Raipur, Chhattisgarh v. Shri Sunil Kumar Agrawal, Near Girls College, Sewa Kunj Road, Ra
Case Details
Page 1 of 14 (Tax Case No.33/2023) SISTA SOMAYAJULU Digitally signed by SISTA SOMAYAJULU Date: 2025.07.01 14:50:35 +0530 2025:CGHC:28357-DB NAFR HIGH COURT OF CHHATTISGARH AT BILASPUR TAXC No. 33 of 2023 {Arising out of order dated 29-8-2022 passed by the Income Tax Appellate 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 be answered in this tax appeal preferred under Section 260A of the Income Tax Act, 1961 (for short, ‘the IT Act’) states as under: - “Whether in view of the fact that the assessee before the Settlement Commission had voluntarily accepted 10% NP and when there is no change in the business and the Page 2 of 14 (Tax Case No.33/2023) modus operandi, the learned ITAT committed an error of law in not accepting 10% NP for the assessment year 2014-15 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 132 of the IT Act in the Radheshyam Agrawal Group, Raipur/ Raigarh to which the assessee/respondent herein is a member and during the course of search, apart from case, several incriminating documents were found and seized from the residential and business premises of the assessee. In order to complete the assessment proceedings for the block period assessment year 2006-07 to 2011-12, notice under Section 153A of the IT Act was issued and served upon the assessee and also notice under Section 143(2) of the IT Act was issued relating to the assessment year 2012-13. Thereafter, the assessee along with three other persons of the group filed Settlement Applications before the Income Tax Settlement Commission (ITSC), Additional Bench, Kolkata and the ITSC passed order under Section 245D(4) of the IT Act on 28-9-2015 and has determined the total income and total tax liabilities in the case of the assessee for the block period assessment year 2006-07 to 2012-13 and the rate of net profit was further enhanced by the Page 3 of 14 (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 of income for the assessment year 2014-15 declaring total income at ₹ 6,65,13,730/- and on 31-8-2015, the case of the assessee was selected for scrutiny through Computer Assisted Scrutiny Selection (CASS) and notice under Section 143(2) of the IT Act was issued and served upon the assessee. Ultimately, on 29-11- 2016, show cause notice was issued to the assessee to show cause as to why the net profit @ 10% of the gross contract receipts during the financial year relevant to the assessment year under consideration should not be adopted, which the assessee replied competently and finally, on 29-12-2016, assessment order under Section 143(3) of the IT Act was passed determining total income at ₹ 13,25,03,140/- holding 10% of the net profit of total gross contract receipts. The assessment order
Facts
was challenged by the assessee before the CIT (Appeals) and the CIT (Appeals) by order dated 28-3-2018 partly allowed the appeal 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 ITAT which the ITAT has dismissed by the impugned order dated 29- Page 4 of 14 (Tax Case No.33/2023) 8-2022 leading to filing of the instant tax appeal in which the substantial question of law has been formulated which has been projected in the opening paragraph of this judgment.
Legal Reasoning
12.It is well settled principle of law that in taxation matters, the strict rule of res judicata as envisaged by Section 11 of the Code of Civil Procedure, 1908 has no application. As a general rule, each year’s assessment is final only for that year and does not govern later years, because it determines the tax for a particular period. It is, therefore, open to the Revenue/Taxing Authority to consider the position of the assessee every year for the purpose of determining and computing the liability to pay tax or octroi on that basis in subsequent years. A decision taken by the authorities in the previous year would not estop or operate as res judicata for subsequent year. (See Municipal Corpn. 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 the doctrine of res judicata does not apply so as to make a decision 2 (2007) 8 SCC 688 3 1967 SCC OnLine SC 40 Page 9 of 14 (Tax Case No.33/2023) on a question of fact or law in a proceeding for assessment in one year binding in another year, and observed as under: - “26. The doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment : the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another 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 Constitution Bench of the Supreme Court dealing with the jurisdiction while making order under Section 23(3) of the Income Tax Act, 1922 and also considering the scope of power under Section 23(3) and limits thereon, held that while making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all, and observed as under:- As regards the second contention, we are in entire “9. agreement with the learned Solicitor General when he says that the Income Tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of Section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any 4 (1954) 2 SCC 602 Page 10 of 14 (Tax Case No.33/2023) material at all. There must be something more than bare suspicion to support the assessment under Section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in Gurmukh Singh v. CIT5.” 