TMI Blog2008 (8) TMI 882X X X X Extracts X X X X X X X X Extracts X X X X ..... ary evidences of actual payment of bonus. 3. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of ₹ 15,50,151 made by AO on account of manufacturing and trading expenses as the assessee has failed to furnish any documentary evidence in support of her claim. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of ₹ 26,15,349 made by AO on account of sundry creditors as the creditors claimed were not found to be genuine. 5. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of ₹ 2,00,000 made by AO on account of expenses debited to P L a/c as the assessee has failed to furnish any documentary evidence/books of accounts, bills and vouchers. That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 3. The assessee in the cross-objections has challenged reopening of proceedings by raising the following grounds : 1. That having regard to the facts and circumstances of the case, learned CIT(A) has erred in law and on facts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of Techno Therma Industries for billing purposes only. M/s The Phoenix is stated to be assessed in Delhi. It is further stated that the firm at Sr. No. 1 i.e, B.G.M. Engineers, Faridabad is in existence since 1983 which is the mother firm and other subsidiary firms at Sr. Nos. 2 to 4 are supporting units and a better source for manipulations and adjustments as their functions are to issue fake bills to curb upon the high profits earned by the mother firm. Purchases are stated to be made in these firms from the one source only i.e. M/s Asian Metals Santosh Steel Corporation, Mumbai which are resold to mother firm by inflated price to control the huge profits earned. All the firms are stated to be engaged in manufacturing and sale of engineering goods and its parts except the firm at Sr. No. 3 which is stated to be dealing in heat treatment jobs. This firm is stated to be not doing only work for others, but bills for testing fees and job work/colour charges are issued to make adjustments of profits in the mother firm. During the financial year 2002-03, the other firm is stated to have received export orders from a firm of Saudi Arabia and there was a net profit of ₹ 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Inspector. He, therefore, asked the assessee to show cause why creditors amounting to ₹ 29,25,061 be not treated as bogus . 4.2 In respect of manufacturing/trading expenses, AO asked the assessee as to why 50 per cent of manufacturing and other expenses and consumption of raw material be not disallowed for non production of books of accounts. The AO also found some differences in the sales shown in the trading account and proposed to disallow sum of ₹ 2 lacs under different heads for want of verification. 4.3 The assessee in its reply reiterated that books of accounts were with Shri R.C. Garg, advocate who was her previous counsel. It was accordingly claimed that assessee is unable to produce books or supporting vouchers as those are being retained by Shri R.C. Garg against whom the assessee has filed criminal complaints under ss. 406 and 420 of IPC pending with Court of Addl. Chief Judicial Magistrate, Faridabad. 4.4 The AO treated this as case of failure of the assessee to produce books of accounts and proceeded to make best judgment assessment. On examination of wages account he found that under the above head, assessee has claimed total wages of ₹ 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inder on those comments. Presence of Shri S.P. Gupta, Asstt. CIT, Range-I, Faridabad who was the AO at the relevant time is duly recorded. It is further recorded that the matter was discussed with him. The learned CIT(A) also recorded that after original returns were accepted, complaint dt. 5th Nov., 2004 by Shri R.C. Garg, advocate for tax evasion by appellant for the asst. yrs. 1999-2000 to 2004-05 was received by the Revenue. The AO after recording reasons issued notice under s. 148 on 30th March, 2005 in all the assessment years. The learned CIT(A) further noted that complaint filed by the assessee against Shri R.C. Garg, advocate under ss. 406 and 420 of IPC was pending in the Court of Addl. Chief Judicial Magistrate, Faridabad. 5.1 The learned CIT(A) proceeded to consider the question of validity of initiation of proceedings under s. 147/148 of the IT Act. He considered the contention of the assessee that there was no foundation in this case to have, reasons to believe and there was no material to justify action under s. 147/148 of the IT Act. Reasons to believe cannot be reasons to suspect . The learned CIT(A) considered the claim of the assessee that proceedings wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed were 6.83 per cent of receipts. If disallowances made by the AO are taken into account, wages would only be 3.48 per cent of job receipts. 