2006 (12) TMI 83 - SC - Income Tax

Appeal dismissed upholding best-judgment assessment under s.144 as non-arbitrary due to lack of proper books

KACHWALA GEMS Versus JOINT COMMISSIONER OF INCOME-TAX

SC dismissed the appeal upholding a best-judgment assessment under s.144. The court declined to revisit the factual finding of alleged bogus purchases and ... Resortation of Best judgment assessment u/s 144 - defects in the books of accounts - bogus purchases in order to reduce the Gross Profits - HELD THAT:- In our opinion, whether there were bogus purchases or not, is a finding of fact, and we cannot interfere with the same in this appeal. As regards the rejection of the books of accounts, cogent reasons have been given by the Income Tax Authorities for doing so, and we see no reason to take a different view. It is well settled that in a best judgment assessment there is always a certain degree of guess work. No doubt the authorities concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts. In our opinion there was no arbitrariness in the present case on the part of the Income Tax Authorities. Thus, there is no force in this appeal, and it is dismissed accordingly. Issues:- Assessment of Gross Profit- Rejection of books of accounts- Allegation of bogus purchasesAssessment of Gross Profit:The case involved an appeal against the assessment of Gross Profit by the Income Tax Authorities. The Assessing Officer initially estimated the Gross Profit of the assessee at 40%, citing comparable cases. The Commissioner of Income-tax (Appeals) upheld most findings but reduced the Gross Profit to 35%. Subsequently, the Tribunal further reduced the Gross Profit rate to 30%. The counsel for the assessee argued against the allegation of bogus purchases. The Supreme Court noted that whether there were bogus purchases or not is a finding of fact and cannot be interfered with in the appeal. The Court emphasized that in best judgment assessments, there is an element of guesswork, and while authorities should make a fair estimate, some level of guesswork is inevitable. As the Income Tax Authorities provided cogent reasons for rejecting the books of accounts and determining the Gross Profit, the Court found no arbitrariness and dismissed the appeal.Rejection of Books of Accounts:The Assessing Officer rejected the books of accounts of the assessee due to various defects observed during assessment, such as the absence of quantitative details/stock register, lack of evidence for valuation of closing stock, and doubts regarding the genuineness of purchases. The rejection led to a best judgment assessment under Section 144 of the Income-tax Act. The Court held that the Income Tax Authorities had provided valid reasons for rejecting the books of accounts, and there was no basis to challenge their decision. The Court emphasized that the assessee's failure to maintain proper accounts contributed to the need for a best judgment assessment, and the authorities acted within their discretion in this regard.Allegation of Bogus Purchases:The Assessing Officer accused the assessee of showing bogus purchases to manipulate Gross Profits. The counsel for the assessee contended that the Income-tax Authorities wrongly held the purchases as bogus and that the books of accounts were unjustly rejected. However, the Supreme Court reiterated that the determination of bogus purchases is a factual finding that cannot be altered in the appeal. The Court highlighted that the authorities had provided sufficient justifications for their actions, and there was no indication of arbitrariness in their decision-making process. Consequently, the Court dismissed the appeal, emphasizing that the assessee's failure to submit proper accounts contributed to the outcome of the assessment.