In ITA No.7427/Del/2018 - ITAT - Assessing Officer cannot replace business strategy of a taxpayer as per his personal whims and fancies: ITAT (Delhi)
Members Chandra Mohan Garg (Judicial) & Pradip Kumar Kedia (Accountant) [02-06-2023]

Read Order: The ACIT, Circle-47(1), New Delhi v. Ashish Bansal

Chahat Varma

New Delhi, June 5, 2023: In a recent case, the Delhi bench of the Income Tax Appellate Tribunal has held that it is a well-accepted principle in tax jurisprudence that an Assessing Officer (AO) cannot sit on the arm chair of a businessman assessee to replace his business strategy by his own whims and fancies.

Briefly stated facts of the case were that the Revenue filed an appeal, arguing that the Commissioner of Income Tax (Appeals) had made an error in deleting the addition of gross profit (GP) amounting to Rs. 1,72,35,965/-. The Revenue claimed that there was a significant decrease in the gross profit for the current year compared to the previous year, and the assessee failed to provide any cogent reason for the same. The assessee contended that the AO, without complying with the requirement of Section 145(3) of the Income Tax Act, had proceeded to estimate the income of the assessee under best judgement assessment by taking 1% of the total turnover as against 0.41% as declared by the assessee, therefore, the CIT(A) was right in deleting the addition made by the AO without any basis.

The sole allegation taken by the AO for enhancing GP rate from 0.41% to 1% of turnover was that there was significant rise in the turnover of jewellery segment but the GP rate was reduced abnormally.

The Tribunal held that the AO only noted abnormal fall in GP rate of jewellery without pointing out any defects or discrepancies in the audited books of accounts of assessee and this approach without any other positive material or evidence, only on standalone basis was not correct and justified.