TaxTMI 
TaxTMI 
2016 (7) TMI 453
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.... 3. The brief facts of this issue are that the assessee is a private limited company engaged in the business of manufacturing edible oil. The assessee filed its return of income u/s. 139(1) of the Act for the assessment year under dispute on 27.09.2009 disclosing a total income of Rs. 59,05,533/-. During the course of the assessment proceedings, the Ld. Assessing Officer desired the assessee to furnish documents and evidence in support of its return filed by issuing notice u/s. 142(1) of the Act. However, such notice could not be served on the assessee since the unit of the assessee was closed and taken over by the creditor of the assessee, the Punjab National Bank, Midnapore Branch. Only on one occasion, an alleged representative appeared who was speciously served with a notice u/s. 142(1) of the Act. Thereafter, there was no compliance from the assessee. In fact, an endeavour to serve notice u/s. 142(1) of the Act was made by the Ld. Assessing Officer by way of affixture. Since the books and documents of the assessee were in the custody of the creditor bank, the Ld. AO issued summons u/s. 131(1) of the Act to it directing them to produce the same. However, the creditor bank also....
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....rought on record by the AO to justify his estimate. Therefore, it emerges that when the turnover is not disputed and expenses incurred for achieving such turnover are also not disputed, then the gross profit declared by the appellant on such turnover can never be doubted. Estimate of G.P. made by the AO should be on plausible reasons backed by evidence, which is glaringly missing in the instant case. However, in such circumstances, although the submission of the A/R is plausible about low rate of G.P. in the impugned assessment year in comparison to immediately earlier assessment year, but the undisputed facts remain that the books of accounts were not available to the AO and the items of expenditure could not be verified. The entire thing is based on estimate. It is well-settled in the case of Kachwala Gems vs. JCIT (2006) 288 ITR 10 (SC) 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. As stated above, in the instant case, I find no basis for the estimate as made by the AO. I....
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.... Income Tax Act, 1961 while taking into account the figures in the trading account in the impugned books and the failure of non estimation of Net Profit in such circumstances is based on extraneous considerations not germane to the issue in dispute which is wholly illegal, illegitimate and infirm in law. 3. FOR THAT the specious action of the Ld. Commissioner of Income Tax (Appeals) XXXVI, Kolkata in upholding the estimate on account of Gross Profit to the extent of 10% vis-a-vis 42.48% adopted by the Ld. Joint Commissioner of Income Tax, Range-1, Midnapore indulging in speculation, surmise, suspicion and conjecture is altogether excessive, arbitrary, unwarranted and perverse." 6. The Ld. DR vehemently supported the order of the ld. AO by stating that the ld. AO did not have any other option but to resort to estimation of gross profit as even the statutory notices could not be served on the assessee in view of the possession taken over by the creditor of the assessee i.e Punjab National Bank. Even the summons issued u/s 131 of the Act to the Bank calling for books of accounts of the assessee and other details were not replied by the Bank. Under these circumstances, the ....
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....m an act which he cannot possibly perform would come to the rescue of the assessee. In such a situation, we note that the decision of the Hon'ble Delhi High Court in the case of Addl CIT vs Jay Engineering Works Ltd reported in (1978) 113 ITR 389 (Del) dated 21.2.1978 wherein it was held that :- "The Income-tax Officer and certain other authority functioning under the Income-tax Act have a dual character. They are both agencies of investigation made into the incomes of assessees and they are also quasi- judicial authorities assessing the liabilities of the assessees to payment of income-tax. Under section 142(2) of the Act the Incometax Officer may make such enquiry as he considers necessary for the purpose of obtaining full information in respect of the income or loss of an assessee. Under section 143(3) of the Act, the Income-tax Officer does not only hear such evidence as the assessee may produce or as he may require to be produced, but also takes into consideration "all relevant material which he has gathered" for the purpose of making an assessment. While the word "evidence" may recall the oral and documentary evidence as may be admissible under the Indian Evidence Ac....
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....he assessees. The account books maintained by them must be such as to give a true and fair view of the state of affairs of the companies. The question arises, therefore, whether the reports of the auditors could be said to be "material" on which reliance could be placed by the income-tax authorities. Unlike the proof required of such reports as also of the account books under the Indian Evidence Act, it is quite competent for the income-tax authorities not only to accept the auditors'. report, but also to draw the proper inference from the same. The income-tax authorities could, therefore, come to the conclusion that since the auditors were required by the statute to find out if the deductions claimed by the assessees in their balance-sheets and profit and loss accounts were supported by the relevant entries in their account books, the auditors must have done so and must have found that the account books supported the claims for deductions, when the deductions were disallowed, by the Income-tax Officer on the ground that detailed information regarding them was not available, justice was not done to the assessees. It was not possible for the assessees to produce the ori....
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....ds, the raw material and the rate of sale regarding the finished product 'oil'. The sharp declining trend in the gross profit ratio in edible oil industry is to be accepted in the previous year relevant to the asst year under appeal in an area infected with Maoist menace from which there was no respite. The labour deployed was under their thumb and it was futile to exhort them to stick to maintain productivity. As a result, huge inputs resulted in low outputs which made earnings so low as to make it impossible to service the loans with the ultimate result that the creditor bank took possession of the office and the unit due to default. We find lot of force in the arguments of the ld AR as these facts were not disputed by the revenue before us. 8.2. It is not in dispute that the gross profit declared by the assessee during the year under appeal is much less than that declared in the immediately preceding asst year. The assessee cannot purchase and sell except at market determined prices. The only leeway is to sell below the market price to undercut the others to raise turnover and keep competition at bay so as to achieve the benefit in the long run. In the process, the gross prof....