Rajasthan High Court - Jaipur
Commissioner Of Income Tax vs Narendra Mohan Paliwal on 21 April, 2004
Equivalent citations: (2004)190CTR(RAJ)236, [2004]271ITR347(RAJ)
JUDGMENT
1. Mr. Mathur, learned counsel for the Department, submits that since common issues are involved in these three appeals, therefore, they can be heard and disposed of by common order. He further submits that main order has been passed in the appeal relevant to the asst. yr. 1994-95.
2. Since common issues are involved in these three appeals, we hear and dispose of these appeals by this common order. The detailed order in these three appeals is in the appeal relevant to the asst. yr. 1994-95.
3. The appeal for asst. yr. 1994-95 has been admitted in terms of the following questions :
"1. Whether, in the facts and circumstances of the case, the Tribunal had erred in law in deleting the additions regarding underweighing which were duly supported by the material on record and finding of fact is perverse?
2. Whether, in the facts and circumstances of the case, the Tribunal was right in law in reducing the disallowances made by the AO to an arbitrary hypothetical figure without any basis and when the same were not supported by the vouchers or books of accounts?
3. Whether, in the facts and circumstances of the case, the Tribunal was justified in setting aside the interest paid to the wife of assessee when it was proved that the loan was advanced not for business purposes and whether, the said deduction is in contravention of Section 36(1)(iii) of the Act?"
4. For asst. yr. 1994-95, return was filed disclosing the income of Rs. 1,45,608 on 27th Jan., 1997. That was a belated return. Therefore, notice under Section 148 was issued, which was duly served on the assessee on 6th Feb., 1997. In response to the notice, assessee replied that return filed on 27th Jan., 1997 may be treated as return in compliance of the notice issued under Section 148. Notices under Sections 143(2) and 142(1) were issued along with detailed query letter. Some details were filed as required, but books of accounts and vouchers were not produced. Then summon under Section 131 of IT Act was issued for personal attendance. The assessee took the pretext that he is suffering from heart diseases and he could not appear in person.
5. A search was conducted at the premises of assessee on 24th Aug., 1994. During the search, some incriminating documents were found indicating the fact that marble sold has been shown underweight in the bills and there was unexplained investment in the properties.
6. The assessee was engaged in mining activities of marble, locally known as 'Aandhi Marble'. During the search, sale bills of assessee were seized and inventories prepared as per Annex. A-1 to Annex. A-13.
From the entries prepared, the AO found that assessee has sold blocks of marble mostly as per ton weight basis. Copy of one of the bills has been made as Annex. 'A'. He has recorded either full truck-load or measurement of the marble blocks.
7. After perusal of the record, the ITO was of the view that the modus operandi of the assessee is that he has sold the blocks of marble from the mines directly to the customers. Assessee gets prepaid royalty passes from the mining department. At the time of sale, assessee issues a royalty pass to the truck driver of customers. The truck carrying the blocks from the mines of the assessee has to pass through the mining check-point and there actual weight of the block is recorded. The mining department decides the royalty leviable on the basis of actual weight of the block. In case the weight of block is found in excess of the weight for which royalty pass has been issued by the assessee, extra royalty is charged from the truck driver and then only the truck is allowed to pass through the mining area.
8. Seeing this difference of weight of the blocks, i.e., the weight as shown in the bills for sale and actual weight found by the mining department for which the royalty has been charged, he calculated the concealment of sale and calculated this in para 7 of its order. After calculation on the basis of difference of weight found in the bill and actual weight found by the mining department, he added Rs. 7,48,800. This addition has been sustained by the CIT(A).
9. In appeal before the Tribunal, Tribunal has taken the view that, as there is a difference in the quality of marble blocks, no addition can be made on the basis of weight only and when there is no evidence for charging the higher amount than shown in the bills, the addition of Rs. 7,48,800 is not justified.
