TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 714
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....s audited in terms of Section 44AB of the Income Tax Act, 1961 [hereinafter called 'the Act'] as the gross receipts exceeded the prescribed limit of Rs.1.00 crore. It was further noted by the Assessing Officer that the assessee did not furnish such audit report in time. Thereafter, the AO raised various queries from time to time, requiring the assessee to produce books of account as well as original vouchers pertaining to income and expenditure, but, no compliance was made by the assessee and the assessee only requested for adjournments from time to time. Left with no option, the Assessing Officer proceeded to reject the books of account in terms of Section 145(3) of the Act and proceeded to frame the assessment u/s 144 r.w.s. 143(3) of the Act by applying profit rate of 12% on gross receipts of Rs.4,10,12,477/-. Thus, the addition to the income of the assessee was made to the tune of Rs.40,21,967/- and the taxable income was assessed at Rs.49,21,497/-. 2.1 Aggrieved, the assessee approached the Ld. NFAC and the Ld. NFAC noted that in the immediately succeeding assessment year i.e., A.Y. 2014-15, the Assessing Officer had applied net profit rate of 5% on gross receipts. However, i....
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....he impugned order and submitted that in AY 2011-12 the net profit percentage was 1.69%, in AY 2012-13, the net profit percentage was 1.56% and in AY 2013-14 i.e. the current assessment year, the net profit was 2.19%. It was further submitted that although the AO had applied net profit rate of 5% in AY 2014-15, the assessee was already in appeal before the Ld. First Appellate Authority challenging such estimation. 3.1. The ld. AR placed reliance on certain judicial precedents (which have been filed in the form of paper book placed on record) and submitted that even in the cases of best judgment assessment, the Assessing Officer must make such assessment, which he honestly believes to be a fair estimate and the same must be based on knowledge of previous assessments of the assessee. It was further submitted by the Ld. AR that in the case of 'Bhatinda Truck Operator Union vs. ITO' (reported in (2007) 158 taxman 148 (Asr.) (MAG), the Amritsar Bench of ITAT had held that even when the assessee had failed to produce books of account and the AO had invoked provisions of Section 145(3) of the Act and estimated the assessee's income by applying net profit rate of 10%, without referring to ....
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....the AO could not have arbitrarily applied profit rate of 12% without considering the past history of the assessee. The order of Ld. NFAC has also been assailed by the Ld. AR by advancing similar arguments. 5.1 As far as the best judgment assessments u/s. 144 of the Act are concerned, the same are resorted to by the Assessing Officer when he has limited knowledge about the financial dealings and circumstances of the assessee and where the assessee has failed to extend adequate cooperation to the Assessing Officer during the course of assessment proceedings. However, while exercising the powers u/s. 144 of the Act, in spite of the assessee not having extended due cooperation to the Assessing Officer, the Assessing Officer is duty bound to act within the four corners of law. In our considered opinion, best judgment assessment is quasi judicial in nature and the estimation made by the Assessing Officer has to be based on the principles of natural justice, equity and a good conscience. Thus, in common parlance, the words 'best judgment assessment' would mean making assessment which is without prejudice or bias and which does not smack of arbitrariness on the part of the Assessing Offic....
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....y 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 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 him in arriving at a fair and proper estimate, and though there must necessarily be guess-work. In the matter, it must be honest guess-work. In that sense too the assessment must be, to some extent, arbitrary The section places the officer in the position of a person whose decision as to amount is final and subject to no appeal, but whose decision, if it can be shown to have been arrived at without an honest exercise of judgmmt, may be revised or reviewed by the Commissioner under the powers conferred upon that official by section 33." 9. Now for the purpose of estimating the income of assessee, the Assessing Officer can refer to the past history of the case which acts as a good guide to the Assessing Officer. If past history of the case is no....
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.... single other case of identical nature where net profit rate of 10 per cent is applied. He could not do so. Under these circumstances, we consider the orders of the authorities below for applying rate of profit at 10 per cent as highly arbitrary, unreasonable and without any basis. 12. In the fight of detailed facts and circumstances of the case discussed above and the legal position mentioned above, we are of the considered opinion that orders of authorities below deserve to be set aside. We order accordingly and direct the Assessing Officer to compute the income by applying net profit rate of 3 per cent of the freight receipts, union fee and collection from Truck Operators. The assessee would not be entitled to any deduction for the expenses as the income is directed to be computed by applying net profit rate of 3 per cent. These grounds of appeals are treated as partly allowed." 5.4 Similarly, the Chandigarh Bench of the ITAT in the case of 'Shri Gurunanak Truck Operators Union, Sunam Vs. ITO' (Supra) also held the issue in favour of the assessee by directing that instead of estimated net profit rate of 1.5%, the net profit rate of 1% should be applied. The relevant observati....