Section 153B(1)(b) of the Income Tax Act
The decision most relied on for Section 153B(1)(b) is CIT v. Hero Cycles (P.) Ltd. (228 ITR 463), cited in 262 of the 140 judgments on BharatTax that turn on this section.
Leading authorities on Section 153B(1)(b)
A point not examined on facts or in law cannot be treated as a mistake apparent on record for rectification purposes.
The Supreme Court holds that an Assessing Officer, when making a best judgment assessment or estimating income, must act fairly, honestly, and rationally, basing the estimation on available material and avoiding arbitrary or capricious decisions. Adherence to natural justice principles is crucial during assessment proceedings.
Under the mercantile system of accounting, revenue and expenses are matched on an accrual basis, comparing income earned and expenses incurred irrespective of cash flow. If the Department seeks to substitute an assessee's chosen method of accounting, the burden is on the Department to prove that the existing method is incorrect or distorts profits.
An assessee engaged in construction of flats, consistently following the project completion method of accounting, can continue to use this method if it has been accepted by revenue authorities in the past, and the Assessing Officer cannot unilaterally change it to an estimation basis.
The Tribunal is wrong in rejecting the Project Completion Method followed consistently by the assessee and applying the work-in-progress method, taxing 80% as net profit.
Disallowance under Section 40A(3) may not be practicable for businesses that are inherently illegal, as compliance with payment methods might be impossible.