5.5 The learned CIT(A) found force in the above submissions which were also found to be supported by past history of the case, particularly that of asst. yr. 1998-99. With the observation that the AO had not made out any case for disallowances of wages, the addition of ₹ 3,02,391 was directed to be deleted. 5.6 In respect of disallowance of entire bonus of ₹ 52,741, the learned CIT(A) noted in detail the submissions of the assessee that under the statutory provision of Payment of Bonus Act, the employer was obliged to pay 8.33 per cent of wages as bonus even in the case of a loss. Even if it is computed on the salary and wages allowed by the AO, the bonus at 8.33 per cent would work out to ₹ 48,786 which quite matched with the total claim of the assessee at ₹ 52,741. The learned CIT(A) found force in the above submission of the assessee. He observed that even in the absence of books of account, the AO should have gone by statutory requirement for payment of bonus. He, therefore, saw no reasons to uphold disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsustainable. He observed that it was settled law that even while making a best judgment assessment, the AO must not act dishonestly or vindictively or capriciously, but must exercise his judgment honestly and make a fair estimate of income. The learned CIT(A) for the aforesaid proposition relied upon the cases of CIT vs. Laxminarain Badridas (1937) 5 ITR 170, 180 (PC), reversing CIT vs. Laxminarain Badridas Agarwal (1934) 2 ITR 246(Nag), CIT CEPT vs. S. Sen Ors. (1949) 17 ITR 355(Ori), Singh Engineering Works vs. CIT (1953) 24 ITR 93(All), M.A. Rauf vs. CIT (1958) 33 ITR 843(Pat), Mohanlal Mahribal vs. CIT (1982) 133 ITR 683(MP), Ganga and Prasad Sharma vs. CIT (1981) 132 ITR 87 (MP) and Ganga Prasad Sharma vs. CIT (1981) 127 ITR 27 (MP), Balchand Udairam Ors. vs. State of Sikkim Through The Chief Secretary Ors. (1989) 80 CTR (Sikkim) 91: (1989) 180 ITR 530, 553 (Sikkim), K.T. Thomas vs. Agrl. ITO (1989) 78 CTR (Ker) 97: (1990) 184 ITR 560, 565 (Ker). The ratios of above decisions are considered in the impugned order. 5.10. With the above legal quoting, the learned CIT(A) held that assessment of total income at ₹ 51,40,252 on total sale and job receipt of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed that there was prima facie material to initiate action under s. 147/148 of the IT Act. Having regard to wide powers which are available to the AO to initiate reassessment proceedings after 1st April, 1989, we do not find any error in the approach of learned CIT(A) in confirming action of the AO. Therefore, cross-objections filed by the assessee are held to be without substance and are dismissed. 8. We now proceed to consider appeals filed by the Revenue. There is no dispute that in the absence of books of accounts and other details, the AO was justified in making best judgment assessment in this case in the four years under appeal. But best judgment as per the settled law, has to be fair, reasonable and based on material although some guesswork in such an assessment cannot be ruled out. Best judgment assessment cannot be adopted as a punishment to the assessee. Taxes are to be levied and recovered in accordance with law and law clearly enjoins that assessment should be fair and reasonable. In the facts and circumstances of this case, we are unable to hold that assessments made by the AO in the four assessment years were fair and not arbitrary and capricious. Computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , referred to this Court, revolve round the same controversy. The question for consideration is when no deduction was sought and allowed under s. 40A(3), was there any need to go into s. 40A(3) and r. 6DD(j). We see force in the view taken by the Tribunal that when the income of the assessee was computed applying the GP rate and when no deduction was allowed in regard to the purchases of the assessee, there was no need to look into the provisions of s. 40A(3) and r. 6DD(j). No disallowance could have been made in view of the provisions of s. 40A(3) r/w r. 6DD(j) as no deduction was allowed to and claimed by the assessee in respect of the purchases. When the GP rate is applied, that would take care of everything and there was no need for the AO to make scrutiny of the amount incurred on the purchases by the assessee. 8.3 Therefore, on facts and circumstances of the case, we do not see any good ground to restore the disallowances under various heads made by the AO. All the disallowances were arbitrarily made without any basis and were rightly deleted by the learned CIT(A). It was open to the Revenue authorities to plead and show that higher net profit rate should have been applie ..... 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