The Asstt. Commissioner of Income-tax, Hoshiarpur V. M/s. Hari Chand and Co, Hoshiarpur

ITA 526/ASR/2011

• Counselvise Citation: 52620914 RSA 2011
• Duration Of Justice: 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 21-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIK CHAND
• Assessee Lawyers: K SAMPAT
• Keywords: Rejection of books of accounts; Opportunity of being heard; Additional evidence
• Section: 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.204(ASR)/2010 ASSESSMENT YEAR:2006-07 PAN:AAEFH243G M/S. HARI CHAND AND COMPANY, VS. DY. COMMR. OF INCO ME-TAX, HOSHIARPUR. HOSHIAPUR RANGE, HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO.231(ASR)/2010 ASSESSMENT YEAR : 2006-07 ASSTT. COMMR. OF INCOME-TAX VS. M/S. HARI CHAND & C OMPANY, HOSHIARPUR CIRCLE, HOSHIARPUR. HOSHIARPUR. (APPELLANT) (RESPONDENT) I.T.A. NO.526(ASR)/2011 ASSESSMENT YEAR : 2006-07 ASSTT. COMMR. OF INCOME-TAX VS. M/S. HARI CHAND & C OMPANY, HOSHIARPUR CIRCLE, HOSHIARPUR. HOSHIARPUR. (APPELLANT) (RESPONDENT) ASSESSEE BY: SH. K. SAMPAT, ADV. DEPARTMENT BY:SH. AMRIK CHAND, DR DATE OF HEARING :22/05/2012 DATE OF PRONOUNCEMENT:29/05/2012 ORDER 2 PER BENCH: THESE CROSS APPEALS OF THE ASSESSEE AND THE REVENUE ARISE FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 26.02.2010 FO R THE ASSESSMENT YEAR 2006-07. 2. THE REVENUE HAS ALSO FILED APPEAL IN ITA NO.526( ASR)/2010 AGAINST THE ORDER OF THE CIT(A) PASSED UNDER SECTION 271(1) (C) OF THE ACT. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL IN ITA NO.204(ASR)/2010: 1. THAT ASSESSMENT FRAMED IS AGAINST LAW AND FACTS OF THE CASE, IT IS ILLEGAL, UNJUSTIFIED AND UNCALLED FOR. 2. THAT LD. ITO AND CIT(A) HAS LEGALLY ERRED IN LAW AND FACTS IN APPLYING THE PROVISIONS OF SECTION 145(3) OF INCOME -TAX ACT. THEY HAVE FAILED TO APPRECIATE THE FACTS OF THE CAS E AND LAW ON THE ISSUE AND HAS FRAMED ASSESSMENT WITHOUT OFFERIN G MANDATORY OPPORTUNITY. 3. THAT ESTIMATION OF INCOME AT RS.13042687/- BY LD . CIT(A) FROM CONTRACT BUSINESS IS WITHOUT APPRECIATING THE PROVI SIONS OF LAW AND FACTS OF THE CASE. ESTIMATION OF INCOME IS NOT FAIR, HONEST AND IS ARBITRARY, ESTIMATION OF INCOME IS WITHOUT C ONSIDERING THE RELEVANT MATERIAL ON RECORD. 4. THAT LEARNED ASSESSING OFFICER HAS FAILED TO PRO VE HIS CASE AND MERELY ON SURMISES AND CONJECTURES FRAMED THE ASSES SMENT AT AN ABNORMAL FIGURE OF INCOME. LD. CIT(A) HAS FAILED T O APPRECIATE THE FACTS, WHILE SUSTAINING THE ADDITION OF INCOME ON ESTIMATE AT RS.10179982/- AGAINST HUGE LOSS DECLARED FROM CONTR ACT BUSINESS. 3 5. THAT LD. CIT(A) HAS FAILED TO APPLY THE PROVISIO NS OF LAW AND DECISION OF HONBLE SUPREME COURT AND OTHER HIGH CO URTS BROUGHT TO HIS KNOWLEDGE, ON THE FACTS OF THE CASE. 6. THAT ADDITION CONFIRMED BY THE LD. CIT(A) MAY PL EASE BE DELETED ALTERNATIVELY REDUCE SUBSTANTIALLY. 7. THAT APPELLANT CRAVES THE RIGHT TO ALTER, ADD, A MEND DELETE ANY OF THE GROUNDS OF APPEAL. 