Income Tax Appellate Tribunal - Ahmedabad
Assistant Commissioner Of Income Tax vs D.L. Choudhry on 30 June, 2004
Equivalent citations: (2004)85TTJ(AHD)481
ORDER
A.L. Gehlot, A.M.
1. These cross-appeals filed both by the Revenue and the assessee are directed against the order of the CIT(A) for asst. yrs. 1988-89 to 1993-94, Since all these appeals pertain to the same assessee, these are being decided by a single order for the sake of convenience. The facts and observations for different years noticed by the lower authorities are as under :
2. First, we take up ITA Nos. 4401 (by assessee) and 4324/Ahd/1995 (by the Revenue) for asst. yr. 1988-89. The AO issued notice under Section 148 of the IT Act as the assessee has not filed the return of income. The assessee derives income from jeep hiring to ONGG. The assessee filed return of income showing total income of Rs. 1,18,965. The return of income filed by the assessee is not accompanied with the P&L a/c and balance sheet. The assessee submitted return of income along with the following remarks :
"Gross amount received Rs. 23,79,301.
Income calculated at the rate of 5 per cent on gross amount".
During the assessment proceedings it has been noticed by the AO that the assessee has shown the gross amount received from ONGC at Rs. 23,79,301 whereas the details furnished by the ONGC authorities showed that the assessee received gross amount of Rs. 31,18,294. The explanation of the assessee before the AO is that the assessee was maintaining cash system of accounting, therefore, the amount received of Rs. 23,79,301 be considered. The books of account have not produced before the AO. Regarding the estimation of income it was the submission of the assessee before the AO that the affidavits of various jeep owners were filed to show that the assessee was deducting only 5 per cent commission. The AO rejected the explanation of the assessee with the observation that the affidavits filed by the assessee are not supported by any evidence and books of accounts have also not been produced. It has been noticed by the AO that the assessee's statement on oath was recorded on 24th July, 1990, at the time of search and seizure operation. In the statement, in reply to question No. 35, the assessee has stated that from the year 1985 to 1990 he earned undisclosed commission of Rs. 8,00,000. Further, the assessee admitted that he has invested Rs. 5,00,000 as margin money for acquisition of vehicles. Over and above, the assessee has disclosed certain unexplained investments. The total disclosure made by the assessee was Rs. 17,17,500. During the course of search certain vouchers were found from the premises of the assessee. It has also been observed by the AO that these vouchers do not relate to the accounting period under consideration but they certainly reveal the modus operandi of the assessee. On verification of vouchers the AO found that in certain vouchers signature of the payee has not been obtained without mentioning the date and the amount. On the basis of the above facts the AO applied provisions of Section 145(2). After considering the material available on record the AO estimated the total income/commission income of the assessee for the year under consideration as under :
"Receipts of the assessee for the year under consideration from general duty is. Rs. 26,41,510. Gross commission income of the assessee is estimated at 12.5 per cent of Rs. 26,41,510 which comes to Rs. 3,30,188 (as estimated for asst. yrs. 1986-87 and 1987-88). Emergency duty receipts are Rs. 4,76,784 for the year under consideration. Gross commission is estimated at 21.5 per cent which comes to Rs. 1,02,508. Thus, the gross commission income of the assessee for the year under consideration is estimated at Rs. 4,42,696, administrative expenses for staff, office telephone, travelling, etc. is estimated at Rs. 50,000 for the year as a whole. Therefore, net commission income of the assessee is estimated at Rs. 3,82,696."
It has also been noticed by the AO that jeep No. 9497 belonged to the assessee and the investment was made by him out of the cash balance available with him. However, the assessee has not shown the income from this jeep in the return of income filed by him. This jeep was given to ONGC on hire from March, 1988, onwards. The AO noticed that for the month of March, 1988, the assessee received Rs. 7,073 as hire charges from ONGC in respect of the above jeep. The AO estimated after allowing expenses of Rs. 2,073 total income at Rs. 5,000 from the said jeep and the same was added to the total income of the assessee. On the basis of the bills and slips, etc., the AO made the addition of Rs. 2,40,567 on account of investment in house. The AO has also made addition of Rs. 12,000 on account of household expenses. The CIT(A) reduced the addition on account of commission income from Rs. 3,82,696 estimated by the AO to Rs. 2,49,464 by applying net profit rate of 8 per cent on total receipt of Rs. 31,18,294. The. CIT(A) allowed the relief of Rs. 1,33,232. The second addition made by the AO on account of jeep No. 9497 of Rs. 5,000 has been confirmed.
3. In respect of investment in house property, the addition of Rs. 2,40,567 made by the AO has been reduced to the extent of Rs. 1,75,567 and relief of Rs. 65,000 was allowed. The addition, on account of household expenses Rs. 12,000 have been deleted by the CIT(A).
4. ITA Nos. 4402 (by assesses) and 4589/Ahd/1995 (by Revenue)--Asst yr 1989-90 The assessee submitted return of income declaring loss of Rs. 1,29,555. During the assessment proceedings, after discussion on the issue, the AO applied net profit rate at 12.5 per cent on the gross receipt from general duty of Rs. 29,80,399 and calculated net profit at Rs. 3,72,612. The AO has also determined the gross receipt from emergency duty at Rs. 24,77,926 and applied net profit rate at 21.5 per cent, accordingly calculated net profit at Rs. 5,32,754. The AO allowed administrative expenses of staff salary, office expenses, telephone, travelling, etc. at Rs. 1,20,000 for the whole year and finally calculated income at Rs. 7,85,366 (Rs. 3,72,612 + 5,32,752 = 9,05,366 - 1,20,000 = 7,85,366). The AO allowed loss of Rs. 3,13,470 from own jeep and added Rs. 2,69,327 on account of income from car hiring. Thus, total income assessed at Rs. 7,41,223.
