Income Tax Appellate Tribunal - Ahmedabad
Rakesh Kumar Jayantilal Gupta vs Assistant Commissioner Of Income-Tax on 28 April, 1995
ORDER
B.L. Chhiber, (Accountant Member)
1. This appeal by the assessee is directed against the order of the learned Deputy Commissioner of Income-tax (Appeals), Surat. Ground No. 1 reads as under :
" The learned Deputy Commissioner of Income-tax (Appeals), Surat, has erred in confirming the order of the learned Assistant Commissioner of Income-tax, Circle 1(3), Surat, in :
(i) disallowing one-third diesel expenses of Rs. 60,396 ;
(ii) disallowing one-third other expenses of Rs. 56,397 ; and
(iii) making lump sum addition of Rs. 50,000 on account of the alleged gap in receipts. "
2. The assessee, an individual, carries on the business of transportation on hire basis. On a perusal of the assessment order it is revealed that the Assessing Officer proposed the following three additions "on the basis of the evidence available with the assessee and other facts" :
(i) one-third of diesel expenses of Rs. 1,81,189 ;
(ii) one-third of other expenses of Rs. 1,69,191 ;
(iii) Rs. 50,000 on account of lack of record of receipts.
3. The learned Assessing Officer further states in his order as under :
" All these proposed additions were brought to the notice of the assessee, vide this office letter dated March 2, 1992. The relevant part of that letter reads thus :
'On the basis of statement of details as per letter dated March 2, 1992', vide letter dated March 5, 1992, the assessee admitted that the books of account are not properly kept and all the transactions except with 'Sumul' are not properly recorded. The assessee further submitted that instead of making the proposed additions, a lump sum addition be made. However, I find the proposed additions absolutely reasonable and logical in view of the lack of proper records. I, therefore, finalise the assessment by making the above proposed additions. The total income is, therefore, computed as below :"
4. On appeal, the learned Deputy Commissioner of Income-tax (Appeals) confirmed the additions made by the Assessing Officer.
5. Shri I.J. Desai, learned counsel for the assessee, submitted that there is no justification for the impugned additions because the assessee had maintained regular books of account and no defects had been pointed out by the authorities below. He further submitted that if at all any addition was called for, that could be an addition of Rs. 50,000 proposed by the Assessing Officer but there was no justification for disallowing one-third of dicsel expenses and one-third of other expenses when an overall lump sum addition of Rs. 50,000 was made by the Assessing Officer. The learned Departmental Representative, on the other hand, relied upon the orders of the authorities below.
6. We have considered the rival submissions. A perusal of the assessment order, relevant portions of which have been reproduced supra, reveals that the Assessing Officer, after examining the books of account, proposed the three additions detailed supra. The assessee agreed to a lump sum addition of Rs. 50,000. However, the Assessing Officer made the other two additions simply stating that "I find the proposed additions absolutely reasonable and logical in view of the lack of proper records". In our opinion, there is no justification for the first two additions when an ad hoc addition of Rs. 50,000 has been made. In any case, no basis has been given by the Assessing Officer for disallowing one-third of diesel expenses and one-third of other expenses. Under the circumstances, we uphold the addition of Rs. 50,000 only and delete the additions of Rs. 60,396 being one-third of diesel expenses and Rs. 56,397 being one-third of other expenses. This ground, accordingly, succeeds in part.
7. Ground No. 2 reads as under :
" The learned Deputy Commissioner of Income-tax (Appeals), Surat, has erred in enhancing the income by Rs. 12,60,251 by applying the multiplier of 10.23 to diesel consumption. "
8. During the course of proceedings before the first appellate authority, the latter noticed that there was a case for making an enhancement in the assessed income. He, accordingly, issued an enhancement notice which has been reproduced by him in his order. In the enhancement notice, it was conveyed to the assessee that the trucks of the assessee which worked for Sumul Dairy on hire basis had consumed less diesel while the other trucks had consumed a higher quantity of diesel ; in other words, the receipts in respect of trucks used for purposes other than the transportation of production of Sumul Dairy were not in the same proportion in which receipts for the trucks exclusively transporting for Sumul Dairy were. Besides, the learned first appellate authority noted that the assessee had claimed deduction on account of milk in the profit and loss account to the extent of Rs. 1,04,964. The assessee replied to the enhancement notice and the assessee's reply has been recorded by the first appellate authority in paragraph 3 of his order. The first appellate authority was not satisfied with the explanation furnished and held that there was a case for estimating the transport receipts in respect of trucks Nos. GTT 7208, GTT 6542 and GQC 5426 (all plied for transporting goods for parties other than Sumul Dairy) by applying a multiplier of ten to the consumption of diesel by these trucks- By applying a multiplier of 10.23 to diesel consumption he enhanced the income by Rs. 11,55,287 and further enhanced it by Rs. 1,04,964 being the deduction on account of milk in the profit and loss account. Thus, his income was enhanced by Rs. 11,55,287 + Rs. 1,04,964 = Rs. 12,60,251.
9. Shri I.J. Desai, learned counsel for the assessee, submitted that there is no justification for the impugned enhancement of income by Rs. 12,60,251. He took us through the reply to the notice of enhancement and submitted that there was a difference between the trucks that worked for Sumul Dairy and those that worked outside inasmuch as the trucks run for Sumul Dairy were Mazda trucks which were light vehicles consuming less diesel as compared with the heavy Tata trucks which consumed more diesel. Also, the Mazda trucks which had worked for Sumul Dairy had worked for a fraction of a period in the year while the heavy Tata trucks had worked for the whole year depending upon the availability of work. He furnished the following details of Mazda trucks which worked for Sumul Dairy :
Truck No. Period for which worked GTT 6542 October, 1988, to March, 1989 GQC 7106 November 3, 1988, to March, 1989 GQC 7152 November 15, 1988, to March, 1989 GQC 7190 December 1, 1988, to March, 1989 GQC 7235 December 20, 1988, to March, 1989 GQC 7245 December 26, 1988, to March 1989
10. In support of the evidence that the Mazda trucks worked for the above periods, he drew our attention to the xerox copies of the purchase vouchers for those trucks annexed with the reply to the first appellate authority. He, accordingly, submitted that the application of the multiplier of ten becomes absolutely irrelevant and without any reference to the facts.
