Assessment u/s 263 based on judgement delivered after the date of original assessment bad

Assessment in pursuance of order u/s 263 based on a judgement subsequent to the date of original assessment cannot be basis for estimation of higher rate of net profit.

Case Details:
ITAT VISAKHAPATNAM
I.T.A.No.458/Vizag/2012 Assessment Year: 2006-07
ACIT vs. Padmavathi Transports
Date of Order: 18/03/2016

Brief Facts of the Case:
The assessee was a partnership firm, which is engaged in the business of civil and transport contracts. The return of income for the assessment year 2006-07 was selected for scrutiny and assessment was completed u/s 144 of the Income Tax Act, 1961 on 30.12.2008. Subsequently, the case was subject to revision u/s 263 of the Act and accordingly, the CIT passed order u/s 263 on 21.3.2011 setting aside the assessment order passed by the Assessing Officer and directed the Assessing Officer to redo the assessment in the lines of the discussions in his order. Accordingly, the Assessing Officer issued notice u/s 143(2) of the Act on 28.3.2011 calling for information. In response to the call notices, the assessee neither appeared nor submitted any information. Since, no information came forward from the assessee, the Assessing Officer completed the assessment ex-parte u/s 144 of the Act and determined total income by estimated the net profit from civil and transport contract @ 12.5% by relying upon the judgement of Hon’ble ITAT, Hyderabad in the case of M/s. KNR Constructions and also the ITAT, decision in the case of M/s. Krishna Mohan Constructions.

The assessee preferred an appeal before CIT(A) and submitted that once books of accounts were rejected and profit was estimated by applying net profit rate of 8%, the same assessing officer based on subsequent judgement of ITAT, which was rendered after the assessment order was passed u/s 144 of the Act is not correct. The judgement of M/s. KNR constructions relied upon by the Assessing Officer was pronounced on 30.11.2011, whereas in its case the original assessment u/s 144 of the Act was completed on 30.8.2008. Therefore, the Assessing Officer was not correct in applying higher rate of net profit based on a subsequent judgement of a higher authority. CIT(A) set aside the assessment order passed by the Assessing Officer u/s 144 r.w.s. 263 of the Act and restored the original assessment order passed u/s 144 .

Excerpt from ITAT Judgment:

It was the contention of the assessee that the judgement rendered by the ITAT, in the case of M/s. KNR Constructions was rendered on 30.11.2009, whereas the original assessment in its case was completed on 30.12.2008, therefore, the subsequent judgement of higher authority cannot be basis for estimation of higher net profit. We find force in the arguments of the assessee for the reason that once the Assessing Officer rejected the books of accounts and adopted a particular rate of net profit, the same Assessing Officer cannot adopt higher rate of net profit based on a subsequent judgement of a higher authority. In the present case on hand, the Assessing Officer has adopted 8% and 8.5% net profit at the time of completion of first assessment u/s 144 of the Act. Subsequently, on same set of facts and same set of books of accounts, the Assessing Officer has adopted 12.5% net profit without any basis. In our considered opinion, subsequent judgement of a higher authority cannot be basis for estimation of higher rate of net profit.

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