2013 (7) TMI 813 - HC - Income Tax

Method of computing profit rate - A.O. used comparable method of accounting - CIT upheld the method of accounting but reduced the amount of addition - Tribunal deleted disallowance - Held that - The CIT(A) has given cogent reason for not endorsing the approach of the AO in making assessment with reference to the case of another assessee after finding it to be not a directly comparable case and hence, not a safe guide more particularly, when assessee s past history was available and there was no material difference in the facts pertaining to the relevant assessment year and the past history year. The CIT(A), even while accepting past history as the relevant basis for assessment, proceeded to retain a part of the addition without cogent and sufficient reason therefor. The Tribunal, therefore, while endorsing the basis adopted by the CIT(A), has found no reason to sustain any addition and hence, deleted the addition altogether - Tribunal cannot be faulted in accepting the profit rate as declared by the assessee while not approving the rate as applied by the AO -Following decision of Commissioner of Income Tax Vs. Sadrudeen Hussaion 2001 (7) TMI 11 - RAJASTHAN High Court and Ram Prakash v. CIT 1983 (9) TMI 262 - ALLAHABAD HIGH COUR - Decided against Revenue.

Summary

Issues:
1. Justification of best judgment assessment criteria by the Assessing Officer.
2. Validity of comparing results with comparable cases and past history for profit estimation.

Analysis:
1. The appeal before the Rajasthan High Court involved challenging the judgment of the Income Tax Appellate Tribunal, which dismissed the Revenue's appeal and allowed the cross-objection of the assessee regarding the assessment year 1991-1992. The Tribunal had deleted the addition towards country liquor business made by the Assessing Officer and partly retained by the CIT(A). The questions of law admitted for appeal were related to the justification of the best judgment assessment by the AO and the validity of applying criteria of comparable cases and past history by the CIT(A).

2. The facts revealed that the assessee, engaged in liquor business, had its income assessed higher by the AO based on net profit rate, rejecting the books of accounts under Section 145 of the Income Tax Act. The AO compared the case with another liquor business for profit estimation. The CIT(A) partly allowed the appeal, considering the past history of the assessee and reduced the addition made by the AO. The Tribunal, in its order, emphasized the relevance of past history as the best guide for profit estimation, especially when the assessee had shown better results compared to the past year.

3. The Tribunal observed that the business was controlled by the Department of Excise, eliminating chances of suppression, and highlighted that the AO's estimation should not be arbitrary but guided judiciously. The Tribunal emphasized that the accepted past history is a crucial factor, and in this case, the declared results of the assessee were better than the assessed rates, justifying the deletion of the additions altogether.

4. The High Court, after considering the arguments, found no infirmity in the Tribunal's order and upheld the decision. The Court noted that the AO's comparison with a different business was not justified, and the reliance on the assessee's past history for profit estimation was reasonable. Citing precedents, the Court affirmed the Tribunal's decision to delete the addition made by the AO, emphasizing the importance of considering past history for fair assessment.

5. In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee, and upheld the Tribunal's decision to delete the addition in the country liquor business. The Court affirmed the significance of past history in profit estimation and rejected the AO's arbitrary comparison with a different business, emphasizing the need for a fair and justified assessment based on relevant criteria.