BHASKAR BHATTACHARYA,J. - (1.) THIS appeal under S. 260A of the IT Act is at the instance of an assessee and is directed against an order dt. 5th May, 2004, passed by the Tribunal, "C" Bench, Kolkata in IT(SS)A No. 116/Kol/2002 for the block asst. yrs. 1989-90 to 1998-99 and from 1st April, 1998 to 19th Aug., 1998 dismissing the appeal preferred by the assessee.
(2.) BEING dissatisfied, the assessee has come up with the present appeal. The facts giving rise to filing of this appeal may be summed up thus : (a) The assessee is a manufacturer of cement in his mini-cement plant in the District of Hazaribagh, Bihar. (b) There was a search in the factory and some papers were found in Varanasi, at the residence of one of its directors, namely, Anil Agarwal. While deposing before ADI (Inv.) Ranchi, one G.C. Agarwal, another director of the company with a view to buying peace, declared a sum of Rs. 7.50 lacs and further declared an estimated GP of 7 per cent. The controversy arose when the AO estimated the GP as 10 per cent for which no basis was given and no comparative case was also cited by the AO. (c) Being dissatisfied, the assessee preferred an appeal before the CIT(A). The assessee submitted financial results of wholesale dealers of cement where the GP rate varied between 2.54 per cent and 4.91 per cent. It was contended by assessee that the rate of GP declared by the assessee was much higher than what was disclosed by others in the same field of business. The assessee further submitted that the GP rate shown by one Gupta Cement Stores, Varanasi for several years would indicate that the GP rate disclosed by Gupta Cement Stores varied from 2.54 per cent and 3.92 per cent. Similarly the GP rate shown by one Jainco Sales, Varanasi indicated variation of the profit rates between 3.65 per cent and 3.67 per cent. Similarly, in the case of Ashwarya Trading Co., Gazipur, the GP rate was 4.91 per cent (d) The appellate authority came to the conclusion that the AO had given no reason for estimating the GP and that he had not even mentioned about any seized material or evidence or any comparable case on which he was relying for estimating the GP rate of 10 per cent. Similarly, the assessee was also asked specifically to indicate the basis on which the GP rate of 7 per cent was estimated and claimed. The assessee's representative was unable to give any reply to this question and in such circumstances, the appellate authority was of the view that GP rate should be estimated at 8.5 per cent as reasonable GP rate on the basis of which the undisclosed income for the relevant block period should be computed. (e) Being dissatisfied, the assessee preferred an appeal before the learned Tribunal below and by the order impugned herein the Tribunal has affirmed the order passed by the CIT(A). Being dissatisfied, the assessee has come up with the present appeal.
(3.) A Division Bench of this Court at the time of admission of the appeal formulated the following substantial questions of law : "(i) Whether on the facts and in the circumstances of the case when it was an admitted fact that the provisions of S. 145 of the Act did not apply the AO could come to an estimation of gross profit by adopting an arbitrary method of valuation and the said valuation could be accepted by the Tribunal when the legal position was on the contrary and, therefore the order of the Tribunal is perverse ? (ii) Whether on the facts and in the circumstances of the case the Tribunal which is the highest fact- finding authority could agree with the submission of the assessee that the arbitrary rate of estimation was not correct and thereafter changed its stand to the contrary for coming to a view similar to that of the AO without disclosing as to why the submission of the assessee was not correct by simply observing that no evidence had been produced for which the assessee's rate of estimation could be accepted when a case like present one it was an accepted principle that in absence of the books of accounts and documents the AO could not take an arbitrary rate of valuation but had to take the net profit rate as disclosed in the return filed in pursuance of the notice issued under S. 158BC of the Act and, therefore, the order of the Tribunal ignoring the facts as also the law prevailing on the point was perverse ?" ;