2011 (4) TMI 80 - HC - Income Tax

Search and seizure - Estimation of income - G.P. Rate - It appears that the Commissioner of Income-tax (Appeals) came to the finding that there was no basis of the estimation of the Assessing Officer - If those estimates are found to be frivolous or not genuine, the Assessing Officer is free to arrive at his own finding regarding the gross profit rate but that must also be arrived at based on some authentic materials - As an assessing authority, it was the duty of the authorities below to consider the chart of the assessee and to examine its genuineness and for that reason, could also ask the assessee to produce evidence in support of the chart - It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on substantial question of law - Decided in the favour of the assessee by way of remand

Summary

Issues:
1. Estimation of gross profit rate by the Assessing Officer without basis
2. Appellate authorities arriving at a conclusion without verifying evidence
3. Perversity of the findings based on no evidence

Analysis:

1. The appeal under Section 260A of the Income-tax Act challenged an order by the Income-tax Appellate Tribunal regarding the block Assessment Year 1989-90 to 1989-1999. The controversy arose when the Assessing Officer estimated the gross profit (G.P.) at 10% without providing a basis or citing a comparative case. The Appellate Authority later adjusted the G.P. rate to 8.5% without justification. The Tribunal affirmed this decision without proper reasoning, leading to the appellant's dissatisfaction.

2. The Division Bench formulated substantial questions of law, questioning the arbitrary estimation of G.P. without adherence to Section 145 of the Act. The Court found that the authorities below failed to verify the comparative chart of profit rates provided by the assessee, leading to a decision based on conjecture. The Court emphasized the duty of the authorities to examine the genuineness of the chart and consider evidence before arriving at a conclusion on the G.P. rate. The lack of cogent reasons for discarding the appellant's chart rendered the findings of all three authorities as perverse and unsupported by evidence.

3. The Court set aside the orders of the authorities below and remanded the matter to the Assessing Officer for reconsideration. The Assessing Officer was directed to evaluate the comparative profit rates provided by the appellant, substantiate the conclusion on the G.P. rate with reasons, and complete the assessment within two months. The decision highlighted the importance of evidence-based findings and the possibility of setting aside perverse findings even in appeals limited to substantial questions of law. The appeal was disposed of with no order as to costs.