2005 (11) TMI 38 - HC - Income Tax

Challenge to best judgment assessment - The appellate authority had not disclosed as to why it has not taken in to consideration the trading and profit and loss account submitted by the petitioner and on what basis the computation is made. On the other hand as reflected from the order, the basis of computation of profit at 9 per cent, is general and casual. The revisional authority-also rejected the petitioner s prayer to reduce the net profit rate without assigning any reasons as to how the rate of 9 per cent, is just and reasonable. - In view of the aforesaid, the orders passed by the appellate authority and the revisional authority are held to be arbitrary to the extent they upheld the rate of 9 per cent, and are, therefore, quashed. The matter is remitted to the appellate authority to reconsidered as to the rate which can be applied while estimating net profits

Summary

Issues:
Challenge to best judgment assessment made by Income-tax Officer, validity of total sales and net profit rate determination, arbitrary fixation of tax rate at 9 per cent.

Analysis:
The petitioner challenged the best judgment assessment made by the Income-tax Officer, arguing that the assessment lacked a proper basis for determining total sales and the 9% net profit rate. The petitioner contended that the authorities' orders should be quashed due to the absence of supporting material. The petitioner cited various judgments to support the argument, emphasizing the requirement for assessments to be based on relevant material. The respondent, however, defended the assessments, stating that the turnover was determined based on information provided by the petitioner himself. The respondent argued that the 9% profit rate was justified for the medicine shop business and that challenging the total sales figure was not permissible as it was not raised in the revision petition.

In analyzing the contentions and case law presented, the court found that the challenge to the total estimated sales taken by the Assessing Officer was not sustainable. The sales figure was based on information provided by the petitioner and was not disputed in the revision petition. However, the court agreed with the petitioner regarding the arbitrary fixation of the 9% tax rate. The petitioner had submitted trading and profit and loss accounts, which were not adequately considered by the appellate authority. The court noted that the reasoning for maintaining the 9% rate was arbitrary and unreasonable, citing the requirement for assessments to be fair, reasonable, and based on material. The court held that the appellate and revisional authorities' decisions upholding the 9% rate were arbitrary and quashed them.

Consequently, the court allowed the petition, quashed the orders related to the 9% tax rate, and remitted the matter to the appellate authority for reconsideration of the appropriate rate for estimating net profits. No costs were awarded in the judgment.