TMI Blog2012 (7) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... nexus between the amount arrived at after some guess work and the facts of the case – matter remanded to CIT(A) - ITA No.5185 /Del/2010 - - - Dated:- 8-6-2012 - SHRI U.B.S. BEDI, SHRI A.N. PAHUJA, JJ. Assessee by Shri Raj Kumar, AR Revenue by Shri B.R.R. Kumar,DR O R D E R A.N.Pahuja:- This appeal filed on 22.11.2010 by the Revenue against an order dated 31.08.2010 of the ld. CIT(A)- Meerut, raises the following grounds:- 1. Whether ld. CIT(A) has erred in law and on facts in holding that after applying net profit rate from business turn over, further addition of Rs. 6,88,400/- on account of insurance claim received and addition of Rs. 2,40,780/- on account of other income credited to P L account cannot be made while other income was clearly taxable as such and did not comprise of or could be related to business turnover. 2. Whether ld. CIT(A) has erred in law and on facts in directing to apply net profit rate on declared turnover of Rs. 2,27,79,55,904/- as against estimated turnover of Rs. 2,28,00,00,000/- taken by the AO and also in making comparison of net profit rate by giving different treatment to the other income of Rs. 9,29,180/- included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and application of net profit rate of 0.70% directed the AO not to exclude insurance claim and other income while applying the net profit rate in the following terms:- I have gone through the facts of the case, findings of the Assessing Officer and the submissions of the AR. I have taken note of the fact that the appellant did not produce books of accounts even after providing several opportunities. The compliance by the appellant to the notices and filing the details and explanation as desired by the Assessing Officer and the fact that the books of accounts of the appellant were audited, were not sufficient so as to accept the declared returned income of the appellant. In my considered view, the Assessing Officer has rightly invoked the provisions of section 145(3) and proceeded to complete the assessment u/s 144 of the Income-tax Act, 1961. In this view, the action of the Assessing Officer to complete the assessment u/s 143(3) is confirmed. I have considered the further submissions of the AR against the treatment of insurance claim of Rs. 6,88,400/- and other income consisting of interest on FDRs and discount at Rs. 2,40,780/-. The Assessing Officer for working out the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee contended that insurance claim was received on account of stock destroyed in fire and thus, it was normal business receipt. As regards interest and discount, the ld. AR submitted that interest on FDR taken for banking requirement for opening LC was part and parcel of business receipts, and thus, once a net profit was estimated, no further addition could be made for determining business profits. Inter alia, the ld. AR relied upon decision in CIT Vs. G.K. Contractor (Raj) (2009) 19 DTR (Raj) 305, ACIT Vs Lakshmi Industries, 135 TTJ(Che)112; CIT Vs. Aggarwal Engg. Company, 302 ITR 246 (P H); and CIT Vs. Banwari Lal Bansidhar 229 ITR 229 (All);. To a query by the Bench, the ld. AR replied that last year net profit rate worked out to 0`.664% . 5. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions. Indisputably, the assessee did not produce relevant books of account and bills/vouchers before the AO or the ld. CIT(A).As a result, rejection of book results by the AO having recourse to provisions of sec. 145(3) of the Act and completion of assessment in the manner provided u/s 144 of the Act, was upheld by the ld. CIT(A). The AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts and details. [Kachwala Gems Vs JCIT, 288 ITR 10 (2007) (SC)]. I t is t rue that AO or the CIT (A) are not fettered by technical rules of evidence and are entitled to act on materials which may not be accepted as evidence in court of law, nevertheless, the AO should adopt a method which must reflect the profits truly and justly[Gemini Picures Ltd. vs CIT (1958) 33 ITR 547 (Mad).] For estimating the profit, the ld. CIT(A) can always have a look at the margin returned in comparable cases or even in assessee s own case in the preceding years. In the instant case, the ld. CIT (A) was well aware that the assessee did not produce relevant books of accounts and bills/vouchers. In their absence, the AO did not have any recourse but to estimate sales and chose to apply NP rate. According to the AO, exceptional items of insurance receipts and interest income etc. were to be excluded while applying NP rate on estimated sales. However, the ld. CIT(A) without even having a look at the relevant books of accounts or bills/vouchers or even past history of the case, accepted disclosed sales and rejected the treatment given to insurance receipts and interest income by the AO, ignoring the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97] 227 ITR 172. Hon'ble Allahabad High Court in the case of CIT v. Kisan Sahakari Chini Mills Ltd. [IT Reference No. 219 of 1992 by order dated 7-4-2005] - [2006] 280 ITR 617 also came to the same conclusion by relying on the decision in the case of Tuticorin Alkali Chemicals Fertilizers Ltd. Source of interest income is FDRs, which is different from business receipts. Even if business is stopped, the assessee can continue to receive interest and vice versa. Interest on FDR does not have direct and immediate nexus with the business of the assessee. In other words, the immediate and effective source of the interest is the deposit and not from the actual conduct of the business of the assessee. Thus, interest received cannot be considered as part of the business receipts while estimating income from the business of the assessee. 5.1 The Hon ble Rajasthan High Court in CIT vs. Gotan Lime Khanij Udhyog (2001)25,6 ITR 243 (Raj) held that the books of account together with past history of the case as also material collected should be considered for estimation of income. The past history is the best guide where provisions of s. 145(3) of the Act are invoked as held in Ajay Goyal vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his ' best judgment ' and not of anyone else. The High Court could not substitute its ' best judgment ' for that of the assessing authority. In the case of ' best judgment ' assessments the courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating the turnover has reason able nexus with the estimate made. If the basis adopted is held to be a relevant basis even though the courts may think that it is not the most appropriate basis, the estimate made by the assessing authority cannot be disturbed." 5.2 In the above case the Hon ble Supreme Court also quoted with approval an observation of Subba Rao J. (as he then was) in an earlier decision of the Supreme Court in the case of State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC). This observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee or gathered by the taxing officer. If for any reason the material like books of account produced by the assessee is rejected as unreliable or unsatisfactory, there should be some valid reasons for doing so ; and (iii) whenever best judgment assessment is made, the court would not call for proof from the officer if there is some nexus between the amount arrived at after some guess work and the facts of the case. 7. In view of the foregoing, especially when it is not possible to discover any basis rational or otherwise from the order of the ld. CIT(A) in the instant case in accepting the submissions of the assessee on the basis of books results, which have discarded by him earlier, this order is apparently arbitrary. Since the ld. CIT(A) ignored the principles laid down in the aforesaid decisions while estimating profits in a best judgment, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the aforesaid issues, afresh in accordance with law in the light of aforesaid decisions, after allowing sufficient opportunity to both the parties. Needless to say that while redeciding the appeal, the ld. CIT(A) sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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