10. Second issue relates to disallowance of expenses. The assessee has claimed expenses on account of wages and salaries, diesel, drilling compressor, machinery repairs. When he was asked to produce the vouchers for test-check purpose, the assessee failed to produce the vouchers of the expenses. Then AO has estimated the disallowance on account of non-production of the vouchers to the tune of 25 per cent of the expenses claimed. That has been affirmed by CIT(A). However, Tribunal has reduced this disallowance to Rs. 10,000 for asst. yr. 1993-94, Rs. 25,000 for asst. yr. 1994-95 and Rs. 35,000 for asst. yr. 1996-97.
11. The third issue for our consideration in these appeals is whether Tribunal was justified in deleting the addition, which was made for paying the interest on borrowings and not charging the interest on interest-free loan advanced to the wife of the assessee.
The AO has considered this aspect in para 23 of its order. He found that assessee is paying interest on the borrowings and has advanced loan of Rs. 2,90,259 to his wife at the interest rate of 1.5 per cent per annum. The difference of interest, i.e., nominal interest on loan comes to Rs. 52,246.
When no justification has been shown, the interest to the tune of Rs. 52,246 has been disallowed by the AO. That has been affirmed by the CIT(A).
12. In Tribunal, Tribunal has deleted this addition on the ground that when there is no fresh loan raised in this year, if any interest-free loan is advanced to the wife of the assessee, that should not be disallowed.
13. Heard learned counsel for the parties.
14. Mr. Mathur, learned counsel for the Department submits that addition on account of difference in the weight of the blocks has not been made on the estimate but has been made on actual difference found between the weight shown in the bills and actual weight found by the mining department, on that weight basis the amount has been calculated in para 7 of order of AO and that is on scientific basis.
15. For expenses, he submits that when no bills and vouchers are submitted for expenses claimed, the ITO as well as CIT(A) were absolutely justified in disallowing the expenses to the tune of 25 per cent of the total expenses claimed.
16. He further submits that, when the assessee is paying the interest on the borrowings, how he can advance the loan to his wife at nominal rate of interest, especially when the advance of loan was not for the purpose of business.
Therefore, he supported the orders of AO as well as CIT(A) on this third ground also.
He further submits that Tribunal is not justified in deleting the addition so made by the AO and the CIT(A).
17. Mr. Gargia, learned counsel for the assessee-respondent submits that weight is not the criteria to determine the price. Therefore, only on the basis that there is a difference in the weight of blocks, which were sold, the addition is not justified. The price of the block depends on the quality of the blocks, therefore, merely there is a difference in the weight shown in the bill and the actual weight found by the mining department is not enough to make the addition of Rs. 7,48,800.
18. For expenses, he submits that when the books are not accepted, it is only a matter of estimate and ITO and CIT(A) have estimated the disallowance of 25 per cent of the total expenses. The Tribunal has reduced it to Rs. 10,000 in asst. yr. 1993-94, Rs. 25,000 in asst. yr. 1994-95 and Rs. 35,000 in asst. yr. 1996-97. So it is estimate against estimate, therefore, order of the Tribunal, should not be disturbed on this count.
19. There is no dispute on the fact that after search, from the documents which are seized, the AO found that the weight of the marble block shown in the bills is different from the actual weight, which has been found by the mining department for the purpose of payment of the royalty and royalty has been paid as per actual weight. In para 7, the AO has considered and calculated the amount of addition on the basis of weight. For ready reference that reads as under :
"During the year under consideration, assessee has issued total bills 194 starting from bill No. 791 to bill No. 984, including two bills for sale of 'Khanda'. The total sale consideration recorded in the bills is of Rs. 15,77,494.
(i) Assessee has issued 63 sale bills on per ton basis. The total weight recorded in such bills works out to 630 tons.
(ii) Assessee has issued 58 bills where full truck quantity load is recorded. If we take weight of full truck-load at 15 tons, then total weight of marble blocks sold in terms of full truck load works out to 870 tons.