5. The CIT(A) after relying upon the earlier orders held that the income from plying of jeep belonged to others has been taken at Rs. 2,73,805 as against Rs. 7,85,366 assessed by the AO.
6. The loss determined by the AO in respect of jeeps owned by the assessee at Rs. 3,13,470 as against Rs. 3,78,172 claimed by the assessee. The depreciation on jeep No. GOD 809 claimed by the assessee has been disallowed by the AO. The depreciation was disallowed by the AO on the ground that this jeep was not given on hire during the accounting period ended 31st March, 1989. The CIT(A) rejected the contention of the assessee that jeep was ready for use, therefore, depreciation was allowable and confirmed the order of the AO.
7. The next addition made by the AO is Rs. 2,69,327 on account of income earned from hiring of cars and taxis to Shri M.V. Desai. During the assessment proceedings the AO has noticed that the assessee showed a sum of Rs. 2,69,327 as rent received on hiring of cars and taxis. On enquiry being made by the AO it was found that this sum was received from Shri M.V. Desai. It was submitted by the assessee before the AO that out of Rs. 2,69,327 received from Shri M.V. Desai the assessee required to pay hire charges to the car owners and by mistake these hire charges payable to the car owners were not debited in the car taxi rent account. It was submitted that the assessee was entitled to 5 percent commission on Rs. 2,69,327 which comes to Rs. 13,466. The assessee requested the AO that the income on this account should be assessed at Rs. 13,466 as against Rs. 2,69,327 shown by the assessee in the return of income filed. The AO rejected the explanation of the assessee and assessed the total income at Rs. 2,69,327. It is also the fact recorded by the lower authorities that the assessee has not furnished any evidence to show that the hire charges were actually paid to the car and taxi owners. The CIT(A) justified the action of the AO and accordingly addition of the said sum has been confirmed.
8. ITA Nos. 2802 (by assessee) and 2754/Ahd/1995 (by Revenue)--Asst. yr. 1990-91 During the assessment proceedings the AO noticed that the assessee received Rs. 47,27,235 on account of jeep on hire for general duty and on emergency duty. The AO examined the case of the assessee and a detailed discussion is made in his order. In earlier year the AO estimated commission income at the rate of 12.5 per cent in respect of general duty and 21.5 per cent in respect of emergency duty. After considering the relevant facts of the case the AO applied 20 per cent rate on Rs. 47,27,235 for both types of receipts and worked out the gross commission income at Rs. 9,45,447. After allowing Rs. 1,45,447 from gross income of Rs. 9,45,447 on account of salary, office expenses, etc., the AO estimated net income of Rs. 8,00,000. The AO further noticed that during the year total receipts of the assessee were Rs. 64,87,585; out of this sum Rs. 17,60,350 is in respect of vehicles owned by the assessee in his names or in the names of other persons. This receipt of Rs. 17,60,350 is from vehicles not owned by the assessee. The AO estimated Rs. 9,00,000 as net income after allowing all expenses and depreciation from the total receipt of Rs. 17,60,350. The AO accordingly made addition of Rs. 9,00,000. The AO has also made addition of Rs. 70,000 on account of sale of jeep No. 299. The AO considered this amount of Rs. 70,000 as unexplained because in the earlier year the ownership of the jeep was not disclosed. The AO accordingly added the said amount of Rs. 70,000 in the total income of the assessee. It has also been noticed by the AO at the time of assessment that the assessee has shown Rs. 60,000 on sale of car. In earlier year only one car has been shown by the assessee. The WDV of the car has been shown at Rs. 79,200 and not Rs. 1,79,328 as mentioned by the assessee. The AO disallowed the loss on sale of car and accordingly the account of Rs. 60,000 on account of sale of car has been considered as unexplained credit, and the same was added to the total income of the assessee. The CIT(A) deleted the addition of Rs. 60,000. But on account of sale of car the CIT(A) sustained the addition of Rs. 4,227 against the addition of Rs. 60,000 made by the AO. Further, claimed the CIT (A) sustained additions of Rs. 3,98,796 and Rs. 54,237 as against addition of Rs. 8 lakhs made by AO on account of own vehicle and vehicle not owned by the assessee, respectively.
9. It has also been noticed by the AO that the assessee has shown addition of jeeps worth Rs. 5,30,805. However, the assessee has not supplied the jeep account along with the return of income. It is also the observation of the AO that the assessee has not satisfactorily explained the investment made for purchase of jeep. The AO accordingly made the addition of Rs. 1,20,000 on account of margin money as unexplained at the rate of Rs. 40,000 for each jeep. The CIT(A) has deleted this addition of Rs. 1,20,000.
10. In respect of purchase of land for Rs. 65,999 it was explained before the AO that Rs. 33,500 were given by him and the remaining amount was given by his brother. The AO found that the contention of the assessee is incorrect and the investment in the land was made by the assessee himself. The AO accordingly made the addition of Rs. 33,500 on account of land purchased. The CIT(A) deleted the said addition with the observation that the assessee has not stated it in the statement record under Section 132(4) during the course of search that the whole of the purchase price was paid by him. In the statement the assessee stated that one-half of the purchase price of the land, i.e., Rs. 33,500 was paid by him and the balance was paid by his brother. On perusal of capital account filed along with the return of income the CIT(A) noticed that a sum of Rs. 33,500 was debited to the capital account. In this circumstance the CIT(A) observed that the AO was not justified in making the addition of Rs. 33,500.
