Income Tax Appellate Tribunal - Chandigarh
Income-Tax Officer vs Republic Poultry Food on 25 February, 1993
Equivalent citations: [1993]45ITD359(CHD)
ORDER
J. Kathuria, Member
1.The only substantive ground in the Revenue's appeal for assessment year 1983-84 reads as under:
On the facts and in the circumstances of the case, the learned CIT(Appeals) has erred in deleting the addition of Rs. 35,000 made by the ITO out of the labour expenses and in holding that the surrender of Rs. 60,000 made by the assessee has to be telescoped against the addition of Rs. 35,000.
2. While scrutinising the account books of the assessee firm, it was noticed by the Assessing Officer that a cash credit of Rs. 60,000 had been introduced on 25-7-1982 in the name of Shri Mangat Ram. Enquiries were made and ultimately the assessee surrendered this amount of cash credit. While scrutinising the manufacturing account of the assessee, it had also been noticed that the assessee had debited labour charges amounting to Rs. 46,412 as against similar charges of Rs. 4,299 and Rs. 2,333 for assessment years 1982-83 and 1981-82 respectively. These expenses were found to be unreasonably excessive and unverifiable because of the cuttings in dates on the vouchers produced. The Assessing Officer accordingly disallowed a sum of Rs. 35,000 on account of labour expenses being excessive or unreasonable.
3. The assessee preferred an appeal before the ld. CIT (Appeals) and pleaded that the addition of Rs. 35,000 should be telescoped against the addition of Rs. 60,000 made on account of cash credit. In support of the contentions, the assessee relied on the following authorities:
(i) CIT v. K.S.M. Guruswamy Nadar & Sons [1984] 149 ITR 127 (Mad.);
(ii) Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457 (SC); and
(iii) CIT v. Tyaryamal Balchand [1987] 165 ITR 453 (Raj.).
The learned CIT(Appeal) accepted the plea of the assessee and held that since the assessee had surrendered the amount of Rs. 60,000 as income from undisclosed sources, any further addition lower than this amount, on account of excessive labour charges had to be telescoped against that addition. He accordingly deleted the addition of Rs. 35,000.
4. The learned D.R. submitted that the facts in the cases cited by the assessee before the learned CIT(Appeals) are clearly distinguishable. It was pointed out that in all those cases, the intangible additions had been made earlier to the introduction of the cash credit and the Courts held that where trading additions had been made, the unproved cash credits could be taken to have come out of such intangible additions. It was pointed out that in the instant case, the facts were quite opposite. It was explained that in this case, the cash credit had preceded the expenditure on labour charges. It was vehemently argued that the expenses which stood debited to the manufacturing account of the assessee could not have come out of the aforesaid addition of Rs. 60,000 by way of cash credit.
5. The assessee through its counsel Shri J.L. Chaudhary has filed written submissions vide letter dated 21-2-1993. These have been duly considered by us. The learned Counsel for the assessee has strongly relied on the order of the first appellate authority. It has further been explained in the written submissions that up to 18-10-1982, only a sum of Rs. 22,706 had been utilised for labour expenses. It has also been pointed out that a sum of Rs. 35,000 was withdrawn from the cash credit account on 13-2-1983 which was available with the assessee for being spent on 18-2-1983 (Rs. 17841), 21-2-1983 (Rs. 6785) and 23-2-1983 (Rs. 1,804).
6. We have examined the rival submissions as also the facts on record. In the case of K.S.M. Guruswamy Nadar & Sons (supra), the facts were that for assessment year 1965-66 the Income-tax Officer estimated the gross profit shown by the assessee from his hotel business and made an addition of Rs. 69,311. He also added a sum of Rs. 85,000 on account of certain cash credits found in the assessee's books. For the next assessment year i.e. 1966-67, the Income-tax Officer added a sum of Rs. 58,127 on account of deficiency in gross profit and a sum of Rs. 57,042 on account of cash credits. The first appellate authority held that gross profit additions should be telescoped with the additions made for cash credits. He accordingly sustained an addition of Rs. 85,000 for the assessment year 1965-66 and Rs. 60,000 for assessment year 1966-67. Ultimately the matter went to the High Court and it held that when there are two separate additions, one on account of suppression of profits and another on account of cash credits, it is open to the assessee to explain that the suppressed profits had been brought in as cash credits and one has to be telescoped into the other resulting only in one addition.
