[Opinion] Assessment Based on Statistical Parameters – An Overview

Gopal Nathani – [2023] 157 taxmann.com 223 (Article)

Mechanics in Survey case

Search and survey cases are usually considered as more sensitive and require more in-depth scrutiny and examination with prudence during actual assessment proceedings post such events. Section 148 in its present form yield to automatic jurisdiction/presumption of escaped assessment in a survey and search case. The All India Federation of Tax Practitioners publication on Survey in dealing with the question ‘what shall be the assessment procedure’ read as under:

Scrutiny assessment u/s. 143(3)/144 is framed in all survey cases. Whatever material is collected in the course of survey is used while making an assessment. An assessee surveyed may have to face a scrutiny assessment. It is desirable that the entire material is minutely examined and considered while filing the return. Detained explanations deserve t be submitted in the course of assessment proceedings. Submissions should be supported by proper evidence. Admissions, if any, made in the statements need to be explained by supporting evidence, if retracted or not adhered in.

Medicinal drug dealer assessment on statistical parameters

The Commissioner (Appeals) and later the Delhi bench of the ITAT in this survey led case of a partnership firm viz., Asstt. CIT v. Friends Medicos [2023] 108 ITR (Trib) 279 found that the assessment has been completed on statistical parameters rather than on the basis of an enquiry and examination of books of account or transactions. In this case the revenue alleged overbooking of expenditure. More particularly the Assessing Officer (AO) rejected the books of account alleging act of deflating partners’ remuneration and inflating other expenses to artificially compensate the income surrendered due to survey and thereupon estimated the net profit at a higher percentage based on average net profits yield in previous year’s numbers without pinpointing any defect in the books of account, which in an ordinary case may have worked assuming that the business activity is conducted in a similar manner.

Relevant finding of the Commissioner of Income- tax (Appeals) is as below:

“Every year is a different year owing to its facts and in the circumstances, therefore, it cannot be expected that appellant has to declare the same margin of profit in each year. The rejection of books of account can be made under section 145(3) of the Act where the Assessing Officer is not satisfied about the correctness and completeness of the account of the assessee or where the assessee has not followed the method of accounting regularly and consistently, then the Assessing Officer may compute the income/loss of the assessee per the material available on record. In the present case of the appellant, the Assessing Officer has not recorded any finding which could reflect that he is not satisfied about the correctness and completeness of the accounts of the appellant. Further, on perusal of various replies filed by the appellant it is noticed that details have been filed with respect to the sale, purchase, closing stock and expenses along with documentary evidence, i. e., all factors affecting the net profit. Also there is no finding of the Assessing Officer that the appellant has deviated from the method of accounting regularly followed by it. In these circumstances, I am of the considered view that the Assessing Officer was not justified in rejecting the books of account of the appellant. Hence, the rejection of books of account made by the Assessing Officer is rejected and this ground of appeal of the appellant is allowed.”

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