11. Regarding the claim of deduction on account of milk in the profit and loss account, learned counsel for the assessee submitted that as per the contract, Sumul Dairy was entitled to make such deductions and the assessee was entitled to a net amount. In this regard, he drew our attention to the xerox copies of vouchers in respect of the deductions made by Sumul Dairy. Learned counsel further submitted that the assessee had maintained complete accounts and receipts from Sumul Dairy and receipts from trucks which plied for others and no specific defects were pointed out by the Assessing Officer- He further drew our attention to the chart of gross profits (page 1 of the paper book) from the assessment years 1983-84 to 1989-90 (assessment year under appeal) and submitted that the assessee had shown a gross profit rate of 29.90 per cent. as against 18.37 per cent. in the immediately preceding year.
12. The learned Departmental Representative, strongly relying upon the order of the first appellate authority, submitted that the enhancement was fully justified.
13. We have considered the rival submissions and perused the facts on record. We find that the assessee declared gross receipts of Rs. 10,94,640 on which he declared a gross profit of Rs. 3,27,305 before claiming depreciation, thus giving a gross profit rate of 29.90 per cent. as against 18.37 per cent. in the immediately preceding year on the gross profit of Rs. 6,74,798. Thus, during the year under appeal, both the gross profit and the gross profit rate are on the higher side. Overall there is a net loss of Rs. 2,57,490 but that is because of the depreciation claimed on the newly purchased Mazda trucks during the year under appeal. If the enhancement of Rs. 12,60,251 is taken into consideration the gross profit rate will work out to 73.60 per cent. which is not only improbable with reference to the past history of the case but is highly ridiculous. In our view, there cannot be a tailor-made formula like the one applied by the first appellate authority, i.e., working out the receipts by the application of a multiplier to the diesel consumed, more so when the assessee has maintained regular accounts in respect of transportation receipts and the consumption of diesel. Further, the first appellate authority misguided himself by holding that the consumption of diesel for all the trucks should be uniform. Swaraj Mazda trucks which were plied for Sumul Dairy were light weight trucks and, hence, consumed lesser diesel. Further, these trucks were required to ply on specified routes to specified destinations and hence the consumption of diesel was bound to be less than by the heavy weight trucks which were old ones and were used for the work for parties other than Sumul Dairy. We find that the learned first appellate authority has quoted a parallel case in paragraph 4 of his order, i.e., the case of Shri Kantibhai Babubhai Patel. First of all the facts of this case are not very clear, i.e., it is not clear whether that party plied light weight trucks or heavy weight trucks. Further, the multiplier which the first appellate authority has worked out in that case is 8.3 per cent. for the assessment year 1987-88 and 7.7 per cent. for the assessment year 1988-89. Obviously, the facts of the case relied upon by the first appellate authority are distinguishable from the facts of the case of the assessee.
14. As regards the claim of deduction on account of milk in the profit and loss account to the extent of Rs. 1,04,964, we find that Sumul Dairy did make such deductions which are supported from the xerox copies of the vouchers in respect of such deductions. Accordingly, we are of the opinion that there is no justification for enhancement on this account. For the reasons discussed above, we hold that there is no basis whatsoever for the enhancement of income by an amount of Rs. 12,60,251. We, accordingly, delete the same.
15. In the result, the appeal is allowed in part.
Phool Singh, (Judicial Member)
16. I have had the privilege to go through the order passed by my learned brother, Shri B.L. Chhibber, Accountant Member -- and had discussion too with him. I am not able to persuade myself to concur with the conclusion arrived at by my learned brother and the reasons for the same are given in the following paragraphs.
17. Before giving out the reasons, the grounds of appeal filed by the assessee are as under :
" 1. The learned Deputy Commissioner of Income-tax (Appeals), Surat, has erred in confirming the order of the learned Assistant Commissioner of Income-tax, Circle 1(3), Surat, in -
(i) disallowing one-third diesel expenses of Rs. 60,396 ;
(ii) disallowing one-third other expenses of Rs. 56,397 ;
(iii) making lump sum addition of Rs. 50,000 on account of the alleged gap in receipts.
2. The learned Deputy Commissioner of Income-tax (Appeals), Surat, has erred in enhancing the income by Rs. 12,60,251 by applying a multiplier of 10.23 to diesel consumption."
18. The facts under which the assessee came in appeal are that the assessee was engaged in a business of trucks plying on hire. Initially, the assessee was the owner of the following trucks :
Truck No. Date of purchase GTT 7208 September, 1983 GIT 6542 November, 1982 GQC 5426 January, 1987
19. These trucks were heavy Tata trucks and consuming diesel. The assessee was using these three trucks on hire to the general public. However, the assessee purchased more Mazda trucks and used the same in the year under consideration for the period given against each truck.
Truck No. Period for which worked GQC 7106 November 3, 1988, to March, 1989 GQC 7152 November 15, 1988, to March, 1989 GQC 7190 December 6, 1988, to March, 1989 GQC 7235 December 20, 1988, to March, 1989 GQC 7245 December 26, 1988, to March 1989
20. All these Mazda trucks were deployed by the assessee for transportation of milk, etc., of Sumul Dairy.
21. During the year under consideration, the assessee filed a return of income declaring a loss of Rs. 2,57,490. The Assessing Officer observed that the books of account produced by the assessee were prepared recently. Accordingly, he recorded the statement of the assessee under Section 131 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and the assessee admitted that the books of account had been prepared only after filing the return and receipt and expenses had been credited and debited, respectively, on an estimate basis. The Assessing Officer rejected the books of account of the assessee and proposed the following additions :
(i) one-third of diesel expenses of Rs. 1,81,189 ;
(ii) one-third of other expenses of Rs. 1,69,191 ;
(iii) Rs. 50,000 on account of lack of record of receipts.
