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TMI Blog2018 (4) TMI 1903X X X X Extracts X X X X X X X X Extracts X X X X ..... m other source. However, Ld. CIT(A) reversed the order of AO by holding that the amount of sale for DEPB is part and parcel of the total turnover of assessee. Now the issue before us arises whether the amount of DEPB represents the income from other source or income from business. We find that there is a explicit provision u/s 28(iiib) of Act which clearly says that the amount of DEPB will be taxed under the head income from business and profession - ITA No. 1097/Kol/2015 - - - Dated:- 20-4-2018 - Shri N.V. Vasudevan, Judicial Member And Shri Waseem Ahmed, Accountant Member For the Appellant : Shri S. Dasgupta, Addl. CIT-DR. For the Respondent : Shri Manish Tiwari, FCA. ORDER Per Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-15, Kolkata dated 03.06.2015. Assessment was framed by ITO Ward-51(4), Kolkata u/s 143(3)/144 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 31.12.2008 for assessment year 2006-07. Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue and Shri Manish Tiwari, Ld. Authorized Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive and unreasonable. The AO has also not given any basis for estimating the profit @ 5% of the turnover. The assessee also submitted that the rate of estimated profit @ 5% has been imported from the provision of Section 44AF of the Act which is applicable to the traders having turnover up to ₹40 lacs only. It is a well settled law that the AO while estimating the income under best judgment assessment does not possess the arbitrary powers. Thus, the AO should be guided by the Rules of justice equity and goods concise. The assessee in support of his claimed relied on the judgment of jurisdictional High Court in the case of CIT vs. Ranicherra Tea Co. Ltd. reported in 207 ITR 979 (Cal). Similarly, the assessee also submitted that there is no denial that the AO has to use some kind of guesswork while making the assessment u/s 144 of the Act. But the guesswork must be reasonable and connected with the material available on record. In this regard, the assessee relied on the judgment of Hon ble Supreme Court in the case of State of Kerala vs. C Velukutty 60 ITR 239 (SC). The assessee further submitted that best judgment assessment must be based on an honest and fair estimat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year of the earlier assessment years. The assessee has claimed that the net profit @ 5% of turnover is usually applied incase covered u/s. 44AF in the case of a retail trader and that this deemed profit rate cannot be extended to the appellant since his turnover is in excess of ₹ 40 lakhs and he is an exporter. The argument of the assessee is that he exports rice and pulses and as the export market is highly competitive the Govt. of India has to step in and provide DEPB license to compensate the exporters. The appellant has filed a comparative chart of his earlier assessment year s data to show that he had never earlier achieved a net profit of 5% and the net profit earned by the assessee in last three assessment years was as under:- Assessment Year Net profit Turnover Percentage 2004-05 2,13,300/- 4,14,70,858/- 0.51% 2005-06 4,49,418/- 2,17,20,476/- 0.23% 2006-07 1,75,180/- 77,26,63,305/- 0.24% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the Act. As such, no scrutiny assessment was carried out u/s 143(3) of the Act. Therefore, the profit declared by assessee in earlier years cannot be considered while estimating the income under best judgment assessment. On the other hand, Ld. AR for the assessee submitted that assessee was engaged in the export business to Bangladesh, Nepal. The AO has not disputed the sales and purchase declared by assessee in its books of account. The AO failed to give the basis for estimating the income @ 5% as well as no comparable cases was brought on record. Once the books of account are rejected then the past history becomes the guiding factor for estimating the income. Ld. CIT(A) estimated the income @ 1% after considering the past history of assessee as well as the remand report from the AO. Therefore, the profit determined @ 1% is based on scientific basis. Ld. AR relied on the order of Ld. CIT(A). 7. We have heard the rival contentions of both the parties and perused the materials available on record and the judicial decisions cited by the parties. In the present case assessee failed to comply the notice issued u/s 142(1) of the Act therefore the AO framed the assessment u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut by the ld. Counsel of the assessee that in the report of Govt. of India, Ministry of Small Scale Industry in the rice mill industry the average gross profit on sales was considered at 7.5%. Similarly in the case of Fathudhinga Rice Mills (Supra) Hon ble Punjab Haryana High Court has affirmed the gross profit of 4.2%. In this view of the matter also the profit declared by the assessee cannot be said to be lower than prevailing in the industry. 