15.Reverting to the facts of the case in light of the principles of law relating to Section 145(3) of the IT Act and also considering the principles of law laid down by their Lordships of the Supreme Court in the above-mentioned judgments, it is quite vivid that for the block period assessment years 2006-07 to 2011-12, the appellant’s case was settled by the ITSC, Kolkata by taking the net profit @ 10% of the total gross receipts which the appellant/ assessee has voluntarily submitted and which was accepted by the Settlement Officer, however, for the subsequent assessment year 2014-15, the Assessing Officer has fully maintained the books of accounts as per the provisions of the IT Act, however, the Assessing Officer applied the net profit rate of 10% holding the assessee’s admission in his application before the ITSC under Section 245D of the IT Act for the assessment year 2006- 07 to 2012-13 and heavily relied upon the proceedings of assessment for the year 2006-07 to 2012-13, however, the Assessing Officer did not record any finding as to the infirmities and discrepancies in the books of accounts maintained by the assessee for the assessment year 2014-15. No any defects/ discrepancies in the accounts to warrant rejection of the books 5 1944 SCC OnLine Lah 38 : (1944) 12 ITR 393 (Lah) Page 11 of 14 (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 any infirmity or defect in the accounts maintained by the assessee, Section 145(3) of the IT Act was invoked and assessment order was passed holding 10% net profit of the total gross receipts making best judgment assessment under Section 144 of the IT Act. In the appeal preferred by the assessee before the CIT (Appeals), the CIT (Appeals) interfered with the order of assessment passed by the AO holding that the AO has based his assessment on the outcome of the Settlement Commission proceedings for the block period covered during the search action under Section 132 of the IT Act and has extended the same to the assessment year 2014-15. The CIT (Appeals) has further recorded a specific finding that the AO has not brought on record any irregularity or defects in the books, bills, vouchers, etc. and also there is no specific finding of the AO that the appellant had booked expenditure without having incurred it or there is inflation in the amount of expenses or that the appellant had claimed any bogus expenditure. Finally, the CIT (Appeals) held that merely because books of accounts of the appellant were rejected in the preceding year will not make them liable for rejection under Section 145 of the IT Act during the year under consideration and even no suppression of income Page 12 of 14 (Tax Case No.33/2023) based on any cogent material was brought on record justifying the adoption of net profit @ 10% of the net profit rate to the total gross contract receipts and the application of net profit and the consequent addition has been made on pure guess work. The Revenue has questioned the judgment passed by the CIT (Appeals) before the ITAT and the ITAT, in turn, has also affirmed the findings recorded by the CIT (Appeals). 16.The CIT (Appeals) and the ITAT have clearly held that the finding of the AO is based on the outcome of the Settlement Commission proceedings for the block period assessment years 2006-07 to 2012-13 in which the assessee himself has declared 10% net profit of the total gross receipts, thereafter, he has maintained the accounts for the assessment year 2014-15 and the AO has not recorded any discrepancy or any infirmity in the books of accounts maintained by the assessee justifying the invocation of Section 145(3) of the IT Act, therefore, could not be proceeded to make best judgment assessment under Section 144 of the IT Act holding 10% net profit of the total gross receipts. The principle of res judicata, which the AO has proceeded to apply, could not be applied in view of the well settled law in this regard and in view of the law declared by the Supreme Court in M.M. Ipoh (supra) and Vidyut Metallics Ltd.’s case (supra) in which their Lordships have held that the principles of res Page 13 of 14 (Tax Case No.33/2023) judicata do not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another and further held that the assessment and the facts found are conclusive only in the year of assessment : the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive. Similarly, in Dhakeswari Cotton Mills Limited (supra), the Constitution Bench of the Supreme Court has clearly held that in making the assessment, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. 17.In the present case, both the authorities have clearly held that the adoption of net profit @ 10% of the total gross receipts by the AO has been made on pure guess work only and record of the assessee has not been found deficient and no infirmity or defect was noticed by the AO, therefore, Section 145(3) of the IT Act could not be invoked and assessment could not have been done holding 10% net profit of the total gross receipts making best judgment assessment under Section 144 of the IT Act. 18.In that view of the matter, the concurrent finding of the two Courts below – CIT (Appeals) and the ITAT partly interfering Page 14 of 14 (Tax Case No.33/2023) with the order of the AO is in accordance with law and the substantial question of law is answered in favour of the assessee and against the Revenue. Resultantly, the appeal of the Revenue is dismissed leaving the parties to bear their own cost(s). Sd/- (Sanjay K. Agrawal) Judge Soma Sd/- (Deepak Kumar Tiwari) Judge
Arguments
