The Assistant Commissioner Of Income Tax, Central-2, Raipur,Chhattisgarh v. Shri Sunil Kumar Agrawal, Near Girls College, Sewa Kunj Road,Raigad, Chhattisgarh

(Tax Case No.33/2023) Digitally 2025:CGHC:28357-DBsigned bySISTASISTASOMAYAJULUSOMAYAJULUDate:2025.07.0114:50:35+0530HIGH COURT OF CHHATTISGARH AT BILASPUR 2025:CGHC:28357-DB NAFR TAXC No. 33 of 2023 {Arising out of order dated 29-8-2022 passed by the Income TaxAppellate Tribunal, Raipur Bench, Raipur in ITA No.108/RPR/2018} The Assistant Commissioner of Income Tax, Central-2, Raipur,Chhattisgarh ... Appellant versus Shri Sunil Kumar Agrawal, Near Girls College, Sewa Kunj Road,Raigad, Chhattisgarh ... Respondent For Appellant : Mr. Ajay Kumrani, Advocate on behalf of Mr. Amit Chaudhari,Standing Counsel for the Income Tax Department. For Respondent : Mr. Anand Dadariya, Advocate. -Division Bench: Hon'ble Shri Sanjay K. Agrawal and Hon'ble Shri Deepak Kumar Tiwari, JJ. Judgment on Board(27/06/2025) Sanjay K. Agrawal, J. 1. The substantial question of law involved, formulated and to beanswered in this tax appeal preferred under Section 260A of theIncome Tax Act, 1961 (for short, ‘the IT Act’) states as under: -answered in this tax appeal preferred under Section 260A of theIncome Tax Act, 1961 (for short, ‘the IT Act’) states as under: - “Whether in view of the fact that the assessee before theSettlement Commission had voluntarily accepted 10% NPand when there is no change in the business and the (Tax Case No.33/2023) modus operandi, the learned ITAT committed an error oflaw in not accepting 10% NP for the assessment year2014-15 also?” 2. The aforesaid substantial question of law has to be answered in the following factual backdrop: - 3. The Income Tax Officers conducted a survey under Section 132of the IT Act in the Radheshyam Agrawal Group, Raipur/Raigarh to which the assessee/respondent herein is a memberand during the course of search, apart from case, severalincriminating documents were found and seized from theresidential and business premises of the assessee. In order tocomplete the assessment proceedings for the block periodassessment year 2006-07 to 2011-12, notice under Section 153Aof the IT Act was issued and served upon the assessee and alsonotice under Section 143(2) of the IT Act was issued relating tothe assessment year 2012-13. Thereafter, the assessee alongwith three other persons of the group filed SettlementApplications before the Income Tax Settlement Commission(ITSC), Additional Bench, Kolkata and the ITSC passed orderunder Section 245D(4) of the IT Act on 28-9-2015 and hasdetermined the total income and total tax liabilities in the caseof the assessee for the block period assessment year 2006-07 to2012-13 and the rate of net profit was further enhanced by the (Tax Case No.33/2023) assessee to the extent of 10% by submitting a letter dated 18-9-2015 which was ultimately accepted by the ITSC. (Tax Case No.33/2023) assessee to the extent of 10% by submitting a letter dated 18-9-2015 which was ultimately accepted by the ITSC. 4. Thereafter, on 23-3-2015, the assessee has filed his return ofincome for the assessment year 2014-15 declaring total incomeat 6,65,13,730/- and on 31-8-2015, the case of the assessee was₹selected for scrutiny through Computer Assisted ScrutinySelection (CASS) and notice under Section 143(2) of the IT Actwas issued and served upon the assessee. Ultimately, on 29-11-2016, show cause notice was issued to the assessee to showcause as to why the net profit @ 10% of the gross contractreceipts during the financial year relevant to the assessmentyear under consideration should not be adopted, which theassessee replied competently and finally, on 29-12-2016,assessment order under Section 143(3) of the IT Act was passeddetermining total income at 13,25,03,140/- holding 10% of the₹net profit of total gross contract receipts. The assessment orderwas challenged by the assessee before the CIT (Appeals) and theCIT (Appeals) by order dated 28-3-2018 partly allowed theappeal and deleted the resultant addition of ₹ 6,59,89,410/-holding net profit at 5.37% of the gross contract receipts.Feeling aggrieved and dissatisfied against the order of the CIT(Appeals), the Revenue has preferred appeal before the ITATwhich the ITAT has dismissed by the impugned order dated 29- (Tax Case No.33/2023) 8-2022 leading to filing of the instant tax appeal in which thesubstantial question of law has been formulated which has beenprojected in the opening paragraph of this judgment. 