TaxTMI 
TaxTMI 
2018 (10) TMI 587
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection of book result under section 145(3) of the Income Tax Act, 1961. 3. Brief facts of the case are that the assessee had filed his return of income on 30.9.2011 declaring total income at Rs. 23,95,570/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) was issued and served upon the assessee. The assessee at the relevant time was engaged in construction activities. It has shown total contract receipt of Rs. 10,11,47,729/- and net profit at the rate of 2.04%. The GP was shown at 11.56%. The ld.AO has examined the books of accounts and rejected the book result. He worked out profit by adopting 5% net profit rate and made addition of Rs. 29,90,653/-. On appeal, the ld.CIT(A) confirmed the rej....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the profit rate shown by the in other years may be a good indicator for estimation of profit in a relevant previous year. 4.3.3 In view of above factual and legal matrix it is held that rejection of books of accounts by the AO was justified. The income of the appellant is estimated at 3.5% of contract receipts of Rs. 10,11,47,729/- which comes to Rs. 35,40,170/-. Appellant has shown net profit of Rs. 20,66,733/-. Accordingly, addition to the extent of Rs. 14,73,440/-is sustained. Ground number 1 to 4 are accordingly, partly allowed." 4. The ld.counsel for the assessee submitted that profit rate at 3.02% and 2.23% shown by the assessee in the Asstt.Year 2009-10 and 2010-11 was accepted by the AO in scrutiny assessment. Simi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessee. According to subsection 1, the income chargeable under the head profit and gains of business or profession or income from other source shall be computed in accordance with the method of accountancy employed by an Assessee regularly, subject to sub-section 2 of Section 145 of the Act. Sub-section 2 provides that the Central Government may notify in the official gazette from time to time, the Accounting Standard required to be followed by any class of Assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an Assessee i.e. cash or mercantile, such method has to be followed keeping in view the Accounting Standard notified by the Central Gov....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143, the [Assessing] Officer, after taking into account all relevant material which the [Assessing] Officer has gathered, [shall, after giving the assessee an opportunity of being heard, make the assessment] of the total income or loss to the best of his judgment and determine the sum payable by the assessee [* * *] on the basis of such assessment : [Provided that such opportunity shall be given by the Assessing Officer by serving a notice calling upon the assessee to show cause, on a date and time to be specified in the notice, why the assessment should not be completed to the best of his judgment : ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lty to decide matter with wisdom, truly and legally. Judgment does not depend upon the arbitrary, caprice of an adjudicator, but on settled and invariably principles of justice. Thus, in a best judgment, even if, there is an element of guess work, it should not be a wild one, but shall have reasonable nexus to the available material and circumstances of each assessee. 10. As observed above, estimation of income would always involve guess work. Two separate authorities have exercised their discretion in estimating income of the assessee. The ld.AO has estimated at the rate of 5% whereas ld.CIT(A) has substantially reduced the rate to 3.5%. To our mind 2nd appellate authority ought not to disturb the discretion exercised by the ld.CIT(A) s....