2009 (11) TMI 269 - HC - Income Tax

Best Judgment Assessment- The assessee firm engaged in the business of running a bar hotel. During survey the Department recovered certain account books, price list, etc. A supplier all of whom had confirmed that accounts written were not full and complete and did not reflect the actual receipts on sales. Therefore, the Assessing officer made a best judgment assessment under section 144. The Commissioner (Appeals) held that the statement recorded under section 133A(3)(iii) and no evidentiary value and, cancelled the estimation made by the Assessing Officer and refixed the gross profit at 35 per cent. for the assessment year 1997-98, 1998-2000. In doing so he relied on the fact that in the subsequent assessment even in the assessee s own case the gross profit assessed was only up to 34 percent. and in comparable cases the gross profit adopted was not as high as the percentage estimated for the three assessment year in the assessee s case. The Tribunal refixed the gross profit at 40 percent. for the first year, 45 percent, for the next year and 50 percent for the last year. On an application to set aside the ex-parte order and for rehearing, Tribunal reheard the matter and dismissed the Department s appeals. Held that- allowing the appeals in part, that the Tribunal had not only rejected the statement as having no evidentiary value, but had not even considered the contents of the documents seized were proved through corroborative evidence of the managing partner, the manager and the supplier there was no reason to reject them. For the sake of finality, the gross profit rate estimated by Tribunal in the first round at 40 percent for the year 1997-98 could be applied for all the three years.

Summary

Issues:
1. Justification of allowing a miscellaneous petition to recall an earlier order and dismiss appeals filed by the Revenue.
2. Validity of the evidentiary value of statements recorded under section 133A(3) (iii) of the Income-tax Act.
3. Assessment based on recovered materials and statements during a survey.
4. Consideration of documents seized by the Department in assessment proceedings.

Issue 1:
The primary issue in this case revolved around the justification of allowing a miscellaneous petition to recall an earlier order and dismiss appeals filed by the Revenue. The respondent-assessee, engaged in the business of running a bar hotel, had assessments completed on an estimation basis under section 144 of the Income-tax Act. On appeal, the Commissioner of Income-tax (Appeals) cancelled the estimation made by the Assessing Officer based on the judgment in Paul Mathews and Sons v. CIT. The Tribunal partly allowed the appeals by refixing the gross profit, but upon the assessee's application for rehearing, the Tribunal recalled its earlier order and dismissed the Department's appeals. The High Court, after detailed consideration, vacated the Tribunal and Commissioner's orders, directing the Department to accept a gross profit of 40 per cent for all the years as fixed by the Tribunal initially.

Issue 2:
The second issue involved the validity of the evidentiary value of statements recorded under section 133A(3) (iii) of the Income-tax Act. The High Court disagreed with the decision in Paul Mathews and Sons, stating that such statements have corroboratory value in assessment and can be relied upon by the assessee. Despite the respondent-assessee not relying on the above decision, the court found that the statement recorded under this provision holds relevance for assessment and other proceedings under the Act.

Issue 3:
Regarding the assessment based on recovered materials and statements during a survey, it was noted that the Department recovered account books, price lists, and recorded statements from various individuals confirming discrepancies in the accounts. The Assessing Officer resorted to a best judgment assessment under section 144 due to incomplete and inaccurate accounts. The first appellate authority modified the assessment by fixing the gross profit at 35 per cent for all years, considering subsequent assessments and comparable cases. The Tribunal, in its initial order, refixed the gross profit, but in a subsequent order, dismissed the Department's appeals without considering the contents of the seized documents and statements, leading to the High Court's intervention.

Issue 4:
The final issue involved the consideration of documents seized by the Department in assessment proceedings. The High Court observed that rejecting the contents of the seized documents without proper consideration was unwarranted, especially when corroborated by evidence from individuals involved. To avoid undue hardship, the court decided to apply the gross profit estimated by the Tribunal in the first round for all the years, directing the Assessing Officer to revise the assessments accordingly for finality in the matter.