2017 (8) TMI 119 - HC - Income Tax

Estimation of turnover of sales-net profit-addition of 5 per cent - Best judgment assessment - Held that - The assessing authority while making the best judgment assessment no doubt should conclude rationally and unbiased. If the Assessing Officer s estimate is bona fide and rational, that there is no good proof to support that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation ; it is his best judgment and not of anyone else s. No court could substitute its best judgment for that of the assessing authority. The courts should first see, Abdulali asserts, whether the accounts maintained by the assessee were rightly rejected as unreliable. If they conclude that they were rightly rejected, the next question is whether the basis adopted in estimating the turnover has a reasonable nexus with the estimate made. If the basis adopted is held to be relevant, even though the courts may think that it is not the most appropriate basis, the assessing authority s estimate cannot be disturbed. Assessee could not establish that bill-books accord with the statements of account he submitted to the authorities. Nor has he sustained his defence that the bill-books contained commission transactions, given the tax difference between the State of Kerala and the Union Territory of Pondicherry. Further, important is that any accommodation by way of issuing bills at Mahe to the traders of Kerala for the transactions held only in Kerala is against public policy. The authorities-even if they were to believe the assessee s version-have rightly refused to recognise those illegal transactions. Indeed, emphatic is the judicial dictum of Abdulali 1973 (4) TMI 49 - SUPREME Court that the Assessing Officer s best judgment did carry an element of speculation and approximation. As against the initial turnover of ₹ 2.31 crores, the Tribunal has found it to be ₹ 1,95,49,077 based on the Assessing Officer s remand report. As a result, the Tribunal has sustained the net profit rate at 5 per cent. of the turnover. We reckon that the method of calculation and the procedure adopted by the authorities arriving at the undisclosed income has accorded with the statutory mandate under sections 68 to 69C of the Act. We, therefore, find no reason to interfere with the Tribunal s confirming the Assessing Officer s adopting the undisclosed income at 5 per cent. on the revised suppressed turnover.

Issues Involved:
1. Legality and sustainability of the rejection of books of account and returns of income for various assessment years.
2. Justification of the addition of undisclosed business income based on the search findings.
3. Estimation of turnover and net profit, and the addition of 5% of the revised suppressed turnover.
4. Treatment of agricultural income as income from other sources.
5. Interest on fixed deposits and its non-disclosure in returns.
6. Addition of amounts allegedly lent to other people and the interest component thereon.
7. Income from fishing boats.

Issue-wise Detailed Analysis:

1. Legality and Sustainability of Rejection of Books of Account and Returns of Income:
The appellant's books of account and returns for the assessment years 2002-03 to 2008-09 were rejected by the Income-tax authorities based on documents found during a search. The appellant argued that there was no material or evidence to justify the estimated suppressed turnover. The court noted that the authorities relied on unsigned computer sheets and bill books found during the search. The Tribunal framed issues regarding the sufficiency of evidence found in the search and the application of section 132(4). The court upheld the rejection of books of account, emphasizing that the appellant failed to provide a cogent explanation for the discrepancies found.

2. Justification of the Addition of Undisclosed Business Income:
The authorities estimated the appellant's income based on documents found during the search, especially a bill book from April 1, 2006, to July 30, 2007. The appellant's defense that the impounded bills were adjustment bills issued for sales effected to dealers in Kerala was not accepted. The court noted that the appellant could not establish that the bill books accorded with the statements of account submitted to the authorities. The court upheld the addition of undisclosed business income, finding that the authorities' estimation method was reasonable and in line with statutory mandates.

3. Estimation of Turnover and Net Profit, and the Addition of 5% of the Revised Suppressed Turnover:
The Assessing Officer estimated the sales and gross profit for the assessment years based on the bill books found during the search. The Tribunal sustained the net profit rate at 5% of the turnover. The court found no reason to interfere with the Tribunal's confirmation of the Assessing Officer's adoption of the undisclosed income at 5% on the revised suppressed turnover.

4. Treatment of Agricultural Income as Income from Other Sources:
For the assessment year 2008-09, the appellant claimed agricultural income, which the authorities treated as income from other sources. The court upheld the authorities' findings, noting that the appellant's claim was against the established practice of reckoning income from agricultural activities. The court found no reason to interfere with the concurrent findings of the authorities on this aspect.

5. Interest on Fixed Deposits and Its Non-Disclosure in Returns:
For the assessment years 2003-04, 2004-05, and 2005-06, the appellant showed fixed deposits but did not reveal any interest in the returns. The Assessing Officer adopted interest at 10% per annum. The court found the concurrent finding of reckoning interest at 10% annually to be sustainable and called for no interference.

6. Addition of Amounts Allegedly Lent to Other People and the Interest Component Thereon:
For the assessment year 2004-05, the appellant allegedly lent amounts to various individuals, which the Assessing Officer treated as unexplained investment. The court found that the speculative aspect overshadowed the established business practices and held that the appellant should have been given the benefit of the doubt. The court set aside the Tribunal's findings concerning the addition of interest for the assessment year 2004-05 and disallowed the Assessing Officer's conjecture on the interest component for the assessment years 2005-06, 2006-07, and 2007-08.

7. Income from Fishing Boats:
The Assessing Officer made additions based on estimated income from fishing boats for the assessment years 2005-06, 2006-07, 2007-08, and 2008-09. The court upheld the Tribunal's findings, noting that the appellant provided little explanation for the income revealed in the seized diary.

Conclusion:
The court answered the questions of law on all issues against the appellant except for the addition of amounts allegedly lent to other people, totaling ?25,63,500, and the interest component thereon. The Income-tax Appeals were disposed of with no order on costs.

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