(iii) The assessee has issued 71 bills in which Cft. quantity is recorded. Total quantity of all such bills comes to 6044.5 Cft. or 6044.5 x 0.029 = 175.29 cubic metres. The specific density of the marble at normal room temperature is 2.6. Therefore, if we multiply density of water at 1 ton per cubic metre, the density of marble works out to 2.6 tons per cubic metre. By multiplying this density of marble with the total quantity of cubic metre sold by the assessee, the weight of marble works out to 175.29 x 2.6 = 455.75 or 456 tons.
(iv) In this manner, the total weight of the marble blocks recorded in the sale bills works out to 630 + 870 + 456 = 1956 tons. However, on perusal of the royalty assessment order, it is found that weight of total blocks (sold by assessee) assessed by the mining department, is 3204 tons. The difference of the weight assessed by the mining department and weight recorded by the assessee in the bills is 1248 tons.
(v) In the sale bills, the assessee has sold the blocks at a rate of 500 to 700 per ton, the average of which comes to Rs. 600 per ton. By multiplying Rs. 600 per ton with the weight difference of 1248 tons, the sale value of the under-weight done by assessee works out to 1248 x 600 - Rs. 7,48,800."
20. It is true that price of the marble block is not dependent only on the basis of weight of the marble block, but depends on its quality. There is no material on record that the marble blocks, which were sold are of different quality, but the fact on record which has been found by the AO is not in dispute that the weight which has been shown in the bills is much more less than the actual weight found by mining department. Considering the calculation of the AO in para 7, which has been affirmed by the CIT(A), the finding of the Tribunal is perverse. It has wrongly deleted the addition of Rs. 7,48,800 for no justification.
21. The details of expenses claimed has been considered and reproduced by the AO in para 11. For ready reference that reads as under :
"During the course of assessment, assessee was asked to produce the books of accounts and vouchers in support of the various expenses claimed in the trading and P&L a/c. However, assessee has neither produced the vouchers as well as books of accounts for test check purpose and, therefore, in absence of vouchers, expenses claimed in the trading and P&L a/c are disallowed as follows:
_______________________________________________________________________ Nature of expenses Exp. claimed Percentage Disallowance disallowed _______________________________________________________________________ Wages & Salaries 1,57,390 25 39,347 Diesel 1,78,355 25 44,589 Drilling Compressor 3,63,560 25 90,890 Machinery repairs & Maintenance 1,57,540 25 39,385 _______________________________________________________________________ Total 2,14,211"
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22. When the bills and vouchers for the expenses claimed are not produced, the only course left to the AO is to estimate the disallowance. He has estimated the disallowance on 25 per cent of the total expenses claimed. That has been affirmed by CIT(A). Tribunal has not given any justification why this should be reduced. It is true that it is estimate against estimate, but even then there should be some justification when two authorities have taken the same view for disallowance of the expenses. Tribunal has committed error in reducing this amount of disallowance without any justification.
23. The third issue relates to the disallowance of the interest on the borrowings to the extent of the loan of Rs. 2,90,259 advanced to Smt. Sharda Paliwal, wife of the assessee. The loan of Rs. 2,90,259 has been advanced to Smt. Sharda Paliwal, w/o of the assessee at the interest rate of 1.5 per cent per annum.
24. No justification has been shown when assessee has paid the interest on the borrowings, why the assessee advanced this loan to Smt. Sharda Paliwal at the negligible rate of interest. When assessee is paying the interest on the borrowings how he can advance loan to somebody for non-business purpose at the nominal rate of interest. If he advances any loan interest-free or at lower rate of interest, to that extent interest paid by assessee should be disallowed.
In absence of any justification and when the loan has been advanced to Sharda Paliwal at the negligible rate of interest without purpose of business, the Tribunal has committed error in deleting the addition of Rs. 52,246 on account of interest-free loan.
25. In the result, we reverse the view taken by the Tribunal in all these three issues and restore the view taken by the AO and CIT(A). When the issues involved in this appeal as well as the appeals relevant to the asst. yrs. 1993-94 and 1996-97 are similar, we reverse the view taken by the Tribunal in those cases also and restore the view taken by the AO and the CIT(A).
All these three appeals stand disposed of accordingly.