In best judgment assessment case, it could not be alleged that AO did not make proper enquiries
In a recent judgment, the ITAT Chennai has held that when assessment was framed on best judgment basis wherein the income is assessed to the best judgment of AO without considering any of the submissions of the assessee, therefore, it could not be alleged that AO did not make proper enquiries before concluding the assessment.
ABCAUS Case Law Citation:
4262 (2024) (09) abcaus.in ITAT
Important Case Laws relied upon:
Malabar Industrial Co. Ltd. vs. CIT
CIT v/s Max India Ltd.
Grasim Industries Ltd. v/s CIT (321 ITR 92)
In the instant case, the assessee had challenged invocation of revisionary jurisdiction u/s 263 of the Income Tax Act, 1961 (the Act) by Commissioner of Income Tax (CIT).
The assessee was engaged in running a grocery and finance business. The assessee was not assessed to tax earlier. A relative of the assessee was found to be carrying large amount of cash on a two-wheeler and intercepted and was intimated to the Income Tax Department. Since no plausible explanation was furnished by that person, the cash was seized. A sworn statement of the said person was recorded who stated that the cash belonged to the assessee. The assessee also owned up the same and offered the same to tax in relevant Financial Year.
Considering the same, notice u/s 153C was issued to the assessee for various years after recording requisite satisfaction. However, the assessee did not file return of income despite various reminders.
Upon analysis of bank accounts, it was found that there were periodic deposits and withdrawals throughout the year in all forms. The AO formed an opinion that the assessee was carrying out business activities and the credits and debits in the banks accounts were arising out of business transactions. As per enquiries, the assessee was running a grocery and finance business. Under these circumstances, AO held that credits in the bank account represent business receipts and accordingly, estimated net profit against the same @8% of gross receipts while finalizing the assessment on best judgment basis. The assessment attained finality since the assessee had not preferred any further appeal against the same.
Later, the CIT examined the records and found that hat substantial amounts were deposited on regular basis which were withdrawn within a short period of time. According to the CIT these were not trading receipts and AO did not conduct any enquiry to ascertain the nature of credits and erroneously estimated the income @8%.
Therefore, the assessment order was held to be erroneous and prejudicial to the interest of the revenue in terms of Clause (a) of Explanation 2 to Sec.263. Accordingly, the assessee was show-caused. Rejecting the objections of the assessee, the assessment was set aside and AO was directed to conduct necessary enquiries to examine the nature and source of the credits in bank account and reframe the assessment after providing opportunity of hearing to the assessee.
The Tribunal observed that the AO formed an opinion that the assessee was carrying out business activities and the credits and debits in the banks accounts were arising out of business transactions. As per enquiries made by AO, the assessee was running a grocery and finance business. Under these circumstances, AO concluded that credits in the bank account represent business receipts and accordingly, estimated net profit on presumptive basis by applying presumptive rates of estimation of income. The assessment was framed on best judgment basis wherein the income is assessed to the best judgment of AO without considering any of the submissions of the assessee.
The ITAT opined that on the facts of the cases, it could not be alleged that AO did not make proper enquiries before concluding the assessment. The view taken by AO was one of the possible views and the same could not be held to be opposed to any statutory provisions. The estimation of AO was based on factual position emerging during the assessment proceedings.
Accordingly, the allegation of Pr. CIT that AO did not make necessary enquiries, could not be accepted. The Explanation-2 to Section 263 would not apply to the case. As a result, the assessment framed by AO was restored back.
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