1989 (7) TMI 172 - AT - Income Tax

Summary

Issues:
1. Whether an assessee can claim to be assessed other than the manner he kept his books of accounts?
2. Justification of changing the mode of assessment by the Income Tax Officer (ITO) for the assessment year under appeal.

Analysis:
1. The appellant, a firm of building contractors, had its assessment completed by the ITO on the basis of books of account for the current year, deviating from the flat rate basis used in previous years. The assessee objected to this change, arguing that there was no valid reason for the deviation when maintaining the same type of books of account as in earlier years. The CIT(A) upheld the ITO's assessment mode, citing the ITO's discretion under section 145 of the IT Act to compute income as deemed fit. The Tribunal considered whether the ITO was justified in changing the assessment mode, concluding that there is no res judicata in income tax proceedings, and each year's assessment is separate, with the ITO having the authority to assess differently each year.

2. The Tribunal referred to legal precedents to analyze the ITO's authority to change the assessment mode. It highlighted that while there is no res judicata in income tax law, the ITO's discretion is not unlimited. The Madras High Court and Bombay High Court decisions emphasized that the ITO cannot arbitrarily change assessments without fresh facts or justification. The Tribunal examined the assessee's past assessments and found consistency in the manner books of accounts were kept over the years, questioning the ITO's basis for changing the assessment mode. Despite this, due to unestablished expenses in the current year, the Tribunal partially allowed the appeal, estimating the profit rate at 12 1/2 per cent subject to depreciation and interest.

3. The Tribunal scrutinized the ITO's reasoning for changing the assessment mode, noting discrepancies in the ITO's assessment orders and his failure to provide clear reasons for the deviation from past practices. The Tribunal emphasized the importance of consistency in assessments and the need for valid justifications for altering the assessment mode. While acknowledging the ITO's authority to assess differently each year, the Tribunal held that the ITO's decision lacked proper grounds and failed to consider the continuity in the assessee's bookkeeping practices. Ultimately, the Tribunal allowed the appeal in part, adjusting the profit rate for the current year based on unestablished expenses.