11. ITA No. 985/1996 (by assessee) and 1223/1995 (by Revenue)--Asst. yr. 1991-92 The assessee has filed return of income for asst. yr. 1991-92 declaring income of Rs. 1,19,130. The AO made the estimate of income from other parties' vehicles for Rs. 17,13,093 by applying 20 per cent rate of profit on receipt of Rs. 85,65,467. The AO discussed the issue in his order and noticed that during the year under consideration the total receipt was Rs. 1,61,00,973. He further noticed that the receipt from others' vehicles was of Rs. 85,65,467 while the receipts from his own jeeps was Rs. 1.4,96,506. It has also been noticed by the AO that the commission income from above gross receipt should be Rs. 8,56,546 whereas the assessee has accounted for only Rs. 4,28,273. Thus, there is a concealment of Rs. 4,28,273. On the basis of earlier years the AO found that the assessee's books of account are not reliable. Therefore, net profit has been estimated by applying 20 per cent which comes to Rs. 17,13,093. Accordingly, the AO estimated income from vehicles of other parties at Rs. 17,13,093.
12. The total receipt on account of assessee's own jeeps for the year under consideration was Rs. 14,96,506. This receipt for asst. yr. 1990-91 was Rs. 17,60,350 from which profit was deducted of Rs. 9 lakhs which approximately comes to 50 per cent of this net profit without allowing depreciation, etc. On the basis of the earlier year the AO adopted net profit rate of 15 per cent which comes to Rs. 7,48,253. The AO further observed that in earlier year no depreciation was allowed but for this year the AO was of the view that the depreciation claimed of Rs. 3,20,305 should be allowed. Thus, the AO determined total income from own vehicle, and others vehicle, for Rs. 21,41,041.
13. The CIT(A) after following earlier years orders estimated profit from other vehicles by applying 8 per cent rate on the GP of Rs. 85,65,467 of which calculation comes to Rs. 6,85,237. The CIT(A) sustained the said amount of addition of Rs. 6,85,237 and relief of Rs. 10,27,856 was allowed.
14. In respect of income from own vehicles the CIT(A) after following earlier years orders estimated income at Rs. 5,35,834 as against Rs. 7,48,253 assessed by the AO. The CIT (A) accordingly confirmed the addition to the extent of Rs. 5,35,834 and a relief of Rs. 2,12,419 was allowed.
15. The second addition made by the AO of Rs. 1,40,000 was on account of cash credit On verification of cash book the AO found various squared up accounts in the names of various parties of which details are as under :
Rs.
1. Shri N.C. Modi 25,000
2. P.C. Modi 50,00,0
3. Jayant H. Patel 10,000
4. B.M. Patel 15,000
5. Naranbhai 15,000
6. H.G. Raval 10,000
7. Laljibhai K. Chowdhury 15,000 It has been recorded by the AO that all the above transactions were in cash but the CA has certified that they are by cheques. The AO added this amount to the total income of the assessee with the observation that the assessee has not discharged his onus. The AO observed that the above cash credits are bogus cash credits. It has also been stated by the AO in his order that the penalty has also been initiated for the contravention of Section 269SS.
16. Another addition made by the AO is Rs. 17,17,500 on account of disclosure during the course of search. The AO made the said addition with the following observations :
"Q-35. Explained the provisions of Section 271(1)(c), Expln. 5 of the IT Act. Accordingly, you can disclose your income under voluntary disclosure and you will be exempted from penal action if you want to avail the benefit of said scheme.
A-35; Yes, I disclose the following incomes :
Rs.
(2) Unaccounted investment in house 2,89,000
(3) Unaccounted investment in furniture 25,000
(4) Unaccounted investment in land (plot) 33,500
(5) Margin money in jeeps 5,00,000
(6) Unaccounted investment in Charada house 70,000
---------
Total 17,17.500"
---------
The AO has also made addition of Rs. 11,334 as income from other sources. While making assessment the AO had taken Rs. 4,28,453 as profit from the P&L a/c of the assessee.
17. The CIT(A) after considering the submission of the assessee agreed with the assessee that to that extent the investment made out of commission income disclosed, no further addition is called for. It has also been stated by the CIT(A) that as per his orders for asst. yrs. 1986-87 to 1990-91, the total commission income Rs. 11,85,100 has been assessed for those assessment years. Commission income of Rs. 1,19,150 has been shown by the assessee for the year 1991-92. Thus, total commission income for asst. yrs. 1986-87 to 1991-92 comes to Rs. 13,04,250 which is much more than the commission income of Rs. 8 lakhs disclosed by the assessee in his statement recorded under Section 132(4). The CIT(A) accordingly held that the AO was not justified in making addition of Rs. 8 lakhs which included in the addition of Rs. 17,17,500 made by the AO. The CIT(A) accordingly deleted the said addition of Rs. 8 lakhs. In respect of balance addition of Rs. 9,17,500 on account of investment which is included in Rs. 17,17,500 being addition made by the AO, the CIT(A) noticed that most of these investments were made out of the assessee's commission income. It has been further stated by the CIT(A) that in asst. yr. 1988-89 an addition of Rs. 1,75,567 has been approved for unexplained investment in the house property. Considering the unexplained investment in house property confirmed in asst. yr. 1988-89, the commission income of Rs. 11,85,100 has been assessed as per earlier order of the CIT(A) for asst. yrs. 1986-87 to 1990-91 and the commission of Rs. 1,19,150 shown in the return of income filed for asst. yr. 1991-92. The CIT(A) was of the view that no further addition for investments disclosed in the statement under Section 132(4) is called for. With these observations the CIT(A) deleted the entire addition of Rs. 17,17,500.
18. In respect of addition of Rs. 1,40,000 on account of cash credit the CIT(A) after considering the submission of the assessee held that substantial addition to the commission income from hiring of vehicles has been sustained by the CIT(A) in earlier years orders for 1986-87 to 1991-92; it has been held that these cash credits have been introduced out of the assessee's income of previous assessment year. Therefore, the CIT(A) was of the view that no separate addition on account of unexplained cash credit is warranted. He accordingly deleted the addition of Rs. 1,40,000. The CIT(A) restricted the profit as per P&L a/c for Rs. 1,19,482 as against profit of Rs. 4,28,453 taken by the AO.
