TaxTMI 
TaxTMI 
2025 (12) TMI 1767
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....facturing plant of the assessee is located at Etah Road, Shikohabad, district Firozabad. The Assessing Officer during the assessment proceedings, obtained the details of sales, gross profit and net profit declared by the assessee during last two years including the present assessment year. The relevant chart is reproduced at page 2 of the assessment order. The Assessing Officer observed that the assessee has declared net profit around 0.4%, which was found to be on lower side in light of the profit margins of other players in this line of business. During examination of books of account of the assessee, he found that the assessee sold bulk of its milk to three entities, namely, M/s. Kamal Dairy, M/s. Prashant Dairy and M/s. Vidhata Dairy. He verified the above three proprietorship concerns and conducted enquiries. He found that these parties had huge debtors balances outstanding in assessee's books of account on 31.03.2013 and the assessee failed to establish the identity of bulk of its debtors and filed incomplete details of the debtors with respect to father's name, address and failed to substantiate the genuineness of the business transactions. He also observed that the transact....
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....as determined total taxable income at Rs.2,59,89,006/-. 3. Aggrieved with the above order, assessee preferred an appeal before the NFAC, Delhi and filed detailed submissions. After considering the detailed submissions filed by assessee, learned CIT(Appeals) deleted the other disallowances made by the Assessing Officer relating to subsidized cost of new assets relating to factory building and plants and machinery. However, he sustained the estimation made by the Assessing Officer @ 1%. 4. Aggrieved, the assessee is in appeal before us, raising the following grounds : "1. That on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the estimation of income by the AO at 1% of the turnover amounting to 72,50,43,496, resulting in an arbitrary addition of 71,48,87,770, solely based on assumptions, conjectures, and surmises, without any comparable case OR corroborative material to substantiate such estimation. 2. That on the facts and in the circumstances of the case and in law, the order passed by the learned CIT(A) NFAC (hereinafter referred to as CIT(A)) is bad in law and liable to be quashed, being in violation of the....
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....nt u/s. 143(3) was completed on 31.03.2016, assessing total income of appellant at Rs.2,59,89,010/- after rejecting his books of account u/s. 145(3) of the IT Act, 1961 and making additions on account of alleged low net profit and depreciation disallowance on fixed assets. The perusal of the impugned assessment order would reveal that the ld. Assessing Officer while considering the net profit rate of the assessee has given a comparative analysis of the turnover and profits of the appellant for the three assessment years as under: A.Y. Sales (Rs.) GP (Rs) G.P. Rate NP(Rs.) N.P. 2011-12 2,57,81,46,0 11,66,59,00 4.52% 95,36,000 0.37% 2012-13 2,43,12,66,0 14,04,74,00 5.78% 96,45,000 0.40% 2013-14 2,50,43,49,6 14,24,92,19 5.69% 1,01,55,701 0.41% The aforesaid table would clearly demonstrate that the trading results disclosed by the appellant are stable and consistent, showing reasonable profit margins. There is no significant variation warranting any adverse inference. Further, despite the consistent financial performance, the Ld. Assessing Officer made a bald presumption that the turnover had slig....
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....non-genuine purchases or sale of goods or any material to meet the test of deduction of true and correct picture due to improper records. The mistakes or errors in the maintenance of the books and record in the case of the buyers or supplier of the appellant could not have resulted in the rejection of the books of the appellant. The business results of M/s Vidhata Dairy, M/s Jai Dairy, and M/s Kamal Dairy were accepted by the Department in the preceding year, despite having the same nature, pattern, and volume of transactions and, therefore, no adverse inference can be drawn against him on the basis of alleged discrepancies noted in their cases for the year under consideration. It is worthwhile to note that the learned AO while considering the shortcomings of aforesaid three buyers on selective basis, has conveniently overlooked other major customers, M/s Satya Prakash Dairy, Proprietor Sh. Satya Prakash (PAN: BWJPP5434F) (Refer PB Page No. 646-647 for his assessment order for A.Y. 2013-14); M/s Prashant Dairy, Proprietor Sh. Prashant Kumar (PAN: BZJPK2849C) (Refer PB Page No. 648-649 for assessment order for A.Y. 2013-14); Their books of account books have been a....