22. The assessee was given an opportunity by the Assessing Officer as to why these additions be not made. The assessee submitted a letter dated March 2, 1992, and in that letter the assessee allegedly stated that the books of account are not properly kept and all the transactions except with Sumul are not properly recorded. The assessee requested the Assessing Officer to make a lump sum addition instead of making the proposed additions. After considering the submissions of the assessee, the Assessing Officer did not find force in the same and added Rs. 1,66,793 as proposed earlier and computed the income of the assessee by framing the assessment order on March 5, 1992. The assessee filed an appeal which came for disposal before the Deputy Commissioner of Income-tax (Appeals), Surat, who considered the submissions of the assessee, but was of the opinion that it is a case of enhancement of assessed income in the assessment year 1989-90, the year under consideration and, accordingly, he issued an enhancement notice. The Deputy Commissioner of Income-tax (Appeals) mentioned that the Mazda trucks of the assessee and one Tata truck No. GTT 6542 worked for Sumul Dairy on hire basis and earned receipt of Rs. 3,60,120 and consumption of diesel against these receipts was of Rs. 35,202 as apparent from the profit and loss account. This ratio of transport receipts to diesel consumption was 10.23 in respect of the Mazda trucks and one Tata truck, but the remaining trucks Nos. GTT 7208, GTT 6542 and GQC 5426 earned receipts of Rs. 7,24,520 as against diesel consumption of Rs. 2,04,660. He was of the opinion that the receipts of these three trucks were not in the same ratio as the ratio of receipts and diesel consumption of other trucks working for Sumul Dairy. He proposed that the same multiplier of ten be applied to these three Tata trucks and calculated the receipts at Rs. 20,46,600 and after deducting the receipts of Rs. 7,24,520 shown by the assessee out of these three trucks, he proposed an addition of Rs. 13,22,080 in the place of Rs. 1,66,793 shown by the assessee. He also pointed out that the assessee has claimed deduction on account of milk in the profit and loss account to the extent of Rs. 1,04,964 while such deduction is not allowable in the business of the assessee and, accordingly, he proposed to delete that deduction.
23. The assessee gave a reply on December 22, 1992, and mentioned that all the six Mazda trucks were purchased in the year under consideration and were working for Sumul Dairy. These Mazda trucks were light vehicles and consuming less diesel ; while the other trucks were heavy vehicles and old ones consuming more diesel. The other plea of the assessee was that the routes of the Mazda trucks were fixed as they were working for a particular contract with Sumul Dairy, while the heavy Tata trucks were meant for the general public ; going to different places on different routes. The average output per litre diesel per kilometre of Tata trucks is quite lower than the average of Mazda trucks. Again, the assessee submitted additional explanation, vide letter dated December 30, 1992, in which the proposed receipts by the Deputy Commissioner of Income-tax (Appeals) on the basis of the multiplier of ten was not appreciated on the ground that the same is based on pure guess, surmises and conjectures and was unrealistic. He gave out the date of purchase of the old truck and asserted that truck No. GTT 6542 was also used for Sumul Dairy for a small period and the diesel consumption of a Tata truck is 4.5 kms./per litre as per the report of experts, while the consumption average of diesel of Mazda truck is 13 kms./per litre. He also mentioned that as per the proposed addition, the net profit would come to 73.60 per cent. which will be unbelievable. The assessee also pleaded that the Deputy Commissioner of Income-tax (Appeals) pointed out a single case of such a nature in which the multiplier of 10 for heavy Tata truck is adopted. Lastly, he was of the opinion that the addition of Rs. 50,000 alone is sufficient as it will increase the net profit to an appropriate level.
24. The assessee also tried to explain that the deduction on account of milk in the profit and loss account to the extent of Rs. 1,04,964 is based on the terms and conditions agreed with Sumul Dairy, and it cannot be deleted because it was business expenditure.
25. The learned Deputy Commissioner of Income-tax (Appeals) considered both the submissions of the assessee and after quoting a case of Shri Kantibhai Babubhai Patel, Navafalia, Motivad, Taluka Choryasi, District Surat, who is running a business of plying of trucks and giving the ratio of receipts and diesel consumption of 8.3 in the assessment year 1987-88 and 7.7 in the assessment year 1988-89, rejected the plea of the assessee and the other plea of deduction on account of milk was also rejected and accordingly added Rs. 12,60,251 to the total income of the assessee. This appeal of the assessee came against these findings of the Deputy Commissioner of income-tax (Appeals).
26. The contention of learned counsel for the assessee is that, no doubt, the assessee himself offered some addition to the total income but it was not permissible to the Income-tax Officer to reject the books of account in all and to make an addition of Rs. 1,66,793 on account of diesel expenses, other expenses as well as addition of a lump sum amount. He also pleaded that the assessee has come for deletion of these three additions, but the Deputy Commissioner of Income-tax (Appeals), for no valid reasons, not only not deleted those additions but added an unbelievable addition on mere surmises and conjectures, while there was no basis for making the addition of Rs. 12,60,251. Contrary to it, the learned Departmental Representative has placed reliance on the order of the learned Deputy Commissioner of Income-tax (Appeals) and submitted further that undisputedly, the assessee was not maintaining proper books of account in respect of these three Tata trucks and himself offered before the Assessing Officer for addition 6f a lump sum in his total income. If the Assessing Officer has not scrutinised the case of the assessee for arriving at the appropriate addition, the same work was done by the first appellate authority, who gave the assessee all opportunities against the proposed additions and after considering all the submissions put forward by the assessee, reached the appropriate conclusion, which requires no interference as the same is based on facts, as the ratio of receipts to fuel consumption of those Tata heavy trucks is taken on the ratio of the other vehicles of the assessee himself.