4. THE REVENUE IN ITA NO.231(ASR)/2010 HAS RAISED F OLLOWING GROUNDS OF APPEAL: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF ON ACCOUNT OF R EWORKING OF NET PROFIT BY APPLYING RATE OF 2% INSTEAD OF 5% ON MARKET FEE CONTRACT OF RS.4,91,00,000/-. 1.1 WHILE DOING SO THE CIT(A) FAILED TO APPRECIATE THE FACTS THAT NET PROFIT RATE OF 5% ON THE GROSS CONTRACT RECEIP TS WAS RIGHTLY APPLIED BY THE AO AFTER TAKING RECOURSE TO PROVISIO NS OF SECTION 145 OF THE INCOME-TAX ACT, 1961 ON THE BASIS OF FAC TS BROUGHT 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 T HE BASIS OF WHICH RDF AND MARKET FEE WAS TO BE COLLEC TED. II) THAT ASSESSEE HAD EMPLOYED 34 PERSONS FOR WHIC H NO RECORDS WAS MAINTAINED AND PRODUCED DURING THE ASS ESSESSMENT 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 PRO FITS FROM ITS BUSINESS AS REGULAR COMMISSION AGENT FOR PEAS AND POTATOES. 4 2. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE 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 AN D 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 CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING PENALTY OF RS.2 7,73,000/- IMPOSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. THAT, IT IS PRAYED THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THAT THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AN D DISPOSED OF. 6. FIRST OF ALL, WE TAKE UP CROSS APPEALS OF THE AS SESSEE AND THE REVENUE IN ITA NO. 204(ASR)/2010 & ITA NO. 231(ASR)/2010 FO R THE ASSESSMENT YEAR 2006-07. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS EXECUTED AN AGREEMENT DATED 31.03.2005 WITH THE MARKET COMM ITTEE, HOSHIARPUR, FOR COLLECTION OF MARKET FEE AND RURAL DEVELOPMENT FUND ( IN SHORT RDF) FOR A TOTAL AMOUNT OF CONTRACT OF RS.4,91,10,000/- FOR THE FINANCIAL YEAR 2005-06 ON BEHALF OF THE MARKET COMMITTEE, HOSHIARPUR. AS PER THE AGREEMENT, THE 5 CONTRACTOR WAS TO DEPOSIT 10% OF THE CONTRACT AMOUN T WITH THE MARKET COMMITTEE AS SECURITY. IT WAS FURTHER REQUIRED TO D EPOSIT 10% OF THE BALANCE CONTRACT MONEY EVERY MONTH DURING THE CONTRACT PERI OD. ANY SHORTFALL IN ACTUAL COLLECTION OF THE MARKET FEE AND RDF DURING THE YEAR WAS TO BE MADE GOOD BY THE ASSESSEE CONTRACTOR TO THE MARKET COMMI TTEE. FOR DELAY IN PAYMENT OF MARKET FEE AND RDF, THE ASSESSEE WAS LIA BLE TO PAY INTEREST @ 1% PER MONTH. THE ASSESSEE WAS GIVEN THE CONTRACT F OR COLLECTING MARKET FEE AND RDF THROUGH AN OPEN BIDDING PROCESS. BESIDES TH IS ACTIVITY, THE ASSESSEE ALSO BECAME A COMMISSION AGENT FOR SALE OF AGRICULT URAL PRODUCE, NAMELY POTATOES AND PEAS, IN THE SAME MARKET DURING THE YE AR. IN THE RETURN OF INCOME, THE ASSESSEE HAS SHOWN COMMISSION RECEIPTS THROUGH SALE OF AGRICULTURAL PRODUCE AT RS.86,32,696/-. HOWEVER, IT HAD ALSO DECLARED A LOSS OF RS.90,17,907/- FROM THE MARKET COMMITTEE CONTRAC T. A LOSS OF RS.6,57,760/- WAS CLAIMED IN THE RETURN OF INCOME. 