9911796707
TMI Blog2010 (12) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) have failed to appreciate and consider that when there were no account books and other details available with the assessee, how and on what basis the accounts of the assessee, without verification would be accepted as correct?" 2. Briefly delineated, the facts of the case relevant to the assessment year 1994-95 are as follows. 3. The assessee-respondent firm was engaged in the business of manufacturing and trading of footwear under the brand name of "WOODLAND" and "WOODS" during the relevant financial year. The said firm was constituted during the financial year 1992-93 as a partnership firm. On 21.07.1999, a survey operation under Section 133A of the Act was conducted at the business premises of the assessee firm and its accountants M/s A.K. Dua and Associates. During the course of the said survey, it came to the notice of the Department that the assessee had not filed its return of income after the assessment year 1993-94. Necessary legal proceedings were initiated against the assessee for non-filing of the returns of the assessment years 1994-95, 1995-96, 1996-97, 1997-98, 1998-99 and 1999-2000. A notice under Section 148 of the Act after recording reasons was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s filed against the said accountants by the assessee on 21.02.2000, i.e., almost five months after the date of the survey on 21.07.1999. There was also no evidence to suggest that the assessee had made sufficient efforts till the date of the survey to obtain its records/books of account from these accountants. The Assessing Officer took the stand that the assessee could not plead ignorance of law as a defence, and further that this state of affairs has arisen not due to any reasonable cause beyond the control of the assessee but due to gross negligence on its part. The Assessing Officer accordingly proceeded to estimate the profits for the assessment year in question on a fair and reasonable basis in the absence of books of account, audit report and other details in respect of the audited accounts in the following manner: "The assessee made declaration under the VDIS 1997 in respect of the A.Ys. 1995-96, 1996-97 and 1997-98 of the above said amounts as income from the firm invested in the same business. Taxes were duly paid for the above said VDIS made for which necessary certificate was also issued by the jurisdictional CIT u/s 68(2) of the Act. Since the assessee has already made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the assessee had started the business of local manufacture and sales. This being the initial year of business, the turnover was low. It was not even at the break even point and the assessee was incurring losses. It was pointed out by citing the comparable case of M/s. Bata India Limited that in the year 1994 the declared profit before tax was 0.19%, and if this rate was applied to the turnover of the assessee as accepted by the Assessing Officer, the net profit in the case of the assessee would come to Rs. 1,19,415/-, whereas the assessee had declared a profit of Rs. 6,60,883/- in its audited profit and loss account. In view of the aforesaid submissions made before the CIT(A), this data along with the written submissions of the assessee were sent to the Assessing Officer for his comments by the CIT(A). The Assessing Officer in his remand report did not make any comments on the comparable date of M/s. Bata India Limited, however stuck to the stand taken by him in the assessment order. 7. The assessee also drew the attention of the CIT(A) to the case of M/s. Aero Traders Pvt. Ltd. - a sister concern of the assessee - for the assessment years 1993-94 to 1996-97, wherein the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer in his Remand Report has not commented on the comparable case of M/s. Bata India Limited, relied upon by the appellant. It is also a settled law that profit margins of a tax payer as declared by him, could be varied and disturbed only, if the profit margins in the case of other assessee engaged in the similar business are higher. The appellant in support of his contentions has been able to bring on record the evidence that in the case of a company doing similar business, the declared profits were in fact lower than the profits declared by the appellant. Under these circumstances and looking at the facts on records, I am of the view that the net profit as declared by the appellant need not be disturbed. Consequently the addition made by the Assessing Officer stands deleted." 9. Against the aforesaid order of the CIT(A), the Department inter alia filed an appeal before the Income Tax Appellate Tribunal (in short "ITAT"). The ITAT, after noting that the aforesaid findings could not be controverted by the learned departmental representative who had placed strong reliance on the order of the Assessing officer only, concurred with the findings of the CIT(A) as follows:- "The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the appellant was prevented by a sufficient cause from filing the audited accounts and the return of income within the stipulated time. I am, therefore, of the opinion that the appellant, for the reasons mentioned in the affidavit filed before me was prevented by a sufficient cause from filing the audited accounts and the return of income within stipulated time. The next argument of the appellant is that when the return for the asstt. year 1999-00 having identical facts and circumstances was accepted by the AO as correct but when he came to the asstt. year 1998-99 he did not accept the audited accounts and made variations in the accountants (sic. accounts) based on the comparative analysis of the profit and loss account of the year under appeal with that of the succeeding year and that too without giving any opportunity to the appellant. Objecting to the procedure adopted by the AO as well as additions made by him the appellant has explained that the difference between the two asstt. years was primarily due to the write off of the stocks amounting to Rs. 3.20 crores. These stocks comprising of unsaleble half manufacturer shoe uppers and leather rejects deteriorated due to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the books of account, though filed a copy of the balance-sheet and the profit and loss account along with the return of income. In the absence of the books of account, the Assessing Officer had been compelled to make best judgment assessment under Section 144 of the Income Tax Act, 1961. The basis for making the said assessment by the Assessing Officer was the percentage of profits disclosed by the assessee itself in the subsequent years as per the declaration made under the Voluntary Disclosure of Income Scheme, 1997 (VDIS) and no fault could be found with the same. 13. Mr. Ashish Mohan, the learned counsel for the respondent-assessee, on the other hand, vehemently contended that the Assessing Officer was not entitled to rely upon the information given by the assessee in the declaration filed under the VDIS. Such a course of action was not at all permissible for the Assessing Officer having regard to the provisions of Section 72 of the Finance Act, 1997 incorporating the text of VDIS, 1997. Even otherwise, both the appellate authorities had rightly concluded that the net profit declared by the assessee was not liable to be disturbed in view of the fact that the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclaration to an officer employed in the execution of the IT Act or the Wealth-tax Act or to any officer appointed by the Comptroller and Auditor-General of India or the Board to audit IT receipts or refunds. 16. We are buttressed in coming to the above conclusion from the fact that we find on a perusal of the Voluntary Disclosure of Income Scheme, 1997 and in particular Section 70(1) of the Scheme that though nothing contained in the declaration made under sub-section (1) of Section 64 shall be admissible in evidence against a declarant relating to the imposition of penalty or for purposes of prosecution under the Income Tax Act, the Wealth Tax Act, the Foreign Exchange Regulation Act, 1973, or the Companies Act, 1956, the scheme does not contain any provision declaring as inadmissible in evidence against the declarant the particulars contained in the declaration filed for the purpose of proceedings under the Income Tax Act. Thus, in our view, it is not open to the assessee to contend that the declarations filed by him could not have been looked into by the Assessing Officer for the purpose of estimating his income for the assessment year in question. 17. We also concur w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer is the best judge of the situation and the High Court could not substitute its "best judgment" for that of the assessing authority, held that in the case of "best judgment" assessments, the Courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating the turnover has reasonable nexus with the estimate made. If the basis adopted is held to be a relevant basis even though the Courts may think that it is not the most appropriate basis, the estimate made by the Assessing Officer cannot be disturbed. 21. Thus, even assuming for the sake of argument that the assessee's profit and loss account was rightly discarded by the Assessing Officer, it is for this Court to examine whether a rational basis was adopted by the Assessing Officer. The answer is our opinion must be an emphatic no. In our opinion, the CIT(A) and the Income Tax Appellate Tribunal rightly set aside the "best judgment" assessment of the Assessing Officer on the ground that the Assessing Officer had "not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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