1993 (7) TMI 51 - HC - Income Tax

Summary

Issues:
1. Proper estimation of gross profit in the assessment.
2. Validity of reopening the assessment under section 147(b) of the Income-tax Act, 1961.

Estimation of Gross Profit:
The case involved a building contractor whose income was assessed by estimating profits due to inadequate maintenance of accounts. The Income-tax Officer observed discrepancies in the accounts and decided to estimate income based on past profits. The Officer noted that the assessee had previously disclosed higher profits and that industry profit margins were higher than reported. The Officer assessed gross profits at 12% for old contracts and 15% for new contracts, resulting in an addition to income. The assessee did not appeal this decision. Subsequently, based on an audit note showing a higher profit rate for one contract, the Officer reopened the assessment under section 147(b). The Appellate Assistant Commissioner annulled the assessment, stating the Officer should not reassess based on previously available information. However, the Tribunal found the Officer's profit rate calculation incorrect, with the assessee's books showing higher profits than assessed. The Tribunal deemed the reopening valid based on the audit note.

Validity of Reopening Assessment:
The assessee argued that the Officer's reassessment was a change of opinion, not based on new material. The court referenced a Supreme Court decision stating that reassessment can occur if material not considered in the original assessment is later discovered, even if it is within the record. As the Officer did not consider the assessee's book results initially due to doubts about their accuracy, the later discovery of higher profits through an audit note validated the reassessment under section 147(b). The court held that the reopening was justified as the Officer had not previously evaluated the material, making it fall within the scope of reassessment.

In conclusion, the court answered both questions in favor of the Revenue, upholding the estimation of gross profits and validating the reopening of the assessment under section 147(b) based on new material discovered post the original assessment.