6.1. AS PER THE AO, THE ASSESSEE DID NOT MAINTAIN A NY RECORD OF THE COLLECTION OF MARKET FEE AND RDF OR OF THE EXPENSES INCURRED FOR SUCH COLLECTION. IT WAS CONTENDED BEFORE THE AO THAT ALL THE RECORDS WERE AVAILABLE WITH THE MARKET COMMITTEE. IN PARA 7 OF T HE ASSESSMENT ORDER, THE AO NOTED THAT AS PER CLAUSE (9) OF AGREEMENT WITH MARKET COMMITTEE, THE 6 ASSESSEE WAS REQUIRED TO FURNISH A STATEMENT OF MAR KET COMMITTEE IN THE PRESCRIBED PROFORMA. HOWEVER, THESE RECORDS WERE NO T PRODUCED BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. AS PER THE AO , EVEN THOUGH THE ACCOUNTS OF THE ASSESSEE SHOW THAT NO SALARY HAD BE EN PAID TO ANY EMPLOYEE, INQUIRIES WITH THE MARKET COMMITTEE REVEALED THAT T HE 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 A ND OTHER EXPENSES WERE BORNE BY IT. IN VIEW OF THE INABILITY OF ASSESSEE T O PRODUCE ANY RECORD OF THE RECEIPT/EXPENDITURE OF THE MARKET FEE COLLECTION BU SINESS 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 AM OUNT, THE AO COMPUTED THE INCOME OF THE ASSESSEE FROM CONTRACT BUSINESS A T 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 A SSESSEE 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 THE AO VIDE HIS LETT ER DATED 04/09/2009 HAD 7 GIVEN THE COMMENTS WHICH ARE AVAILABLE AT PAGES 24 TO 28 OF CIT(A)S ORDER IN PARAS 3.5 TO 3.7. THEREAFTER, THE AO WAS DIRECTE D TO CONDUCT INQUIRIES WHICH WERE MADE AND THE ASSESSEE HAD SUBMITTED THER EAFTER HIS SUBMISSION VIDE LETTER DATED 10.11.2009. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE REPORT/COMMENTS OF THE AO AS MENTIONE D HEREINABOVE, THE LD. CIT(A) IN PARA 4 TO 4.15 UPHELD THE APPLICATION OF SECTION 145(3) OF THE ACT AND APPLYING NET PROFIT RATE OF 2% OF THE CONTRACT, COMPUTED THE INCOME OF THE ASSESSEE ACCORDINGLY. THE LD. CIT(A) AFTER ADMI TTING THE ADDITIONAL EVIDENCE ALLOWED THE CLAIM OF THE ASSESSEE WITH REG ARD TO INTEREST OF RS.12,83,967/-. 8. THE LD. COUNSEL FOR THE ASSESSEE, SH. K. SAMPATH , ADV. ARGUED THAT THE ASSESSEE IS A PARTNERSHIP FIRM CONSISTING OF 8 PARTNERS. IT DERIVES INCOME FROM BUSINESS BY ACTING AS COMMISSION AGENT IN VEG ETABLE/FRUIT MARKET AT HOSHIARPUR. ITS PRINCIPAL ACTIVITY WAS AS A CONTRAC T TO THE MARKET COMMITTEE, HOSHIARPUR FOR COLLECTION OF MARKET FEE AND RURAL D EVELOPMENT FUND (RDF). AS PER AGREEMENT WITH THE MARKET COMMITTEE, THE ASSESSEE WAS BOUND TO PAY A TOTAL CONTRACT AMOUNT OF RS.4,91,10, 000/- TO THE MARKET COMMITTEE, HOSHIARPUR. IT WAS DEVISED THAT ANY EXCE SS COLLECTION WAS TO BE APPROPRIATED BY THE ASSESSEE CONTRACTOR WHEREAS AN Y SHORTFALL/LOSS HAD TO BE 8 BORNE BY THE ASSESSEE ITSELF. THE ASSESSEE INCURRED A LOSS IN THE ACTIVITY OF COLLECTION OF MARKET FEE AND RDF. THE ASSESSEE HAD EARNED INCOME FROM BUSINESS BY ACTING AS COMMISSION AGENT INDEPENDENTL Y IN VEGETABLE/FRUIT MARKET. IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD NOT MAINTAINED PROPER BOOKS OF ACCOUNT AND RECORD WITH REGARD TO C OLLECTION OF MARKET FEE AND RDF AS ALSO THE EXPENSES INCURRED FOR COLLECTIO N OF MARKET FEE. