Income Tax Appellate Tribunal - Jodhpur
Abdul Wahid Gehlot vs Income Tax Officer on 21 September, 2004
Equivalent citations: (2005)93TTJ(JODH)232
ORDER
Joginder Pall, A.M.
1. By this order we shall dispose of this appeal of the assessee filed against the order of Dy. CIT(A), Jodhpur, for the asst. yr. 1993-94.
2. The first ground of appeal is that the order passed by the CIT(A) was illegal, bad in law and perverse in nature The learned counsel submitted that the assessee retired from Government service and thereafter started his business as LIC agent. He submitted that as per provisions of Section 251, the CIT(A) has powers to reduce, enhance or to confirm the addition, but he cannot travel beyond such powers.
3. The learned counsel drew our attention to p. 17, para 6 of the impugned order where the CIT(A) has summarily rejected the claims of the assessee without passing a speaking order. He submitted that the CIT(A) travelled beyond his jurisdiction in observing that even if such claims had been allowed in the earlier years by mistake, the AO would withdraw the same by resorting to provisions of Section 147. He further advised the AO to take appropriate action under Section 147 in the cases where he had wrongly allowed such claims.
4. The learned Departmental Representative simply relied on the order of the AO.
5. We have heard both the parties and carefully considered the rival submissions. The jurisdiction of the CIT(A) is confined only to the assessment year which is the subject-matter of appeal. He cannot give directions in respect of other assessment years for reopening the assessments under Section 147. On specific query from the Bench, the learned counsel submitted that the AO has not reopened the assessments for the earlier assessment years. Thus, we hold that the learned CIT(A) was not justified in giving directions for reopening the assessments for the earlier years Therefore, we set aside the order of CIT(A) and delete such directions. This ground of appeal is allowed.
6. The second grievance of the assessee is that the learned CIT(A) ought to have annulled the assessment order as the same was passed in violation of express provisions of Section 144A. The Bench asked the learned counsel if there was any material or basis in support of such ground. The learned counsel submitted that there is no such material. We, then, offered him if he would like that the case records be called for. The learned counsel for the assessee submitted that he would not like to press this ground. The same is dismissed as not pressed.
7. The next ground of appeal relates to sustaining of disallowance of expenses of Rs. 1,86,559 out of total expenses claimed at Rs. 2,11,044. The facts of the case are that the assessee had shown income from LIC commission at Rs. 2,97,840. Against the same, the assessee had claimed various expenses aggregating to Rs. 2,11,044. The treatment given by the AO for various expenses claimed is discussed in the subsequent paragraphs.
7.1. The assessee claimed office expenses at Rs. 42,506 which included office cleaning expenses, repairing expenses, electric fittings, cooler and heater expenses. The AO observed that these were not supported by any bills and vouchers, except self-made vouchers on the letter pad of the assessee. He observed that no vouchers/bills for purchase of forms, file covers, letter pads, stationery, electric items, etc. were available. Thus, it was not known from whom the assessee had purchased these items. He further observed that in comparison to other cases, expenses claimed by the assessee were on the higher side. He specifically referred to cases on p. 3 where office expenses of Rs. 9,000 against the commission income Rs. 1,89,371 and expenses of Rs. 12,578 against commission of Rs. 2,55,820 were claimed. Thus, taking into account these facts and unverifiable nature of these expenses, the AO allowed deduction of office expenses of Rs. 12,000 and disallowed remaining expenses of Rs. 39,504.
7.2. The assessee claimed deduction of salary of Rs. 78,000 paid to three persons. One such employee, Shri Islamuddin, was produced and statement was recorded. He admitted having received salary of Rs. 30,000. He also submitted that he was doing the work of writing books of account and looking after day-to-day office work. However, the AO restricted the allowance to one month to Rs. 2,500 on the ground that the employee had stated that he must have taken one month in writing the books of accounts. Accordingly, he disallowed an amount of Rs. 27,500 on this account. As regards two other employees, the assessee could not produce them before the AO, but merely filed affidavits. The AO observed that the signature, of the persons given in the bills of salary and affidavit were different. Besides, summons issued to both the employees at the address given by the assessee were returned by the postal authorities 'unserved'. Even the inquiry made through the Inspector revealed that no such person was residing at the given address. Thus, the AO disallowed the salary of Rs. 48,000 paid to these two employees. The total disallowance of salary was Rs. 75,500.
