TaxTMI 
TaxTMI 
2019 (8) TMI 567
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....cord for making such estimate ?" 3. It appears from the materials on record that the appellant had filed his return of income on 15th September 2011 declaring the total income at Rs. 5,34,342/-. The return was processed under Section 143(1) of the Act. The case was selected for scrutiny and notice under Section 143(2) of the Act was issued dated 31st July 2012. The appellant filed his revised return of income on 30th March 2012, declaring the total income of Rs. 7,44,070/- and claimed refund of Rs. 23,26,700/-. The notice under Section 142(1) of the Act was issued on 24th May 2013. According to the appellant, he derived income from civil contract (labour job work). The appellant showed gross business receipts of Rs. 12,00,02,100/- and a net profit of Rs. 5,37,942/-. The refund of Rs. 23,26,700/- out of the prepaid taxes contained tax deducted by M/s.PACL Limited against the payment for labour. The appellant showed labour receipts income account of Rs. 12,00,02,100/-. The Assessing Officer, relying on the statement of the appellant recorded under Section 131 of the Act and the information received subsequent to the search in the case of M/s.PACL India Limited, came to the conclu....
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....artment preferred an appeal before the Income Tax Appellate Tribunal bearing ITA No.2287/AHD/2015. The appellant preferred Cross Objection bearing CO No.161/AHD/2015. The Appellate Tribunal, vide its impugned order dated 23rd March 2018, confirmed the order of the CIT(A), estimating the commission at 2%. However, the Appellate Tribunal confirmed the addition on the basis that the benefit derived was of Rs. 12,00,02,100/-. 7. Being dissatisfied with the order passed by the Appellate Tribunal, the appellant has come up with the present Tax Appeal. SUBMISSIONS ON BEHALF OF THE APPELLANT : 8. Mr.Tushar Himani, the learned counsel appearing for the appellant, vehemently submitted that after the rejection of the books of accounts of the appellant under Section 145(3) of the Act, the Assessing Officer could not have proceeded to estimate the income of the appellant without any material or basis. Mr.Himani submitted that it is a settled position of law that the estimation of income cannot be made without any material or merely on guesswork. 9. Mr.Himani submitted that the Assessing Officer made an addition of 10% of the gross receipts as commission. There was no cross-inquiry with ....
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.... proposed cannot be held to be question of law as there is no inflexible rule that the books of accounts must either be accepted or rejected. The making of assessment differs from case to case and there cannot be any rigid principle. 13. Ms.Raval, in support of her submissions, placed strong reliance on a decision of this Court rendered in the case of Mayank Diamonds Pvt. Ltd. v. I.T.Officer (Tax Appeal No.200 of 2003, decided on 7th November 2014). ANALYSIS : 14. The CIT(A) recorded the following findings : "7.2 At the outset, it needs to be mentioned that accommodation entries can be of different types and the quantum of commission will depend on the nature of accommodation entries provided, the benefit derived therefrom and the logistics/paperwork, etc. involved. Accommodation entries are provided for bogus profit in the form of fictitious capital gain. Accommodation entries are also provided for bogus share capital, bogus share capital, bogus unsecured loan, non-existent sales, non-existent purchases, and bogus expenses. In the present appeal, it is for bogus expenses. The benefit derived therefrom is tax avoidance of approximately 30% of the amount of accommodation en....
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....lusions. Firstly, it did not disclose to the assessee what information had been supplied to it by the departmental representative. Next, it did not give any opportunity to the company to rebut the material furnished to it by him, and lastly, it declined to take all the material that the assessee wanted to produce in support of its case. The result is that the assessee had not had a fair hearing. The estimate of the gross rate of profit on sales, both by the Income-tax Officer and the Tribunal, seems to be based on surmises, suspicions and conjectures. It is somewhat surprising that the Tribunal took from the representative of the department a statement of gross profit rates of other cotton mills without showing that statement to the assessee and without giving him an opportunity to show that that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the department to the appellant, but it refused even to look at t....
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....thout giving any basis to justify the adoption of that figure." That expression is perhaps a little ambiguous, but read in the context of the statement of the case, the question can only mean this: can the assessing authority adopt a figure of gross turnover by pure guess and without referring to any materials on which the figure is based? It is clear to us that, understood in that sense, the High Court has answered the question incorrectly. The High Court went into an elaborate consideration, by way of comparison and contrast, of sub-s.(4) and cl.(b) of sub-s.(2) of S.10 of the Act. It is unnecessary for us to make any pronouncement in this appeal with regard to the precise scope of sub-s.(4) of S.10 of the Act which corresponds more or less to sub-s.(4) of S.23 of the Indian Income-tax Act; nor is it necessary for us to decide it an assessment made under cl.(b) of sub-s.(2) of S.10 of the Act, when the account books of the assessee are disbelieved stands exactly on the same footing as an assessment made under sub-s.(4) of S.10 when the assessee has failed to furnish his returns. In some decisions relating to the corresponding provisions of the Indian Income-tax Act, it has been s....
