2013 (10) TMI 1230 - HC - Income Tax

Best judgment assessment u/s 144 of the Income Tax Act - Assessee not maintaining any books of accounts nor filing profit and loss account and balance sheet Held that - Assessment does not suffers on account of the absence of any opportunity granted to it by the Assessing Officer before passing the order under Section 144 of the Act - Profit margin in the earlier years to refix the income at 5% of the gross turnover. Consequently, no any justification in the Tribunal straightaway restoring the assessment at 8% of the gross turnover without any discussion on the merits of the Commissioner of Income Tax (Appeals) order Matter restored to the Commissioner(Appeals) Decided in favor of Assessee.

Summary

Issues:
1. Assessment under Section 44AD of the Income Tax Act when turnover exceeds the prescribed limit.
2. Violation of natural justice principles in assessment under Section 143(3).
3. Discretionary powers of Assessing Officer in rejecting audited books of accounts.
4. Tribunal's decision based on presumption without material on record.

Issue 1 - Assessment under Section 44AD:
The appellant, a Civil Contractor, challenged the assessment under Section 44AD of the Income Tax Act for the assessment years 2006-07 and 2007-08, arguing that the turnover exceeded the prescribed limit of Rs.40 lakhs, rendering Section 44AD inapplicable. The Assessing Officer estimated income at 8% of gross contract receipts due to lack of proper accounting records. The Commissioner of Income Tax (Appeals) reduced the estimated income to 5%. The Income Tax Appellate Tribunal upheld the 8% assessment without proper discussion, leading to the appellant's appeal to the High Court. The Court noted that Section 44AD was irrelevant due to the turnover exceeding the limit, thus setting aside the Tribunal's decision and restoring the 5% assessment by the Commissioner of Income Tax (Appeals).

Issue 2 - Violation of Natural Justice Principles:
The appellant raised concerns about the Assessing Officer's failure to provide a reasonable opportunity to be heard before making a best judgment assessment under Section 144, as required by statutory procedural requirements. The Court observed that proper notice and opportunity for the appellant were essential, highlighting the importance of adhering to natural justice principles in assessment proceedings.

Issue 3 - Discretionary Powers of Assessing Officer:
The appellant questioned the Assessing Officer's discretionary power to reject audited books of accounts without valid grounds or understanding of the business's nature. The Court emphasized the need for Assessing Officers to exercise discretion judiciously, considering the ground realities and circumstances of each case before making assessments based on proper evaluation and analysis.

Issue 4 - Tribunal's Decision Based on Presumption:
The Tribunal's decision to uphold the assessment order without substantial material on record was challenged by the appellant. The Court found the Tribunal's reliance on presumptions without concrete evidence untenable in law, emphasizing the requirement for assessments to be based on factual and legal grounds. Consequently, the Court set aside the Tribunal's decision and restored the Commissioner of Income Tax (Appeals) order in fixing the income at 5% of the gross turnover.

In conclusion, the High Court partly allowed the appeals, setting aside the Income Tax Appellate Tribunal's decision and restoring the Commissioner of Income Tax (Appeals) order fixing the appellant's income at 5% of the gross turnover for the relevant assessment years.