5. Mr. Ajay Kumrani, learned counsel appearing for the appellant/Revenue, would submit that the learned ITAT has failed toappreciate that the assessee had voluntarily rejected his booksof accounts for all the preceding years i.e. assessment years2006-07 to 2012-13, therefore, the correctness of the openingand closing balances of different ledger accounts pertaining tothe books of accounts of the assessee for the year underconsideration could not be relied upon and therefore 10% netprofit of the total gross contract receipts could not be reduced to5.37% by the CIT (Appeals), as the ITSC, Kolkata by orderpassed under Section 245D(4) of the IT Act, dated 28-9-2015held that the assessee had suo motu rejected his books ofaccounts for the assessment years 2006-07 to 2012-13 and theassessee itself has admitted before the ITSC to reject the resultsof audited books of account and net profit to be adopted @ 10%of gross contract receipts, which would be binding upon theassessee. Therefore, the CIT (Appeals) and the ITAT both hadconcurrently erred in holding the net profit to be 5.37% of thegross contract receipts on the basis of books of accounts and (Tax Case No.33/2023) thereby committed legal error which deserves to be set aside byinterfering in the instant tax appeal by allowing it. (Tax Case No.33/2023) thereby committed legal error which deserves to be set aside byinterfering in the instant tax appeal by allowing it. 6. Mr. Anand Dadariya, learned counsel appearing for therespondent/assessee, would submit that the Assessing Officer(AO) had examined and cross-verified the books of accounts,bills, vouchers, confirmation of accounts, etc. pertaining to theyear under consideration and no irregularities or defects in thebooks of accounts were brought on record, but had rejected thesame for the reason that in the assessment years 2006-07 to2012-13, the assessee in the course of proceedings before theITSC, Kolkata had on suo motu basis rejected his books ofaccounts and admitted 10% net profit to the total gross receipts,without recording any specific finding of the irregularity orinfirmity emerging therefrom the assessment in the books ofaccounts, whereas the AO was obligated to point out the specificdefects or irregularities contemplated in sub-section (3) ofSection 145 of the IT Act before rejecting the books of accountsof the assessee. He would further submit that the principle ofres judicata, admittedly, would not apply, as each yearassessment is a separate assessment, therefore, the factsemanating from the assessment for a specific year cannot in theabsence of supporting evidence be extrapolated to another year. (Tax Case No.33/2023) As such, the present tax appeal of the Revenue deserves to bedismissed. 7. We have heard learned counsel for the parties and consideredtheir rival submissions made herein-above and also wentthrough the record with utmost circumspection.their rival submissions made herein-above and also wentthrough the record with utmost circumspection. 8. In order to decide the plea raised at the Bar, it would beappropriate to notice Section 145(3) of the IT Act which providesthe method of accounting. Sub-section (3) of Section 145 of theIT Act states as under: -appropriate to notice Section 145(3) of the IT Act which providesthe method of accounting. Sub-section (3) of Section 145 of theIT Act states as under: - “145. Method of accounting.— xxx xxxxxx (3) Where the Assessing Officer is not satisfied aboutthe correctness or completeness of the accounts of theassessee, or where the method of accounting provided insub-section (1) or accounting standards as notified undersub-section (2), have not been regularly followed by theassessee, the Assessing Officer may make an assessmentin the manner provided in section 144.” 9. Section 145 of the IT Act is not an assessment but acomputation section. It instructs the Assessing Officer as to themethod to be adopted in computing the profits and gains. computation section. It instructs the Assessing Officer as to themethod to be adopted in computing the profits and gains. 