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TMI Blog2014 (12) TMI 570X X X X Extracts X X X X X X X X Extracts X X X X ..... y reason i.e. should be preceded by reasons which, in turn, should be preceded by a perceptible process of reasoning based upon due consideration of all relevant facts - the word similar is not synonymous with the word 'identical' – relying upon Dhakeswari Cotton Mills Ltd. Vs. CIT [1954 (10) TMI 12 - SUPREME Court] - the discretion to determine net profit rate vests in the authorities but discretion shall not be arbitrary and should have a reasonable nexus to the available material and the circumstances of the case, followed by reasons that appear to be legal and valid. Whether a net profit rate determined without assigning any reasons is not perverse and arbitrary – Held that:- The authorities under the Act apparently misread the judgment in Commissioner of income-tax Versus Parbhat Kumar [2008 (11) TMI 356 - PUNJAB & HARYANA HIGH COURT] and ignored that while dismissing the appeal filed by the revenue, it was held that applying net profit rate on the basis of best judgment assessment 'in a given situation' will be a question of fact unless such assessment is shown to be arbitrary or perverse, thereby clearly setting out that if the net profit rate is not perverse and arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractor. The Assessing Officer rejected the books of accounts and applied a net profit rate by 8%. The CIT(A), Amritsar vide order dated 06.11.2012 reduced the net profit rate to 6%. The revenue filed an appeal whereas the assessee filed cross-objections. The ITAT dismissed the appeal filed by the revenue but allowed the crossITA objections filed by the assessee and reduced the net profit rate to 5.5%. Counsel for the assessee and counsel for the revenue are ad-idem that the substantial questions of law that arise for adjudication are :- (a) the nature of power exercised while determining net profit rate; (b) factors required to be taken into consideration while determining net profit rate; (c) whether net profit rate determined without assigning any reasons is not perverse and arbitrary? We have heard learned counsel for the parties, considered precedents cited for and against and proceed to answer the questions. The assessees in both cases are building contractors, whose account books were rejected for one reason or the other. The Assessing Officer, therefore, applied a net profit rate while assessing their income. A perusal of the impugned orders reveals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Government from time to time if applicable and if the Assessing Officer proceeds to rely upon assessments of other assessees engaged in similar business to do so only after determining points of similarity etc. At this stage, it would be appropriate to clarify that the word similar is not synonymous with the word 'identical'. Factors referred to above are merely illustrative and not exhaustive of the circumstances that may or may not be taken into consideration. At this stage, it would be appropriate to reproduce a few words from Dhakeswari Cotton Mills Ltd. Vs. CIT (1954) 26 ITR 775 (SC) so as to place our conclusions in their correct perspective:- .....The ITO is not barred by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a Court of law, but in making the assessment under subs.( 3) of s. 23 the ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under S. 23(3). In this case the Tribunal violated certain fundamental rules of justice in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordship thinks, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; though there must necessarily be guess work in the matter, it must be honest guess work. In that sense, too, the assessment must be to some extent arbitrary. Their Lordships think that the section places the officer in the position of a person whose decision as to amount is final and subject to no appeal, bust whose decision if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the Commissioner under the powers conferred upon that official by section 33. It would also be necessary to refer to another judgment in State of Kerala Vs. C. Velukutty, 1966 ITR Vol. (LX) 239, wherein while dealing with the expression 'best of his judgment', it has been held that the discre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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