, a civil contractor, is in appeal before the High Court against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had upheld the Commissioner of Income Tax's suo motu revisional proceedings under Section 263 of the Income Tax Act. The assessee had treated 10% of gross receipts from a contract as income and 90% as deduction. Similarly, for an arbitration award received, the assessee returned 10% of the award amount as income. The Assessing Officer had accepted this, but the Commissioner, invoking Section 263, found the order prejudicial to the revenue and remanded the matter for recomputation of income.

What were the issues?

1. Whether the Commissioner of Income Tax was justified in invoking suo motu revisional powers under Section 263 of the Income Tax Act, 1961, holding that the Assessing Officer's order was prejudicial to the interest of the revenue? Assessee's contention: The assessee argued that the Commissioner's order was not prejudicial to the revenue. The judgment does not record specific arguments from the assessee regarding the validity of Section 263 proceedings or the prejudicial nature of the order. Revenue's contention: The revenue contended that the Assessing Officer's order was indeed prejudicial to the interest of the revenue. The judgment records the revenue's implicit argument that allowing 90% deduction on the original contract and then allowing a similar claim against the arbitration award was not tenable and would result in a loss of revenue.

Which sections of the Income-tax Act were involved?

Section 263

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR MONDAY, THE 21ST JANUARY 2008 / 1ST MAGHA 1929 ITA.No. 185 of 2000() --------------------- ITA.157/COCH/1997 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT:APPELLANT: ----------------- M/S. VEDICATTU ENGINEERING COMPANY,N MUTTAR, ALAPPUZHA BY ADV. SRI.C.KOCHUNNY NAIR SRI.DALE P.KURIEN RESPONDENT: RESPONDENT: ------------- THE COMMISSIONER OF INCOME TAX, WARD I, ALAPPUZHA BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 21/01/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C .N. RAMACHANDRAN NAIR & T.R. RAMACHANDRAN NAIR, JJ. -------------------------------------------- I.T.A. No. 185 OF 2000 -------------------------------------------- Dated this the 21st day of January, 2008 JUDGMENT C. N. Ramachandran Nair,J. The question raised in this appeal filed by the assessee is against the validity of suo motu revisional proceedings completed by the Commissioner under Section 263 of the I.T. Act and upheld by the Tribunal. The assessee was admittedly a contractor engaged in civil work. The receipt pertaining to income from contract was estimated at 10% of the gross receipt and balance 90% was allowed as deduction. The assessee had raised dispute in Arbitration, got Award and got it confirmed by the sub court. Following the estimation of income made in respect of original contract receipt, the assessee returned 10% of the arbitration award amount towards income. Even though the assessing officer accepted it, the Commissioner reversed the order under Section 263 of the I.T. Act and remanded the matter for recomputation of income. On further appeal, the Tribunal confirmed the order of the Commissioner, against which this appeal is filed.

2 2. We do not find any grievance for the assessee in as much as assessment was only set aside and remanded by the Commissioner under Section 263 wherein it is open to the assessee to contest the estimation of income. So far as validity of Section 263 proceedings is concerned, we are unable to accept the assessee's contention that the order passed by the Officer is not prejudicial to the interest of the revenue. If 90% of the expenses was allowed in the computation of income from contract, then the further claim of 90% against the arbitration award amount is not tenable. If the Commissioner has not exercised suo motu revisional power, then the consequence would have been loss of revenue and so much so Commissioner was justified in invoking powers under Section 263. Since the issue of determination of addl. income from the arbitration award is left open, this appeal is dismissed leaving freedom to the assessee to contest the matter on merits. (C.N.RAMACHANDRAN NAIR) Judge. (T.R.RAMACHANDRAN NAIR)

3 Judge. kk

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