27. After going through the rival submissions and the material placed before us, I am of the opinion that this matter has not been processed in the right perspective from the very beginning. So far as the assessment order is concerned, the Assessing Officer did not scrutinise the basis as to how to make the addition. He simply worked on his guess-work and he was of the opinion that one-third of diesel expenses and one-third of other expenses should be added back to the total income, along with the lump sum amount of Rs. 50,000 on account of receipts. It was expected of him to find out the multiplier of receipts and consumption of diesel in respect of all the vehicles of the assessee and then to come to a particular finding regarding the addition to be made. In this connection, he could have taken the case of other assessees having similar business or could have procured the report of an expert to conclude as to what will be the average consumption of diesel for each of the vehicles in relation to kilometres. It has not been done and he simply made the addition.
28. So far as the approach of the Deputy Commissioner of Income-tax (Appeals) is concerned, he was of the opinion that there is scope for enhancement and for that, he proceeded to make the additions after treating the heavy trucks of the assessee on the pattern of the newly purchased Mazda trucks of the assessee in respect of the ratio of receipts and consumption of diesel. He has also given out the example of another assessee, viz., Shri Kantibhai Babubhai Patel, Navafalia, MotiVad Taluka Choryasi, District Surat, but other details were not given as to what type of vehicles are being used by that assessee giving out the ratio of receipts to diesel consumption at 8.3 and 7.7 in the assessment years 1987-88 and 1988-89, respectively. It was expected from him that he should have examined the submissions of the assessee in detail and in case he was relying upon some examples, details thereof should be given in his order. On the basis of this, I am of the opinion that the Deputy Commissioner of Income-tax (Appeals) has also not appreciated the controversy and decided it in an appropriate manner and addition which was a must in this case should have been on as scrutinised matter and not in the manner which has been done by the authorities below.
29. On the basis of the aforesaid discussion, I am not in agreement with the finding of my learned brother that the amount of addition of Rs. 12,60,251 should be deleted ; but the best course, in my opinion, is to restore the matter to the Assessing Officer, who will examine the case of the assessee for the year under consideration de novo, after giving an opportunity of being heard to the assessee. Accordingly, I allow the appeal for statistical purposes with the observation that the matter is restored to the file of the Assessing Officer, who shall decide the matter afresh as per the observations made above.
ORDER OF REFERENCE TO THIRD member B.L. Chhibber, (Accountant Member)
30. As we have a difference of opinion on the following points, we refer the case to the President as provided under Section 255(4) of the Income-tax Act, 1961 :
" (1) Whether, on the facts and circumstances of the case, the learned Deputy Commissioner of Income-tax (Appeals) is justified in confirming the order of the learned Assistant Commission'er of Income-tax, Circle 1(3), Surat, in :-
(i) disallowing one-third diesel expenses of Rs. 60,396 ;
(ii) disallowing one-third other expenses of Rs. 56,397 ; and
(iii) making a lump sum addition of Rs. 50,000 on account of the alleged gap in receipts.
(2) Whether, on the facts and circumstances of the case, the learned Deputy Commissioner of Income-tax (Appeals) is justified in enhancing the income of the assessee by Rs. 12,60,251 by applying multiplier of 10.23 diesel consumption."
ORDER OF THIRD MEMBER A. Satyanarayana, (Vice-President)
31. This appeal came before me as a Third Member to express my opinion on the following questions :--
"(1) Whether, on the facts and circumstances of the case, the learned Deputy Commissioner of Income-tax (Appeals) is justified in confirming the order of the learned Assistant Commissioner of Income-tax, Circle-l(3), Surat, in :-
(i) disallowing one-third diesel expenses of Rs. 60,396 ;
(ii) disallowing one-third other expenses of Rs. 56,397 ; and
(iii) making a lump sum addition of Rs. 50,000 on account of the alleged gap in receipts ?
(2) Whether, on the facts and circumstances of the case, the learned Deputy Commissioner of Income-tax (Appeals) is justified in enhancing the income of the assessee by Rs. 12,60,251 by applying a multiplier of 10.23 diesel consumption ?"
32. These are the differences of opinion forwarded to me by my learned brothers who heard the appeal originally.
33. The assessee is an individual. According to the Assessing Officer, who passed the assessment order under Section 143(3) of the Income-tax Act, 1961, on March 5, 1992, the assessee is engaged in the business of transportation on hire basis. The return of income was filed on August 29, 1989, declaring a loss of Rs. 2,57,490. On going through the books of account, prima facie, it appeared that the books of account had been prepared only recently. When the assessee was confronted with this fact and his statement was recorded under Section 131, he admitted that the books of account had been prepared only after filing the return and that the receipts and the expenses had been credited and debited, respectively, on an estimated basis. Because of these facts, the Assessing Officer rejected the books of account of the assessee. On the basis of evidence available and other facts, the Assessing Officer proposed additions of (i) one-third of diesel expenses of Rs. 1,81,189, (ii) one-third of other expenses of Rs. 1,69,191 and (iii) Rs. 50,000 on account of lack of record of receipts. All these proposed additions were brought to the notice of the assessee, vide the Assessing Officer's letter dated March 2, 1992. Vide letter dated March 5, 1992, the assessee admitted that the books of account were not properly kept and that all the transactions except with "Sumul" were not properly recorded. The assessee further submitted that instead of making the proposed additions, a lump sum addition be made. The Assessing Officer found the proposed additions absolutely reasonable and logical in view of the lack of proper records. He, therefore, finalised the assessment by making the above proposed additions. In the assessment order, he started the computation of business income with the net profit as per the profit and loss account of Rs. 3,44,424. In the business income, he added Rs. 60,396 (one-third of Rs. 1,89,189) out of truck diesel expenses, Rs. 56,397 (one-third of Rs. 1,69,191) out of other expenses and Rs. 50,000 on account of receipts. He allowed depreciation as per the statement. Aggrieved by the said additions, the assessee preferred an appeal before the Deputy Commissioner of Income-tax (Appeals) (the DC for short).
