2012 (12) TMI 120 - AT - Income Tax

Best Judgement assessment - comparison - held that - if comparisons are to be made then the best comparison is of the assessee s performance itself as stated is universally accepted and in the eventuality comparisons are to be made with outsiders then the parties with whom comparison are being made the relevant facts applicable to them have to be disclosed to the assessee so as to enable the assessee to give an effective representation. To make a comparison with a business concern whose particulars are not known to the assesee cannot be upheld as merely confronting the names cannot be said to be affording a genuine and effective opportunity of being heard as relevant facts have not been disclosed. The AO must take into consideration the local practices and also refer to previous record of the assessee and consider comparables after confronting these facts of the assessee so as to arrive at a fair and proper estimate if best judgment has to be resorted to. The AO while making the best judgment is not entitled to ignore the assessee s own history as what better comparison then ones own past. Thus, the assessee s own case can be considered and if still need be felt judicially to make comparisons with comparables, then it can be done only after confronting their facts to the assessee. Rejection of books of accounts Held that - Contended that in the timber business it is not possible to maintain item wise details as after sawing in different sizes it is recognized as timber like wise as in the trade of marble purchased and sold it is described as marble the day to day stock register is maintained - failure on the part of the assessee in not maintaining stock register it was stated can be a ground for suspicion however, if explanation of the assessee that it is not practical or feasible in the line of business is to be considered - issue is restored back to the file of the AO

Summary

Issues Involved:
1. Rejection of accounts under Section 145(3) of the Income Tax Act, 1961.
2. Comparison with other businesses for Gross Profit (GP) rate determination.
3. Validity of the addition sustained by CIT(A).
4. Admissibility of fresh evidence and past history in assessment.

Detailed Analysis:

1. Rejection of Accounts under Section 145(3) of the Income Tax Act, 1961:
The assessee's accounts were rejected under Section 145(3) due to the absence of an item-wise stock register and non-compliance with Section 44AA. The CIT(A) upheld this decision, leading to an addition of Rs. 57,40,570/-. The assessee argued that no inaccuracies were found in the books and that the turnover was accepted by the ITO and CIT(A). The Tribunal noted that the AO's rejection was based on unverifiable trading results due to the lack of quality-wise details in the stock registers. The Tribunal restored the issue back to the AO for a fresh decision, emphasizing the need for proper confrontation of facts and figures used for comparison.

2. Comparison with Other Businesses for GP Rate Determination:
The AO compared the assessee with other local timber stores and estimated a GP rate of 4.9%, which CIT(A) reduced to 4%. The assessee contended that the comparisons were not appropriate and that the GP rate applied was incorrect. The Tribunal observed that the AO's comparisons were not properly confronted with the assessee and that the past history of the assessee should be considered. The Tribunal directed the AO to make a fresh assessment, taking into account the assessee's past performance and ensuring that any comparisons with other businesses are properly disclosed and confronted.

3. Validity of the Addition Sustained by CIT(A):
The assessee argued that the addition sustained by CIT(A) was arbitrary and excessive. The Tribunal found that the assessee's sales were accepted and that the declared results should have been considered. The Tribunal restored the issue back to the AO for a fresh decision, with instructions to consider the past history of the assessee and ensure proper confrontation of any comparable data used.

4. Admissibility of Fresh Evidence and Past History in Assessment:
The Tribunal noted that the assessee presented fresh evidence, which was not admitted. However, the Tribunal emphasized the importance of consistency and the principle that an assessee's past history is a crucial indicator for comparisons. The Tribunal directed the AO to consider the past history of the assessee and to confront the assessee with full facts of any comparable concerns used for assessment. The Tribunal also highlighted that the AO should not ignore the assessee's own history when making a best judgment assessment.

Conclusion:
The Tribunal restored the issues back to the AO for a fresh decision, directing that the past history of the assessee should be considered and any comparisons with other businesses should be properly disclosed and confronted. Both the assessment order and the impugned order were set aside, and the appeals of the assessee and the department were allowed for statistical purposes.