Law:

Section:

Section 145(2) of the Income-tax act, 1961-Method of accounting-Rejection of accounts-Assessee-firm, carrying on business of raising and sale of manganese and coai, entered into agreements with other contractors because of differences among partners and because raising of manganese and coal was not very economical-during assessment pro-ceedings for relevant assessment years, ito found that accounts were not properly maintained and applied section 145(2) and made additions to income of assessee-tribunal sustained additions holding that agreements with contractors did not inspire confidence-whether in absence of a finding that assessee's method of accounting was defective and that contractors were assessee's benamidars, tribunal was justified in upholding application of section 145(2)-held, on facts, no Section 271(1)(c) of the income-tax act, 1961-Penalty-For concealment of income-Assessment years 1962-63 to 1964-65-whether on the facts under the caption 'method of accounting-rejection of accounts' imposition of penalty under section 271(1)(c) was justified-held, on facts, no Facts The assessee-firm, carrying on business of raising and sale of manganese, entered into agreements with some contractors according to the terms of which the assessee agreed to keep a certain percentage for itself and the remaining sale proceeds were to be given to the contractors. The agreements were entered into because of disputes between the partners and increased cost of raising of manganese and coal. During the assessment proceedings for assessment years 1962-63 to 1964-65, the ITO found that the manganese raised through the contractors was costlier than one which was done departmentally by the assessee, and that accounts were not properly maintained. He, therefore, applied section 145(2) and made certain additions to the income of the assessee. Penalty under section 271(l)(c) was also imposed on the assessee. The AAC sustained the addition to a reduced extent. On appeal, the Tribunal observed that the arguments gave 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…

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