7. In the case of Anantharam Veerasinghaiah & Co. (supra), the facts were that the assessee was an abkari contractor. It returned income of Rs. 7,704 for assessment year 1959-60. The Assessing Officer found that there was excess of expenditure over the disclosed available cash. He also noticed several deposits. The assessee's explanation that the excess expenditure was made from the amounts deposited with him by some shopkeepers but not entered in his books, was not accepted. The alternative explanation that expenditure incurred earlier had possibly been recorded later was also rejected. In regard to the cash deposits of Rs. 28,200, the assessee's explanation was partly rejected. The Assessing Officer rejected the account books of the assessee and estimated the assessee's income on an overall figure of Rs. 5,00018. The total income of the assessee was reduced to Rs. 130000 by the Tribunal in addition to the book profits. Penalty proceedings under Section 271(1)(c) were initiated and penalty was levied. In those proceedings a plea was taken by the assessee that an intangible addition of Rs. 2 lacs had been made to the book profits of the assessee for assessment year 1957-58 out of which a sum of Rs. 90,000 was available for being put to use in the year relevant to assessment year 1959-60. On these facts, the Supreme Court held that the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books.
8. The facts in the case of Tyaryamal Balchand (supra) were as follows. While examining the account books of the assessee firm for assessment year 1966-67, the ITO rioted that there were deposits from various persons aggregating to Rs. 16,950. These accounts were squared up before the close of the accounting period. The ITO added these amounts as income from undisclosed sources. He also made an addition of Rs. 18,117 to the trading results of the assessee. The first appellate authority deleted the addition of Rs. 16,950 but sustained the addition of Rs. 18,117. The Tribunal confirmed the order of the first appellate authority. The matter came before the Rajasthan High Court and the High Court held that, the appellate authorities had committed no error of law in holding that unproved cash credit of Rs. 16,950 should be taken to have come out of intangible additions as substantial additions had been made even in the earlier years.
9. We have extensively reproduced the facts of the three cases which have been relied on by the learned Counsel for the assessee in the written submissions. A careful perusal of these cases clearly shows that these cases are distinguishable. The principle laid down is that if an intangible addition has been made earlier and there are also cash credits, then to that extent separate addition on account of cash credits cannot be made and the two additions have to be telescoped. Similarly if the assessee had incurred an expenditure outside the books of account, that expenditure can also be said to have been met from such secret funds or intangible additions made in the assessee's case earlier. The facts of the instant case are altogether different. The cash credit of Rs. 60,000 in the name of Shri Mangat Ram was introduced in the books of account of the assessee on 25-7-1982. A sum of Rs. 35,000 had been withdrawn on 13-2-1983 leaving the balance of Rs. 25,000 as on 31-3-1983 which is the closing date for the accounting period relevant to the assessment year 1983-84. The assessee had debited labour charges amounting to Rs. 46,412 in its books of account. These labour charges had already reduced the book profits. There was no expenditure outside the books of account which had been incurred by the assessee and which had been discovered by the Assessing Officer. In fact, though an amount has been added by way of an addition, actually it is a disallowance, because part of the expenditure claimed by the assessee has been held to be excessive and unreasonable. The three authorities cited supra, therefore, do not support the case of the assessee because the facts are completely different. While the assessee itself had surrendered a sum of Rs. 60,000 on account of unexplained cash credit, the other addition of Rs. 35,000 had been made because the expenditure claimed was found to be excessive and unreasonable. Both these items operate in different orbits and there is no question of telescoping the same. It is also not substantiated that the expenses were not excessive or unreasonable. Taking into consideration the entire facts and circumstances of the case, we hold that the learned CIT (Appeals) was wrong in deleting the disallowance of Rs. 35,000 by telescoping it against the surrender of an amount of Rs. 60,000. The order of the first appellate authority on this point is reversed and that of the Assessing Officer restored.
10. In the result, the appeal is allowed.