2015 (9) TMI 388 - HC - Income Tax

Validity of assessment under section 144 - Best judgment assessment - whether it was open to the assessing officer to make the assessment under section 144, otherwise than, on the basis of all relevant materials which the assessing officer had gathered after giving an opportunity to the assessee ? - Held that - As quoted the relevant part of the order passed by the assessing officer from which it clearly appears that the assessing officer first exercised his power under section 145 and thereafter, he proceeded to exercise power under section 144. Therefore, it is not possible to accept the submission that the assessing officer really made the assessment under section 143(3) and by mistake he recorded to have passed the same under section 144. The submission that in an assessment under section 144 the assessing officer can make disallowances may be correct in the backdrop that the assessee may raise contentions disputing the materials collected by the assessing officer and allowances claimed in the defence to be taken by the assessee the assessing officer may have occasion to make disallowances. He has exercised power under section 145 because the books of accounts are not believable because the books of accounts according to him are neither correct, nor complete. If the assessing officer in such a case wishes to make an assessment under section 144, he has to make such assessment only in accordance with section 144. - Decided in favour of the assessee

Summary

Issues:
1. Validity of assessments made under sections 144 and 145.
2. Whether the assessing officer had the authority to make the assessment under section 144 without proper basis.
3. The correctness of the assessment order and the subsequent affirmation by the CIT (Appeal) and the Tribunal.
4. Interpretation of the assessing officer's actions under sections 143(3) and 144.

Analysis:
1. The High Court of Calcutta reviewed a case involving assessments for the years 2005-06 and 2006-07 made under sections 144 and 145. The assessing officer rejected the statement of account filed by the assessee under section 145(3) due to lack of supporting evidence, leading to assessments under section 144 for both years. The primary issue was whether these assessments were legally valid.

2. The Court examined whether the assessing officer had the authority to make assessments under section 144 without proper basis. It was noted that the officer did not base the assessments on gathered materials but rather on item-wise expenditure analysis by the assessee. The Court emphasized that assessments under section 144 must be made with all relevant materials considered, as per the provisions of the law.

3. The Court scrutinized the correctness of the assessment order and subsequent affirmations by the CIT (Appeal) and the Tribunal. The appellant's counsel highlighted discrepancies in the assessment, arguing that the estimates were exorbitant compared to previous and subsequent years' patterns of income. References were made to legal precedents emphasizing the need for a fair and honest estimate in best judgment assessments, which must have a reasonable nexus to available material and circumstances.

4. Regarding the interpreting the assessing officer's actions under sections 143(3) and 144, the Court rejected the respondent's submission that the assessments were made under section 143(3) and the reference to section 144 was a mistake. The Court held that the assessing officer had indeed proceeded under section 144 after initial actions under section 145, emphasizing the importance of following statutory procedures strictly.

In conclusion, the Court ruled in favor of the assessee, setting aside the challenged order and remanding the matter to the assessing officer for a lawful assessment under section 144. The appeal was disposed of accordingly.