19. ITA No. 986/Ahd/1996--Asst yr. 1992-93--By assessee ITA No. 1224/Ahd/1996-Asst. yr. 1992-93--By Revenue The assessee filed return of income declaring total income of Rs. 2,29,390. On the basis of earlier assessment year the AO rejected the books of account maintained by the assessee. It has been observed by the AO that the assessee did not maintain proper books of account and voucher, etc. The AO found that provisions of Section 145 of the Act are clearly applicable in the case of the assessee. After rejecting the books of account the AO applied 20 per cent of the gross receipt of Rs. 80,84,241 of which calculation comes to Rs. 16,16,848. The AO accordingly estimated this income on account of other parties vehicles. Similarly, for the purpose of estimation of income from own vehicles the AO applied 50 per cent of the profit rate on gross receipt of Rs. 17,07,165 of which calculation comes to Rs. 8,53,582. The AO accordingly estimated Rs. 8,53,582 being profit from hiring of own vehicles subject to depreciation. The AO accordingly allowed depreciation of Rs. 3,87,180 as claimed by the assessee. In addition to above the AO made addition of Rs. 3,03,000 on account of cash credits of which details are reproduced as below :
Rs.
"1. Shri Dineshbhai Patel 16-4-1991 10,000
2. Shri Ranchhodbhai Chaudhary 17-9-1991 8,000
3. Shri Veersingh L Chaudhary --do-- 10,000
4. Shri Ramjilal K. Chaudhary 19-9-1991 10,000
5. Shri Laljibhai K. Chaudhary 24-9-1991 10,000
6. Shri Ramjilal K. Chaudhary 24-9-1991 5,000
7. Shri Dineshbhai R. Raval 11-10-1991 10,000
8. Shri Poonamchand S. 14-3-1992 20,000
--------
1,03,000
--------
The onus is on the assessee to prove the genuineness of these cash credits. As onus has not been discharged, these cash credits are treated as ungenuine cash credits.
There is a loan from P.D. Shroff of Rs. 2,00,000. The confirmation of this loan is not produced. Therefore, the same is also treated as bogus cash credit."
20. The CIT(A) confirmed the action of the AO regarding invoking of Section 145. The CIT(A) held that the AO is justified in rejecting the book result as the assessee. did not maintain proper books of account and has also not followed proper method of accounting. The CIT(A) followed the earlier year order for asst. yr. 1990-91; the net commission income from vehicles belonging to others is estimated at the rate of 8 per cent on the gross receipt of Rs. 80,84,241. Thus, net commission income from vehicles belonging to others comes to Rs. 6,46,739 as against Rs. 16,16,848 estimated by the AO, The CIT(A) accordingly sustained the addition to the extent of Rs. 6,46,739 and a relief of Rs. 9,70,109 was allowed. It has also been given finding by the CIT(A) that the said estimation of net income is after considering all expenses incurred by the assessee in earning said income, no further deduction out of this income is to be allowed. Similarly, in respect of estimation of income from own vehicles the CIT(A) estimated the gross total income from such own vehicles of Rs. 4,35,217 as against the income estimated by the AO of Rs. 8,53,582 subject to allowability of depreciation. The CIT(A) accordingly granted relief of Rs. 4,18,365 and addition of Rs. 4,35,217 has been sustained. The relevant finding of the CIT(A) is reproduced as below :
"I have considered the facts of the case and the submission made by the appellant. It is seen that the proper vouchers regarding the expenses claimed have not been maintained and many of the expenses are not vouched at all. The facts of the case are similar to that mentioned in my orders for the asst. yrs. 1986-87 to 1990-91 in the appellant's case. The explanation submitted by the appellant does not fully explain the sharp increase in the percentage of expenses claimed to the gross receipts from 64.2 per cent allowed last year to 89.2 per cent claimed this year. Therefore, considering the facts of the case, expenses to the extent of Rs. 2.5 lakhs are disallowed out of expenses of Rs. 15,21,948 claimed by the appellant. Thus, expenses to the extent of Rs. 12,71,948 are allowed as against Rs. 17,07,165 claimed. Hence, the net income before allowing the depreciation from the vehicles owned by the appellant comes to Rs. 17,07,165 - Rs. 12,71,948, i.e., Rs. 4,35,217 as against Rs. 8,53,582 assessed by the AO. Thus, relief of Rs. 4,18,365 (Rs. 8,53,582 - 4,35,217) is allowed."
21. In respect of addition on account of cash credits the CIT(A) deleted the said addition with the following observations :
"I have considered the facts of the case and the submission made by the appellant. It is seen that the appellant has not filed confirmatory letters either before the AO or before the undersigned regarding the cash credits. He has also not submitted any other evidence to prove the genuineness of the cash credits totalling to Rs. 1,03,000. Under the circumstances, it is treated that the cash credits totalling to Rs. 1,03,000 are nothing but the appellant's own money introduced in the names of the various persons. However, in view of the alternative plea made by the appellant and the fact that substantial additions to the commission income from hiring of vehicles shown by the appellant have been approved, by the undersigned in the appellate orders for the asst. yrs. 1986-87 to 1991-92, it is held that these cash credits have been introduced out of the appellant's income of previous assessment years. Therefore, no separate addition for the unexplained cash credits of Rs. 1,03,000 is required to be made. The addition of Rs. 1,03,000 made by the AO is, therefore, deleted.
The next ground of appeal is regarding the addition of Rs. 2 lakhs made by the AO for unconfirmed loan of Rs. 2 lakhs in the name of Shri P.D. Shroff. In the assessment order, the AO stated that the assessee has not filed any confirmation regarding this loan and, therefore, the same is treated as bogus cash credit. Before the undersigned, the counsel for the appellant submitted that the AO has failed to give any show-cause notice to the assessee either in writing or orally for submitting the confirmation of the party in question and therefore, the addition made is not justified and may kindly be deleted."