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAD ENGAGED 34 EMPL OYEES TO CARRY OUT THE WORK OF THE CONTRACT. THE IDENTITY CARDS WERE ISSU ED BY THE MARKET COMMITTEE FOR 34 EMPLOYEES OF THE ASSESSE HAD NOT DECLARED THE PAYMENT OF ANY SALARY TO THE SAID 34 EMPLOYEES. ACCORDINGLY, T HE AO CONCLUDED THAT THE ASSESSEE HAD BEEN USING THE SAID 34 EMPLOYEES SECRE TLY OUT OF BOOKS OF ACCOUNT FOR COLLECTING THE MARKET FEE AND RDF WHICH WAS NOT DISCLOSED IN THE BOOKS OF ACCOUNT. THE ASSESSEE HAS NOT BEEN SUB MITTING THE DAILY REPORT TO THE MARKET COMMITTEE WHICH WERE REQUIRED TO BE S UBMITTED AS PER AGREEMENT WITH THE MARKET COMMITTEE. THE AO ACCORDI NGLY, REJECTED THE BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECT ION1 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 T HE INQUIRIES DURING THE PENDENCY OF THE APPEAL BEFORE THE LD. CIT(A) ON THE DIRECTION OF THE LD. 9 CIT(A) WITH REGARD TO THE RECORDS MAINTAINED AND RE PORTS SUBMITTED BY THE ASSESSEE TO THE MARKET COMMITTEE. IT WAS INFORMED B Y THE MARKET COMMITTEE THAT THE ASSESSEE HAD DEPOSITED THE MARKE T FEE ETC. IN TIME. THE ASSESSEE HAS SUBMITTED WEEKLY REPORT OF THE COLLECT IONS. IN THE REMAND REPORT, THE AO ALLEGED THAT THE LOSS IN THE COLLECT ION OF MARKET FEE WAS ONLY A DEVISE TO OFFSET THE COMMISSION INCOME EARNED AS COMMISSION AGENT BY MANIPULATING THE WEEKLY STATEMENT OF MARKET FEES. T HE ASSESSEE MADE SUBMISSIONS AND THE EXPLANATION WITH REGARD TO THE OBJECTION OF THE AO IN THE ASSESSMENT PROCEEDINGS AND IN THE REMAND PROCEE DINGS AND THAT OF THE CIT(A) AS WELL, BUT THE SAME WERE NOT CORRECTLY APP RECIATED. IT WAS ARGUED THAT FILING OF THE WEEKLY REPORT INSTEAD OF A DAIL Y REPORT WITH THE MARKET COMMITTEE DID NOT AT ALL AFFECT THE INCOME OF THE A SSESSEE, ESPECIALLY WHEN RECORD OF SALE MADE ON WHICH COMMISSION WAS EARNED BY THE COMMISSION AGENTS GIVING DETAILS OF MARKET FEE AND RDF COLLECT ION WAS SUBMITTED IN THE PRESCRIBED FORMS AND REGISTER BY THE ASSESSEE TO M ARKET COMMITTEE, HOSHIARPPUR AND THE SECRETARY, MARKET COMMITTEE, HO SHIARPUR HAD CONFIRMED THE SAME IN THE COURSE OF ENQUIRY IN ASS ESSMENT AND APPELLATE PROCEEDINGS. MOREOVER, EVERY COMMISSION AGENT HAD FILED PRESCRIBED RETURN IN THE MANDATORY FORM M TO THE MARKET COMMITTEE G IVING COMPLETE DETAILS 10 THEREIN. THAT CROSS-CONFIRMED THE REGISTER ENTRIES OF THE MARKET COMMITTEES. THUS, MARKET FEE COLLECTED WAS FULLY VERIFIABLE FR OM THE SAID RECORDS OF THE MARKET COMMITTEE. 8.1. AS REGARDS THE EMPLOYMENT OF 34 PERSONS, IT WA S ARGUED BY THE LD. COUNSEL THAT THERE IS NO MATERIAL IN THE POSSESSION OF THE AO TO SUPPORT THE FACTUM OF EMPLOYMENT OF 34 ALLEGED EMPLOYEES BY TH E ASSESSEE. THERE WAS NO WORK DONE BY THEM. THERE WAS NO QUESTION OF ANY PAYMENT OF ANY SALARY TO THEM FOR ANY ALLEGED WORK IN THE CONTRACT BUSINE SS. NO COLLECTION OF MARKET FEE OR RDF HAS BEEN BROUGHT ON RECORD BY TH E AO OR BY THE LD. CIT(A) WHICH REMAINED UNDISCLOSED IN THE WEEKLY STA TEMENT SUBMITTED BEFORE THE MARKET COMMITTEE AND VERIFIED BY THE AO. 