Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in quashing the assessment made under s. 144 of the IT Act, 1961 ?

Counsel Appeared

B. K. Naha led by S. K. Mitra, for the Revenue : None appeared, for the Petitioner

AJIT K. SENGUPTA, J.:

In this reference under s. 256(2) of the IT Act, 1961, for the asst. yrs. 1981-82 and 1982-83, the following questions of law have been referred to this Court :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in quashing the assessment made under s. 144 of the IT Act, 1961 ?

2. If the answer to question No. 1 is in the negative, then whether, on the facts and in the circumstances of the case, the Tribunal should have directed the ITO to redo the assessment?” The facts leading to this reference are that the assessee is M/s Popular Electric Co. (P.) Ltd. and the assessment years involved are 1981-82 and 1982-83, for which the previous years ended on 31st March, 1981, and 31st March, 1982, respectively. The assessee- company is engaged in the business of electrical engineers and contractors. For the two assessment years under reference, returns have not been filed in response to notices under ss. 139(2) and 142(1) of the IT Act, 1961. The assessments were made on 14th March, 1984, and 16th Feb., 1985, under s. 144, respectively. Considering the facts and circumstances of the case and past records, the ITO fixed the total income at Rs. 50,000 for each year. Aggrieved by the orders of the ITO, the assessee preferred appeals to the CIT (A) who confirmed the action of the ITO.

Against the orders of the CIT(A), the assessee filed appeals before the Tribunal. It was urged on behalf of the assessee that no basis was given in the assessment orders as to how the ITO fixed the total income at Rs. 50,000 for each year. It was pointed out that, for the asst. yrs. 1979-80 and 1980-81, the ITO made the assessments under s. 143(3) of the Act determining the business losses at Rs. 44,366 and Rs. 25,836 on the turnover disclosed at Rs. 6,37,083 and Rs. 5,25,522, respectively. It was stated that, for the assessment years under reference, the turnover was Rs. 3,67,253 and Rs. 5,95,633, respectively, and the company had incurred losses of Rs. 29,094 and Rs. 2,171, respectively, as per the audited accounts. It was urged that the action of the ITO in determining the total income of the assessee at Rs. 50,000 for each year as affirmed by the CIT(A) should be quashed.

The Departmental representative, on the other hand, urged that the ITO may be directed to allow some reasonable losses and redetermine the income.

The Tribunal observed that the ITO has not given any basis or data to determine the total income of the assessee at Rs. 50,000 for each of these two assessment years under consideration. It held that the ITO was not justified in determining the total income of the assessee at Rs. 50,000 when the turnover was only Rs. 3,57,253 and Rs. 5,95,633 for the asst. yrs. 1981-82 and 198283, respectively. Further, following the decision of the Supreme Court in the case of State of Kerala vs. C. Velukutty (1966) 60 ITR 239, the Tribunal held that the best judgment assessments made by the ITO did not conform to the requirements laid down by the Supreme Court in that case. In that view of the matter, the Tribunal quashed the assessments. None appeared for the assessee. We have heard learned advocate for the Revenue. It is now well-settled that the ITO, while making a best judgment assessment, should make an intelligent well-grounded estimate. Such estimate must be based on adequate and relevant materials. He should make an honest estimate on the basis of the materials available, inasmuch as such estimate is necessitated by reason of the defaults committed by the assessee either in not making a return or by not complying with all the terms of a notice under s. 142(1) or s. 143(2) or by not complying with the direction under s. 142(2A). On any one or more of these defaults happening, the ITO has to make a best judgment assessment after taking into account all relevant materials which may be derived from the records or which may have come into his possession in the course of the assessment proceedings which the assessee does not explain or contradict in spite of opportunity afforded.

In this case, the Tribunal found that, in earlier years, the assessee suffered losses and accordingly, the ITO was not justified in determining the total income at a positive figure for the assessment years in question without taking into account the relative turnover of the relevant years and the earlier years where the assessee sustained losses. It may be that, on the facts, the Tribunal came to the correct finding that the ITO did not take into account all the relevant materials in determining the quantum of income of the assessee but the Tribunal ought to have determined the quantum of the income or the loss as the case may be for the years under reference or directed the ITO to make fresh assessments on the basis of the material available on record ; but the Tribunal, in this case, without adopting any of those two courses, simply annulled the assessments. On the facts and in the circumstances of this case, in our view, the Tribunal was not justified in annulling the assessments.

The grievance of the assessee in this case was not that the provisions of s. 144 were not attracted. The grievance was that, in making the assessment in terms of s. 144, the relevant materials were not taken into account by the ITO. We are of the view that the Tribunal fell in error in annulling the assessments. Either the Tribunal ought to have determined the quantum of income or loss or set aside the assessments with a direction to the ITO to make fresh assessments in accordance with law.

For the reasons aforesaid, we answer the first question in this reference in the negative and in favour of the Revenue. The second question is answered in the affirmative and in favour of the Revenue. There will be no order as to costs.

Shyamal Kumar Sen, J.:

I Agree.

[Citation : 203 ITR 630]