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.... Copies of Registration Certificates with various Authorities 526 - 599 Copy of Agreement with Barauni Dairy, Barauni 600 - 620 2.0 That it is respectfully submitted that sub-section (3) of Section 145 empowers the Assessing Officer to disregard the books of accounts and proceed to make a best judgment assessment under Section 144 only under any of the following three conditions: (i). Where he is not satisfied about the correctness or completeness of the accounts of the assessee; (ii). Where the assessee has not regularly employed the method of accounting (i.e., cash or mercantile system); or (iii). Where the assessee has not followed the accounting standards notified under Section 145(2). The perusal of the assessment order clearly indicates that the learned AO did not point out any specific defect or deficiency in the appellant's books of account nor is there any material irregularity in the books that would prevent a true and fair view of the appellant's financial affairs. It is a settled position in law that the rejection of books under Section 145(3) must be based on specific and cogent material evidencing defects in ....
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....de is not a 'best judgment ' assessment. It is primarily made on the basis of the accounts maintained by the assessee. But, when the assessing officer comes to the conclusion that no reliance can be placed on the accounts maintained by the assessee, he proceeds to assess the assessee on the basis of his ' best judgment '. In doing so, he may take such assistance as the assessee's accounts may afford; he may also rely on other information gathered by him as well as the surrounding circumstances of the case. The assessments made on the basis of the assessee's accounts and those made on best judgment, basis are totally different types of assessments ........." "In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the 'best judgment' assessment, no doubt, should arrive at its conclusion without any bias and on rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the....
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..... It is not a power that can be exercised under the sweet will and pleasure of the concerned authorities. Brij Bhushan Lal Parduman Kumar vs. CIT (1978) 115 ITR 524 (SC) wherein it was held that in the best judgment assessment an honest and fair estimate of the income should be made and the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case. State of Kerala vs. C. Velukutty (1966) 60 ITR 239 (SC) it was held that though there is an element of guesswork in a 'best judgment assessment', it should not be a wild one, but should have a reasonable nexus to the available material and the circumstances of each case. Though the section provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard to the available material. CIT vs. Om Overseas (2008) 173 Taxman 185 (P&H) it was held that the AO can't reject the book of accounts provided by the assessee without specifying proper adequate and sufficient reasons. CIT vs. Vikram Plastics (1999) 239 ITR 161 (Guj.) it was found there was no discrepancy....
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....available on record on the basis of which the said conclusion can be varied. Mayank kumar Natwarlal Soni v. ACIT, [2019] 111 taxmann.com 6 (Ahmedabad - Trib.), It was noted that Assessing Officer had rejected assessee's books of account without giving any specific details and cogent material which was in violation of principles of natural justice. From the decisions referred to hereinabove, it is well established that (i) The power to make assessment on the basis of best judgment is not an arbitrary power. It is an assessment on the basis of best judgment of the officer ; (ii) when best judgment assessment is under-taken it cannot be as per the whims and fancies of the AO and it should base on some material either produced by the assessee or gathered by the taxing officer. If for any reason the material like books of account produced by the assessee is rejected as unreliable or unsatisfactory, there should be some valid reasons for doing so ; and (iii) whenever best judgment assessment is made, the court would not call for proof from the officer if there is some nexus between the amount arrived at after some guess work and the facts of the case. 4.0 I....
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....ot given details of the parties like name of the vendor, addresses and PAN details. At the time of hearing, learned AR of the assessee brought to our notice the regular assessment completed in the cases of Jai Dairy, Vidhata Dairy, Kamal Dairy and Prashant Dairy. Merely because the Assessing Officer was not satisfied with the information submitted by the assessee, the Assessing Officer has rejected the books of account irrespective of the fact that there are huge commercial transactions declared by the assessee. Further, we observe that the Assessing Officer also sought directions from Addl. CIT, Range 2(2), who also observed that it would be inappropriate to reach the conclusion that the entire sales/purchases are merely financial term flows. Further he observed that actual production on the face of it and electricity consumption would corroborate the same. The above observations clearly indicate that there is actual production as well as electricity consumption, which demonstrate that the assessee has actually processed the above said milk and milk products. Keep that as it may, we observe that the assessee has declared its financial results over the period from assessment year 2....