7.3 The assessee had claimed stationery expenses of Rs. 11,917, in addition to expenses of Rs. 6,000 claimed on covers, forms, etc. The AO observed that the assessee had already claimed expenses on file covers and stationery under the head 'Office expenses'. Thus, he found that the assessee had made a false duplicate claim of Rs. 17,800. He further observed that in two cases, only expenses of Rs. 1,022 and Rs. 1,233 on stationery items had been claimed. The AO restricted the allowance to Rs. 2,000 and disallowed the balance amount of Rs. 9,917.
7.4 The assessee further claimed miscellaneous expenses of Rs. 26,636 under the head 'Tea, coffee, cold drinks, etc.', for which self-made vouchers were filed. The assessee claimed that these expenses were paid to one Shri Munna Lal Sharma. However, the assessee could not produce such person. Accordingly, the AO issued summons under Section 131 at the address given by the assessee. Such summons were returned by the postal authorities unserved with the remarks 'None is there. Hence, returned1. Local inquiry made through his Inspector also revealed that no such person ever had a shop of tea, Pan, Bidi, etc. at the given place. The AO, therefore, disallowed office and miscellaneous expenses of Rs. 25,636.
7.5 Besides, the assessee had claimed conveyance and travelling expenses of Rs. 37,984, for visits to Jodhpur, Delhi, Ajmer, Jaipur. Bikaner, etc. The assessee could not explain the purpose for which these journeys had been undertaken. Therefore, the AO allowed expenses of Rs. 7,984 and disallowed the remaining expenses of Rs. 30,000.
7.6 The assessee had claimed office rent of Rs. 15,000. The assessee filed an affidavit of Shri Abdul Aziz to whom rent was paid. However, the assessee could not produce Shri Abdul Aziz before the AO. The AO issued summons under Section 131 at the address given by the assessee. The summons were returned by the postal authorities with the remark 'address not known'.
7.7 An Inspector was also deputed to find out whether there was any office in the house of Shri Abdul Aziz given on rent to the assessee. The members of the family of Shri Abdul Aziz also did not confirm that any room had been given on rent to the assessee. Therefore, the AO disallowed rent of Rs. 15,000.
8. Being aggrieved, the assessee filed an appeal before the CIT(A). It was submitted before the CIT(A) that the assessee, being a retired officer, he could not work alone. He had to employ people and incur various expenses. It was also submitted that similar expenses incurred by the assessee were allowed by the AO for the earlier assessment year. However, the learned CIT(A) was not impressed with the submissions made by the assessee for the reason that the results of inquiries made by the AO remained uncontroverted by the assessee. The finding given by the CIT(A) in para 6 of the impugned order is as under :
"After careful consideration of the matter, I find that the AO has recorded detailed reason. The AO has also examined all the aspects of the claims made under various heads. The appellant has failed to justify the claims, the AO has, therefore, rightly disallowed the claims. During the appeal proceedings the appellant has also not been able to successfully meet the observations of the AO. Therefore, I cannot help. Hence, this ground of appeal is rejected. It is immaterial if such claims have been allowed in the earlier years. In fact, if the claims have been allowed by mistake in the earlier years, the AO will please withdraw these claims under Section 14. The case law relied upon by the appellant is not relevant because the claims are fully unjustified. It is also not material if the AO has allowed similar claims in some other cases through mistake. Rather, the AO will be well advised to take necessary action under Section 147 in the cases where he has wrongly allowed such claims as one wrong will not justify another."
The assessee is aggrieved by the order of CIT(A). Hence, this appeal before us.
9. The learned counsel for the assessee has drawn our attention to page No. 8 of the paper book which is summary of the written submissions made before the authorities below. He further referred to p. 3 of the paper book which shows comparable position of the expenses claimed and allowed for the asst. yr. 1992-93 and expenses claimed and disallowed by the AO for the asst. yr. 1993-94. He submitted that as against commission receipts of Rs. 2,21,801 shown for the asst. yr. 1992-93, the assessee had claimed expenses of Rs. 1,61,887 and the same had been allowed. For the asst. yr. 1993-94, the assessee had shown receipts of Rs. 2,97,843 and expenses of Rs. 2,11,044 had been claimed. He submitted that the AO has disallowed expenses of Rs. 1,86,559 and such disallowance worked out, to 63 per cent of the commission income. He further submitted that the assessee is a retired person and he required employees for earning commission income of such a magnitude. He further submitted that the CIT(A) has confirmed the disallowance without considering the detailed submission made before him.
