1985 (11) TMI 103 - AT - Income Tax

Summary

Issues:
1. Legality of notice issued under section 147 for the first year.
2. Reopening of assessment under section 143(2) for the second year.
3. Determination of net profit rate for the second year.

Analysis:

*Issue 1: Legality of notice issued under section 147 for the first year*

The original assessment for the first year was completed under section 143(1), and later, action was taken under section 147 with a notice issued under section 148. The assessee objected to the legality of the notice but did not file a return. The assessment was then completed under section 144, resulting in an addition to the income. The Appellate Tribunal found that the reopening of the assessment did not comply with the law as the Income Tax Officer (ITO) did not follow the proper procedure. The Tribunal cited legal precedents to support its decision, emphasizing that a mistake by the ITO due to lack of vigilance or negligence does not warrant reopening under section 147.

*Issue 2: Reopening of assessment under section 143(2) for the second year*

In the second year, the original assessment was made under section 143(1), and the case was subsequently reopened under section 143(2). The net profit rate declared by the assessee was enhanced, leading to an addition to the income. The Appellate Tribunal noted that the ITO had jurisdiction to reopen the assessment for the second year. The Tribunal considered various factors, including comparable cases and special circumstances, to determine a reasonable net profit rate. Ultimately, a net profit rate of 7.5 percent on gross receipts was applied, and the Departmental appeal was allowed partially based on these considerations.

*Issue 3: Determination of net profit rate for the second year*

During the proceedings for the second year, the CIT (A) considered arguments regarding the net profit rate, citing examples from previous cases. The CIT (A) concluded that a net profit rate of 5.5 percent was reasonable based on the evidence presented. The Tribunal reviewed the facts and circumstances of the case, including explanations provided by the assessee and other relevant factors. After careful consideration, the Tribunal decided to apply a net profit rate of 7.5 percent on the gross receipts, finding no reason to alter the figures disclosed by the assessee. The Tribunal allowed the Departmental appeal and cross objection accordingly, with specific adjustments made to the gross receipts.

In conclusion, the Appellate Tribunal dismissed one appeal, allowed another appeal in part, and made adjustments to the net profit rate for the second year based on a thorough analysis of the facts and legal principles involved in the case.