TMI Blog2010 (12) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... ial is required on which his estimate can be founded - even assuming for the sake of argument that the assessee's profit and loss account was rightly discarded by the Assessing Officer, it is for this Court to examine whether a rational basis was adopted by the Assessing Officer. The answer is our opinion must be an emphatic no. – CIT(A) and ITAT has corrected set aside the “best judgment assessment” on the ground that AO had "not brought on record any comparable case wherein the net profit declared by a tax payer in the similar business was higher than the one declared by the assessee. - the profit margins of a tax payer as declared by him, could be varied and disturbed only if the profit margins in the case of other assesses engaged in similar business are higher. - 216/2006 - - - Dated:- 24-12-2010 - Through: Mr. M.P. Sharma, Advocate .....Respondent Through: Mr. Ashish Mohan, Advocate MR. JUSTICE A.K. SIKRI, MS. JUSTICE REVA KHETRAPAL REVA KHETRAPAL, J. 1. This is an appeal filed by the Department relating to the assessment year 1994-95 and 1998-99 in which the following substantial questions of law arise : "(a) Whether, on the facts and in the circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring taxable income of ₹ 6,60,883/-. In the said return, trading results were declared as audited on 01.10.1996, however no audit report under Section 44AB was annexed with the said return. The Assessing Officer took the view that such a return of income was defective and since the return was neither filed within the time allowed under Section 139(1) nor under Section 148 of the Act, no sanctity could be attached to such a return of income. 4. The assessee's case before the A.O. was that it was prevented due to reasons beyond its control in not filing the returns within the stipulated time. It was stated that the accountancy, legal and income tax work of the group companies of the assessee was being handled by the accountants M/s A.K. Dua. All the records of the assessee and its group companies were in the custody of the said accountants, who, for their own pecuniary benefit, misled the assessee in making VDIS declarations for the years 1995-96, 1996-97 and 1997-98, even though the appellant had incurred losses in all these years. Later, a dispute arose between the assessee and its accountants, which assumed such proportions that a criminal complaint had to be filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively. Taking average of the said three years, the average profit percentage works out to 2.75% (2.5 + 3.38 + 2.4/3). By applying the same for the ATY 1994-95 also, the taxable income for the above said assessment year works out at ₹ 17,28,389/- (Sales * 2.75%) (₹ 62850494 * 2.75%). Thus, the income of the assessee is adopted at ₹ 17,28,389/- as against the declared income of ₹ 6,60,883/- on the basis of material on record and circumstances of the case discussed above to the best of my judgment as per the provisions of section 144 of the Act." 6. Before the CIT(A), the delay in filing the FIR against the accountants was sought to be explained by the reasoning that had the assessee shown any haste in filing the FIR the accountants would have removed the records from their premises and that would have caused irreparable loss to the assessee. It was submitted that during the intermittent period the assessee was trying by all possible means to retrieve as much record as possible from the custody of the accountants in a discrete manner. The voluminous seizure made by the police as a result of the search at the accountants' premises, it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the police raids were much later developments. These were not "the only dominating circumstances during the relevant period, preventing the appellant from filing its return of income as required by law for the assessment year 1994-95." That being so, it could not be said that the assessee was prevented by a reasonable cause from filing the required return in time. However, the best judgment assessment framed by the Assessing Officer should have been based on some material facts rather than on the arbitrary basis of the average percentage of the net taxable income for the three subsequent years declared by the assessee under the VDIS. The CIT(A) consequently held that the net profit as declared by the assessee were not required to be disturbed. It observed as under: "The Assessing Officer has not disputed that the appellant has filed a copy of the Balance Sheet and Profit Loss Accounts alongwith the return of income. The Balance Sheet has been audited by the Chartered Accounts (sic. Accountants) and provides various details in its annexure. The audited accounts show a profit of ₹ 6,60,883/-. The Assessing Officer has not adopted the same for his calculation. It is a settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal whereby the appeals of the department were dismissed by holding that no deduction u/s 80HHC were allowed by the CIT(A). The explanation given by the assessee has been accepted by the ld. CIT(A) and the order of CIT(A) on merit has not been objected by the department before the Tribunal. The CIT(A) has taken into consideration this order of the CIT(A) and then came to conclusion that audited account of the assessee were correct, therefore, AO was wrong in drawing adverse inference against the assessee. In view of these facts and circumstances and in view of the detailed reasonings given by CIT(A), we confirm his order asstt. year 1994-95." 10. As regards the assessment year 1998-99, the ITAT recorded that the facts of this assessment year were similar to the facts involved for the assessment year 1994-95. The difference in the facts was only of the figure of profits. The Assessing Officer on the basis of the results of the assessment year 1999-2000 proceeded to make the estimation of the profit of the year 1998-99. On the basis of profits of 1.96%, the taxable income of ₹ 1,47,73,246/- was computed as against the declared income of ₹ 50,95,949/-, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statistical statements submitted before me and remanded to the AO that it has reached its break even point only in the asstt. year 1999-2000 when it achieved the turnover of ₹ 90 crores while in the asstt. year under appeal it has a turnover of ₹ 75.35 crores which was much below its break even point. Looking at the facts and circumstances of the case and the reasons given higher consumption of raw material shown in this regard viz-a-viz the subsequent year not refuted by the AO, I am of the opinion that the book results of the appellant as per its audited accounts should not have been disturbed and the AO should not have resorted to the statistical extrapolation exercise in increasing the sales by 21% on the basis of the trading results of the subsequent year. The business profits are not determined by mathematical precision. It was, therefore, not a fair and reasonable exercise on the part of the AO to estimate the profits of the appellant for the year under appeal. The ad hoc additions so made are thus deleted." 11. An appeal filed before the ITAT for this assessment year met with the same fate and the Tribunal noting that the facts for the year under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Assessing Officer was not entitled to rely upon the profit percentages declared by the assessee itself in the subsequent assessment years as per the declaration made under the Voluntary Disclosure of Income Scheme, 1997 (VDIS), it is deemed expedient to reproduce Section 72 of the Finance Act, 1997, which act incorporates the text of VDIS, 1997: "Secrecy of declaration. 72. (1) All particulars contained in a declaration made under sub-section (1) of section 64 shall be treated as confidential and, notwithstanding anything contained in any law for the time being in force, no court or any other authority shall be entitled to require any public servant or the declarant to produce before it any such declaration or any part thereof or to give any evidence before it in respect thereof. (2) No public servant shall disclose any particulars contained in any such declaration except to any officer employed in the execution of the Income-tax Act or the Wealth-tax Act, or to any officer appointed by the Comptroller and Auditor General of India or the Board to audit income-tax receipts or refunds." 15. Sub-section (1) of the said Section refers to the confidential nature of the declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors. 18. It is well settled that while making the best judgment assessment, the Assessing Officer should do so on a rational basis and without any bias. The scope of "best judgment" assessment under the Income Tax law came up for consideration before the Judicial Committee as early as 1937 in Commissioner of Incom-tax vs. Laxminarain Badridas. Therein, the Lord Russell of Killowen, speaking for the Judicial Committee, observed: "The Officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