10. The learned Departmental Representative, on the other hand, heavily relied on the orders of the authorities below. He submitted that the AO has given detailed reasons for making the impugned disallowance. He further submitted that the disallowance has been made after making detailed inquiries. Therefore, the impugned order of CIT(A) does not merit any interference.
11. We have heard both the parties at great length and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material on record. We have also gone through the orders of authorities below and referred to the relevant pages of the paper book to which our attention has been drawn. From the facts discussed above, it is obvious that the AO had allowed sufficient opportunity to the assessee to produce necessary evidence in support of the expenditures claimed. The assessee failed to furnish proper bills and vouchers. The details of inquiries made by the AO have already been summarised in the preceding paragraphs. It is a trite law that in case the assessee claims deduction of any expenditure, the onus is on him to establish that such expenditure has been incurred wholly and exclusively for the purpose of business. Now, in this case, we find that the main line of the arguments of the learned counsel for the assessee is that similar expenses had been incurred and allowed in the earlier years. Principle of res judicata is not applicable to income-tax proceedings. In case expenditure claimed by the assessee was allowed in the earlier years without making proper inquiries, it does not debar the AO to make such inquiries in the subsequent assessment year. Therefore, while deciding the present appeal, we have to take into account the facts placed on record and the results of inquiries made by the AO during the course of assessment proceedings. Before deciding this issue it is relevant to point out that the AO has rejected the book results for the reason that the expenses claimed under various heads were not supported by bills and vouchers and, therefore, the AO has completed the assessment by applying provisions of Section 145. We find from the grounds of appeals taken before the CIT(A) that no ground regarding rejection of book results was taken before the CIT(A). Even before us, the assessee has not taken any such issue for rejection of book results. Therefore, the finding of the AO for rejecting the book results has become final. Once the book results are rejected, the AO is duty-bound to make a fair and reasonable estimate based on evidence and material on record and also after taking into account the results of inquiries made by him. This certainly involves some amount of guess work but such guess work should be fair and reasonable based on evidence and material on record. Reliance in this regard is placed on the judgment of the Hon'ble Privy Council in the case of CIT v. Laxminarain Badridas (1937) 5 ITR 170 (PC) where the Hon'ble Privy Council has held as under :
"Under Section 23(4) of the IT Act the officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believers to be a fair estimate of the proper figure of assessment and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances and his own knowledge of previous returns by, and assessments of, the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess work in the matter, it must be honest guess work. In that sense too the assessment must be, to some extent, arbitrary. The section places the officer in the position of a person whose decision as to amount is final and subject to no appeal, but whose decision, if it can be shown to have been arrived at without an honest exercise of judgment, may be revised or reviewed by the CIT under the powers conferred upon that officer by Section 33."
Now, while deciding this appeal, we have to consider whether the expenses disallowed by the AO are fair and reasonable or not. The assessee has claimed office expenses of Rs. 42,506 which, of course, includes major expenses on electric fittings, cooler expenses, forms, file covers, stationery, colour expenses, furniture repairs, etc. It is true that the assessee could not produce proper bills and vouchers for purchase of rooms, file covers, office cleaning expenses, electric fittings expenses, furniture repairs, etc. But, it is a fact that the assessee had earned commission income of Rs. 2,97,843 for which the assessee must have incurred expenses. Considering the facts and circumstances of the case, we feel that it would be fair and reasonable to allow 50 per cent of expenses of Rs. 42,506. As regards claim for deduction of salary at Rs. 78,000, it is a fact that two of the assessee's employees could not be produced and further inquiries made by the AO also revealed that no such employees were living at the given address. Therefore, mere reference to the affidavits of these persons could not help the assessee in claiming deduction of salary of Rs. 48.000 paid to two employees as these remained only self-serving statements. However, we do not find any justification for disallowing salary paid to Shri Islamuddin because he was produced before the AO and he confirmed having received salary of Rs. 30,000. He further stated that he was attending to office work and writing of books of account. The AO was not justified in restricting the allowance to one month for the reason that he had admitted that such books of account could have been written in one month. Thus, we set aside the order of CIT(A) and restrict the disallowance to Rs. 48,000 and allow a relief of Rs. 27,500.
11.1 As regards stationery expenses of Rs. 11,917, we feel that 50 per cent of the same should be allowed as against expenses of Rs. 2,000 allowed by the AO and confirmed by CIT(A). The AO shall work out the disallowance accordingly.
