2016 (3) TMI 25 - HC - Income Tax

Section 144 upheld best-judgment addition for understated bus passenger count; taxpayer failed to prove estimate arbitrary or irrational

Tara Singh Prop, M/s Rajdeep Bus Service Versus ITO Ward III Khanna

HC upheld best-judgment assessment against the taxpayer, rejecting challenge to the Tribunal's estimate of 22 occupied seats per bus (AO and CIT(A) had ... Best judgment assessment - justification of estimation of seats - Held that:- Due to mechanical defect, accidents, over speed challan, and other traffic violations, the buses might not be plied throughout the year. Even otherwise, the tax had to be calculated on net income. The Assessing Officer and the CIT(A) had estimated the occupancy of seats to the extent of 24 and 19 per bus respectively. The Tribunal deemed it appropriate to estimate the occupancy of seats at 22 per bus to put an end to the litigation. It may be noticed that for best judgment assessment, some guess work had to be adopted which should be based on rational basis and it cannot be arbitrary. It could not be demonstrated by learned counsel for the assessee that the Tribunal had adopted any arbitrary or irrational approach in arriving at the conclusion. Moreover, the assessee had failed to furnish the requisite information compelling the Assessing Officer to take recourse to Section 144 of the Act in framing the Best Judgment assessment. A perusal of the chart that only an addition of ₹ 4,75,030/- has been made against the income of ₹ 1,10,940/- declared by the assessee. However, in view of the factual matrix noticed hereinabove and more particularly when learned counsel for the assessee-appellant has not been able to satisfy this court that the approach of the Tribunal is arbitrary or irrational, no advantage flows to the assessee-appellant from those pronouncements. - Decided against assessee Issues:1. Best judgment assessment under Section 144 of the Income Tax Act, 1961.2. Estimation of income based on occupancy of bus seats.3. Justifiability of estimation of seats for tax calculation.Issue 1: Best judgment assessment under Section 144 of the Income Tax Act, 1961:The appellant filed an appeal against the order of the Income Tax Appellate Tribunal for the assessment year 2001-02, challenging the best judgment assessment under Section 144 of the Act. The High Court emphasized that best judgment assessment should be made without bias and on a rational basis, ensuring it is not arbitrary. The Court stated that if the estimate is bona fide and rational, lack of concrete proof does not invalidate it. The assessing authority is considered the best judge in such situations.Issue 2: Estimation of income based on occupancy of bus seats:The controversy revolved around the estimation of income based on the occupancy of bus seats. The appellant maintained 11 buses for business purposes and declared total income in the return. The Assessing Officer enhanced the income by assuming 26 seats occupied per bus, leading to a substantial addition to the declared income. The CIT(A) reduced this to 19 seats per bus, but the Tribunal estimated it at 22 seats per bus to resolve the dispute. The Tribunal justified this estimation based on various factors affecting bus operations and the need for a rational basis for such estimates.Issue 3: Justifiability of estimation of seats for tax calculation:The Court examined the justification for estimating seats for tax calculation purposes. It noted that due to mechanical defects, accidents, and other factors, buses might not operate at full capacity throughout the year. The Assessing Officer and CIT(A) had differing estimates, but the Tribunal settled on 22 seats per bus to conclude the matter. The Court emphasized that best judgment assessments require some guesswork but must be rational, not arbitrary. The appellant's failure to provide necessary information led to the Assessing Officer resorting to Section 144 for the best judgment assessment.In conclusion, the High Court upheld the Tribunal's decision, stating that it was a plausible view based on the evidence. The Court found no illegality or perversity in the Tribunal's order and dismissed the appeal, affirming the Tribunal's estimation of 22 seats per bus for tax calculation purposes.