TaxTMI 
TaxTMI 
2012 (7) TMI 720
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....ison of net profit rate by giving different treatment to the other income of Rs. 9,29,180/- included in the net profit shown by the assessee and excluded from net profit by the AO without giving any cogent reason. 3. In the fact and circumstances of the case the order of the CIT(A) may be set aside and that of the Assessing Officer restored. 2. Facts, in brief, as per relevant orders are that return filed by the assessee, trading in milk and milk products, was taken up for scrutiny with the service of a notice dated 26th September, 2008 u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the Act). None responded to this notice. In response to a notice dated 14th July, 2009 u/s 142(1) of the Act, after seeking a number of adjournments, none appeared on 10.8.2009. In response to another detailed notice dated 27.08.2009, seeking copy of the audit report and final accounts, the assessee sought adjournment for 16th September, 2009 and again for 18th September, 2009 and as usual none appeared on 18th September, 2009. Even the notice u/s 142(1) of the Act issued on 15th October, 2009 and 26.10.2009 were not complied with. Though certain details were filed on 24.11.200....
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....sting of interest on FDRs and discount at Rs. 2,40,780/-. The Assessing Officer for working out the declared N.P. has reduced the amount of insurance claim and other income from the net profit as per P&L account and thereafter after estimating and applying the N.P. rate to the total receipts @0.70%, has again added the same. In my view, once N.P. rate is applied there is no justification in reducing and adding some items of income and/or expenses in the income. It is not the case of estimation of G.P. rate where the expenses/income heads of profit and loss account are added or reduced. Net profit denotes the total profit worked out as per the profit and loss account inclusive of all types of sources and, therefore, after estimating the net profit rate, there remains no reason for making any adjustment therein. In this view, and following the judicial pronouncements as referred to by the AR, I hold that the additions of Rs. 6,88,400/- and Rs. 2,40,780/- to the income, after making computation of income by applying estimated net profit rate, cannot be made. I, therefore, delete the same. The appellant has also objected to the application of estimated net profit rate of 0.70% stati....
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....completion of assessment in the manner provided u/s 144 of the Act, was upheld by the ld. CIT(A). The AO applied NP rate of 0.70% on estimated sales of Rs. 228 crores and determined net profit after excluding insurance receipt of Rs. 6,88,400/- & interest and other income of Rs. 2,40,780/-. However, the ld.CIT(A) applied the net profit rate of 0.70% to disclosed sales of Rs. 2,27,79,55,904/- in the absence of any information on record regarding unaccounted receipts/sales. The ld. CIT(A) also accepted the submissions of the assessee for inclusion of insurance receipt of Rs. 6,88,400/- and interest and discount of Rs. 2,40,780/- while applying the net profit rate, without ascertaining the nature of these receipts and without recording any findings as to whether or not these receipts were assessable under the head 'profits and gains of the business or profession'. Despite being fully aware that assessment was completed after rejection of book results, the assessee having not produced books of accounts before the AO, the ld. CIT(A) did not give any opportunity to the AO before accepting the submissions of the assessee. The ld. AR appearing before us contended that these receipts wer....
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....ales and rejected the treatment given to insurance receipts and interest income by the AO, ignoring the fact that the best judgment assessment involves an element of guess work. When the assessee has not proved the correctness of the books of account and has not produced any record to support his claim as to the taxable income, it is always open to the AO to estimate the income and profit therein as per similar business data, whether in the assessee's own case in the preceding years or of comparable instances. .Admittedly, the assessee did not substantiate the book results with any cogent evidence before the AO or the ld. CIT (A) nor produced the relevant books of accounts before them. No reasons have been adduced before us as to why books of accounts were not produced before the lower authorities; rather the assessee accepted the findings of the ld. CIT(A),rejecting the book results. The next step was estimation of profits. The ld. CIT (A) rejected the method adopted by the AO, without adducing any cogent reasons. The ld. CIT (A) did not record any findings as to whether or not interest income and insurance receipts were part of business receipts for determining NP rate nor record....
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.... history is the best guide where provisions of s. 145(3) of the Act are invoked as held in Ajay Goyal vs. ITO (2006) 99 TTJ (Jd) 164, Madan Lal vs. ITO (2006) 99 TTJ (Jd) 538, CIT vs. Popular Electric Co. (P) Ltd. (1993) 203 ITR 630(Cal) and M.A. Rauf vs. CIT (1958) 33 ITR 843 (Pat). Once book results were rejected in terms of provisions of sec. 145(3) of the Act, it is not the ipse dixit of the AO to compute the income either u/s 144(1) or sec. 145(3) of the Act nor the computation and determination of income can be at the whims and fancies of the AO or the ld. CIT(A). Law on this point, i.e., law in respect of assessments made on the basis of best judgment or estimate is well-settled. Hon'ble Supreme Court in the case of Commissioner of Sales Tax v. H. M. Esufali H. M. Abdulali [1973] 90 ITR 271, 276, 277; 32 STC 77 (SC), lays down the law as follows: " The distinction between a ' best judgment ' assessment and assessment based on the accounts submitted by an assessee must be borne in mind. Sometimes there may be innocent or trivial mistakes in the accounts maintained by the assessee. There may be even certain unintended or unimportant omissions in those accounts; but yet the ....
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....sion of the Supreme Court in the case of State of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC). This observation is at page 244 of the report and is as follows: " The limits of the power are implicit in the expression ' best of his judgment '. Judgment is a faculty to decide matters with wisdom, truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a ' best judgment ' assessment, it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case." 5.3 The following observations of Lord Russel Killoven in CIT v. Laxminarain Badridas [1937] 5 ITR 170 (PC) ; AIR 1937 PC 133, are apt in the present context : "The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, ....