9911796707
TMI Blog2025 (5) TMI 952X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a gross profit @40% of estimated sales of Rs. 250 Lakhs and made a consequential addition of Rs. 45,29,674/- while assessing the total income u/s 143(3) of the Act. Aggrieved by the estimated sales & gross profit and assessment, the assessee instituted an appeal thereagainst before Ld. NFAC, which came to be dismissed. Dissatisfied with the impugned order, the assessee came in present appeal agitating the impugned order precisely on following three substantive reasons/grounds as; (i) as being against law and facts of the case. (ii) ad-hoc estimation of sales/turnover is without any material on record and is baseless. (iii) ad-hoc estimation of gross profit is without any material on record and is baseless. 3. We have heard the rival party's submission and subject to rule 18 of ITAT-Rules, 1963 perused material placed on record and considered the facts in the light of settled position of law which was forewarned to parties present for their rebuttal. 4. We note that, the appellant partnership firm was engaged in wholesale & retail trading of gold, silver and other small jewellery items. The appellant's total sales turnover for the year under consideration from said busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rix and then countenanced the addition and assessment. While doing so the Ld. NFAC requoted the discrepancies noted by the Ld. AO in relation to URD purchases, discrepancies in stock records and turnover of sales & purchases etc. 7. For adjudicating the dispute the appellant assessee has brought out following contentions to decide; (i) whether in facts & circumstance of case the rejection of audited books was warranted & valid? (ii) whether it was incumbent upon the Ld. AO to framed assessment u/s 144 of the Act once books are rejected u/s 145(3) of the Act? (iii) whether it was incumbent upon the Ld. AO to cause for special audit u/s 142(2A) once audited books are rejected u/s 145(3) of the Act before determining the income to the best of judgement u/s 144 of the Act? (iv) whether estimation of income at an ad-hoc % of gross profit based on an ad-hoc estimated figure of sales/turnover is permissible u/s 143(3) of the Act? 8. Let us deal with the issues chronologically first with rejection of books; The audited financial statements placed on records (P/b, Pg-12) reveals that, for the year under consideration the appellant had silver & gold purchases to the tune of Rs. 38, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are found substantially incorrect or incomplete, that is to say incorrectness or incompleteness of substantial accounts shall only form reasonable basis for rejection of books. 11. Largely based upon books of accounts the taxable income of assessee is determined, wherein the stock/inventory records undisputedly forms substantial part of books/accounts, hence in absence thereof any determination of income for taxation under the Act would be meaningless. 12. In present case, non-maintenance or non- production of product-wise and item-wise trading as well inventory records pertaining to silver & gold ornaments coupled with appellant's failure to establish genuineness of URD purchases formed a basis in holding accounts as incorrect or incomplete, which in turn triggered rejection u/s 145(3) of the Act. Since the stock/inventory records/details forms significant part of accounts which severally capable of influencing the determination of total income of the appellant assessee hence the non- maintenance vis-à-vis non-production of such records so has to enable the tax authorities to deduce therefrom correct taxable income, in our considered view is capable of construing accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under sub-section (2A) of that section, or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall, after giving the assessee an opportunity of being heard, make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment : Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment: Provided further that it shall not be necessary to give such opportunity in a case where a notice under sub-section (1) of section 142 has been issued prior to the making of an assessment under this section. (Emphasis supplied) 7. From the bare reading of aforestated provision it is intelligible that, the section predominantly coins with twofold facets viz; (i) authority or sanction for framing of assessment and (ii) manner of determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was put to show cause in terms of first proviso to section 144 of the Act. Thus while determining the income in the manner provided u/s 144 of the Act, the Ld. AO neither provided hearing to the appellant nor considered all essential & decisive material brought on record by the appellant during the course of assessment proceedings. The determination thus not only rendered erratic but also opposed to law. 20. A clear-cut distinction between Best Judgement assessment and in the manner provided u/s 144 of the Act is required to be understood while resorting to the provision of section 145(3) of the Act. It is well settled law that, in the case of Best Judgement assessment u/s 144 of the Act, the Assessing Officer exercising his jurisdiction cannot act arbitrarily or capriciously. The assessing officer must proceed on judicial considerations in the light of relevant material that may be brought on record by the assessee. Though such assessment would be based on some element of guess work but should clearly have nexus with material placed on records and should not been exercised arbitrarily or capriciously. In quoting so, a reliance can be placed on the Hon'ble Allahabad High Court's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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