2013 (6) TMI 662 - AT - Income Tax

Expenses made u/s 144 disallowed - CIT(A) allowed part relief - Held that - As no appearance was made before the AO despite various opportunities it is a settled law that AO has to make a best judgment assessment, the same has to be judicious and on fair basis but in present case fair basis cannot be assessee s own results for earlier years because such assessment were never subjected to scrutiny. The assessee is engaged in the business of manufacture and sale of bottling plants and had turnover of Rs. 87,21,688/-. It is very difficult to believe that assessee has earned only a net profit of Rs. 32,799/- in the current year. In assessment year 2006-07, the assessee has shown only a profit of Rs. 103/-. Persuing the Profit and Loss account for last three years and it was noticed that assessee has not paid any salary or interest to the partners. As that assessee consists of two partners and the partners do not have any other income failure to understand how the assessee was running his household if no salary was drawn from the firm in the absence of any other income. In any case without any charge of interest and salary to partners net profit shown by assessee is unreasonably low. The estimate made by CIT(A) seems to be more than reasonable and therefore, nothing wrong with his order and confirm the same.

Summary

Issues:
1. Disallowance of expenses under section 144 of the Income Tax Act, 1961.
2. Justifiability of the assessment made by the Assessing Officer.
3. Reduction of additions by the Ld. CIT(A).
4. Non-compliance with notices and penalty proceedings.
5. Fairness and reasonableness of the assessment.

Issue 1: Disallowance of expenses under section 144 of the Income Tax Act, 1961:
The appeal challenged the disallowance of expenses amounting to Rs. 4,43,000 out of a total disallowance of Rs. 6,48,000 under section 144. The Assessing Officer made various disallowances for want of details and bills in different expense categories. The Ld. CIT(A) reduced the disallowance by Rs. 2,05,000 after examining the objections raised.

Issue 2: Justifiability of the assessment made by the Assessing Officer:
The Assessing Officer framed the assessment under section 144 due to non-compliance by the assessee in presenting books of account despite multiple opportunities. The appellant argued that the assessment should have been based on fair judgment and pointed out the comparability of profits with the previous years. However, the Tribunal found the net profit shown by the assessee unreasonably low, considering the turnover and lack of salary or interest paid to partners. Consequently, the Tribunal confirmed the assessment made by the Ld. CIT(A).

Issue 3: Reduction of additions by the Ld. CIT(A):
The Ld. CIT(A) reduced the additions made by the Assessing Officer after considering the objections raised by the appellant. The reduction amounted to Rs. 2,05,000, indicating a partial relief granted by the CIT(A) based on the submissions made during the appeal.

Issue 4: Non-compliance with notices and penalty proceedings:
The appellant justified non-appearance before the Assessing Officer by claiming that the Chartered Accountant (C.A.) was responsible, although no action was taken against the C.A. The penalty proceedings for non-compliance were dropped, but the Tribunal noted that this did not absolve the appellant of fault. The Tribunal highlighted instances where the appellant was aware of the non-compliance by the C.A., indicating a lack of cooperation in the assessment process.

Issue 5: Fairness and reasonableness of the assessment:
The Tribunal emphasized the need for a judicious and fair assessment by the Assessing Officer. While the appellant argued for a fair estimate based on previous years' results, the Tribunal found the net profit unreasonably low, leading to confirmation of the assessment made by the Ld. CIT(A). The Tribunal considered the nature of the business, turnover, and absence of salary or interest payments to partners in determining the reasonableness of the assessment.

This judgment addresses various issues related to the disallowance of expenses, justifiability of the assessment, reduction of additions by the Ld. CIT(A), non-compliance with notices and penalty proceedings, and the fairness and reasonableness of the assessment. The Tribunal upheld the assessment made by the Ld. CIT(A) based on the unreasonably low net profit shown by the appellant, despite arguments for a fair estimate. The non-compliance with notices and lack of cooperation in the assessment process were also highlighted, leading to the dismissal of the appeal.