22. ITA No. 1081/Ahd/1997--Assessee's appeal--Asst, yr. 1993-94 ITA No. 1263/Ahd/1997--Revenue's appeal--Asst yr. 1993-94 The assessee filed his return of income by declaring loss of Rs. 4,59,650. During the assessment proceedings it has been noticed by the AO that no day-to-day cash balance was drawn. The cash balance was drawn monthly with pencil. It has also been noticed by the AO that except cash book, no other books of account have been produced for verification. The assessee did not maintain vouchers. The AO has also noticed that the books of account of the assessee are not reliable as noticed at the time of search and earlier year. The AO accordingly rejected the books of account and invoked provisions of Section 145(2) of the IT Act. The AO estimated the income of the assessee as under :
"In earlier years commission income has been adopted at 20 per cent. As the facts and circumstances of the case are similar and identical, 20 per cent commission income on the gross receipts of Rs. 86,87,454 is adopted which comes to Rs. 17,37,490. In earlier years 50 per cent income has been estimated on the receipts of his own jeeps. As the facts of the case are similar and identical 50 per cent profit is estimated on Rs. 17,37,490. The profit on his own vehicles comes to Rs. 8,11,128.
Subject to the above remarks, total income is worked out as under :
Rs.
Commission income as discussed above 17,37,490
Business income on his own vehicle as discussed above 8,11,128
---------
25,48,618
Less : Deprn. as per statement 3,98,727
---------
Net taxable income 21,49,897"
---------
The CIT(A) after considering the submission of the assessee held that the AO was justified in rejecting books of account and in invoking Section 145 of the IT Act. The CIT(A) followed the earlier years' orders for asst. yrs. 1990-91, 1991-92 and 1992-93, and accordingly applied 8 per cent net profit rate on total receipt of Rs. 86,87,454, and income from vehicles belonging to others estimated at Rs. 6,94,996 as against Rs. 17,37,490 estimated by the AO. The CIT(A) accordingly sustained the addition of Rs. 6,94,996 and relief of Rs. 10,42,494 is allowed. It has also been the finding of the CIT(A) that the net commission income has been determined at Rs. 6,94,996 after considering all expenses incurred by the assessee in earning the said income; no further deduction out of this income is to be allowed. In respect of estimation of income from own vehicles, the CIT(A) sustained the addition of Rs. 4,75,860 as against income estimated by the AO of Rs. 8,11,128. The relevant observations of the CIT(A) are reproduced as below :
"In view of the discussion and the findings given in these orders, the commission income from the vehicles belonging to others is ........ the rate of 8 per cent of the gross receipts of Rs. 86,87,454...... the net commission income from the vehicles........ comes to Rs. 6,94,996 as against Rs. 17,37,490 estimated by the AO. The relief allowed to the appellant of Rs. 10,42,494 (Rs. 17,37,490 -Rs. 6,94,996). As the net commission income has been determined at Rs. 6,94,996 after considering all expenses incurred by the appellant in earning this income, no further deduction out of this income is to be allowed.
I have considered the facts of the case, discussion made in the assessment order and the submission made by the appellant. The appellant has not filed the details of diesel expenses, maintenance and repairing expenses, and other expenses exclusively pertaining to the vehicles belonging to him. Therefore, it is not possible to determine the net profit before allowing the depreciation from the vehicles belonging to others. From the details on record the estimate made by the AO appears to be on higher side and, therefore, the same cannot be accepted. It is seen that in my order dt. 29th Jan., 1996, for the asst. yr. 1992-93 in appellant's case, the net profit before allowing the depreciation from the vehicles owned by the appellant was determined at Rs. 4,35,217 as against gross receipts of Rs. 17,07,165 from these vehicles. The percentage of net profit before allowing the depreciation to the gross receipts came to 25.5 per cent as against 50 per cent taken by the AO. It will be reasonable for the year under consideration also to determine the net profit before allowing the depreciation at 25.5 per cent of the following receipts from the vehicles belonging to himself shown by the appellant :
(i) Jeep hire charges Rs. 15,75,541
(ii) Car hire charges Rs. 46,716
(iii) Mini bus hiring charges Rs. 2,43,860
Rs. 18,66,117
Thus, the net profit before allowing the depreciation is 25.5 per cent of Rs. 18,66,117, i.e., Rs. 4,75,860. Therefore, the net profit before allowing the depreciation from the vehicles belonging to the appellant is determined at Rs. 4,75,860, as against Rs. 8,11,128 taken by the AO. Thus, the relief of Rs. 3,35,268 (Rs. 8,11,128 - Rs. 4,75,860) is allowed.
In view of the discussion made above, the total income of the appellant is determined as under :
Rs. Rs.
(i) Net commission income from hire of vehicles
belonging to others 6,94,996
(ii) Net income before allowing depreciation from
the vehicles belonging to the appellant himself 4,75,860
Less : Depreciation allowed by the AO 3.98,727 77,123
-------- --------
7,72,119"
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23. These cross-appeals are six by assessee and six by the Revenue. The assessee is in appeals against the addition sustained by the CIT(A) whereas the Revenue is in appeal against the relief granted by the CIT(A).
