M/S Malu Khan Mahendra Singh Yasin Khan & Party v. Dy. Commissioner Of Income Tax & Ors

D.B. INCOME TAX APPEAL NO.49/2006 (M/s Malu Khan Mahendra Singh Yasin Khan & Party Vs. Dy. Commissioner of Income Tax & Ors.) Date of order : 15.11.2006 HON'BLE MR. JUSTICE RAJESH BALIAHON'BLE MR. JUSTICE GOPAL KRISHAN VYAS Mr. Suresh Ojha, for the appellant. Mr. K.K. Bissa, for the respondents. parties. We have heard learned counsel for the The assessee was awarded a Samman Patra underthe scheme for honouring the tax payers from thecategories of business, profession and salaried peoplewho are highest tax payers having income about theminimum level prescribed for a continuous periodstated in the Scheme which was contained in the BudgetSpeech delivered by the Finance Minister on 1.6.1998.The Scheme inter alia carried incentives one of whichwas that the assessment of Samman Patra Card holdersmay not be subjected to scrutiny for a period of threeyears except under very special circumstances and thattoo after obtaining the prior approval of theCommissioner/Chief Commissioner. In the present case, subsequent to the yearof honouring the petitioner-assessee with the SammanPatra, his case was subjected to scrutiny and the finding that the details of sales as well as certainexpenses in the books of accounts of the assessee arenot verifiable and the same were rejected and the bestjudgment assessment was made. Specific plea about theaforesaid incentive was not before the assessingofficer, however, it was subsequently raised.However, the Tribunal also noticed that there is noground for invoking sub-para (ii) of para (4) of theaforesaid Scheme on the ground that prior approval ofthe Commissioner/ Chief Commissioner was not obtainedbefore subjecting his case for scrutiny. Be that as it may. The assessing officermade certain addition by applying the GP rate on thesale figures disclosed by the assessee and disallowedthe loss shown by the assessee in the accounts whichwas substantially reduced by the CIT (A). The CIT (A)maintained the marginal additions as well as itsustained the disallowance of loss to some extent. On further appeal before the Tribunal byrevenue as well as assessee, the Tribunal rejected theplea to take out the case from scrutiny finding thatthe exemption from scrutiny for a period of threeyears under the scheme was not absolute and therebeing no ground that prior approval of theCommissioner was not obtained, the holding of scrutinywas found to be proper. However, the finding that theproper enquires were not conducted, the matter was remitted to the assessing officer for holding properenquiries. In coming to this conclusion, it furtherdirected the assessing officer to compute the totalincome afresh by applying GP rate as was disclosed bythe assessee last year though the assessee hassubmitted that as for this year he has cogent goodgrounds to support fall in the GP rate as compared topreceding year. It is in the aforesaid circumstances, this appeal has been preferred by the assessee. In view ofthe order which we propose to pass, we have notreferred to the facts relating to account position anddetails. The question which was framed at the timeof admission of the appeal reads as under : “Whether in the facts andcircumstances, keeping in view theadditions ultimately made in returnedincome of the assessee by giving bestjudgment assessment makes it a case inwhich by any stretch of satisfactioncan be reached that the specialcircumstances existed which warranteddeviation from the returned income ofthe assessee on the basis of bestjudgment assessment by ignoring theprovisions made in the scheme forhonouring the honest tax payers issuedby the Central Board of Direct Taxes inexercise of its power under Section 119of the Income Tax Act ? It is true that in ordinary course thescrutiny of the tax payer who has been honoured underthe aforesaid scheme would not have taken place for “Whether in the facts andcircumstances, keeping in view theadditions ultimately made in returnedincome of the assessee by giving bestjudgment assessment makes it a case inwhich by any stretch of satisfactioncan be reached that the specialcircumstances existed which warranteddeviation from the returned income ofthe assessee on the basis of bestjudgment assessment by ignoring theprovisions made in the scheme forhonouring the honest tax payers issuedby the Central Board of Direct Taxes inexercise of its power under Section 119of the Income Tax Act ? It is true that in ordinary course thescrutiny of the tax payer who has been honoured underthe aforesaid scheme would not have taken place for three subsequent years but, at the same time, it isequally true that immunity from scrutiny for a periodof three years was not in absolute terms of thescheme. There being no issue raised about theobservation of the safeguard envisaged beforesubjecting an honoured tax payer's case to scrutinywithin three years subsequent thereto viz. takingprior approval of the Commissioner/Chief Commissioner,keeping in view the peculiar facts and circumstancesof the case, we do not consider it would be proper toset aside the order of Tribunal and Assessing Officermerely on the ground of subjecting petitioner's caseto scrutiny within a period of three years,particularly keeping in view the nature of the tradeand the defects in accounts, which is usuallyconnected with the trade of liquor contractors, we donot consider it proper to interference with the orderof Tribunal on that ground alone. Moreover, it cannotbe said as a matter of law that on grant of a SammanPatra, an assessee gets immunity from being subjectedto regular assessment in ordinary course. Be that as it may. We are satisfied that inthe face of the state in which the accounts have beenmaintained, it would not be just and proper tointerfere with the resorting of the best judgmentassessment in the case of the appellant. However, we also find that when the matter arun is to be considered by the assessing officer de novo,the question of GP rate cannot be subjected tostraight jacket formula and it should be left to theassessing officer to consider the material before it,including explanation furnished by assessee about fallin G.P. rate in comparison to previous year or inrelation to so called comparable case and reach hisown conclusion. To that extent rigid direction toapply particular GP rate is set aside. With the aforesaid directions, the appealstands disposed of. No costs. (GOPAL KRISHAN VYAS), J. (RAJESH BALIA), J.