10.The aforesaid provision does not confer a mere discretionarypower in the context it imposes a statutory duty on the Income-tax Officer to examine in every case the method of accountingemployed by the assessee and to see whether or not it has beenregularly employed and to determine whether the income,profits and gains of the assessee could properly be deducedpower in the context it imposes a statutory duty on the Income-tax Officer to examine in every case the method of accountingemployed by the assessee and to see whether or not it has beenregularly employed and to determine whether the income,profits and gains of the assessee could properly be deduced (Tax Case No.33/2023) 10.The aforesaid provision does not confer a mere discretionarypower in the context it imposes a statutory duty on the Income-tax Officer to examine in every case the method of accountingemployed by the assessee and to see whether or not it has beenregularly employed and to determine whether the income,profits and gains of the assessee could properly be deducedpower in the context it imposes a statutory duty on the Income-tax Officer to examine in every case the method of accountingemployed by the assessee and to see whether or not it has beenregularly employed and to determine whether the income,profits and gains of the assessee could properly be deduced (Tax Case No.33/2023) therefrom. Therefore, where there is a system of accountingregularly employed and by appropriate adjustments from theaccounts maintained taxable profit may properly be deduced,the Income-tax Officer is bound to compute the profits inaccordance with the method of accounting. But where in theopinion of the Income-tax Officer the profits cannot properly bededuced from the system of accounting adopted by the assesseeit is open to him to adopt a more suitable basis for computation-of the true profits. (See Commissioner of Incometax, Madras v. A. Krishnaswami Mudaliar and others1.) 11.A careful perusal of Section 145 of the IT Act would show thatan Assessing Officer can reject the accounts maintained by theassessee if he is not satisfied about their correctness orcompleteness. Similarly, the Assessing Officer can reject themethod of accounting followed by the assessee if the same is notin accordance with the provisions of sub-sections (1) and (2) ofSection 145. However, in both the situations, the AssessingOfficer is required to make the assessment in the mannerprovided under Section 144 of the IT Act. Meaning thereby, thatthe Assessing Officer is authorised to make assessment of totalincome of the assessee on the basis of “best judgment” and, atthe same time, disregard the income declared in the return.Therefore, the existence of infirmities and discrepancies in the1AIR 1964 SC 1843 (Tax Case No.33/2023) accounts maintained by the assessee is sine qua non forinvoking the provisions of Section 145(3) of the IT Act. Unlessand until the infirmities and discrepancies are expressly noticedby the Assessing Officer in the accounts maintained by theassessee, Section 145(3) of the IT Act cannot be invoked.Similarly, the principle of res judicata does not apply to theassessment proceeding. 12.It is well settled principle of law that in taxation matters, thestrict rule of res judicata as envisaged by Section 11 of the Codeof Civil Procedure, 1908 has no application. As a general rule,each year’s assessment is final only for that year and does notgovern later years, because it determines the tax for aparticular period. It is, therefore, open to the Revenue/TaxingAuthority to consider the position of the assessee every year forthe purpose of determining and computing the liability to paytax or octroi on that basis in subsequent years. A decision takenby the authorities in the previous year would not estop oroperate as res judicata for subsequent year. (See MunicipalCorpn. of City of Thane v. Vidyut Metallics Ltd. and another2.) strict rule of res judicata as envisaged by Section 11 of the Codeof Civil Procedure, 1908 has no application. As a general rule,each year’s assessment is final only for that year and does notgovern later years, because it determines the tax for aparticular period. It is, therefore, open to the Revenue/TaxingAuthority to consider the position of the assessee every year forthe purpose of determining and computing the liability to paytax or octroi on that basis in subsequent years. A decision takenby the authorities in the previous year would not estop oroperate as res judicata for subsequent year. (See MunicipalCorpn. of City of Thane v. Vidyut Metallics Ltd. and another2.) 