7.1 We also find support guidance from the judgment of jurisdictional High Court in the case of CIT vs. Ranicherra Tea Co. Ltd. (supra) wherein it was held as under : It was no doubt true that the facts of the instant case justified ex parte best judgment assessment under section 144 because of the defaults committed by the assessee but in making a best judgment assessment , the Assessing Officer cannot act dishonestly or vindictively or capriciously because he must exercise the judgment in the matter. In making a best judgment , the Assessing Officer does not possess absolute arbitrary authority to assess any figure he likes and although he is not bound by strict judicial principles he should be guided by rules of justice, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he power are implicit in the expression best of his judgment . Judgment is a faculty to decide matters with wisdom truly and legally. Judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a best judgment assessment , it shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. 7.2 In this regard, we also find support guidance from the judgment of Hon ble Supreme Court in the case of Brij Bhusan Lal Pradumank Kumar vs. CIT 115 ITR 524 (SC) (supra) wherein it was held as under : The authority making a best judgment assessment must make an honest and fair estimate of the income of the assessee and though arbitrariness cannot be avoided in such estimate the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case. In view of the above, we hold that the rate of profit estimated by Ld. CIT(A) is correct and in accordance with the provision of law. Thus, we uphold the order of Ld. CIT(A) and this ground of Revenue is dismissed. 8. Next ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd close nexus with export turnover, and therefore the A.R. has sought to include the sum received as part of the business turnover only for the purposes of estimation of profits from export trade. The oral arguments of the AR were that it is a standard practice for exporters of goods to compute their profitability, by factoring in the export incentives received from the Government and it is also the business practice to determine cost of goods net of export incentive for the purpose of pricing! profitability of such export. Further, it was claimed that in order to gain entry into foreign markets and to be competitive therein, exporters operate on thin margins, in which case their selling price may not be very different from their cost of purchases as in the case of the present assessee, The Supreme Court in the case of Topman Exports (supra) had observed that the objective of DEPB scheme is- to neutralize the incidence of customs duty paid on future import for the purposes of export of products. The neutralization of the cost of customs duty under the DEPB scheme is through granting a duty credit against the export product and this credit can be utilized for paying customs d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see the face value of the DEPB is a cash assistance taxable u/s 28(iiib) of the Act and is definitely a business receipt but it has a cost already included in the purchases and export costs as indicated by the Supreme Court in Topman Exports (supra). The Act declares the receipts as taxable business income u/s 28(iiib) of the Act to prevent any claim of being termed as a capital receipt and for the purposes of calculation of deduction u/s. 80HHC of the Act. Further when the DEPB is sold the difference between its Face Value and the Sale Value is its profit on its transfer and is taxable u/s 28(iiid) of the Act. The legal position is very clear up to this stage. The confusion arises because the assessee has not been able to prove the Sale Proceeds of the DEPB and the assessee is also not in possession of the relevant documents like the DEPB licences and their values. Even the export sales are believed to be made by the assessee as an associate of one R. G Traders and the few Export Bill Payment Advices produced by the assessee also carry the names of both the parties. The assessee, however, has not explained the same. The entire DEPB has been declared received in one go by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it provision u/s 28(iiib) of Act which clearly says that the amount of DEPB will be taxed under the head income from business and profession The relevant portion of Section 28(iiib) reads as under:- Profits and gains of business or profession. 83 28. 84 The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,- (i) the profits and gains85 of any business or profession85 which was carried on by the assessee at any time during the previous year ; (ii) any compensation 85 or other payment due to 85 or received by 85 ,- (a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto; (b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto ; (c) any person, by whatever name called, holding an agency in Ind ..... 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