TaxTMI 
TaxTMI 
2025 (7) TMI 188
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....owing factual backdrop:- 3. The Income Tax Officers conducted a survey under Section 132 of the IT Act in the Radheshyam Agrawal Group, Raipur/ Raigarh to which the assessee/respondent herein is a member and during the course of search, apart from case, several incriminating documents were found and seized from the residential and business premises of the assessee. In order to complete the assessment proceedings for the block period assessment year 2006-07 to 2011-12, notice under Section 153A of the IT Act was issued and served upon the assessee and also notice under Section 143(2) of the IT Act was issued relating to the assessment year 2012-13. Thereafter, the assessee along with three other persons of the group filed Settlement Applications before the Income Tax Settlement Commission (ITSC), Additional Bench, Kolkata and the ITSC passed order under Section 245D(4) of the IT Act on 28-9-2015 and has determined the total income and total tax liabilities in the case of the assessee for the block period assessment year 2006-07 to 2012-13 and the rate of net profit was further enhanced by the assessee to the extent of 10% by submitting a letter dated 18-9-2015 which was ultimatel....
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.... and net profit to be adopted @ 10% of gross contract receipts, which would be binding upon the assessee. Therefore, the CIT (Appeals) and the ITAT both had concurrently erred in holding the net profit to be 5.37% of the gross contract receipts on the basis of books of accounts and thereby committed legal error which deserves to be set aside by interfering in the instant tax appeal by allowing it. 6. Mr. Anand Dadariya, learned counsel appearing for the respondent/assessee, would submit that the Assessing Officer (AO) had examined and cross-verified the books of accounts, bills, vouchers, confirmation of accounts, etc. pertaining to the year under consideration and no irregularities or defects in the books of accounts were brought on record, but had rejected the same for the reason that in the assessment years 2006-07 to 2012-13, the assessee in the course of proceedings before the ITSC, Kolkata had on suo motu basis rejected his books of accounts and admitted 10% net profit to the total gross receipts, without recording any specific finding of the irregularity or infirmity emerging therefrom the assessment in the books of accounts, whereas the AO was obligated to point out the ....
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.... profits. (See Commissioner of Income-tax, Madras v. A. Krishnaswami Mudaliar and others AIR 1964 SC 1843.) 11. A careful perusal of Section 145 of the IT Act would show that an Assessing Officer can reject the accounts maintained by the assessee if he is not satisfied about their correctness or completeness. Similarly, the Assessing Officer can reject the method of accounting followed by the assessee if the same is not in accordance with the provisions of sub-sections (1) and (2) of Section 145. However, in both the situations, the Assessing Officer is required to make the assessment in the manner provided under Section 144 of the IT Act. Meaning thereby, that the Assessing Officer is authorised to make assessment of total income of the assessee on the basis of "best judgment" and, at the same time, disregard the income declared in the return. Therefore, the existence of infirmities and discrepancies in the accounts maintained by the assessee is sine qua non for invoking the provisions of Section 145(3) of the IT Act. Unless and until the infirmities and discrepancies are expressly noticed by the Assessing Officer in the accounts maintained by the assessee, Section 145(3) of th....
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.... he says that the Income Tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under Section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in Gurmukh Singh v. CIT 1944 SCC OnLine Lah 38 : (1944) 12 ITR 393 (Lah)." 15. Reverting to the facts of the case in light of the principles of law relating to Section 145(3) of the IT Act and also considering the principles of law laid down by their Lordships of the Supreme Court in the above-mentioned judgments, it is quite vivid that for the block period assessment years 2006-07 to 2011-12, the appellant's case was settled by the ITSC, Kolkata by taking the net profit @ 10% of the total gross receipts which ....
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....net profit and the consequent addition has been made on pure guess work. The Revenue has questioned the judgment passed by the CIT (Appeals) before the ITAT and the ITAT, in turn, has also affirmed the findings recorded by the CIT (Appeals). 16. The CIT (Appeals) and the ITAT have clearly held that the finding of the AO is based on the outcome of the Settlement Commission proceedings for the block period assessment years 2006-07 to 2012-13 in which the assessee himself has declared 10% net profit of the total gross receipts, thereafter, he has maintained the accounts for the assessment year 2014-15 and the AO has not recorded any discrepancy or any infirmity in the books of accounts maintained by the assessee justifying the invocation of Section 145(3) of the IT Act, therefore, could not be proceeded to make best judgment assessment under Section 144 of the IT Act holding 10% net profit of the total gross receipts. The principle of res judicata, which the AO has proceeded to apply, could not be applied in view of the well settled law in this regard and in view of the law declared by the Supreme Court in M.M. Ipoh (supra) and Vidyut Metallics Ltd.'s case (supra) in which their Lo....