2022 (3) TMI 1274 - AT - Income Tax

Best Judgement assessment u/s 144 - Estimation of income - Validity of assessment framed for want to service of notice u/s 143(2) - HELD THAT - Department has filed the relevant record including the order-sheet of the assessment proceedings as well as the copy of the notice issued u/s 143(2) dated 14.09.2016 which was received by the assessee/AR on 16.09.2016. The assessee has not disputed the signature acknowledging the receipt of the said notice on behalf of the assessee. Accordingly, in view of the facts and circumstances of the case, the notice issued under section 143(2) dated 14.09.2016 was duly served on the assessee on 16.09.2016 which is within the period of limitation therefore, this ground of the assessee's appeal is de-void of merit and the same is dismissed. Addition while passing ex-parte assessment order u/s 144 - estimation the income of the assessee - AO applying net profit rate at 10% on the receipts as found deposited in the bank account of the assessee - CIT(A) restricted the addition to 5% as against 10% net profit rate applied by the Assessing Officer - HELD THAT - There is no dispute that the return of income filed by the assessee does not disclose and contain the necessary information and details as required. Except the total income declared nil, no other details are given in the return of income. The Assessing Officer issued notices under section 143(2) as well as various notices issued under sections 142(1) alongwith the questionnaire to the assessee however, the assessee has not responded to the notice issued by the AO and consequently the assessment was framed under section 144 on the basis of the material available on record. CIT(A) has restricted the net profit applied by the Assessing Officer to 5% which shows that the adoption of net profit upon Assessing Officer was excessive and arbitrary however, the CIT(A) has also not given any basis for applying the net profit @ 5%. The assessee has not disputed the fact that for the assessment year 2014-15, the addition confirmed by the CIT(A) for applying profit rate at 5% is accepted and the dispute is settled under Vivad Se Vishwas Scheme, 2020. Since the computation of gross receipts/turnover of the assessee requires a proper verification of the details and facts to be produced by the assessee and consequently the estimation of the income is also required to be on the basis of some reasonable and proper criteria as a guidance for estimation of income therefore matter is set aside to the record of the Assessing Officer for the adjudication of these two issues for computation of gross receipts/turnover of the assessee and estimation of income by giving one more opportunity to the assessee to furnish the relevant details. Appeal is allowed for statistical purposes.

Summary

Issues:
1. Validity of assessment due to lack of notice under section 143(2) of the Income Tax Act.
2. Addition made by the Assessing Officer on account of income estimation at 10% net profit rate.
3. Challenge against the addition and assessment process by the Assessing Officer and CIT(A).

Issue 1: Validity of assessment due to lack of notice under section 143(2) of the Income Tax Act:
The appeal challenged the assessment for not serving a notice under section 143(2). The Tribunal found that the notice dated 14.09.2016 was served on the assessee on 16.09.2016, within the limitation period. The department provided evidence of service, which the assessee did not dispute. Consequently, the appeal ground was devoid of merit and dismissed.

Issue 2: Addition made by the Assessing Officer on account of income estimation at 10% net profit rate:
The Assessing Officer estimated the income at 10% net profit rate based on bank deposits, later reduced to 5% by CIT(A). The assessee argued that the turnover was incorrectly calculated, and the net profit rate was arbitrary. The Tribunal noted the lack of necessary details in the return filed by the assessee. It found that the Assessing Officer did not consider all relevant bank account details and applied the net profit rate without proper basis. The CIT(A) also failed to provide a basis for the 5% rate. The Tribunal set aside the matter for reassessment, providing the assessee with an opportunity to submit relevant details for a proper computation of income.

Issue 3: Challenge against the addition and assessment process by the Assessing Officer and CIT(A):
The assessee disputed the assessment process, arguing that past history and reasonable criteria were not considered. The Tribunal observed that the assessee did not respond to notices or provide necessary details. It highlighted the arbitrary nature of the Assessing Officer's approach and the lack of proper criteria for the net profit rate. The Tribunal set aside the matter for reassessment, emphasizing the need for proper verification and reasonable criteria for income estimation.

In conclusion, the Tribunal partly allowed the appeal for statistical purposes, setting aside the assessment for reassessment by the Assessing Officer to consider all relevant details and apply reasonable criteria for income estimation.