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TMI Blog2012 (8) TMI 229X X X X Extracts X X X X X X X X Extracts X X X X ..... s made from commission agents till the amount of the contract entered is not the income of the assessee and, therefore, the assessee is not required to maintain books of account with regard to income of other persons. Therefore, the books of account to that extent cannot be rejected by the A.O - no estimation of income can be made Assessment under section 144 of the Act – Held that:- AO is not justified in making any addition to the income of the assessee, even if the books of account are rejected u/s 145(3) of the Act, on the basis of the material on record, which was available before the AO as well as before the ld. CIT(A). The Ld. CIT(A) is not justified in sustaining the addition on this account. Penalty under section 271(1)(c) of the Act - on concealing the income and furnishing inaccurate particulars of income – Held that:- When no addition remains in pursuance of order mentioned hereinabove, no penalty u/s 271(1)(c) can be sustained - no infirmity in the order of the ld. CIT(A), who has rightly deleted the addition - I.T.A. No.204(Asr)/2010 I.T.A. No.231(Asr)/2010 I.T.A. No.526(Asr)/2011 - - - Dated:- 29-5-2012 - SH. H.S. SIDHU, SH. B.P.JAIN, JJ. Assessee By: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght on record at the time of assessment and during the course of appellate proceedings: i) That assessee has not maintained stipulated records of daily sales made through the commission agents on the basis of which RDF and Market Fee was to be collected. ii) that assessee had employed 34 persons for which no records was maintained and produced during the assessessment as well as appellate proceedings. iii) that assessee was in a position to manipulate the accounts in such a way so as to there less collections from market fee and RDF, with ulterior motive of offsetting the profits from its business as regular commission agent for peas and potatoes. 2. That, on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs.12,83,967/- made u/s 40a(ia) of the Income Tax Act, 1961. 3. That it is prayed that the order of the ld. CIT(A) be set aside and that of the AO restored. 4. That the appellant requests for leave to add or amend or alter the grounds of appeal before the appeal is heard and disposed of. 5. In ITA No.526(Asr)/2010, the Revenue has raised following gronds of appeal: 1. That, on the facts and in the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO during the assessment proceedings. As per the AO, even though the accounts of the assessee show that no salary had been paid to any employee, inquiries with the Market Committee revealed that the assesse had engaged 36 employees to undertake its contract work, out of which two persons were partners of assessee firm. The AO, therefore, came to the conclusion that the assessee firm had engaged 34 persons whose salary and other expenses were borne by it. In view of the inability of assessee to produce any record of the receipt/expenditure of the market fee collection business and payment of salary to 34 persons which were not recorded in the books of account, the AO rejected the books of accounts of the assessee as being unreliable. Applying net profit rate of 5% of total contract amount, the AO computed the income of the assessee from contract business at Rs.2,45,500/- and assessed the income of assessee at Rs.88,84,960/-. 7. Before the Ld. CIT(A), the Ld. counsel for the assessee filed written submissions dated 05/07/2009 available at pages 16 to 24 of CIT(A) s order (vide para 3.2 to 3.4). The said submissions of the assessee were forwarded to the AO for his comments and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement with the Market Committee. The AO accordingly, rejected the books of account by invoking the provisions of section1 145(3) of the Act and estimated the net profit rate @ 5% of the total contract amount of Rs.4,91,10,000/- resulting into the disallowance of loss of Rs.90,17,917/- from the said contract business. The AO conducted the inquiries during the pendency of the appeal before the ld. CIT(A) on the direction of the ld. CIT(A) with regard to the records maintained and reports submitted by the assessee to the Market Committee. It was informed by the Market Committee that the assessee had deposited the Market fee etc. in time. The assessee has submitted weekly report of the collections. In the remand report, the AO alleged that the loss in the collection of Market Fee was only a devise to offset the commission income earned as commission agent by manipulating the weekly statement of market fees. The assessee made submissions and the explanation with regard to the objection of the AO in the assessment proceedings and in the remand proceedings and that of the CIT(A) as well, but the same were not correctly appreciated. It was argued that filing of the weekly report instead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount all the materials, which the AO has gathered after giving the assessee an opportunity of being heard. The AO has to make honest, intelligent and well grounded estimate which should be based on adequate and relevant material which should be according to rule of reasons and justice and not on account of even private opinion, suspicions and conjectures. There must be some relevant material. The AO cannot make assessment under sweet will and his pleasure. 