11.2 As regards miscellaneous expenses, we feel that the disallowance of entire expenses would not be justified. Part of the expenses deserves to be allowed. Accordingly, we restrict the disallowance to 50 per cent.
11.3 As regards conveyance and travelling expenses, the assessee has not been able to indicate the purpose for which various visits were undertaken. No specific arguments have been advanced before us to show that these visits were undertaken only for the purpose of business. However, considering the nature of wok of the assessee we feel that it would be fair to allow 50 per cent of such expenses as against expenses of Rs. 7,984 allowed by the AO. The AO shall work out the disallowance accordingly.
11.4 As regards office rent, the assessee has failed to furnish any evidence in support of such claim. Moreover, the inquiries made by the AO further lend support to the fact that the assessee had not maintained any office at the given premises. The nature of assessee's business is such which could be run from the residence also. Thus, we confirm the disallowance of rent of Rs. 15,000. To sum up, we set aside the order of CIT(A) and direct the AO to work out the disallowance to the extent indicated above. This ground of appeal is partly allowed.
12. The next two grounds relate to sustaining of addition of Rs. 1,00,000, being unexplained squared up cash credits. The facts of the case are that the AO noticed squared up cash credits amounting to Rs. 1,00,000 in the names of 7 persons. During the course of assessment proceedings, the AO called upon the assessee to prove the source and genuineness of these credits and also furnish necessary evidence in the form of copies of accounts, etc. An amount of Rs. 10,000 appeared in the name of Shri Abdul Karim. He was produced before the AO. A statement was recorded. He stated that he was working as a teacher and his salary was Rs. 4,650. The amount was stated to have been advanced in cash of Rs. 10,000, i.e., Rs. 5,000 each in April, 1992 and September, 1992. Looking to the fact that the creditor had four school going children, the AO concluded that he was not a man of means of advancing Rs. 10,000. On appeal, the learned CIT(A) upheld the addition.
12.1. In the light of these facts and circumstances of the case, we are of the opinion that the assessee has explained the source of credit of Rs. 10,000 found in the name of Shri Abdul Karim. It is a fact that he was earning a monthly salary of Rs. 4,650. The amount was given in two monthly instalments. Thus, we do not find any justification in making any addition on this account. Accordingly, we set side the order of CIT(A) and delete the addition of Rs. 10,000 sustained by the CIT(A).
12.2 An amount of Rs. 17,000 was found in the name of Mohd. Yusuf. He was produced before the AO and confirmed the amount given to the assessee. He was working as a teacher and retired in 1992 and his monthly salary was Rs. 2,000. His family consisted of 6 members and monthly household expenses were admitted to be of Rs. 2,000. Taking into account these facts, the AO made an addition of Rs. 17,000 on the ground that he was not capable of advancing an amount of Rs 17,000. On appeal, the CIT(A) upheld the addition.
12.3 Looking to the factual position stated above, we are of the opinion that such addition has been rightly made and sustained by the CIT(A) because the creditworthiness of Shri Mohd. Yusuf has not been established, but such addition is subject to our subsequent finding on the alternative plea taken by the assessee.
12.4 An amount of Rs. 17,000 was found in the name of Mukhtiar Ahmed. He was produced before the AO and admitted that he was running a Pan shop and his monthly income was Rs. 1,200. His family consisted of 4 members and monthly household expenses were stated to be Rs. 1,200. Taking into account these facts, the AO made the addition on the ground that the creditworthiness of the creditor was not established. Such addition was upheld in appeal by the CIT(A).
12.5 Looking to these facts and circumstances, we also agree with the findings of the authorities below that Shri Mukhtiar Ahmed was not capable of advancing an amount of Rs. 17,000. Therefore, the addition made by the AO and sustained by the CIT(A) appears to be in order in principle, subject to our finding on the alternative ground.
12.6 An amount of Rs. 15,000 was found in the name of one Abdul Salaam. He was also produced before the AO and his statement was recorded. In his statement he admitted that his annual income from marble Gharai was about Rs. 6,000 to Rs. 7,000 and his monthly expenses were to the tune of Rs. 2,000.
12.7 Looking to these facts, we are of the considered opinion that Shri Abdul Salaam was not in a position to advance the aforesaid amount. Thus, the addition was rightly made and sustained. However, this is subject to our subsequent finding on the alternative ground.