8.2. AS REGARDS THE COMMISSION INCOME, BOOKS OF ACC OUNT HAD BEEN AUDITED ARE NOT IN DISPUTE. IT WAS ARGUED BY THE LD . COUNSEL THAT THE ASSESSEE WAS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT IN RE SPECT OF COLLECTION OF MARKET FEE AND RDF AND SINCE THE PAYMENTS ARE COLLE CTED IN THE NAME OF MARKET COMMITTEE, THEY ARE DEPOSITED WITH THE MARKE T COMMITTEE ONLY. ALL THE DETAILS FOR THE COLLECTIONS WHICH WERE TALLIED WEEKLY WERE AVAILABLE WITH THE AO AND THE LD. CIT(A) ARE NOT IN DISPUTE. THERE FORE, THE COLLECTIONS 11 MADE FROM COMMISSION AGENTS TILL THE AMOUNT OF THE CONTRACT ENTERED IS NOT THE INCOME OF THE ASSESSEE AND, THEREFORE, THE ASSE SSEE IS NOT REQUIRED TO MAINTAIN BOOKS OF ACCOUNT WITH REGARD TO INCOME OF OTHER PERSONS. THEREFORE, THE BOOKS OF ACCOUNT TO THAT EXTENT CANN OT BE REJECTED BY THE A.O. THEREFORE, NO ESTIMATION OF INCOME CAN BE MADE. 8.3. IT WAS FURTHER ARGUED BY MR. K.SAMPATH, THE LD . COUNSEL FOR THE ASSESSEE, AS AN ALTERNATIVE ARGUMENT THAT EVEN IF T HE BOOKS OF ACCOUNT ARE REJECTED, THE AO HAS TO MAKE THE ASSESSMENT AFTER T AKING INTO ACCOUNT ALL THE MATERIALS, WHICH THE AO HAS GATHERED AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. THE AO HAS TO MAKE HONE ST, INTELLIGENT AND WELL GROUNDED ESTIMATE WHICH SHOULD BE BASED ON ADEQUATE AND RELEVANT MATERIAL WHICH SHOULD BE ACCORDING TO RULE OF REASONS AND JU STICE AND NOT ON ACCOUNT OF EVEN PRIVATE OPINION, SUSPICIONS AND CONJECTURE S. THERE MUST BE SOME RELEVANT MATERIAL. THE AO CANNOT MAKE ASSESSMENT UN DER SWEET WILL AND HIS PLEASURE. 8.4. MR. K.SAMPATH, THE LD. COUNSEL FOR THE ASSESSE E, 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) 12 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 52 4 (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 M ADE FROM COMMISSION AGENTS WHICH HAVE BEEN VERIFIED BY THE AO IN THE AS SESSMENT PROCEEDINGS AND IN THE REMAND PROCEEDINGS SHOULD NOT BE DISPUT ED. THE INTEREST PAYMENT AND BANK CHARGES ETC. AND OTHER EXPENSES ARE ALSO N OT DISPUTED. 8.6. AS REGARDS 34 EMPLOYEES ALLEGED TO HAVE BEEN EMPLOYED BY THE ASSESSEE IS WITHOUT ANY BASIS SINCE THE ASSESSEE HA S BEEN DENYING FROM THE DAY ONE THAT IT HAD NOT EMPLOYED THESE PERSONS BECA USE OF THE DISPUTE IN THE FIRST MONTH OF THE EMPLOYMENT ITSELF AND IT HAD NOT TAKEN SERVICES OF THESE EMPLOYEES AND HAD NOT PAID ANY AMOUNT OF SALARY TO THESE EMPLOYEES AND INSPITE OF THE FACT THE IDENTITY CARDS ISSUED BY TH E MARKET COMMITTEE TO THESE EMPLOYEES WICH IS A EVIDENCE AT THE BACK OF THE AS SESSEE, WHICH DOES NOT PROVE ANY PAYMENT TO THESE PERSONS AS SALARY PAID B Y THE ASSESSEE. 