Income Tax Appellate Tribunal - Jaipur
Uttam Chuna Pathar Udyog vs Income-Tax Officer on 14 August, 1997
Equivalent citations: [1998]65ITD460(JP)
ORDER
Pradeep Parikh, Accountant Member
1. The assessee is in appeal before us against the order of the learned CIT(Appeals) dated 6-6-1996 for assessment year 1993-94. Ground Nos. 1 to 3, 9 and 10 are legal grounds, mainly against the applicability of Section 145(1) or 145(2) and against comparing the incomparables and violation of principles of natural justice.
2. The assessee is a registered firm engaged in the mining and sales of lime stone. For the year under consideration the assessee had shown g.p. at the rate of 7.4% on total sales of Rs. 99,44,697. In the course of assessment proceedings, while scrutinising one of the wages payment register (Tudwai Wages), the AC observed that attendance of workers were shown on 29th and 30th February also. It was also observed that no worker had put his signature in token of having received the wages, but had put thumb impression instead. It was, therefore, concluded that the books of the assessee are unreliable and he applied the provisions of Section 145(2). Accordingly, he disallowed the following expenses :
Nature of Total Expenses Expenses
Expenses Claimed (Rs.) Disallowed (Rs.)
Lime stone Tudwai
Wagon Loading
Truck Loading/
Unloading 28,40,880 9,75,786
Mining Expenses 10,36,190 2,41,872
Transportation 19,22,255 1,31,350
Overburden Removal
Expenses 9,75,551 3,44,271
Weight Shortage &
Rate Difference 2,32,548 53,992
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Total Disallowances 17,47,271
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The CIT(Appeals) confirmed the disallowances in toto.
3. The learned counsel for the assessee made detailed submissions before us with regard to the nature of business, the mode of operations and the peculiar aspects of the business during the year. Besides this, it was submitted that there was no reason for the Assessing Officer to reject the book results. Mentioning of two wrong dates did not have any bearing on the accounting aspect of the entire records or the correctness of the entire records. Admittedly the dates were wrongly mentioned, but the wages, which were paid on the basis of metric tons worked open, were easily verifiable. As regards the disallowances out of various expenses it was mentioned that they were all hypothetically computed by comparing them with uncornparable cases and by taking the help of averages. Moreover, the assessee was never confronted with the facts and circurn-stances of the so called comparable cases. Hence the principles of natural justice were also violated. Thus it was very strongly urged by the learned counsel that all the disallowances deserved to be deleted. In support of his various contentions, the learned counsel also took us through the various evidences and supporting placed in the paper-book and also relied on several judicial pronouncements.
4. The submissions of the learned D.R. were restricted to the extent that the Assessing Officer rejected the books and made the disallowances on the basis of the facts found him and by considering all the circumstances in totality. The error of mentioning the dates of 29th and 30th February were, in his opinion, indeed a grave error which justified the rejection of book results. The other cases on which the Assessing Officer relied were comparable because they were in the same business and their facts were similar to those of the assessee's. For his submissions the learned D.R. relied on the decision of the Supreme Court in 138 ITR 44 (sic).
5. We have given our thoughtful consideration to the rival contentions and to the material placed before us.
6. In the assessment process, when the Assessing Officer is scrutinising the account books, he has to do so objectively and judiciously. His prime duty under the Act is to assessee the real income as per the provisions of the Act and levy tax thereon. These, that is the prime object of the Act and the prime duty of the Assessing Officer thereunder, are so elementary to the process of assessment that it hardly needs elaboration.
7. Where accounts are maintained by an assessee, the process of determining the income would start from the income as reflected by the books and then adjustments thereto will be made as per the provisions of the Act. It is a different after where books are not maintained and as we are not concerned with such a situation in the present appeal, we do not dwell upon it. Since income reflected by the books is the starting point, it is absolutely imperative that the books are reliable. So now we enter upon this concept of 'reliability'. The perception of reliability varies from person to person and the reasons to consider the books reliable or otherwise, may range from, to borrow a phrase from a decision of the Kerala High Court as quoted in 102 ITR 694, "the stupidity of the officer to the cupidity of the assessee." The word "reliable" means dependable or one which is trustworthy or one which is worthy of confidence. There cannot be a standard to measure reliability and as mentioned earlier, it depends upon one's perception. Perception, though a variable factor, in matters of judging a state of affairs, particularly in a taxing statute, should conform to common sense, custom, usage, ethos, economic upliftment, development of professional attitude, human probabilities and similar such factors.