34. In the course of the hearing of the appeal, the Deputy Commissioner noticed that it was a case of making an enhancement in the assessed income. In that view he issued a notice of enhancement and got it served on the assessee. The said notice of enhancement reads as under :
"Subject'. Enhancement of assessed income in respect of your appeal for the assessment year 1989-90.
It is seen that your truck Numbers GTT 6542, GQC 7106, GQC 7132, GQC 7190, GQC 7335 and GQC 7245 worked for Sumul Dairy on hire basis and earned receipts of Rs. 3,60,120 against which the total diesel consumption, by these trucks was of Rs. 35,202 as is clear from the profit and loss account filed by you. This means that the ratio of transport receipts to diesel consumption was 10.23 in respect of these trucks. As against this, the trucks Nos. GTT 7208, GTT 6542 and GQC 5426 earned receipts of Rs. 7,24,520 and consumed diesel worth Rs. 2,04,660. Therefore, the receipts of these trucks are not in the same proportion in which the receipts for the trucks exclusively transporting for Sumul Dairy are. Therefore, there is a case for estimating the transport receipts in respect of the trucks Nos. GTT 7208, GTT 6542 and GQC 5426, by applying the multiplier of 10 to the consumption of diesel by these trucks. On that basis, gross receipts from these trucks works out to Rs. 20,46,600 as against the declared receipts from these trucks at Rs. 7,24,520. Thus, an addition of Rs. 13,22,080 is required to be made to the transport receipt instead of the addition of Rs. 1,66,793 made by the Assessing Officer. Besides this, you have claimed deduction on account of milk in the profit and loss account to the extent of Rs. 1,04,964. No such deduction is allowable on the type of business which you are doing for Sumul Dairy. Therefore, an addition of Rs. 1,04,964 is also required to be made. Thus, the net enhancement will be Rs.12,60,251. You are hereby given an opportunity to show cause why the proposed addition should not be made. For this purpose you may attend my office on December 23, 1992, at 11.30 a.m. situated at Yatimkhana Building, Opp. I & T. V. Sarvajanik High School, Timaliwad, Nanpura, Surat."
35. In response to the said notice of enhancement, the assessee filed two replies dated December 22, 1992, and December 30, 1992. Both these letters were fully reproduced in the order of the Deputy Commissioner. In the letter dated December 22, 1992, the assessee submitted that the trucks that ran for Sumul Dairy were Mazda trucks which were light vehicles consuming less diesel as compared with the Tata trucks. It was also submitted that the Mazda trucks had worked for a fraction of a period in the year while the Tata trucks had worked for the whole year depending upon the availability of work. The details of the Mazda trucks which worked for Sumul Dairy were given. In the said list, truck No. GTT 6542 was mentioned. In support of the evidence that the Mazda trucks worked for a fraction of the year, the assessee enclosed copies of purchase vouchers of those trucks. Accordingly, it was argued that the application of the multiplier of 10 was absolutely irrelevant and without any reference to the facts. Regarding the claim for deduction on account of milk in the profit and loss account to the extent of Rs. 1,04,964 it was submitted that as per the contracts Sumul Dairy was entitled to make such deductions and that the assessee was entitled only to the net amount. Copies of the vouchers in respect of such deduction were attached. Subsequently, the assessee filed before the Deputy Commissioner another letter dated December 30, 1992. In the said letter it was stated that truck No. GTT 6542 was not a Mazda truck and that it was a heavy Tata truck. It was also pointed out that the Deputy Commissioner in the enhancement notice had excluded the consumption of diesel in respect of truck No. GTT 6542 which was of Rs. 33,585 and that the receipts in respect of the said truck were attributable to Sumul work. The figures of total receipts from Sumul and consumption of diesel amounted to Rs. 4,66,412 and Rs. 68,787, respectively. In support of the said contention, the relevant statements were attached. The details of working of the other trucks outside (other than Sumul work) were shown month-wise in the statement attached. The trucks which actually worked for Sumul Dairy (except truck No. GTT 6542) were having a loading capacity of about 3 tonnes. As per the expert's certificate attached, the specific fuel consumption average of this model is 13 kms/ litre under standard test conditions. On the other hand, trucks which ran for outside business were having a loading capacity of about 16 tons and as per the expert's certificate, the average rate of consumption of diesel is 4.5 km/litre and that too when they are new and in standard condition. It was also mentioned that sometimes the trucks had to be run on "no profit no loss basis" in order to meet expenses. It was brought to the notice of the Deputy Commissioner that as per the enhancement notice issued by the Deputy Commissioner, the net profit rate comes to 73.6 per cent. and a request was made to the Deputy Commissioner to give the assessee a comparable case of similar type of business under similar conditions and facts. It was accordingly urged for dropping up of the enhancement proceedings and also for deletion of the addition of Rs. 1,66,793.
However, the Deputy Commissioner made the enhancement of Rs. 12,60,251 by observing as under :
" 3. In his letter dated March 5, 1992, to the Assessing Officer, the appellant's authorised representative has submitted that the assessee has not maintained proper records and evidence for various expenses including diesel. I have no objection if reasonable estimate is made by applying an appropriate net profit percentage rate. He requested that the appellant's net profit be estimated at 35 per cent. of gross carting receipts.
I have quoted a comparable case, the fact that the appellant's own trucks earned 10.23 times the diesel expenditure when they worked for Sumul Dairy. Similarly, Shri Kantibhai Babubhai Patel, Navafalia, Motived, Taluka Choryasi, District Surat, assessed in Ward 2{3), Surat, had declared the following multiples of gross receipts to diesel consumption.
Assessment year Diesel Carting receipts Multiplier ratio of receipts to diesel cost Rs.
Rs.
