TMI Blog1984 (11) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... the raising contractors could not be treated as benamidars? (e) Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that section 271(1)(c) of the Act was not applicable ? " This reference arises out of the assessments for the years 1962-63, 1963-64 and 1964-65, the accounting years ending with the calendar years 1961, 1962 and 1963. The application under section 256(2) of the Income-tax Act was filed in this court with reference to the Income-tax Appeals bearing Nos. 416, 417 and 418 (Nagpur) of 1970-71, 2265 (Bombay) of 1968-69, 14 (Nagpur) of 1970-71 then 1408 (Nagpur) of 1970-71, 491 (Nagpur) of 1970-71, 492 (Nagpur) of 1970-71 and 211 (Nagpur) of 1971-72 and by the order, this court disposed of Misc. Civil Cases Nos. 186,187,188,189, 190, 191, 205, 206, 207, 208, 209, 210, 211, 218 and 219 of 1975 and this court directed the Tribunal to make a reference for answering the above referred questions. The facts stated in this reference are that the assessee is a firm deriving income from raising and sale of manganese and coal. It has secured leases over manganese fields in Madhya Pradesh. The firm was raising coal up to September 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Rs. 2,15,000 by the Income-tax Officer. The Appellate Assistant Commissioner fixed the market value of the capital assets as on January 1, 1954, at Rs. 15,000 and worked out the capital gains at Rs. 1,06,750 and confirmed the additions of Rs. 2,150 out of the total legal expenses claimed at Rs. 3,800. Being aggrieved by the orders of the Appellate Assistant Commissioner, the assessee filed appeals before the Tribunal objecting to the additions sustained by the Appellate Assistant Commissioner. After hearing the submissions of either side, the Tribunal by its order under consideration decided that the Income-tax Officer was justified in invoking section 145(2) of the Act. It also held that having regard to the circumstances and relations of the witnesses with the assessee, the agreements could not be relied upon. The Tribunal observed that the agreements give an impression that the contractors were merely working for the assessee in the capacity of supervisors and not as contractors. The Tribunal came to the conclusion that the agreements entered into between the assessee and the contractors did not inspire confidence but it also held that the contractors could not be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in thing to justify action under section 145(2) of the Act was that the agreement with the raising contractors did not inspire confidence, although the Tribunal came to a positive finding that the raising contractors could not be treated as benamidars. It was farther contended that merely on suspicion, the Tribunal felt that the raising contractors' agreements were not genuine but there was no material to come to that conclusion. (c) It was further argued that on this assumption, the Income-tax Officer, the Appellate Assistant Commissioner and also the Tribunal did not accept the accounts submitted by the assessee and applied section 145(2) of the Act but in the orders passed by the Income-tax Officer, the Appellate Assistant Commissioner or the Tribunal, there was no material to find fault with the accounts submitted by the assessee and, therefore, the action could not be justified under section 145(2) of the Act. (d) The learned counsel appearing for the assessee after giving the facts of the case in brief urged that because of the difference of opinion amongst the members in the family and finding that the cost of raising manganese and coal was not very economical, it ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n R.I. Trivedi (.HUF) v. CIT [1983] 144 ITR 877 (MP), wherein in the case of a sub-contractor in similar circumstances, the books of the assessee who carried on coal mining business and worked two collieries was rejected by the Income-tax Officer under section 145(2) of the Income-tax Act and by invoking section 144 of the Act, a best judgment assessment was made. The Tribunal sustained the order of the Income-Officer on the grounds that: (a) there was no quantitative tally, (b) from the records, it was not clear as to what was the amount paid to one of the sub-contractors who was also not examined by the assessee, (c) payment was made to another sub-contractor on the basis of conversion of truck loads into tonnage, and (d) the contractor was not really a sub-contractor as he did not maintain any records and solely depended upon the payments made by the assessee. On a reference, this court held that the accounts were properly maintained by the assessee and were checked by the governmental authorities and there was no chance of manipulation of accounts. A mining lessee was required to maintain accounts under the Mineral Concessions Rules, 1960, and annual and monthly retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the reason that the terms and conditions of the agreements show that the contractors were agents of the assessee. But the Department has failed to point out any material on record to show that the contractors were benamidars of the assessee which, in our opinion, was incumbent upon the Department to show and establish that the contractors were working as benamidars of the assessee. The terms and conditions of the agreements do not show that the contractors could be treated as benamidars of the assessee. Since the burden was not discharged by the Department against the assessee, it could not be said that the contractors were acting as benamidars of the assessee. In the case in hand, the conclusion of the Department arrived at against the assessee relating to the additions made are arbitrary, having no reasonable nexus to the material on record. The best judgment assessment is based on an element of guess work but the same should not be based on surmises as have been done in the instant case. In CIT v. Anwar Ali [1970] 76 ITR 696, their Lordships of the Supreme Court held that in the absence of cogent material evidence, apart from the falsity of the assessee's explanation from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id place the account book, which were not accepted by the Department on surmises. Therefore, the facts of the above-referred case are distinguishable and are not applicable in the instant case. Having regard to the order of the Tribunal, it would be seen that on the estimate shown by the assessee relating to the computation, it cannot be said that the assessee had deliberately given a false estimate of income. Therefore, it cannot be said that there was a deliberate effort on the part of the assessee to evade tax as such, and so the assessee is not liable for penalty. On the other hand, the accounts which mere submitted by the assessee are well founded. From the discussion referred to above, our answers to the following questions are as under: (a) Whether, on the facts and circumstances of the case, the Tribunal was right in law in applying section 145(2) of the Act ?-No (b ) Whether, on the facts and circumstances, the Tribunal was right in law in making further additions of Rs. 25,000, then again Rs. 25,000 and Rs. 30,000? -No (c) Whether, on the facts and circumstances of the case, the Tribunal was right in, law in saying that the raising contracts did not inspire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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