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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 ..... Vs. M/s The Mattewal Co-op. L/C Society, Amritsar. Before delimiting the substantial questions of law that arise for adjudication, it would be appropriate to briefly refer to the facts of each case. ITA No. 269 of 2014 The assessee is a building contractor. The Assessing Officer refused to accept the profit and loss account, ledger, cash book etc. and, therefore, applied a net profit rate of 12% by relying upon a judgment of this Court in Commissioner of Income Tax Vs. Parbhat Kumar, (2010) 323 ITR 675 (P&H) and a judgment by the Income Tax Appellate Tribunal in ACIT Vs. M/s Ess. Buildings (P) Ltd., Ludhiana, (ITA No. 707/Chd./1997). Aggrieved by the assessment order, the assessee filed an appeal. The Commissioner of Income Tax (Appeals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, therefore, applied a net profit rate while assessing their income. A perusal of the impugned orders reveals that the Assessing Officer, the Commissioner of Income Tax and the Income Tax Appellate Tribunal have applied different percentages of net profit. The ITAT and the CIT(A) have either reduced the rate or restored the rate applied by the Assessing Officer. The first question relates to the nature of the power exercised while determining a net profit rate. The question must necessarily be answered by holding that where books of accounts are rejected or not produced, the Assessing Officer would be well within the limits of his jurisdiction to assess income by applying a fictional net profit rate. The power so conferred is quasi-judici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epted by the department, the nature of the assessees' business, an appraisal of the value of the contract, prevailing economic conditions vis-a-vis the assessee's business, the price of raw material, labour etc. the rise in price index as notified 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow that statement had no relevancy whatsoever to the case of the mill in question. It is not known whether the mills which had disclosed these rates were situate in Bengal or elsewhere, and whether these mills were similarly situated and circumstanced. Not only did the Tribunal not show the information given by the representative of the Department to the appellant, but it refused even to look at the trunk load of books and papers produced before it by assessee. The ITO and the Tribunal in estimating the gross profit rate on sales did not act on any material but acted on pure guess and suspicion. The order of the Tribunal was set aside and the matter was remanded to it with directions that in arriving at its estimate of gross profits and sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d even where the net profit rate discloses an arbitrary and perverse consideration, it would be a question of fact. A perusal of the judgment reveals that the net profit rate of 12% was affirmed as counsel for the revenue was unable to point out any perversity or arbitrary consideration in the exercise of discretion. The third question of law is, therefore, answered by holding that if consideration leading to a net profit rate is perverse and or arbitrary, the finding so rendered shall be illegal and shall not be a question of fact. The questions of law having been answered, we have no hesitation in allowing the appeal as the impugned orders setting out different rates of net profit are devoid of any rational reasons much less a perceptible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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