8. Now we taken up the case before us. The Assessing Officer considered the books to be unreliable and incomplete. Let us analyse the reasons which prompted him to conclude as such. The foremost reason was that in one of the wages register (Tudwai Register), attendance of workers had been shown on 29-2-1993 and 30-2-1993. The explanation of the assessee was that the said register was maintained to comply with labour law and the same were maintained by the group leader of the workers who are illiterate persons. The actual payment of wages is based on the quantity worked upon which is easily verifiable from other records. This register has no bearing on the accounts at all. In our opinion, the explanation is quite plausible. Not only that, if the Assessing Officer was not convinced by the explanation, it was not that he was helpless. He could have verified the payment of wages from other relevant records. The assessee did offer them for verification, but the Assessing Officer chose to overplay with the dates of 29th and 30th February.
9. Another observation by the Assessing Officer was that no worker has signed the register but all of them put their thumb impressions. The Assessing Officer just could not digest this despite being aware of the fact that the literacy rate in this country is amongst the lowest in the World and where emancipation of wage earners, more so in case of mining workers is yet a dream only. In any case, if the Assessing Officer could not believe this, he should have asked the assessee to produce some of the workers before him for cross-verification.
10. The third reason given by the Assessing Officer is that vouchers relating to transport charges were internal vouchers. However, he has not given any specific reason as to how these vouchers are bogus. They may be internal vouchers, yet they can be relied upon depending upon the basis of their preparation and cross-verifying those basis from other relevant records. Thus such vague and bald statements do not render the books incomplete and incorrect.
11. This brings us to as to what would constitute correct accounts or correct profits as envisaged in Section 145(2). Section 145(2), no doubt, refers to correctness of the books. But simply, a few clerical errors, lack of some vouchers, non-maintenance of a particular record, does not perse render the accounts incorrect. In spite of these defects, the profits may be deducible. Thus, before involving the provisions of Section 145(2), it is the duty of the Assessing Officer to show how, because of these defects, correct profits are not deducible; and correct books of account do not mean that it should be correct to every pie, or, that each and every record ought to have been maintained with zero error. It is a tall order to expect such state of affairs and only a utopist is entitled to have such expectation. Correct books of account has to be understood as fairly correct books of account. Thus a few missing vouchers or a few defects here and there, strictly speaking, may render the books to be incorrect, but yet, they may be fairly correct. In such case, it is more appropriate to make legitimate disallowances, rather than reject the books whole hog. Profits deduced from such fairly correct books are near to real income liable to tax than the income determined by wild estimates. The Indian Companies Act, 1956 also envisages that the profit and loss account of a company should reflect a true and fair view of the profit or loss. Thus, in case of corporate sector, which is supposed to be more organised, the taxing authorities, though unconsciously, start the computation of income from fair profits or losses, then why that insistence of one hundred per cent accuracy and correctness in case of other assessees.
12. Thus, in the instant case, none of the reasons mentioned by the Assessing Officer are such which could have shaken the confidence of a person with average wisdom, in the books maintained by the assessee. The provisions of Section 145(2) are wrongly invoked.
13. Having invoked the provisions of Section 145(2), the Assessing Officer proceeded to determine the total income. As per law, when Section 145 is invoked, the Assessing Officer is supposed to determine the income to the best of his judgment on the basis of material gathered by him. Ironically, despite treating the books as unreliable, the Assessing Officer accepted the purchase and sales recorded in those very books, but not the major expenses under various heads like lime stone breaking, wagon loading, truck loading/unloading, mining expenses, transportation expenses, overburden removal expenses, weight shortage and rate difference. All these expenses according to him were excessive. Interestingly, the case of alleged excess expenditure was not made out by proving that the assessee had recorded fictitious expenses in the books. He has also not given a single instance about a particular expenditure being doubtful. Instead, he chose to revel in the realm of averages, without releasing the fact that statistical tools, when applied blindly and without common sense, can lead one to absured and ridiculous results.
14. Assessing Officer computed each of the expenditure aforementioned for one metric tonne and compared it with per metric ton expenditure incurred by some other firms. The Assessing Officer was not appreciative of the suffocative environs in which the assessee was functioning on account of its agreement with the Steel Authority of India (SAIL). The agreement between the assessee and SAIL is on record. Undoubtedly, stiff conditions have been laid down in the agreement and almost entire sales during the year was to SAIL. Nowhere it is brought on record that the other cases, with whose averages the assessee's performance was compared, had either similar contract with SAIL or were functioning under such stiff conditions. In our concerned opinion, the entire exercise done by the Assessing Officer has neither any accounting logic, nor any statistical logic nor any general logic. Hence we do not consider it fit to go into the details of each disallowance. We delete all the disallowances.
15. As regards interest under Sections 234A, 234B and 234C, consequential relief be given to the assessee.
16. In the result, the appeal of the assessee is allowed.