1987-88 39,291 3,26,201 8.3 1988-89 42,957 3,29,609 7.7 Even in the above case of Shri Kantibhai Babubhai, an addition of Rs. 40,000 was made in each year if what he showed as his wife's income from the alleged hawkers' sales of vegetables are taken into account. As against the above position, the diesel consumption of Rs. 2,04,660 by Trucks No. GTT 7208, GTT 6542 and GQC 5426 yielded receipts of Rs. 7,24,520 where the multiplier of receipts to diesel comes to only 3.00 whereas the other trucks which did carting for Sumul Dairy yielded a receipts to diesel ratio of 10.23. The stops and speed limits involved in carting for Sumul Dairy in the city of Surat imply greater diesel consumption whereas in carting in outer areas by the other trucks involved more speed and lesser stops thus enabling the trucks operating to economize on diesel and oil consumption. I have considered the above replies and do not find in them the answer to the question raised in the enhancement notice.
The second point necessitating the enhancement was deduction on account of milk of Rs. 1,04,964 short delivered by the appellant. What happened to this milk is not clear from the submissions. There is no proof that any spoiled milk bags were returned to the dairy or they were destroyed. In view of all these facts, an enhancement of Rs. 12,60,251 as detailed in the enhancement notice is made over and above the assessed income."
36. Aggrieved by the order of the Deputy Commissioner, the assessee preferred the appeal before the Tribunal.
37. According to the learned Accountant Member, the assessee's counsel urged before the Tribunal that there is no justification for the impugned additions because the assessee had maintained regular books of account and no defects had been pointed out by the authorities below. He further submitted that if at all any addition was called for that could be an addition of Rs. 50,000 proposed by the Assessing Officer. But there was no justification for disallowing one-third of diesel expenses and one-third of other expenses when an overall lump sum addition of Rs. 50,000 was made by the Assessing Officer. The learned Accountant Member observed that the assessee agreed to a lump sum addition of Rs. 50,000 but, however, the Assessing Officer made the other two additions. The learned Accountant Member held that there is no justification for the other two additions when an ad hoc addition of Rs. 50,000 has been made and that in any case no basis has been given by the Assessing Officer for disallowing one-third of diesel expenses and one-third of other expenses. In that view he upheld the addition of Rs. 50,000 only and deleted the other additions of Rs. 60,396 and Rs. 56,397. The learned Accountant Member observed that the assessee declared gross receipts of Rs. 10,94,640 on which he declared a gross profit of Rs. 3,27,305 before claiming depreciation thus giving a gross profit rate of 29.90 per cent. as against 18.37 per cent. in the immediately preceding year on gross profit (?) of Rs. 6,74,798. He further observed that thus, during the year under appeal, both the gross profit and gross profit rate were on the higher side. Because of the depreciation claimed on the newly purchased Mazda trucks during the year under appeal, there was a net loss of Rs. 2,57,490. If the enhancement of Rs. 12,60,251 was taken into consideration, the gross profit rate will work out to 73.60 per cent. which is not only improbable with reference to the past history of the case but is highly ridiculous. There cannot be a tailor made formula like-the one applied by the first appellate authority, i.e., working out the receipts by the application of a multiplier to the diesel consumed, more so when the assessee has maintained regular accounts in respect of the transportation receipts and the consumption of diesel. He further observed that the facts in the comparable case quoted by the first appellate authority, viz., Kantibhai Babubhai Patel, were not very clear, i.e., whether he plied light weight trucks or heavy weight trucks. The learned Accountant Member also observed that the multiplier which the first appellate authority worked out in that case was 8.3 per cent. for the assessment year 1987-88 and 7.7 per cent. for the assessment year 1988-89 and obviously the facts in that comparable case were distinguishable from the facts in the case of the assessee. Regarding the claim for deduction on account of milk in the profit and loss account of Rs. 1,04,964, he pointed out that Sumul Dairy did make such deductions which were supported from the copies of the vouchers. In that view of the matter, he held that there was no justification for the enhancement on this account. For the reasons discussed by him, the learned Accountant Member held that there was no basis whatsoever for the enhancement of income by an amount of Rs. 12,60,251. Accordingly, he deleted the same.
38. The learned Judicial Member opined that the matter has not been processed in the right perspective from the beginning. The Assessing Officer did not scrutinise the details furnished by the assessee. He has not given the basis as to how the addition of Rs. 50,000 was arrived at. The learned Judicial Member observed that it was expected from the Assessing Officer to find out the multiplier of receipts and consumption of diesel in respect of all the vehicles of the assessee and then come to a particular finding regarding the addition to be made. The Assessing Officer could have taken the case of other assessees having similar business or could have procured the report of an expert to conclude as to what will be the average consumption of diesel for each of the vehicles in relation to kilometres. It has not been done by the Assessing Officer. He simply made the addition. The Deputy Commissioner proceeded to make additions after treating the heavy trucks of the assessee on the pattern of the newly purchased Mazda trucks of the assessee in respect of the ratio of receipts and consumption of diesel. He has given the example of Shri Kantibhai Babubhai Patel. The other details were not given by him as to what type of vehicles were being used by that assessee. It was expected from him that he should have examined the submissions of the assessee in detail. In case he was relying on some examples, details thereof should have been given in his appellate order. Accordingly, the learned Judicial Member opined that the Deputy Commissioner had not appreciated the controversy and decided it in an inappropriate manner. In that view of the matter, he concluded that the best course was to restore the matter to the Assessing Officer to examine the case of the assessee for the year under appeal de novo. Thus, he restored the matter to the file of the Assessing Officer and directed him to decide the matter afresh as per his observations.
