Income Tax Officer vs Vijaya Automobiles

Arijit Pasayat, C.J.—Heard learned counsel for the Revenue and Mr. Sreedharan for the assessee.

These applications have been filed u/s 260A of the Income Tax Act, 1961 (in short "the Act"). The challenge is to the correctness of the order passed by the Income Tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"). The dispute relates to the assessment years 1987-88 and 1988-89. The Revenue has prayed for adjudication of following questions :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and facts in holding that in view of dismissing the assessee''s appeals the Revenue''s appeals do not survive ?

Whether, on the facts and in the circumstances of the case does not the issue relating to the turnover raised by the Revenue survive despite the dismissal of the assessee''s appeals relating to profit rate ?"

Assessments were made u/s 143(3) of the Act.

The factual position relevant for the determination of the questions raised needs to be noted in brief. The assessee is a firm dealing in spare parts. A search was conducted in his premises on September 18, 1987, and certain books of account were seized, which, inter alia, included the day book and ledger for the accounting year 1986-87. The day book was written only up to August 26, 1986. The total sales recorded in the day book up to August 26, 1986, came to Rs. 2,72,855. As the assessee''s accounts reflect-ed variation from the figures recorded in the day books for the relevant years, on the basis of which the returns for the aforesaid assessment years were filed, best judgment assessment was made in respect of each year. For the assessment year 1987-88, sales turnover was estimated at Rs. 12 lakhs and for the assessment year 1988-89 it was fixed at Rs. 15 lakhs. A net profit rate of 12.5 per cent. was adopted for working out the income for each assessment year. The matter was carried in appeal before the Commissioner of Income Tax (Appeals), Calicut (in short "CIT (A)"), who reduced the sales turnover to Rs. 8 lakhs and Rs. 9 lakhs, respectively. Instead of a 12.5 per cent. net profit rate, he directed the adoption of 10 per cent., following the rate adopted in the assessee''s own case for the previous year.

Both the Revenue and the assessee filed appeals before the Income Tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"). The assessee submitted that in the case of its sister concern a lower rate of profit was adopted, i.e., 8 per cent. net profit. It was brought to the notice of the Tribunal that in the assessee''s own case 10 per cent. was adopted as the net profit rate for the immediately preceding year, i.e., 1986-87. The Tribunal was of the view that the rate adopted in the assessee''s own ease was to be the guiding factor and not the rate adopted in any other case, even if it happened to be a sister concern. Accordingly, the assessee''s appeal was dismissed. The Tribunal was of the further view that in view of the dismissal of the assessee''s appeals, the Revenue''s appeals do not survive.

Learned counsel for the Revenue submitted that the dispute raised by the Revenue was different from that raised by the assessee. The reduction in the estimated turnovers was accepted by the assessee, whereas it was one of the grounds of challenge in the Revenue''s appeals. Accordingly, the Tribunal was not justified in holding that after dismissal of the assessee''s appeals, nothing survived in the Revenue''s appeals. It is strenuously urged that the turnover fixed by the first appellate authority had no nexus with the actual turnover effected. Learned counsel for the assessee, on the other hand, submitted that the Commissioner of Income Tax (Appeals) had elaborately dealt with the factual position and had come to a conclusion that the turnovers fixed by the Assessing Officer were on the high side.

We find substance in the plea raised by learned counsel for the Revenue that dismissal of the assessee''s appeal did not per se render the Revenue''s appeals infructuous, but at the same time, if the reasoning indicated by the Commissioner of Income Tax (Appeals) is considered, there is no scope for taking a different view from what was taken by the first appellate authority, which had the approval, though indirectly, of the Tribunal. The first appellate authority noted that the total sales recorded in the day book up to the month of August, 1986, was in the neighbourhood of Rs. 2.73 lakhs. Taking that fact into consideration and more particularly considering the peak recorded sales to be nearly Rs. 68,000 per month, which aspect has been elaborately dealt with by the Commissioner of Income Tax (Appeals), the fixation of turnover at Rs. 8 lakhs and Rs. 9 lakhs for the two assessment years cannot be said to be without any reason or basis. Even while making a best judgment assessment, the Assessing Officer has to make rational estimate and some amount of guess work notwithstanding, there is no scope for fixing an abnormally high and unreasonable figure. There must be some plausible basis for fixing the turnovers. The Commissioner of Income Tax (Appeals) had noticed the relevant factors while fixing the turnovers. Though the Tribunal, as indicated above, did not consider these aspects directly or elaborately, fixation of turnover as done by the Commissioner of Income Tax (Appeals) cannot be said to be arbitrary. In the particular circumstances we do not consider these cases appropriate for interference, more particularly when only factual disputes are involved.

Accordingly, the appeals are disposed of.