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.... that wrong approach. It was not sub-s.(4) of S.10 of the Act which the High Court had to consider; it had to consider the true scope and effect of cl.(b) of sub-s.(2) of S.10 of the Act. 5. Learned counsel for the respondent has strongly urged two points in support of the answer which the High Court gave. Firstly, he has contended that on a proper reading of the assessment orders and the orders of the Commissioner, it would appear that the gross turnover for the quarters in question was based on certain materials; therefore, the argument of learned counsel is that it is not correct to say that the figure of gross turnover was arbitrarily adopted or was adopted without reference to any evidence or any material at all. We have examined the assessment orders in question, which form part of the statement of the case. It is clear to us that what the Sales Tax Officer and the Commissioner did was to hold, for certain reasons, that the returns made by the assessee and the books of account filed by it were incorrect and undependable. It is not necessary to repeat those reasons, because we must accept the finding of fact arrived at by the assessing authorities that the returns and the b....
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....those decisions, though as we have stated earlier, the question is really answered by the observations made by this Court in 1955-1 SC R 941: ((S) AIR 1955 SC 65) (A). The first decision is the Privy Council decision in Commissioner of Income Tax U.P. and C.P. v. Badridas Ramrai Shop, Akola 64 Ind App. 102 at pp. 114- 115: (AIR 1937 PC 133 at p. 1328) (B). Lord Russel of Killowen in delivering the judgment of their Lordships made the following observations as respect a "best of judgment" assessment within the meaning of S.23(4) of the Indian Income-Tax Act: "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, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist h....
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....e them, no objection could have been taken; but the question which was referred to the High Court and which arose out of the orders of assessment, was whether it was open to the said authorities to make an assessment on a figure of gross turnover, without referring to any materials to justify the adoption of that figure. In answering that question in the Affirmative, the High Court has given a carte blanche to the sales Tax authorities and has, in our opinion, misdirected itself as to the true scope and effect of cl.(b) of sub-s.(2) of S.10 of the Act. 8. The next decision is Gunda Subbayya v. Commissioner of Income-Tax, Madras, 1939-7 ITR 21: (AIR 1939 Mad 371) (SB) (D). This decision also does not help the respondent. It was held in that decision that though there is nothing in the Indian Income-tax Act which imposes a duty on an Income-tax Officer, who makes an assessment under S.23 (3), to disclose to the assessee the material on which he proposes to act, natural justice requires that he should draw the assessee's attention to it and give him an opportunity to show that the officers information is wrong and he should also indicate in his order the material on which he ha....
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....ntractor and as such the cost or value of such stores/materials could not be added to the total cash payments received by the contractor from the Department under the contract for the purpose of estimating the income or profits derived by the contractor from such contract. He pointed out that under the terms and conditions of the contract such stores/material was never 'sold' by the Department to the contractor but the same always remained the property of the Department and the contractor had merely handled, manipulated or used the same in the works completed by him and the surplus of such stores/material, if any, that remained was required to be and was actually returned by the contractor to the Department and this being the true nature of the supply of such stores/material, the cost or the value thereof could not be included or added to the total cash payment received bythe contractor under the contract for computing his income or profits from the said contract. In support of his contention reliance was placed upon M. P. Alexander's case (1973-92 ITR 92) (Ker) (supra), Madras High Court's decision in Commissioner of Incometax, Madras v. K. S. Guruswami Gounder, 92....
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....ed under sub-section (2), the Assessing Officer may make an assessment in the manner provided in section 144." 22. The law, as far as Section 145 of the Act is concerned, is summed up in the case of Commissioner of Income-tax v. A.Krishnaswami Mudaliar, (1964)53 ITR 122, as follows : "......the expression in the opinion of the Income-tax Officer in the proviso to section 13 of the Indian Income-tax Act, 1922, does not confer a mere discretionary power; in the context, it imposes a statutory duty on the Income-tax Officer to examine in every case the method of accounting employed by the assessee and to see whether or not it has been regularly employed and to determine whether the income, profits and gains of the assessee could properly be deduced therefrom ...... If, therefore, there is a system of accounting regularly employed and by appropriate adjustments from the accounts maintained taxable profit may properly be deduced, the Income-tax Officer is bound to compute the profits in accordance with the method of accounting. But where in the opinion of the Income-tax Officer the profits cannot properly be deduced from the system of accounting adopted by the assessee it is open t....