Madras High Court
R.V.S. And Sons Dairy Farm vs Commissioner Of Income-Tax on 5 November, 2001
Equivalent citations: [2002]257ITR764(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu, A.K. Rajan
JUDGMENT R. Jayasimha Babu, J.
1. Counsel contends that without examining the material data for each of the assessment years, the rate of return estimated by the Tribunal for an earlier year when the assessee itself had reported a profit margin of 15 per cent. has been adopted for four later years, wherein, the profit margin reported by the assessee varied from 9.7 per cent. to 12 per cent. Counsel submits that this approach of the Tribunal is arbitrary, and is impermissible.
2. The Tribunal has in its order, noticed that for the assessment year 1981-82, the years with which we are concerned in this reference are earlier years from 1977-78 to 1980-81, the Assessing Officer has made an addition of only two per cent. to the reported profit of 7.5 per cent. Counsel submits that while a determination of 15 per cent. for the assessment year 1976-77 may be justified. As the assessee himself had reported the income at that percentage, that percentage of .15 per cent. was wholly irrational for the later years, especially when, for the year 1981-82 the profit margin was found to be 9.5 per cent. by the Income-tax Officer.
3. There is some substance in these submissions. Each year is an independent unit for which the liability for tax has to be determined, and even when the assessee's account books are not accepted, nevertheless the examination of the available data, or estimates for each year separately would have to be considered and, only thereafter, the liability determined.
4. While it is no doubt true that an estimate by definition has to be that only, and no precise yard stick can be found by which to make such an estimate wholly devoid of some element of subjectivity, nevertheless, the estimate to be done should be in relation to the figures available for each year and must take note of the prior record of the assessee as well.
5. The assessee here carries on a dairy industry. It had pointed out several features in the business run by it which was thirty years old which distinguished it from other dairy units which may have reported larger profits. The Tribunal has found some of those distinguishing features to be in fact, true. In that background, the Tribunal, was not acting in accordance with law, in making an ad hoc choice of percentage and applying it uniformly for several years even while noticing that for the year immediately following the last of the years before it the percentage of profit had been accepted by the Income-tax Officer at only 9.5 per cent.
6. Learned counsel for the assessee invited our attention to the decision of the Karnataka High Court in the case of P. Venkanna v. CIT [1969] 72 ITR 328 (Mys), wherein, it was held that other things being equal, profits estimated during an earlier period may guide the estimation of the profits of a subsequent year but only when the conditions in which the business activity of the later period are similar to those of the earlier period.
7. Having regard to all the facts and circumstances of the case, we answer the first two questions in favour of the assessee, and against the Revenue. But we remand the matter to the Tribunal to consider the profit margin for each of the years in question separately. As regards the third question, while holding that the Tribunal has power to substitute a different rate, that determination shall have to be in accordance with law and with reference to the relevant data for each assessment year.