24. The learned Authorised Representative filed a brief summary of the additions made by the AO and sustained/deleted by the CIT(A) along with the brief submission of the assessee. The said chart is appearing at pp. 9 to 11 of assessee's paper book. During the hearing before us the learned Authorised Representative drew our attention on pp. 54-57 of assessee's paper book where the order of the Tribunal in ITA Nos. 4162 and 4163/Ahd/1995 for asst. yrs. 1986-87 and 1987-88, the appeal filed by the assessee, and submitted that the Tribunal has decided the case of the assessee considering the income at 8 per cent of the gross receipt. While deciding the appeal of the Revenue, the assessee who is uneducated himself had attended. The Tribunal confirmed the finding of the CIT(A) treating the rate of net profit at 8 per cent. The learned Authorised Representative further submitted that for the remaining years 1988-89 to 1994-95 there is sufficient material with the assessee in the form of affidavits, statements recorded at the time of search, assessment orders of other years and other records which have been filed in the paper book. It is also the submission of the learned Authorised Representative that principle of res judicata is not applicable to the income-tax proceedings and, therefore, urged that the orders of earlier years may not be followed. He further submitted that on appreciation of the facts and circumstances and on a consolidated view of the estimation the net profit rate of 5 per cent is applied on the gross receipt by the assessee. The learned Authorised Representative further submitted that as per statement recorded under Section 132(4), the assessee has disclosed commission income of Rs. 8 lakhs in these years. The learned Authorised Representative has also submitted that in the statements of other parties, a photocopy of which has been placed in the paper book, it has been admitted that they received total gross receipt from ONGC after deducting 5 per cent commission. In this way the assessee's income is only 5 per cent of the vehicles given on hire to the ONGC. The learned Authorised Representative has also submitted that this fact of 5 per cent commission has been admitted by different jeep owners in their affidavits. The bill received from ONGC, Ankleshwar project, the assessee deducted at 5 per cent commission.
25. The other submission of the learned Authorised Representative is that the estimation of income in case of assessee is own vehicles. The assessee is separately entitled for depreciation in case where the income is estimated by applying a net profit rate. In support of this contention, the learned Authorised Representative relied upon the order of the Tribunal, Jodhpur Bench, in the case of Ansari Builders v. ITO (2000) 6.6 TTJ (Jd) 902. He has also relied upon the judgment of Hon'ble Rajasthan High Court in the case of CIT v. Jain Construction Co. The learned Authorised Representative while concluding his submissions contended that the income sustained by the CIT(A) is on higher side. The assessee is an illiterate person having no corroborate assets and investments which justify such higher estimation of income sustained by the CIT(A). It is also the submission of the learned Authorised Representative that on identical set of facts in case of partnership firm, M/s Amar Shakti Travels, the AO has accepted the commission income at 4 per cent on the same business with the same ONGC after a detailed scrutiny and assessment made under Section 143(3). The learned Authorised Representative drew our attention to the said order of AO of which a photocopy has been placed at pp. 48-50 of the paper book. He accordingly urged that the rate of net profit in such trade is 4 per cent. This fact is supported by a comparable case. The learned Authorised Representative has also submitted that the assessee may be allowed necessary telescoping.
26. The learned Departmental Representative, on the other hand, supported the orders of the AO and submitted that the assessee was not maintaining proper books of account and whatever books of account maintained by the assessee the true and correct income cannot be deduced. Therefore, the books of account of the assessee in the above years have been correctly rejected by the AO, invoking Section 145. He further submitted that the AO has estimated the income after examining all the facts and material available on record, and the documents and material found at the time of search. The AO has correctly estimated the income by applying at 8 per cent net profit on the total gross receipts in case of vehicles belonged to other persons and at the rate of 20 per cent in case of assessee's own vehicles. The estimation of the AO is fully supported by materials and evidences on record. He has also submitted that the CIT (A) has erred in reducing the rate of profit to 5 per cent and also erred in deleting the addition made by the AO on account of cash credits and investment made in household expenses. He further submitted that the assessee did not submit any evidence and material about the cash credits. The assessee has failed to establish the identity, creditworthiness and genuineness of the transactions. Under the circumstances, the learned Departmental Representative submitted that the order of the CIT(A) may be set aside on these issues and the orders of the AO be restored. It is also the submission of the learned Departmental Representative that the CIT(A) has wrongly deleted the addition of Rs. 17,17,500 made by the AO in asst. yr. 1991-92 on account of disclosure made by the assessee in the statement recorded at the time of search under Section 132(4). The learned Departmental Representative supported the grounds of the appeal of Revenue and urged that on these grounds the orders of the AO be restored.
27. We have considered the rival submissions of the parties, perused the record and gone through the decisions cited before us. There was a search and seizure under Section 132 on 24th July, 1990. The assessee is engaged in the business of giving jeeps and taxis of own and others on hire to ONGC authorities at Ankleshwar. During the course of search the statement of the assessee was recorded under Section 132(4). The assessee made a disclosure of Rs. 17,17,500 pursuant to Expln. 5 to Section 271(1)(c) of the IT Act. The relevant question No. 35 and reply to it by the assessee are reproduced in para No. 16 of this order. The AO has invoked Section 145 and rejected the books of account. This action of the AO has been confirmed by the CIT(A). The assessee has failed to submit any material, evidence or convincing reasons that the finding of the lower authorities on this issue is incorrect. We have also noticed that the assessee did not maintain proper books of account and has also not followed a correct method of accounting on which basis the income of the assessee in above years can be ascertained. In addition to the defects in maintenance of books of account, the facts pointed out by the lower authorities coupled with the fact that there was a disclosure by the assessee in his statement under Section 132(4) of Rs. 17,17,500, on the basis of these facts we are of the considered view that the AO has correctly invoked Section 145 of the IT Act and the CIT(A) has correctly sustained the same. After rejecting the books of account the next step to be taken is fair and reasonable estimation of income of different years. Whether the estimation made by the AO and sustained by the CIT(A) is fair and reasonable or not for examining this issue we would like to bring on record following some facts :
The admitted facts of the case are that the assessee did not maintain proper books of account. The assessee made a disclosure in the statement recorded under Section 132(4) for a sum of Rs. 17,17,500 of which details are reproduced in this order on p. 9, para No. 16. It is settled position of law that the statement recorded under Section 132(4) has an evidentiary value particularly when the assessee failed to rebut the same. The submission of learned Authorised Representative is not acceptable in this respect that the assessee has disclosed only Rs. 8 lakhs. On perusal of details of disclosure we find that the assessee has made disclosure of Rs. 8 lakhs on account of unaccounted commission and other items. The total disclosure was for Rs. 17,17,500. The disclosure of Rs. 8 lakhs on account of unaccounted commission is adjustable against other items on the basis that the said undisclosed commission was used/utilised in those items of disclosure. In other words after allowing benefit of telescoping net disclosure is Rs. 9,17,500. Thus, the contention of learned Authorised Representative that the disclosure of Rs. 8 lakhs only to be considered is not acceptable. The disclosure for Rs, 9,17,500 is required to be considered. One more important aspect to be clarified is that there was no specific question to assessee about the period of the disclosure. Further, there was also no question whether this disclosure was total disclosure or additional disclosure than the current year income. On perusal of statement, return filed by the assessee and the order of CIT(A), we find that it was the total disclosure including routine profit of those years. With this background of facts we examine whether submission of the learned Authorised Representative that 5 per cent net profit be applied is reasonable or not. The disclosure made at the time of search is consolidated one for asst. yrs. 1986-87 to 1991-92 (upto the date of search 24th July, 1990). The details of bifurcation of this disclosure for different years have not been given, so the disclosure is to be seen accordingly and as per finding given by us as above. Since the disclosure is for asst. yrs. 1986-87 to 1990-91, therefore, it is useful to refer some data of income estimated by AO, sustained by the CIT(A) and after the order of the Tribunal of earlier years, which are as under :
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Asst. yr. By assessee By AO By CIT(A) After the order
(Rs.) (Rs.) (Rs.) of Tribunal (Rs.)
