2006 (11) TMI 114 - HC - Income Tax

On grant of Samman Patra an assessee never get immunity from being regular assessment Held that scrutiny was proper A.O. in de novo consideration should consider explanation of assessee about fall in G.P. rate in comparison to previous year so direction to apply particular G.P. rate is set aside

Summary

Issues:
Assessment under a scheme for honoring taxpayers - Scrutiny of awarded taxpayer - Application of GP rate on sales figures - Disallowance of loss in accounts - Tribunal's decision on scrutiny and proper inquiries - Appeal against best judgment assessment - GP rate determination by assessing officer.

Analysis:
The case involved the assessment of an assessee who was awarded a Samman Patra under a scheme honoring taxpayers, granting immunity from scrutiny for three years under specific conditions. However, despite being honored, the assessee's case was subjected to scrutiny, leading to the rejection of certain expenses in the accounts and a best judgment assessment. The Tribunal noted that the prior approval of the Commissioner/Chief Commissioner was not obtained before scrutiny but upheld the decision due to the absence of grounds for exemption. The assessing officer made additions based on the GP rate on sales figures and disallowed losses, partially upheld by the CIT (A).

The Tribunal rejected pleas to remove the case from scrutiny, emphasizing that the exemption was not absolute and ordered proper inquiries by the assessing officer. The Tribunal directed the reassessment of total income based on the GP rate disclosed by the assessee in the preceding year. The appeal challenged the best judgment assessment, questioning deviation from the returned income and the scheme's provisions for honoring honest taxpayers. The High Court acknowledged the non-absolute nature of the immunity from scrutiny under the scheme and upheld the Tribunal's decision based on the peculiar facts of the case, including trade nature and account defects.

The High Court found it unjust to interfere with the best judgment assessment due to the state of the accounts. However, it directed that the determination of the GP rate should not be rigid and left to the assessing officer's discretion based on the material and explanations provided by the assessee. The appeal was disposed of with these directions, emphasizing the assessing officer's autonomy in considering the GP rate without a fixed formula.