COMMISSIONER OF INCOME TAX Vs. JOGENDRA SINGH

JUDGEMENT

(1.) This appeal by the Revenue under section 260A of the Income-tax Act 1961 (hereinafter referred to as "the Act") arises from a judgment of the Income-tax Appellate Tribunal passed on July 26, 2013. The assessment year to which the appeal relates is the assessment year 2008-09. Though several questions of law have been raised in the appeal, learned counsel appearing on behalf of the appellant states that the following two questions would be comprehensive enough to cover the controversy:

(2.) The assessee filed a return of income of Rs. 1.63 crores. The case was selected for scrutiny on the ground that section 44AB of the Act applies and that the Assessing Officer should examine the case with reference to undisclosed interest income. During the year, the assessee had derived income from contract work and bank interest. An audit report under section 44AB of the Act was filed. Since the assessee failed to produce its books of account, the Assessing Officer issued a notice to show cause why addition should not be made of unconfirmed creditors and proposed to disallow 50 per cent of the expenses. Accordingly, the Assessing Officer made addition of Rs. 1.25 crores as unconfirmed creditors and disallowed 50 per cent of the expenses in the sum of Rs. 9.16 crores. The Commissioner of Income-tax (Appeals), in appeal, called for a remand report from the Assessing Officer.

(3.) The Commissioner of Income-tax (Appeals) by his order dated February 10, 2012, held that the Assessing Officer was justified in carrying out a best judgment assessment under section 144 of the Act. At the same time, the Commissioner of Income-tax (Appeals) held that the best judgment assessment should be based on pragmatic and reasonable considerations and that the Assessing Officer had acted unreasonably by adding the entire sundry creditors' balances and disallowing 50 per cent of the expenses which would result in an unreasonable profit margin of 50 per cent. The Commissioner of Income-tax (Appeals), inter alia, noted that from the remand report, it emerged that most of the balances of the creditors were verified and confirmed. Moreover, the assessment of the assessee for the assessment year 2005-06 had been completed under section 143(3) of the Act at a net profit rate of 3.1 per cent and for the year in question, the net profit declared by the assessee was 4.5 per cent. Considering the totality of facts and circumstances, the Commissioner of Income-tax (Appeals) held that a net profit rate of seven per cent would be fair, having regard to the rate adopted in the case of the assessee itself and the nature of the civil construction business.