Case: Income-tax Officer vs. Om Silk Mills

Facts:

The assessee filed its return on 31.10.2003 declaring total income of Rs. 1,10,463. The return of income was processed u/s. 143(1) of the IT Act and statutory notice u/s. 14392) was issued and served upon the assessee. In the response, the assessee furnished necessary details. The AO determined total income of the assessee at Rs. 18,19,463/- and has made addition of Rs. 17,09,000/- on account of fall in gross profit than the previous year.  

CIT(A) dismissed the appeal of the assessee.

The Tribunal partly allowed the appeal of the assessee.

Aggrieved by the order, the Revenue appealed to the High Court.

Held:

While exercising powers u/s. 144 of the Act and estimating the assessee’s income/ reasons for non-production of books of account or for rejection of books of account must be kept in mind. In the present case, the failure to produce the books of account being beyond the control of the present partners. Thus, it was not a fit case where Gross Profits could be estimated by applying the decisions of the Tribunal.

The procedure for computing the assessee’s taxable income, adopted by the AO is concerned, the same shall not be said to be a best judgment approach as envisaged in the provisions of section 143/144 of the Act.

In view of above facts and circumstances of the present case, to determine the taxable income, to the best of his judgment, the AO shall proceed with the angle of net profit rate. If AO goes by Gross Profit rate, it will give absurd results relating to taxable income.

Thus, the Court concluded that the addition made by the AO was not correct. Hence, income shall be computed based on net profit rate in Best Judgment Assessment.

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