13 THEREFORE, THE AO WAS IN A POSITION TO ADDUCE ACCU RATE INCOME WITH THE HELP OF SUCH MATERIAL, WHICH IN FACT HAS NOT BEEN D ONE BY HIM, BUT THE SAME HAD BEEN ESTIMATED AT 5% OF THE CONTRACT AMOUNT AND THIS APPROACH OF THE AO IS NOT JUSTIFIED. THE LD. CIT(A) IS ALSO NOT JUS TIFIED IN SUSTAINING THE ADDITION, WHICH SHOULD HAVE BEEN DELETED IN FULL BY HIM. 8.7. AS REGARDS INTEREST OF RS.12,83,967/-, MR. SAM PATH, THE LD. COUNSEL FOR THE ASSESSEE ARGUED THAT THE LD. CIT(A) WAS JUSTIFI ED IN ALLOWING THE INTEREST AND FURTHER ADDED THAT THE ASSESSEE HIMSEL F HAD ADDED BACK THE SAID AMOUNT IN THE COMPUTATION OF INCOME FOR THE REASON THAT TDS WAS NOT DEDUCTED UNDER SECTION 40(A)(IA) OF THE ACT. HOWEV ER, IN THE APPEAL BEFORE THE LD. CIT(A), DEDUCTION WAS CLAIMED RELYING ON CB DT NOTIFICATION THAT THE PROVISION WAS NOT APPLICABLE TO PAYMENT MADE TO A STATUTORY BODY., WHICH THE MARKET COMMITTEE IS. THE LD. CIT(A) ACCE PTED ASSESSEES CONTENTION AND AFTER OBTAINING AOS COMMENTS, HAS D ELETED THE ADDITION. 9. MR. AMRIK CHAND, THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND ARGUED THAT THE ASSESSEE WAS REQUIRED TO MAINTAIN THE BOOKS OF ACCOUNT, SINCE THE CONTRACT M ONEY PAID TO THE MARKET COMMITTEE IS AN EXPENDITURE AND THE COLLECTIONS MAD E FROM COMMISSION AGENT IS THE INCOME. THEREFORE, ANY LOSS OR PROFIT WHICH IS CLAIMED IN THE 14 RETURN HAS TO ARISE FROM THE BOOKS OF ACCOUNT OF TH E ASSESSEE. SINCE THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT WI TH REGARD TO ONE ACTIVITY, THEREFORE, THE BOOKS OF ACCOUNT FOR THE S ECOND ACTIVITY CANNOT BE SAID TO BE THE BOOKS OF ACCOUNT OF THE ASSESSEE M AINTAINED PROPERLY IN RESPECT OF THE INCOME DECLARED BY THE ASSESSEE. THE REFORE, 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 ASS ESSEE 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 I S 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 ASS ESSEE WAS REQUIRED TO PAY RS.4,91,10,000/- TO THE MARKET COMMITTEE, HOSHI ARPUR BY COLLECTING THE SAME FROM COMMISSION AGENTS. AS A MATTER OF FACT, M ARKET COMMITTEE INSTEAD OF COLLECTING MARKET FEES AND RDF HAD OUT -SOURCED THE SAME TO THE ASSESSEE CONTRACTOR ON THE TERMS AND CONDITIONS REF ERRED TO IN THE AGREEMENT. THE ASSESSEE HAD BEEN COLLECTING MARKET FEE AND RD F FROM THE 15 COMMISSION AGENTS AND THE CHEQUES WERE COLLECTED IN THE NAME OF MARKET COMMITTEE ONLY IS NOT DISPUTED. THE WEEKLY STATEMEN T HAD BEEN SUBMITTED TO THE MARKET COMMITTEE INSTEAD OF DAILY REPORT AS REQUIRED BY THE AGREEMENT. THE ASSESSEE INCURRED A LOSS ON THE SAID BUSINESS OF COLLECTING MARKET FEES AND RDF. THE QUESTION ARISES FOR CLAIM ING A LOSS OR A PROFIT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION UNDER THE HEAD CHAPTER-IV, THE ASSESSEE IS REQUIRED TO MAINTAIN TH E BOOKS OF ACCOUNT. THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE, MR. S AMPATH , THAT TO THE EXTENT THAT COLLECTION BY THE ASSESSEE TO THE EXTEN T OF RS.4,91,10,000/- ARE NOT THE BUSINESS OF THE ASSESSEE AND SINCE NO INCOM E HAD ARISEN TO THE ASSESSEE AND THEREFORE, THE ASSESSEE IS NOT REQUIRE D TO MAINTAIN THE BOOKS OF ACCOUNT, CANNOT BE ACCEPTED. THE ARGUMENT OF LD. COUNSEL FOR THE ASSESSEE, MR. SAMPATH INDICATES THAT IF THERE IS A LOSS TO TH E ASSESSEE, THEN NO BOOKS OF ACCOUNT ARE REQUIRED TO BE MAINTAINED, ARE WITHOUT ANY