13.The Supreme Court in the matter of M.M. Ipoh and others v.Commissioner of Income Tax, Madras3 has clearly held that thedoctrine of res judicata does not apply so as to make a decisionCommissioner of Income Tax, Madras3 has clearly held that thedoctrine of res judicata does not apply so as to make a decision 2(2007) 8 SCC 688 31967 SCC OnLine SC 40 (Tax Case No.33/2023) on a question of fact or law in a proceeding for assessment inone year binding in another year, and observed as under: - “26.The doctrine of res judicata does not apply so as tomake a decision on a question of fact or law in aproceeding for assessment in one year binding in anotheryear. The assessment and the facts found are conclusiveonly in the year of assessment : the findings on questionsof fact may be good and cogent evidence in subsequentyears, when the same question falls to be determined inanother year, but they are not binding and conclusive. ...” 14.Further, in the matter of Dhakeswari Cotton Mills Limited v. Commissioner of Income Tax, West Bengal4, the ConstitutionBench of the Supreme Court dealing with the jurisdiction whilemaking order under Section 23(3) of the Income Tax Act, 1922and also considering the scope of power under Section 23(3) andlimits thereon, held that while making the assessment undersub-section (3) of Section 23 of the Act, the Income Tax Officer isnot entitled to make a pure guess and make an assessmentwithout reference to any evidence or any material at all, andobserved as under:- “9.As regards the second contention, we are in entireagreement with the learned Solicitor General when hesays that the Income Tax Officer is not fettered bytechnical rules of evidence and pleadings, and that he isentitled to act on material which may not be accepted asevidence in a court of law, but there the agreement ends;because it is equally clear that in making the assessmentunder sub-section (3) of Section 23 of the Act, the IncomeTax Officer is not entitled to make a pure guess and makean assessment without reference to any evidence or any (Tax Case No.33/2023) material at all. There must be something more than baresuspicion to support the assessment under Section 23(3).The rule of law on this subject has, in our opinion, beenfairly and rightly stated by the Lahore High Court inGurmukh Singh v. CIT[5].” 15.Reverting to the facts of the case in light of the principles of lawrelating to Section 145(3) of the IT Act and also considering theprinciples of law laid down by their Lordships of the SupremeCourt in the above-mentioned judgments, it is quite vivid thatfor the block period assessment years 2006-07 to 2011-12, theappellant’s case was settled by the ITSC, Kolkata by taking thenet profit @ 10% of the total gross receipts which the appellant/assessee has voluntarily submitted and which was accepted bythe Settlement Officer, however, for the subsequent assessmentyear 2014-15, the Assessing Officer has fully maintained thebooks of accounts as per the provisions of the IT Act, however,the Assessing Officer applied the net profit rate of 10% holdingthe assessee’s admission in his application before the ITSCunder Section 245D of the IT Act for the assessment year 2006-07 to 2012-13 and heavily relied upon the proceedings ofassessment for the year 2006-07 to 2012-13, however, theAssessing Officer did not record any finding as to the infirmitiesand discrepancies in the books of accounts maintained by theassessee for the assessment year 2014-15. No any defects/discrepancies in the accounts to warrant rejection of the books51944 SCC OnLine Lah 38 : (1944) 12 ITR 393 (Lah) (Tax Case No.33/2023) (Tax Case No.33/2023) of accounts for the assessment year under consideration i.e.2014-15 were pointed out. As such, without pointing out anyinfirmity or defect in the accounts maintained by the assessee,Section 145(3) of the IT Act was invoked and assessment orderwas passed holding 10% net profit of the total gross receiptsmaking best judgment assessment under Section 144 of the ITAct. In the appeal preferred by the assessee before the CIT(Appeals), the CIT (Appeals) interfered with the order ofassessment passed by the AO holding that the AO has based hisassessment on the outcome of the Settlement Commissionproceedings for the block period covered during the searchaction under Section 132 of the IT Act and has extended thesame to the assessment year 2014-15. The CIT (Appeals) hasfurther recorded a specific finding that the AO has not broughton record any irregularity or defects in the books, bills,vouchers, etc. and also there is no specific finding of the AO thatthe appellant had booked expenditure without having incurredit or there is inflation in the amount of expenses or that theappellant had claimed any bogus expenditure. Finally, the CIT(Appeals) held that merely because books of accounts of theappellant were rejected in the preceding year will not makethem liable for rejection under Section 145 of the IT Act duringthe year under consideration and even no suppression of income (Tax Case No.33/2023) based on any cogent material was brought on record justifyingthe adoption of net profit @ 10% of the net profit rate to the totalgross contract receipts and the application of net profit and theconsequent addition has been made on pure guess work. TheRevenue has questioned the judgment passed by the CIT(Appeals) before the ITAT and the ITAT, in turn, has alsoaffirmed the findings recorded by the CIT (Appeals). 