12.8 The AO also found credits of Rs. 15,000, Rs. 15,000 and Rs. 11,000 in the names of S/Shri Abdul Rashid, Mohd. Hanif and Mohd. Iqbal, respectively. The AO allowed several opportunities for producing them before him. They were neither produced nor any evidence was furnished. Therefore, the AO treated credits of Rs. 41,000 as unexplained and made the addition accordingly. The same was upheld in appeal before the CIT(A).
12.9 Considering the fact that neither any evidence was furnished nor the creditors were produced before the AO, we are of the opinion that the CIT(A) has rightly confirmed such additions. However, these additions are also subject to our subsequent finding on the alternative submission made by the assessee.
13. The learned counsel for the assessee submitted that if it is accepted that the addition was required to be made on account of unexplained credits, such addition could have been made only to the extent of peak amount of Rs. 77,500. He drew our attention to pp. 36 and 37 of the paper book which is a summary of date-wise cash credit and the peak amount of Rs. 77,500 on 4th Oct., 1992. He submitted that if any addition was called for, the same should have been restricted to Rs. 77,500. He further submitted that these amounts were utilized for meeting various expenses claimed by the assessee. Out of such expenses, the AO has already disallowed the expenses of Rs. 1,86,559. If the addition of Rs. 1,00,000 is also sustained, the same would amount to double addition. Thus, he submitted that such addition should be deleted. He also relied on the judgment of the Hon'ble Rajasthan High Court in the case of CIT v. Tyarymal Balchand (1987) 165 ITR 453 (Raj).
14. The learned Departmental Representative, on the other hand, heavily relied on the orders of the authorities below.
15. We have heard both the parties and given our careful consideration to the rival submissions with reference to facts, evidence and material on record. We have already recorded a finding that additions of Rs. 90,000 out of cash credits of Rs. 1,00,000 were justified in principle. But, it is also a fact that these were squared up accounts. Therefore, there is merit in the assessee's submission that only peak credit which works out to Rs. 77,500, on 14 Oct., 1992, was called for. Therefore, the assessee would be entitled to relief of Rs. 22,500 on this account. It is a fact that the amounts introduced in various names were utilized for meeting various expenses. The authorities below have upheld the disallowance amounting to Rs. 1,86,559. We have already allowed partial relief to the assessee and a disallowance sustained works out to more than Rs. 1,00,000. The implication of such disallowance is that the assessee had in fact not incurred such expenses and amounts introduced in the books for meeting such expenses were not genuine. Therefore, the disallowance of expenses sustained in appeal exceeds Rs. 77,500 and the same would be sufficient to cover the addition of Rs. 77,500. We are of the opinion that no separate addition on account of cash credits was called for as the amount shown for incurring various expenses would be available to the assessee for introducing the same in the books of account as unexplained cash credits. Thus, accepting the contention of the assessee, we set aside the order of CIT(A) and delete the addition of Rs. 77,500.
16. The next ground of appeal relates to sustaining of an addition of Rs. 18,000 on account of household expenses. The facts of the case are that the assessee had shown withdrawals of Rs. 18,000 for household expenses. The AO observed that the assessee was maintaining a very high standard of living as he has paid insurance premia of Rs. 32,277. The AO, therefore, estimated the household expenses of Rs. 3,000 per month, taking into account the size of the family consisting of 5 members and thereby made an addition of Rs. 18,000. On appeal, the learned CIT(A) upheld the addition. The assessee is aggrieved by the order of CIT(A). Hence, this appeal before us.
17. The learned counsel for the assessee did not advance any specific arguments.
18. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below.
19. We have heard both the parties and considered the rival submissions. Considering the size of the family and the standard of living, expenses of Rs. 3,000 per month estimated by the AO and sustained by the CIT(A) appear to be fair and reasonable. However, we have already sustained disallowance of various expenses to the tune of Rs. 1,00,000. Even if an amount of Rs. 77,500 being peak credit is considered against the disallowance of various expenses, still some amount would be available with the assessee out of disallowances of various expenses. Therefore, the same amount could be considered available for the household expenses. In view of this, we set aside the order of CIT(A) and delete the addition of Rs. 18,000.
20. The last ground of appeal relates to direction given by the CIT(A) in respect of other cases. This ground is only of an academic interest because on specific query from the Bench, the learned counsel conceded that no action was taken by the AO under Section 14 of the Act. In any case, we have already expunged the directions of the CIT(A) relating to other assessment years in the case of the assessee. Such directions would also hold good in respect of other cases which were not the subject-matter of appeal before the CIT(A). Therefore, this ground of appeal is disposed of in these terms.
21. In the result, the appeal is partly allowed.