TaxTMI 
TaxTMI 
2013 (10) TMI 374
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....A No.1140/Luc/2006; 129/2007 2001-02 11.5.2007 passed in ITA No.357/Luc/2005; 11.5.2007 passed in ITA No.411/Luc/2005; 130/2006 1995-96 16.9.2005 passed in ITA No.511/Alld/2000; 94/2007 1994-95 16.3.2007 passed in ITA No.30/Luc/2007; 107/2007 1999-2000 11.5.2007 passed in ITA No.1197/Luc/2006; 108/2007 2001-02 11.5.2007 passed in ITA No.1199/Luc/2008; 130/2007 2001-02 11.5.2007 passed in ITA No.361/Luc/2004;11.5.2007 passed in ITA No.372/Luc/2004; 131/2007 1999-2000 11.5.2007 passed in ITA No.191/Luc/2005;11.5.2007 passed in ITA No.200/Luc/2004; 93/2007 1997-98 16.3.2007 passed in ITA No.32/Luc/2007; 135/2006 1994-95 1996-97 1997-98 16.9.2005 passed in ITA No.1512/Alld/1997; On 27.5.2009, a Coordinate Bench of this Court has admitted the Income Tax Appeal No.44 of 2009, on the following substantial questions of law:- "(I). Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal has erred in law in cancelling the penalty of Rs.50,00,000.00 levied under Section 271 (1) (c) of the I.T.Act without approaching that willful concealment is not an essential ingredient for attracting penalty as has been held by the Hon'ble S....
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.... law and on facts in reducing the estimated net profit to 3.5% as against the 10% rate applied by the Assessing Officer and further allowing depreciation from it. II. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in estimating the rate of net profit at a substantially reduced rate resulting in a situation where the relief is more than the addition made and has also resulted into estimated loss. III. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was right in law in not appreciating that it is a well settled principle that where the estimate by the Assessing Officer is based on a rational basis, prima facie the Assessing Officer is the best judge of the situation and the CIT (Appeals) could not substitute her judgment for that of the Assessing Officer unless there were compelling reasons for doing so. [CST vs H.M. Esufali H.M. Abdulali (1973) 90 ITR 271 (SC)] V. Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in law in stretching the definition of Net Profit so as to conclude that depreciation and interest are liable....
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....bmits that Hon'ble Supreme Court in the case of CST Vs H.M. Esufali H.M. Abdulali, (1973) 90 ITR 72 ISC, observed that in estimating any escaped turnover, it is inevitable that there is some guess work. He further submits that the Tribunal has not recorded the reasons which are required as per the ratio laid down in the case of CIT v. Palwal Co-operative Sugar Mills Ltd. [(2006) 284 ITR 153 (P&H)], which reads as under:- "Every judicial/quasi-judicial body/authority must pass a reasoned order which should reflect the application of mind of the concerned authority to the issues/points raised before it. The requirement of recording reasons is an important safeguard to ensure observance of the rule of law. It introduces clarity, checks the introduction of extraneous or irrelevant considerations and minimises arbitrariness in the decision making process. Another reason which makes it imperative for quasi-judicial authorities to give reasons is that their orders are not only subject to the right of the aggrieved persons to challenge them by filing statutory appeal and revision but also by filing wit petition under article 226 of the Constitution. Such decisions can also be challenged b....
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.... an undisputed fact that the A.O. has rejected the books of accounts and estimated the net profit rate at the rate of 10% of gross contract receipts. During the assessment years under consideration, the CIT (A) has reduced the same and finally, the Tribunal has estimated the net profit @ 3.5% of gross receipts. In addition, the Tribunal has also allowed the depreciation on the contract receipts. It is also a submission of learned Counsel that as per C.B.D.T. Circular No.29-D (XIX-14) [F.No.45-239-65-ITJ] dated 31.8.1965, if the profits are estimated, and prescribed particulars have been furnished by the assessee, the depreciation allowance should be separately worked out and the deductions should be separately deducted from the profit, but the facts remains that in the instant cases, if the net profit @ 3.5% is taken and depreciation separately allowed then the income of the assessee will come to negative, as appears from the details (exemplary) mentioned below for the assessment years 1994-95 and 1996-97:- A.Yr. Net Receipt 10% of estimated profit 3.5% of net profit Depreciation allowed Resultant profit or loss Effective relief 94-95 1,46,58,867 14,75,887 5,16,050 6,9....
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....rofit, is not applicable, as the Rule 5AA of the income Tax Rules has been omitted with effect from 2nd April, 1987. This aspect was discussed by this High Court and it was observed in the case of CIT vs Bishambhar Dayal & Co. 210 ITR 118 (Alld) that the Income-tax Appellate Tribunal relied upon a circular of the Central Board of Direct Taxes No.29D(xix) of 1965, F.No.45/239/65-ITC, dated March 31, 1965. Under this circular, the Board had issued instructions that where income is proposed to be computed by applying a net rate and the assessee has furnished the prescribed particulars for the claim in respect of depreciation, the depreciation should be allowed separately and deducted out of the gross profits. The order of the Income-tax Appellate Tribunal is in conformity with the circular issued by the Central Board of Direct taxes. No provision of the Income-tax Act was brought to our notice which makes the claim to depreciation inadmissible where the income is computed by applying the flat rate. Secondly, subsequent to the Assessment Year 1994-95, in such matters the basic principle as enumerated in Section 44-AD of the Income-tax Act, 1961 is taken to be applicable wherein the ma....
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.... of Indwell Construction v. CIT [1998] 232 ITR 776 (Andhra Pradesh), Hon'ble High Court observed as under:- "The pattern of assessment under the Income-tax Act, 1961 is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D of the Act. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under Section 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made, it is in substitution of the income that is to be computed under Section 29. In other words, all the deductions which are referred to under Section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account. Where the books of account have been rejected, the revenue cannot rely on the same books for ....