39. Before me, the assessee's counsel urged to the following effect : In para 7 of his order, the learned Accountant Member has taken the truck No. GIT 6542 as a Mazda truck. In fact, it is not so. It is a heavy truck of Tata as mentioned in the letter dated December 30, 1992, addressed to the Deputy Commissioner given at pages 20 to 25 of the paper book filed before the Tribunal originally. Page 80 of the said paper book shows the tabular statement prepared from the assessee's books of account maintained regularly. The said statement shows truck-wise receipts from Sumul Dairy. In the said statement, GTT 6542 was shown and its receipts were shown at Rs. 96,292 as against diesel consumption of Rs. 33,585. It is not correct on the part of the Assessing Officer to state that the assessee admitted that the receipts and expenses had been credited and debited respectively, on an estimated basis. In the letter dated March 5, 1992, addressed to the Assessing Officer, it has been clarified that "all the transactions except Sumul are not properly recorded." The assessee has emphasised that the transactions with Sumul were properly recorded. His submission was that outside transactions, i.e., except that of Sumul were not properly recorded. The statement given at page 81 of the paper book filed originally shows truck-wise receipts from outside business. The total receipts from Sumul were Rs. 4,66,412 as against diesel consumption of Rs. 68,787. The Deputy Commissioner has taken out the figures of receipts and diesel consumption in respect of truck No. GTT 6542 from page 80. He added the said figures to the figures given in page 81 (in respect of outside business), and arrived at the receipts at Rs. 7,24,520 as against diesel consumption of Rs. 2,04,660. Thus, he has taken the figures wrongly in respect of the trucks used for other business. In other words, he has included Sumul receipts in respect of truck No. GTT 6542 in the receipts of trucks plied for other business. The principle of ratio between the gross receipts and diesel consumption was first mooted by the Deputy Commissioner and not by the Assessing Officer. Then how can the learned Judicial Member observe that it was expected from the Assessing Officer to find out the multiplier of receipts and consumption of diesel ? The learned Judicial Member has noted that "the Deputy Commissioner of Income-tax (Appeals) mentioned that the Mazda trucks of the assessee and one Tata truck GTT 6542 worked for Sumul Dairy on hire basis and earned receipt of Rs. 3,60,120 and consumption of diesel against these receipts was of Rs. 35,202 as apparent from the profit and loss account."
40. The learned Judicial Member has taken the figures from the Deputy Commissioner's order who has taken the figures wrongly. In the assessee's letter dated December 30, 1992, addressed to the Deputy Commissioner it was clearly mentioned that the total receipts from Sumul and diesel consumption in respect of the same amounted to Rs. 4,66,412 and Rs. 68,787, respectively. This can be seen from page 80 of the paper book filed originally. The learned Judicial Member observed that the Deputy Commissioner considered the submissions of the assessee. The Deputy Commissioner did not consider anything out of the submissions made before him in detail in letters dated December 22, 1992 and December 30, 1992 given in the paper book filed originally. In the circumstances, the order of the learned Accountant Member should be upheld.
41. The arguments of the Departmental Representative were to the following effect : The learned Judicial Member rightly stated that the authorities below have not properly scrutinised the case. In Gujarat State, the fixation of income by the Income-tax Department based on a multiplier over the diesel consumption in the running of the trucks was in vogue. Primary facts did not emerge at the assessment stage before the Assessing Officer. Even before the Deputy Commissioner, all the facts did not emerge. Even the Deputy Commissioner has bungled the figures in respect of the receipts from Sumul Dairy and the diesel consumption in respect of the same. Then the only course open to the Tribunal is to send the matter back to the Assessing Officer. The learned Accountant Member commented, in respect of the comparable case quoted by the Deputy Commissioner, viz., Kantibhai Babubhai Patel, that the facts of the said case were not very clear. He meant that it was not clear whether the said party plied light weight trucks or heavy weight trucks. Yet the learned Accountant Member commented that the facts in that assessee's case were distinguishable from the facts of the assessee's case. On the one hand, the learned Accountant Member says that the facts in the case of Kantibhai Babubhai Patel are not clear and on the other hand, the learned Accountant Member says that the facts in that case are distinguishable. How can this be ? There is no material before the learned Accountant Member to give a blanket relief. Whether figures mentioned in the statements filed in the paper book are estimated figures or actual figures is not known. No prejudice is going to be caused to the assessee if the matter goes back to the Assessing Officer for his fresh consideration after obtaining the correct facts from the assessee.
42. In reply, the assessee's counsel urged that the observations of the learned Accountant Member on the comparable case quoted by the Deputy Commissioner are irrelevant as the said comparable case was not put to the assessee. Even if the books of account were prepared later to the close of the accounting year, there is no wrong if they are based on evidence existing before the accounting year ended.
43. I have considered the rival submissions and perused the file and papers filed before me. The assessee is an individual. He filed the return on August 29, 1989, declaring a loss of Rs. 2,57,490. He has filed a profit and loss account for the year ended March 31, 1989, in support of the loss declared in the return. On going through the books of account, it appeared to the Assessing Officer, prima facie, that the said books of account had been prepared only recently. The assessee was confronted with this fact and his statement was recorded under Section 131 on September 27, 1991. In the said statement under Section 131, according to the Assessing Officer, the assessee admitted that the books of account had been prepared only after filing the return and that the receipts and expenses had been credited and debited, respectively, on an estimated basis. The Assessing Officer proposed rejection of the books of account and certain additions. Vide his letter dated March 2, 1992, the assessee was asked to file his objections, if any. In the said letter dated March 2, 1992, the Assessing Officer proposed to disallow one-third out of diesel expenses of Rs. 1,81,189 and one-third of other expenses of Rs. 1,69,191. He also proposed to add Rs. 50,000 on the ground that the assessee's receipts were understated. The assessee filed his objections, vide his letter dated March 5, 1992. According to the Assessing Officer, the assessee admitted that the books of account were not properly kept and all the transactions except with "Sumul" were not properly recorded and the assessee further submitted that instead of making the proposed additions, a lump sum addition be made. The Assessing Officer passed the assessment order under Section 143(3) on March 5, 1992. In the said assessment order, he observed that the proposed additions were absolutely reasonable and logical in view of the lack of proper records. He, therefore, finalised the assessment and made the following additions in the business income of the assessee :
(a) Out of truck diesel expenses (being one-third of Rs. 1,81,189) 60,396
(b) Out of other expenses (being one-third of Rs. 1,69,191) 56,397
(c) On account of receipts 50,000 1,66,793
44. Aggrieved by the same, the assessee preferred an appeal before the Deputy Commissioner.
45. The Deputy Commissioner felt that an enhancement in the income assessed was necessary. Accordingly, he issued notice of enhancement which was reproduced in his appellate order. The assessee filed his objections, vide letters dated December 22, 1992 and December 30, 1992. However, the Deputy Commissioner enhanced the assessed income by Rs. 12,60,251 and sustained the addition of Rs. 50,000 and disallowances made by the Assessing Officer. Dissatisfied with the order of the Deputy Commissioner, the assessee preferred the appeal before the Tribunal.