BASIS AND AGAINST THE PRINCIPLE OF ACCOUNTING AND SPIRIT OF INCOME-TAX LA WS. WE ARE OF THE VIEW THAT WHETHER IT IS A LOSS OR A PROFIT WHETHER CHEQ UES ARE COLLECTED IN ASSESSEES NAME OR IN THE MARKET COMMITTEES NAME A ND MORESO WHEN LESSER AMOUNT IS COLLECTED BY THE ASSESSE IT WILL BE TERME D AS A LOSS AND EXCESS COLLECTED WILL BE TERMED AS PROFIT ON THE SAME PRIN CIPLE WHEN EXPENDITURE IS MORE THE SAME IS WILL BE TERMED AS LOSS AND IF GRO SS RECEIPTS OR TURNOVER OR 16 OTHER RECEIPTS ARE MORE IT WILL BE TERMED AS A PROF IT. BUT THE PROFIT OR LOSS CAN BE DEDUCED IF BOOKS OF ACCOUNTS ARE MAINTAINED BY THE ASSESSEE. THE COMPUTATION OF CORRECT INCOME FROM BOOKS OF ACCOUNT IS A CONCEPT WHICH IS QUITE DIFFERENT FROM THE ESTIMATION OF INCOME THOUG H THE RESULT MAY BE THE SAME. IF BOOKS OF ACCOUNT ARE NOT MAINTAINED, THEN CORRECT INCOME CAN NOT BE COMPUTED AND APPLICATION OF SECTION 145(3) COMES INTO PLAY. AFTER INVOKING SECTION 145(3) OF THE ACT, THE CONCEPT OF ESTIMATION OF INCOME COMES INTO PLAY, WHICH EXACTLY IS THE PRESENT CASE BEFORE US. THE CONFIRMATION FROM THE MARKET COMMITTEE, SUBMISSIONS OF THE WEEKLY REPORT ETC. WHICH ARE NOT AVAILABLE WITH THE ASSESSEE AND ARE NOT THE ACCOUNTS OF THE ASSESSEE, THEREFORE, IT WILL BE PRESUMED THAT THE A SSESSEE HAS NOT MAINTAINED BOOKS OF ACCOUNT FOR THE ACTIVITY AS A CONTRACTOR T O THE MARKET COMMITTEE, HOSHIARPUR. THOUGH THERE IS NO DISPUTE TO THE ACTIV ITY WITH REGARD TO BUSINESS BY ACTING AS COMMISSION AGENT IN VEGETAB LE/FRUIT MARKET COMMITTEE AT HOSHIARPUR FOR WHICH THE BOOKS OF ACC OUNT ARE MAINTAINED AND AUDITED AND THEREFORE, THE SAID BOOKS OF ACCOUN T 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 MARK ET COMMITTEE. THEREFORE, THE AO HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT AND HAS RIGHTLY 17 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. COUNSE L 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 AR BITRARILY OR VINDICTIVELY. NONE OF THE AUTHORITIES HAVE PLACED A NY MATERIAL OR ANY COMPARABLE CASE FOR MAKING THE ADDITION ON ESTIMATE D BASIS. CONFIRMATION OF SUCH ADDITION OR PARTIAL CONFIRMATION OF ADDITION B Y 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 RELIANCE PLACED BY MR. K.SAMPATH, IN THE CASE OF CST VS. ESU GALI (HM) ABDULALI (HM) 90 ITR 271 (SUPRA) AND OTHER DECISIONS RELIED UPON MENTIONED HEREINABOVE, WE ARE OF THE VIEW THAT THE AO SHOULD HAVE MADE THE ASSESSMENT ON THE BASIS OF MATERIAL ON RECORD, WHIC H IN THE PRESENT CASE HAS NOT BEEN DONE. AFTER REJECTING THE BOOKS OF ACCOUNT , THE TOTAL CONTRACT PAYMENT OF RS.4,91,10,000/- MADE TO THE MARKET COMM ITTEE IS NOT UNDER DISPUTE, WHICH HAS BEEN VERIFIED BY THE A.O. THE CO LLECTIONS MADE BY THE 18 ASSESSEE FROM THE COMMISSION AGENTS THROUGH ACCOU NT PAYEE CHEQUES DIRECTLY IN THE NAME OF THE MARKET COMMITTEE IS ALS O NOT IN DISPUTE. THE SAID AMOUNT HAS BEEN VERIFIED BY THE AO IN THE ASSE SSMENT PROCEEDINGS AND ALSO IN THE APPELLATE PROCEEDINGS. THE SAME IS