2006 (12) TMI 83 - SC - Income Tax

Resortation of Best judgment assessment Comm(A), tribunal & HC held that books were rightly rejected by assessing officer as assessee did not submit proper accounts no arbitrariness in this case in resorting the best judgment assessment

Summary

Issues:
- Assessment of Gross Profit
- Rejection of books of accounts
- Allegation of bogus purchases

Assessment of Gross Profit:
The case involved an appeal against the assessment of Gross Profit by the Income Tax Authorities. The Assessing Officer initially estimated the Gross Profit of the assessee at 40%, citing comparable cases. The Commissioner of Income-tax (Appeals) upheld most findings but reduced the Gross Profit to 35%. Subsequently, the Tribunal further reduced the Gross Profit rate to 30%. The counsel for the assessee argued against the allegation of bogus purchases. The Supreme Court noted that whether there were bogus purchases or not is a finding of fact and cannot be interfered with in the appeal. The Court emphasized that in best judgment assessments, there is an element of guesswork, and while authorities should make a fair estimate, some level of guesswork is inevitable. As the Income Tax Authorities provided cogent reasons for rejecting the books of accounts and determining the Gross Profit, the Court found no arbitrariness and dismissed the appeal.

Rejection of Books of Accounts:
The Assessing Officer rejected the books of accounts of the assessee due to various defects observed during assessment, such as the absence of quantitative details/stock register, lack of evidence for valuation of closing stock, and doubts regarding the genuineness of purchases. The rejection led to a best judgment assessment under Section 144 of the Income-tax Act. The Court held that the Income Tax Authorities had provided valid reasons for rejecting the books of accounts, and there was no basis to challenge their decision. The Court emphasized that the assessee's failure to maintain proper accounts contributed to the need for a best judgment assessment, and the authorities acted within their discretion in this regard.

Allegation of Bogus Purchases:
The Assessing Officer accused the assessee of showing bogus purchases to manipulate Gross Profits. The counsel for the assessee contended that the Income-tax Authorities wrongly held the purchases as bogus and that the books of accounts were unjustly rejected. However, the Supreme Court reiterated that the determination of bogus purchases is a factual finding that cannot be altered in the appeal. The Court highlighted that the authorities had provided sufficient justifications for their actions, and there was no indication of arbitrariness in their decision-making process. Consequently, the Court dismissed the appeal, emphasizing that the assessee's failure to submit proper accounts contributed to the outcome of the assessment.