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1986-87 -- -- -- 79,155 1987-88 -- -- -- 1,83,700 1988-89 1,18,965 6,40,263 4,30,031 -- 1989-90 (-) 1,29,555 7,41,223 5,43,132 -- 1990-91 74,630 19,83,500 4,57,260 -- 1991-92* 29,545 44,38,328 13,40,553 --
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Total 2,62,855
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*(Note : The date of search is 24th July, 1990, the income of the period upto date of search is considered for the purpose of fair and reasonable estimation of income).
If above data are seen in the light of disclosure and nature of business of the assessee we find that estimation of AO and addition sustained by CIT(A) are high and cannot be said as reasonable and fair estimation of income. Under the circumstances, we find that this is a case where fair and reasonable estimation of income is required. The assessee made a disclosure of Rs. 17,17,500 including Rs. 8 lakhs because of unaccounted commission. The effective disclosure determined by us as per above discussion is Rs. 9,27,500. In support of this finding, we would like to mention that the AO has taken turnover of Rs. 1,53,33,533 as against the turnover disclosed by the assessee for Rs. 1,07,86,821 for asst. yrs. 1988-89 to 1990-91. The AO has already taken higher figure of turnover, thus, that deficiencies will be covered if we take the total turnover accepted by AO for the purpose of estimation of income. Following are the total receipts of different years :
Years As per Assessee As per AO
(Rs.) (Rs.)
1988-89 23,79,301 31,18,294
1989-90 34,22,568 57,27,652
1990-91 49,84,952 64,87,585
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1,07,86,821 1,53,33,533
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Total disclosure was 9,17,500. If this amount is reduced by Rs. 2,62,855 (as this income has already been finalised by Tribunal for asst. yrs. 1985-86 and 1986-87), we find the balance amount of Rs. 6,54,645 which is to be considered. The calculation of net profit on this disclosure comes to 4.27 per cent (6,54,645 x 100/1,53,33,533) on the total turnover (taken by AO). If we consider the turnover declared by the assessee we find that calculation of net profit comes to about 6 per cent (6,54,645 x 100/1,07,86,821). The above calculation of net profit, affidavits and statements of the parties show that the proposition of learned Authorised Representative to accept 5 per cent net profit rate is acceptable. The order of Tribunal for asst. yrs. 1986-87 to 1987-88 is distinguishable on facts as in cases the assessee himself appeared and did not able to substantiate his claim as he being an illiterate person. Further, the years under consideration are pertaining to search period. Keeping in mind the above discussions and looking to the nature of business of the assessee, we find that net profit rate in such business is not more than 5 per cent. If the assessee maintained proper books of account and after claiming depreciation, this 5 per cent net profit rate might not been have possible. However, to cover other deficiencies/aspects/facts and inclusion of current years profit we find that it will be fair and reasonable to both sides if 6 per cent net profit is to apply on the turnover determined by the AO. The AO is directed accordingly. It is pertinent to mention that we directed for net profit rate which will cover all allowable expenses including depreciation and interest, etc. for which no separate deduction is to be allowed by the AO. Further, no separate addition is required for vehicles own by assessee and vehicles of others and income from car for asst. yr. 1989-90, jeep for asst. yr. 1988-89 as the total turnover of those vehicles has been considered in total turnover.
28. Now, we examine yearwise other grounds of appeal as under :
Asst. yr. 1988-89 : The AO made addition of Rs. 5,000 on account of jeep which has been sustained by CIT(A). Since the addition has been considered while estimating trading profit, therefore, we find that no separate addition is required. We deleted the said addition of Rs. 5,000. Another addition of Rs. 24,056 made by AO is under Section 69 being investment in house. The CIT(A) restricted it to Rs. 1,75,567 with the finding that to that extent funds were available from additions confirmed in the past years. In other words, the CIT(A) has restricted the addition after giving telescoping benefit of trading additions sustained. Since, we have directed AO to estimate net profit by applying 6 per cent net profit rate and set aside the orders of CIT(A), therefore, fresh calculation of telescope benefit is required. The AO is directed to calculate the same and allow the benefit to the extent of income/fund available on account of additional income determined in past years.
29. Asst yr. 1990-91 : The addition of Rs. 2,69,327 on account of income from car hiring made by AO has been sustained by the CIT(A). Since this addition has been considered while estimating total income, therefore, we do not find any justification for sustaining separate addition on this account, therefore, same is deleted.
