Income Tax Appeal No. 431 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 431 of 2006 Date of decision: 9.5.2011 Commissioner of Income Tax Bathinda --- Appellant Versus Inderjit Mehta --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Ms. Savita Saxsena, Standing Counsel for 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 the order dated 13.1.2006, passed by the Income Tax Appellate Tribunal Amritsar 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 allowable against the receipts which have been received after the assessee ceased to be in the business? Income Tax Appeal No. 431 of 2006 2 (ii) Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in allowing the relief by ignoring the provisions of Section 176(3A) of the Income Tax Act, 1961?” 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that at the relevant time the assessee was a contractor. On 25.10.2000 he filed return for the assessment year 2000-01 declaring an income of Rs. 16,70,780/-. The return was processed under Section 143(1) of the Act on 24.11.2000 and was subsequently selected for scrutiny. The assessee had received Rs. 34,81,182/- on account of arbitration award in respect of contract agreement No. E/CHZ-6/88-89 with Garrison Engineer, Hisar Cantt. whereas Rs.31,83,944/- as MES receipts had been shown in the profit and loss account. The assessee had claimed that Rs. 2,75,000/- related to contract agreement No. 6 and Rs. 22,238/- to contract agreement No.31. Both the amounts had been shown as work in progress in the profit and loss account for the assessment year 1991-92. The assessment under Section 143(3) was completed at an income of Rs.36,69,130/- and the assessing officer made certain additions and disallowances vide order dated 26.3.2003. The CIT(A) granted partial relief to the assessee in the appeal filed, whereby the disallowance of expenses of labour, wages and material amounting 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 as work in progress shown in the profit and loss account in the assessment year 1991-92 relating to contract agreement No.6 and Rs. 25,000/- on account of standard deduction were allowed, vide Income Tax Appeal No. 431 of 2006 3 order dated 11.7.2003. The CIT(A) while accepting the plea of the assessee had concluded that the assessee was justified in excluding Rs. 2,75,000/- from the award amount of Rs. 34,81,182/- as the same had been shown as work in progress against contract No.6 in the profit and loss account relating to the assessment year 1991-92. 4. The Revenue carried appeal before the Tribunal. The Tribunal 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 and have perused the record. 6. Learned counsel for the appellant-revenue submitted that the entire award amount of Rs. 34,81,182/- received by the assessee instead of Rs. 31,83,944/- shown by the assessee during the current assessment year against the contract, execution of which was completed on 12.1.1990, was exigible to tax in the year of receipt thereof even if the business had been discontinued in any year. It was also argued that the CIT(A) and the Tribunal were not right in allowing deduction of Rs. 2,75,000/- from the receipt of award money of Rs. 34,81,182/- on account of receivable amounts and the awarded money did not pertain to the same contract. The arbitration award also did not contain any reference as to whether the receivable amount had been taken into account while determining the amount of compensation. The assessee had failed to produce any evidence to substantiate his claim. It was urged that the CIT(A) and the Tribunal while reversing the finding of the assessing officer in this regard had mentioned in the order that the documents had been examined but it was essential for the appellate authority to refer to Income Tax Appeal No. 431 of 2006 4 the details of those documents to record any finding in favour of the assessee. According to the learned counsel, sub-section 3A of Section 176 of the Act was over-looked by the CIT(A) and the Tribunal 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: “176. (1 to 3) ….. …. …. (3A) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance.” 8. The legislature by virtue of enacting this sub-section has incorporated a legal fiction whereby the sum received after the discontinuance of business has been treated as deemed income of the recipient. A plain reading of the aforesaid provision clearly indicates that where any business is discontinued in any year and any sum is received thereafter, it shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt. However, the amount so received is charged to tax, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. The CIT(A) and the Tribunal while accepting the plea of the assessee that Rs. 2,75,000/- was credited as work-in-progress Income Tax Appeal No. 431 of 2006 5 in assessment year 1991-92 relating to pending dues of contract No.6 has only mentioned that the documents of the assessee had been examined without reference to any particular document. The appellate authority was required to specify the details of the documents and the material relied upon in the order to upset the findings of the assessing officer. 9. In view of the above, we after setting aside the findings of the CIT(A) and the Tribunal on this issue, remand the case with a direction to the CIT(A) to decide the same in accordance with law. 10. The appeal stands disposed of. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) May 9, 2011 ACTING CHIEF JUSTICE *rkmalik*