NOT UNDER DISPUTE. AS REGARDS ALLEGED 34 EMPLOYEES, THE IDENTITY CARDS HAVE BEEN ISSUED BY THE MARKET COMMITTEE AND SUCH IDENTITY CARDS ISSUED HAVE NOT B EEN REBUTTED WITH THE ASSESSEE. THE ASSESSEE FROM THE VERY BEGINNING HAD BEEN DENYING EMPLOYMENT OF SUCH PERSONS AND HAD BEEN DENYING PA YMENT TO SAID 34 ALLEGED EMPLOYEES. NO MATERIAL HAS BEEN BROUGHT ON RECORD WITH REGARD TO PAYMENT OF SALARY TO ANY OF THE SAID 34 EMPLOYEES B Y THE ASSESSEE. THEREFORE, THE AO WAS HAVING SUFFICIENT MATERIAL TO ASSESS THE SAME INCOME AS RETURNED BY THE ASSESSEE I.E. THE LOSS FROM THE CONTRACT BUSINESS WITH THE MARKET COMMITTEE. THEREFORE, IN THE FACTS AND CIRCU MSTANCES OF THE CASE, EVEN IF THE BOOKS OF ACCOUNT ARE REJECTED BY INVOKI NG THE PROVISIONS OF SECTION 145(3) OF THE ACT, IN THE FACTS AND CIRCUM STANCES OF THE PARTICULAR CASE, AS IN THE PRESENT CASE, ARE AS MENTIONED HER EINABOVE, NO ADDITION IS CALLED FOR. THEREFORE, THE AO IS NOT JUSTIFIED IN MAKING ANY ADDITION TO THE INCOME OF THE ASSESSEE, EVEN IF THE BOOKS OF ACCOUN T ARE REJECTED U/S 145(3) OF THE ACT, ON THE BASIS OF THE MATERIAL ON RECORD, WHICH WAS AVAILABLE BEFORE 19 THE AO AS WELL AS BEFORE THE LD. CIT(A). THE LD. CI T(A) IS NOT JUSTIFIED IN SUSTAINING THE ADDITION ON THIS ACCOUNT. 11. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CI T(A) WITH REGARD TO THE CLAIM OF INTEREST OF RS.12,83,967/-. THE ORDER OF T HE LD. CIT(A) IS QUITE REASONED ONE IN THIS RESPECT. 12. GROUND NOS. 1, 6 & 7 OF THE ASSESSEE ARE GENERA L IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. GROUND NO.2 IS WITH REGAR D TO SECTION 145(3) OF THE ACT, IS DISMISSED. GROUND NOS. 3 TO 5 OF THE ASSES SEE ARE ALLOWED. ALL THE GROUNDS OF THE REVENUES APPEAL ARE DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A 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 RE GARD TO INCOME ASSESSED AT RS.82,38,260/- WHICH WAS DELETED BY THE LD. CIT( A). 20 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. SINCE THE SAID ADDITION MADE BY THE AO HAS COMPLETE LY BEEN DELETED BY OUR ORDER IN ASSESSEES APPEAL IN ITA NO.204(ASR)/2010 AND REVENUES APPEAL IN ITA NO.231(ASR)/2010 HEREINABOVE, THEREFORE, WHE N NO ADDITION REMAINS IN PURSUANCE OF ORDER MENTIONED HEREINABOVE, NO PEN ALTY U/S 271(1)(C) CAN BE SUSTAINED. THUS, WE FIND NO INFIRMITY IN THE ORD ER OF THE LD. CIT(A), WHO HAS RIGHTLY DELETED THE ADDITION MAY BE FOR OTHER R EASONS MENTIONED IN HIS ORDER. ALL THE GROUNDS OF REVENUE ARE DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.204(ASR)/2010 IS PARTLY ALLOWED AND THE APPEALS OF THE REVENUE IN IT A NO. 231(ASR)/2010 & 526(ASR)/201 ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29TH MAY, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29TH MAY, 2012 /SKR/ COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE:M/S. HARI CHAND & CO. HOSHIARPUR. 2. THE DCIT/ACIT, CIRCLE HOSHIARPUR, HOSHIARPUR. 3. THE CIT(A), JLR. 4. THE CIT,JLR 5. THE SR DR, ITAT, AMRITSAR.