30. Asst. yr. 1990-91 : The AO made addition of Rs. 70,000 on account of sale of jeep which has been reduced by CIT(A) for Rs. 4,227 with the following observations :
"I have considered the facts of the case, the observations/findings of the AO and the submission made by the appellant. It is seen that the ownership of the jeep was not shown by the appellant in earlier year. However, there is force in his argument that the actual amount received is Rs. 4,227 only and not Rs. 70,0001 the balance amount of Rs. 65,773 being the amount of hypothecation loan due to the bank. Hence, the addition made by the AO is restricted to Rs. 4,227. Thus, the appellant gets relief of Rs. 65,773."
The Department has failed to point out any contrary material than the material and facts considered by the CIT(A). Under the circumstances we do not find any error in the order of the CIT(A). Therefore, the order of the CIT(A) on this issue is confirmed.
31. The next addition is of Rs. 60,000 made by the AO, on account of income from sale of car. The CIT(A) deleted the said addition with the following observations ;
"I have considered the facts of the case and the submission made by the appellant. It is seen that the balance sheet for the asst. yr. 1989-90 does reflect the value of two cars, but the appellant had claimed depreciation on one car only in the asst. yr. 1989-90. While filing the return of income for the asst. yr. 1990-91, the appellant has claimed depreciation on the cost of one car plus WDV of the other car reduced by the sale proceeds of one car. Hence, the depreciation has been claimed as per provisions of the IT Act. The addition of Rs. 60,000 made by the AO is not justified and the same is deleted."
32. We find that the AO has not properly appreciated the facts and the issue. The CIT(A) has deleted the addition after proper appreciation of facts, against which the Revenue has not pointed out any material. Under the circumstances we do not find any error in the order of the CIT(A). We, therefore, confirm the order of the CIT(A) on this issue.
33. The next addition is of Rs. 1,20,000. The addition made by the AO on account of margin money has been deleted by the CIT(A) with the following observations :
"I have considered the facts of the case and the submission made by the appellant. Considering the facts that the banks normally do not give 100 per cent loan amount for the purchase of vehicles, the payment of margin money on purchase of three jeeps cannot be ruled out. However, in this order, I have estimated the commission income from hiring of vehicles belonging to the others at 8 per cent of gross receipts as against at 5 per cent shown by the appellant and this results in substantial addition to the income shown by the appellant. Therefore, considering this fact and the alternative plea made by the appellant, it is held that the margin money on the purchase of three jeeps has been paid out of additional income at 3 and (8 per cent - 5 per cent) of gross receipts from vehicles belonging to the others available with the appellant. Hence, no further addition on this account is called for. The addition of Rs. 1,20,000 made by the AO is, therefore, deleted."
34. We find that the CIT(A) has deleted this addition with the observations that this amount is covered by the higher estimation of trading income. After considering the facts of the case we find that necessary telescoping benefit is required to be calculated in accordance with the trading addition sustained by us. We, therefore, set aside this issue to the file of the AO to calculate the telescopic benefit and if it is found covered by the trading addition sustained by us no addition is warranted. If the AO found otherwise he will decide the issue as per law after providing reasonable opportunity of being heard to the assessee.
35. The next addition is of Rs. 33,500 made by the AO on account of purchase of land. The CIT(A) has deleted the addition with the following observations :
"I have considered the facts of the case and the submission made by the appellant. I have also gone through his statement recorded under Section 132(4) during the course of search. It is seen that the appellant has not stated that the whole of the purchase price was paid by him. In this statement he has simply stated half of the purchase price of the land, i.e., a sum of Rs. 33,500 was paid by him and the balance amount was paid by his brother. On a perusal of his capital account filed along with return of income which was filed after the search, it is seen that a sum of Rs. 33,500 has been debited to his capital account. Hence, no further addition on this account is called for. The addition of Rs. 33,500 made by the AO is, therefore, deleted."
The learned Authorised Representative has not pointed out any contrary material to the finding of the CIT(A). Under the circumstances we find that the assessee has shown his share of investment by debiting capital account. Therefore, we do not find any infirmity in the order of the CIT(A). Therefore, the order of the CIT(A) is confirmed on this issue.
36. Asst yrs. 1991-92 and 1992-93 :
(1) The additions of Rs. 1,40,000 for 1991-92, Rs, 1,03,000 and Rs. 2,00,000 for asst. yr. 1992-93 made by the AO under Section 68 have been deleted by the CIT(A) on the ground that estimated income exceeds the income declared by the assessee, so after allowing benefit of telescoping no separate addition is required. We have directed the AO to estimate the profit from business by applying 6 per cent net profit rate, whether the impugned addition is covered by the benefit of telescoping or not, requires fresh calculation. On principle, we agree with the CIT(A) but for the purpose of calculation, we are sending back this issue to the file of AO for his calculation. If the AO finds that the addition is not covered by telescoping benefit of additions in the past years' income as well for the current year, he is at liberty to decide the issue in accordance with law after providing reasonable opportunity of hearing to the assessee.
(2) The AO made the addition of Rs. 17,17,500 in asst. yr. 1991-92 on account of disclosure at the time of search. The CIT(A) has deleted the addition. The relevant observations of the CIT (A) are at page No. (sic) of this order. We have also considered this disclosure of which detailed discussion is at pp. 7 to 10 of this order. Since the disclosure was considered for different years, a separate addition in this year 1991-92 is not required. We find that the CIT (A) has correctly deleted this addition made by the AO.
37. Asst yrs. 1992-93 and 1993-94 : Since facts are identical to earlier years, 6 per cent net profit rate is to be applied for estimating the total income for these years also. The AO is directed accordingly.
38. In the result, all the appeals of the assessee and Revenue are partly allowed for statistical purposes.