8.4. Mr. K.Sampath, the Ld. counsel for the assessee, relied upon various authorities as under: i) CST vs. Esufali (HM) Abdulali (HM) 90 ITR 271 ii) CIT vs. Padam Chand Ramgopal (1970) 76 ITR 719 (SC) iii) Guru Proteins Ltd. vs. CIT 278 ITR 636 (P H) iv) CIT vs. Popular Electric Co. (P) Ltd. 203 ITR 630 (Cal.) v) CIT vs. Chopra Bros India (P) Ltd. 252 ITR 412 (P H) vi) CIT vs. Gotan Lime Khanji Udhyog 256 ITR 243 (Raj.) vii) Brij Bhushan Lal Praduman Kumar vs. CIT 1115 ITR 524 (SC) viii) Dhakeswari Cotton Mills Ltd. vs. CIT 26 ITR 775 (SC) ix) Jhandumal Tara Chand Rice Mills vs. CIT 73 ITR 192 (P H) 8.5. It was argued that since all the collections made from commission agents which have been verified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained properly in respect of the income declared by the assessee. Therefore, the AO has rightly rejected the books of account. 9.1. As regards employment of 34 persons, identity cards were issued and in all probabilities it is quite clear that the assessee cannot run without the help of employees. On this account also, the AO has rightly rejected the books of account. 10. We have heard the rival contentions and perused the facts of the case. There is no dispute to the fact that the assessee is carrying out two activities i.e. acting as a contractor to the Market Committee, Hoshiarpur for collection of Market fees and RDF for which the assessee was required to pay Rs.4,91,10,000/- to the Market Committee, Hoshiarpur by collecting the same from commission agents. As a matter of fact, market committee instead of collecting market fees and RDF had out-sourced the same to the assessee contractor on the terms and conditions referred to in the agreement. The assessee had been collecting Market Fee and RDF from the commission agents and the cheques were collected in the name of Market Committee only is not disputed. The weekly statement had been submitted to the Market Committee ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audited and therefore, the said books of account are not said to be complete in respect of total income declared by the assessee in his return of income including the loss as contractor to the Market Committee. Therefore, the AO has rightly rejected the books of account and has rightly invoked the provisions of section 145(3) of the Act. We find no infirmity in the order of the ld. CIT(A) on this aspect. 10.1. As regards the assessment made under section 144 of the Act, we are convinced with the arguments made by the Ld. counsel for the assessee, Mr. K. Sampath that estimated addition must be based on certain materials and comparable cases and the same should not be made arbitrarily or vindictively. None of the authorities have placed any material or any comparable case for making the addition on estimated basis. Confirmation of such addition or partial confirmation of addition by the Ld. CIT(A) gives arbitrary and unbridled power to the AO in making any unwarranted addition causing disruptions in smooth and proper running of the business. Any addition must be based on definite and specific materials and reasoning which is totally absent in the case of the present assessee. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. All the grounds of the Revenue s appeal are dismissed. 13. In the result, the appeal of the assessee in ITA No.204(Asr)2010 is partly allowed and the appeal of the Revenue in ITA No.231(Asr)/2010 is dismissed. 14. Now, we take up appeal of the Revenue in ITA No.526(Asr)/2011. The brief facts are that the AO had levied penalty under section 271(1)(c) of the Act, amounting to Rs.27,73,000/- on concealing the income and furnishing inaccurate particulars of income with regard to income assessed at Rs.82,38,260/- which was deleted by the ld. CIT(A). 15. We have heard the rival contentions and perused the facts of the case. Since the said addition made by the AO has completely been deleted by our order in assessee s appeal in ITA No.204(Asr)/2010 and Revenue s appeal in ITA No.231(Asr)/2010 hereinabove, therefore, when no addition remains in pursuance of order mentioned hereinabove, no penalty u/s 271(1)(c) can be sustained. Thus, we find no infirmity in the order of the ld. CIT(A), who has rightly deleted the addition may be for other reasons mentioned in his order. All the grounds of Revenue are dismissed. 14. In the result, the appeal of the assessee in ITA No.204(As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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