2016 (5) TMI 803 - HC - Income Tax

Rejection of books of accounts - whether the assessment should have been @ 10% of the Gross Contract Receipt or at some reduced rate? - Held that - The past tax history of the assessee may be one of the guiding factors for making best judgement assessment under Section 144 of the Act but the Gross Contract Receipt of the relevant year appears to be a more authentic and a sure guide for the assessment. The past tax history would have been more useful in the absence of Gross Contract Receipt. Accordingly, assessment on its basis cannot be faulted merely for the reason that past tax history was not considered. The question is to whether the assessment should have been @ 10% of the Gross Contract Receipt or at some reduced rate dependants upon the facts and circumstances of the each case. In the event, the assessing authority has exercise the discretion to assess it on 10% of the Gross Contract Receipt, the same is not liable to be disturbed in exercise of extra ordinary discretionary jurisdiction, unless it is shown that the application of the said rate was patently erroneous in law. No such material has been placed before to show that the assessment @ 10% of the Gross Contract Receipt is arbitrary or palpably erroneous.

Summary

Issues: Assessment under Section 144 of the Income Tax Act, 1961 based on estimation of income @ 10% of Gross Contract Receipt; Challenge to assessment through revision under Section 264; Consideration of past tax history in assessment; Comparison with Gross Contract Receipt for accurate assessment; Discretion of assessing authority in determining assessment rate; Application of extra ordinary discretionary jurisdiction in assessment review.

In this case, the petitioner, a civil contractor, was assessed under Section 144 of the Income Tax Act, 1961 for the assessment year 2010-11. The Assessing Authority rejected the petitioner's account books and assessed the income at 10% of the Gross Contract Receipt due to lack of alternative material for estimation. The petitioner chose to challenge this assessment through revision under Section 264 after the Commissioner of Income Tax dismissed the revision. The petitioner argued that the assessing authority failed to consider the past tax history and other relevant records for a more accurate assessment.

The court emphasized that while past tax history can be a guiding factor in best judgment assessment under Section 144, the Gross Contract Receipt of the relevant year provides a more reliable basis for assessment when available. Referring to the case law Commissioner of Income-Tax vs. Mettewal Co-operative Society, it was highlighted that the assessing officer's power is quasi-judicial and should be guided by reason, even if involving some guesswork based on rational analysis of facts.

The judgment clarified that the discretion to assess the income at 10% of Gross Contract Receipt rests with the assessing authority, and such assessment should not be disturbed unless it is shown to be patently erroneous in law. In this case, no evidence was presented to demonstrate that the 10% assessment rate was arbitrary or incorrect. The revisional authority's comparison with another case where income was assessed at 6% of Gross Contract Receipt was deemed inapplicable to the present situation.

Ultimately, the court found no merit in the petitioner's arguments and dismissed the petition, affirming the assessment at 10% of the Gross Contract Receipt as valid and not subject to revision under extraordinary discretionary jurisdiction unless proven legally erroneous.