BRIEF FACTS OF THE CASE AND QUESTION OF LAW
This is an appeal by the Department against the order dated 29/10/2009 of the Ld. CIT (A) – I, New Delhi. The assessee for the year under consideration did not file the return of income; therefore, the AO issued notice u/s 142(1) of the IT Act, 1961(hereinafter referred to as the Act). Since the return was not filed by the assessee, the AO framed the assessment u/s 144 of the Act and assessed the income on estimate basis at Rs. 25,00,000/- by observing that the income for the preceding assessment year 2002-03 was assessed at Rs.18,43,480/-.
Question of Law:
(i)Whether the Ld.CIT(A) has erred in law and facts in deleting the addition of Rs.25,00,000/- made by the AO on estimate basis by not appreciating the fact that the set-aside assessment for A.Y.2002-03 was redone determining the taxable income at Rs.37,80,284/- ?
(ii) Whether the estimate made by the AO was very much reasonable or not?
CONTENTION OF THE REVENUE
The Revenue supported the orders of the authorities and reiterated the observations made in the assessment order dated 29.12.2008.
CONTENTION OF THE ASSESSEE
1. The contention of the assessee was that the AO framed the assessment arbitrarily on the basis of assessment order for the assessment year 2002-03 which was set aside by the ITAT in ITA No. 326/Del./2007 vide order dated 25.7.2008.
2. It was further, submitted that the AO totally ignored the assessment completed for assessment year 2003-04 to 2005-06 wherein the total income had been assessed at nil and carried forward of losses was disallowed.
3. Relying on the judgment of the Hon’ble Sangrur Vanaspati Mills Ltd. vs. CIT(2007) 211 CTR (P&H) 439 and “Hon’ble SC in Kachwala Gems vs. Jt. CIT 288 ITR 10 (SC) the assessee contended that the best judgment assessment must be on a reasonable basis, should be honest, fair estimate and not totally arbitrary.
4. AO had not brought any material evidences to show that some business activities have been carried out by the assessee and no finding has been recorded.
HELD BY ITAT, NEW DELHI
After hearing the rival contentions, ITAT held that the AO framed the assessment ex parte u/s 144 of the Act by estimating the income of the assessee at Rs. 25,00,000/- on the basis of the income assessed for the assessment year 2002-03 which was assessed at Rs. 18,43,480 but ignored the vital fact that the said assessment was set aside by the ITAT vide order dated 25.7.2008 i.e. much before the assessment order passed by the AO on 29.12.2008.
The AO himself admitted the income of the assessee at NIL for the preceding assessment years i.e. A.Y. 2003-04 to 2005-06 wherein the total income had been assessed at NIL.
Therefore, the estimate of the AO in assessing the income for the year under consideration was without any basis particularly when he himself assessed the income of the assessee at nil for the preceding assessment years 2003-04 to 2005-06.
ITAT upheld the contentions of the assessee by considering the totality of the facts which do not see any valid ground to interfere with the findings of the Ld. CIT (A).