16.The CIT (Appeals) and the ITAT have clearly held that thefinding of the AO is based on the outcome of the SettlementCommission proceedings for the block period assessment years2006-07 to 2012-13 in which the assessee himself has declared10% net profit of the total gross receipts, thereafter, he hasmaintained the accounts for the assessment year 2014-15 andthe AO has not recorded any discrepancy or any infirmity in thebooks of accounts maintained by the assessee justifying theinvocation of Section 145(3) of the IT Act, therefore, could not beproceeded to make best judgment assessment under Section 144of the IT Act holding 10% net profit of the total gross receipts.The principle of res judicata, which the AO has proceeded toapply, could not be applied in view of the well settled law in thisregard and in view of the law declared by the Supreme Court in’M.M. Ipoh(supra) and Vidyut Metallics Ltd.s case (supra) inwhich their Lordships have held that the principles of res judicata do not apply so as to make a decision on a question offact or law in a proceeding for assessment in one year binding inanother and further held that the assessment and the factsfound are conclusive only in the year of assessment : thefindings on questions of fact may be good and cogent evidence insubsequent years, when the same question falls to bedetermined in another year, but they are not binding andconclusive. Similarly, in Dhakeswari Cotton Mills Limited(supra), the Constitution Bench of the Supreme Court hasclearly held that in making the assessment, the Income TaxOfficer is not entitled to make a pure guess and make anassessment without reference to any evidence or any material atall. judicata do not apply so as to make a decision on a question offact or law in a proceeding for assessment in one year binding inanother and further held that the assessment and the factsfound are conclusive only in the year of assessment : thefindings on questions of fact may be good and cogent evidence insubsequent years, when the same question falls to bedetermined in another year, but they are not binding andconclusive. Similarly, in Dhakeswari Cotton Mills Limited(supra), the Constitution Bench of the Supreme Court hasclearly held that in making the assessment, the Income TaxOfficer is not entitled to make a pure guess and make anassessment without reference to any evidence or any material atall. 17.In the present case, both the authorities have clearly held thatthe adoption of net profit @ 10% of the total gross receipts bythe AO has been made on pure guess work only and record ofthe assessee has not been found deficient and no infirmity ordefect was noticed by the AO, therefore, Section 145(3) of the ITAct could not be invoked and assessment could not have beendone holding 10% net profit of the total gross receipts makingbest judgment assessment under Section 144 of the IT Act.the adoption of net profit @ 10% of the total gross receipts bythe AO has been made on pure guess work only and record ofthe assessee has not been found deficient and no infirmity ordefect was noticed by the AO, therefore, Section 145(3) of the ITAct could not be invoked and assessment could not have beendone holding 10% net profit of the total gross receipts makingbest judgment assessment under Section 144 of the IT Act. 18.In that view of the matter, the concurrent finding of the twoCourts below – CIT (Appeals) and the ITAT partly interferingCourts below – CIT (Appeals) and the ITAT partly interfering Soma (Tax Case No.33/2023) with the order of the AO is in accordance with law and thesubstantial question of law is answered in favour of the assesseeand against the Revenue. Resultantly, the appeal of theRevenue is dismissed leaving the parties to bear their owncost(s). Sd/-(Sanjay K. Agrawal) Sd/- (Deepak Kumar Tiwari)Judge Judge