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Issues: (i) whether the assessment framed under section 143(3) after a search under section 132 was sustainable, or whether the case had to proceed under section 148 with prior approval under section 148B; (ii) whether the gross profit rate adopted by the first appellate authority required interference and what rate should be applied.
Issue (i): Whether the assessment framed under section 143(3) after a search under section 132 was sustainable, or whether the case had to proceed under section 148 with prior approval under section 148B.
Analysis: Search action had been initiated and the assessment year in question fell within the preceding years covered by Explanation 2 to section 148. The statutory scheme was treated as requiring the special search-linked route, rather than continuation of a regular scrutiny assessment under section 143(3). The reasoning proceeded on the basis that section 143 governs regular assessment, whereas section 148 operates as the special provision for cases where search material indicates escapement of income. The principle of generalia specialibus non derogant was applied to hold that the special procedure overrides the general one.
Conclusion: The assessment under section 143(3) was held unsustainable and was quashed; the issue was decided in favour of the assessee.
Issue (ii): Whether the gross profit rate adopted by the first appellate authority required interference and what rate should be applied.
Analysis: The first appellate authority had adopted a mean profit rate by averaging the assessee's past gross profit with comparable industry results. That approach was rejected because estimation had to be grounded in the relevant segmental and contemporaneous trade results, and not on an unbridled averaging exercise. The Revenue's plea for a higher rate was not accepted, and the segmental trend rate was preferred.
Conclusion: The gross profit rate was directed to be estimated at 6.96%, and the Revenue's higher estimate was rejected; the issue was decided in favour of the assessee.
Final Conclusion: The common order granted substantive relief to the assessee by quashing the regular assessment and by reducing the gross profit estimation, while the Revenue's cross appeal did not succeed.
Ratio Decidendi: Where a search has triggered the special statutory mechanism for reassessment, a pending regular assessment under section 143(3) cannot be continued or completed contrary to the search-linked procedure; estimation of profits must also be based on relevant contemporaneous sectoral data rather than arbitrary averaging.
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