COMMISSIONER OF INCOME TAX Vs. R. NARAYANARAO

JUDGEMENT

(1.) This group of Income Tax Tribunal Appeals is filed under Section 260A of the Income-tax Act, 1961 (the Act) by the Commissioner of Income Tax (CIT), Rajahmundry against different common orders passed by the Income Tax Appellate Tribunal, Visakhapatnam Bench. The learned Tribunal passed various common orders in all the appeals filed by the Assessees as well as the Revenue. The appeals by the Assessees were partly allowed and those of Revenue were dismissed. The issue, in these appeals, is whether the best judgment assessment made by the Income Tax Officer, Kakinada estimating the gross profit from the Assessees arrack business at 40% of the purchase value is sustainable in law and if not what would be the estimate of gross profit as per the principles of best judgment assessment?

(2.) The fact of the matter is not in serious dispute. The Respondent asseessees (the arrack contractors), at the relevant point of time, were engaged in the business of selling arrack. For the assessment years 1993-94 and 1995-96 these Assessees, assessed either as individuals, partnership firms or Association of Persons (AoPs), filed their returns of income admitting a net loss. The assessing officer did not accept the returns. He took up assessment under Section 143(3) of the Act. Objections were invited with regard to the nature of the concern - whether it is a firm or AoP; justification for the expenditure claimed; and profit/loss shown in the return. The Assessees filed their explanation. They contended that, due to prohibition on the sale of arrack introduced from 30th September, 1993 by the Government, the whereabouts of the partners were not known; it was not possible to maintain or issue sale bills; there was no practice at any time to maintain the books of complete accounts; and the expenses claimed were nominal. The assessing officer rejected the books of accounts wherever they were produced and estimated the gross profit at 40% of the purchases.

(3.) In the appeals, before the CIT (Appeals), it was inter alia contended that the additions/disallowance of expenditure made by the assessing officer, after computing gross profit at 40% of the purchase price of arrack, were arbitrary and excessive. It was urged that arrack business suffered unforeseen set back due to State wide agitation which preceded imposition of prohibition of sale of arrack in the State. In addition it was also contended that arrack business in agency areas and other places, where extremist activities were at the peak, the arrack contractors suffered loss.