5. Mr. Ajay Kumrani, learned counsel appearing for the appellant/ Revenue, would submit that the learned ITAT has failed to appreciate that the assessee had voluntarily rejected his books of accounts for all the preceding years i.e. assessment years 2006-07 to 2012-13, therefore, the correctness of the opening and closing balances of different ledger accounts pertaining to the books of accounts of the assessee for the year under consideration could not be relied upon and therefore 10% net profit of the total gross contract receipts could not be reduced to 5.37% by the CIT (Appeals), as the ITSC, Kolkata by order passed under Section 245D(4) of the IT Act, dated 28-9-2015 held that the assessee had suo motu rejected his books of accounts for the assessment years 2006-07 to 2012-13 and the assessee itself has admitted before the ITSC to reject the results of audited books of account and net profit to be adopted @ 10% of gross contract receipts, which would be binding upon the assessee. Therefore, the CIT (Appeals) and the ITAT both had concurrently erred in holding the net profit to be 5.37% of the gross contract receipts on the basis of books of accounts and Page 5 of 14 (Tax Case No.33/2023) thereby committed legal error which deserves to be set aside by interfering in the instant tax appeal by allowing it. 6. Mr. Anand Dadariya, learned counsel appearing for the respondent/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 the year under consideration and no irregularities or defects in the books of accounts were brought on record, but had rejected the same for the reason that in the assessment years 2006-07 to 2012-13, the assessee in the course of proceedings before the ITSC, Kolkata had on suo motu basis rejected his books of accounts and admitted 10% net profit to the total gross receipts, without recording any specific finding of the irregularity or infirmity emerging therefrom the assessment in the books of accounts, whereas the AO was obligated to point out the specific defects or irregularities contemplated in sub-section (3) of Section 145 of the IT Act before rejecting the books of accounts of the assessee. He would further submit that the principle of res judicata, admittedly, would not apply, as each year assessment is a separate assessment, therefore, the facts emanating from the assessment for a specific year cannot in the absence of supporting evidence be extrapolated to another year. Page 6 of 14 (Tax Case No.33/2023) As such, the present tax appeal of the Revenue deserves to be dismissed. 7. We have heard learned counsel for the parties and considered their rival submissions made herein-above and also went through the record with utmost circumspection. 8. In order to decide the plea raised at the Bar, it would be appropriate to notice Section 145(3) of the IT Act which provides the method of accounting. Sub-section (3) of Section 145 of the IT Act states as under: - “145. Method of accounting.— xxx xxx xxx (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.” 9. Section 145 of the IT Act is not an assessment but a computation section. It instructs the Assessing Officer as to the method to be adopted in computing the profits and gains. 10.The aforesaid provision does not confer a mere discretionary power in the context it imposes a statutory duty on the Income- tax Officer to examine in every case the method of accounting employed by the assessee and to see whether or not it has been regularly employed and to determine whether the income, profits and gains of the assessee could properly be deduced Page 7 of 14 (Tax Case No.33/2023) therefrom. Therefore, where there is a system of accounting regularly employed and by appropriate adjustments from the accounts maintained taxable profit may properly be deduced, the Income-tax Officer is bound to compute the profits in accordance with the method of accounting. But where in the opinion of the Income-tax Officer the profits cannot properly be deduced from the system of accounting adopted by the assessee it is open to him to adopt a more suitable basis for computation of the true profits. (See Commissioner of Income-tax, Madras v. A. Krishnaswami Mudaliar and others1.) 11.A careful perusal of Section 145 of the IT Act would show that an Assessing Officer can reject the accounts maintained by the assessee if he is not satisfied about their correctness or completeness. Similarly, the Assessing Officer can reject the method of accounting followed by the assessee if the same is not in accordance with the provisions of sub-sections (1) and (2) of Section 145. However, in both the situations, the Assessing Officer is required to make the assessment in the manner provided under Section 144 of the IT Act. Meaning thereby, that the Assessing Officer is authorised to make assessment of total income of the assessee on the basis of “best judgment” and, at the same time, disregard the income declared in the return. Therefore, the existence of infirmities and discrepancies in the 1 AIR 1964 SC 1843 Page 8 of 14 (Tax Case No.33/2023) accounts maintained by the assessee is sine qua non for invoking the provisions of Section 145(3) of the IT Act. Unless and until the infirmities and discrepancies are expressly noticed by the Assessing Officer in the accounts maintained by the assessee, Section 145(3) of the IT Act cannot be invoked. Similarly, the principle of res judicata does not apply to the assessment proceeding.