46. The learned Accountant Member observed in his order that if the enhancement of Rs. 12,60,251 was taken into consideration, the gross profit rate would work out to 73.6 per cent. which is not only improbable with reference to the past history of the case but is highly ridiculous. He also observed that there cannot be a tailor-made formula like the one applied by the first appellate authority, i.e., working out the receipts by the application of a multiplier to the diesel consumed, more so when the assessee has maintained regular accounts in respect of transportation receipts and the consumption of diesel and that the first appellate authority misguided himself treating that the consumption of diesel for all the trucks should be uniform, as Swaraj Mazda trucks were plied for Sumul Dairy and they were light weight trucks and hence consumed less diesel. He further observed that heavy weight trucks were used for parties other than Sumul Dairy and that they were old ones. In that view he held that there was no basis whatsoever for the enhancement of income by Rs. 12,60,251 and deleted the same. He further held that there was no justification for disallowances of Rs. 60,396 and Rs. 56,397 when an ad hoc addition of Rs. 50,000 has been made. He also held that in any case, no basis was given by the Assessing Officer for disallowing one-third of diesel expenses and one-third of other expenses. In that view he sustained the addition of Rs. 50,000 but deleted the disallowances of Rs. 60,396 and Rs. 56,397.
47. The learned Judicial Member opined that the matter had not been processed in the right perspective from the very beginning, that as far as the assessment order was concerned, the Assessing Officer did not scrutinise the details of the assessee and did not scrutinise the basis as to how to make the addition and that he simply worked on his guess work. He further observed that it was expected from the Assessing Officer to find out a multiplier of receipts and consumption of diesel in respect of all the vehicles of the assessee and then come to a particular finding regarding the addition to be made and that he could have taken the case of the other assessees having similar business or should have procured the report of an expert to conclude as to what will be the average consumption of diesel for each of the vehicles in relation to kilometres. He observed that this has not been done by the Assessing Officer and that the Assessing Officer simply made the addition. The learned Judicial Member also observed that it was expected from the Deputy Commissioner that he should have examined the submissions of the assessee in detail and that the Deputy Commissioner should have given the details of the comparable case in his appellate order. He concluded that the Deputy Commissioner also had not appreciated the controversy and decided it in an inappropriate manner. The learned Judicial Member further commented that an addition was a must in the assessee's case, that it should have been in a scrutinised manner and not in the manner which has been done by the lower authorities. In that view of the matter, he allowed the appeal and restored the matter to the Assessing Officer for his consideration de novo.
48. I have considered the rival submissions and perused the file and papers filed before me. In the sworn statement recorded under Section 131 on September 27, 1991, the assessee has admitted that the whole cash book and ledger were written after filing the return (please see answer to question No. 8 in the said statement). Before me, the assessee's counsel has given the original statement in Gujarati and its free translation in English. In answer to question No. 10, the assessee replied that the receipt from Sumul Dairy were by cheques and the diesel consumed for Sumul Dairy work was purchased from Raj Kumar Petroleum for which he had the complete record. He admitted that for other work, he did not have any record in respect of the receipts or the diesel consumption. He also admitted that the expenditure on other heads, viz., allowances, hamali, oil, repairs, etc., were not based on any record. In respect of expenditure like bank interest, stamp duty, profession tax, he had a complete record. He further admitted that the expenditure of loading and unloading of Sumul work was not based on any record. This clearly shows that several expenses have been recorded by him on estimate basis only. The learned Accountant Member has taken into consideration the addition made by the Assessing Officer of Rs. 50,000 and deleted the disallowances of Rs. 60,393 and Rs. 56,397. He held that no basis had been given by the Assessing Officer for disallowing the same. I agree with him in this regard.
49. The Andhra Pradesh High Court in the case of N. Raja Pullaiah v. DCTO [1969] 73 ITR 224 held that the flat rate of assessment in the case of groundnut oil mills on the basis of consumption of electricity and the result of tests conducted in other mills was arbitrary and is liable to be quashed. The court held that all the mills cannot be said to be similarly circumstanced in all respects. The Kerala High Court in the case of St. Teresa's Oil Mills v. State of Kerala [1970] 76 ITR 365 also deprecated the said practice of rejecting the books of account on the basis of disparity of consumption of electricity. In the light of these two judgments, I hold that the view of the Deputy Commissioner to estimate the income of the present assessee before us to determine the net income from the business of plying of trucks on the basis of consumption of diesel is not justified. Accordingly, I am unable to agree with the view of the learned Judicial Member in this regard. I am unable to agree with the observations of the learned Judicial Member that it was expected from the Assessing Officer to find out the multiplier of receipts and consumption of diesel in respect of all the vehicles of the assessee and that he should have taken the case of the other assessees having similar business and then come to a particular finding regarding the addition to be made.
50. In view of my above discussion, I hold that the Deputy Commissioner was not justified in disallowing Rs. 60,396 and Rs. 56,397. I hold that the Deputy Commissioner is justified in confirming the addition of Rs. 50,000. I further hold that the Deputy Commissioner is not justified in enhancing the income by Rs. 12,60,251 by applying a multiplier of 10.23 diesel consumption.
51. The matter will now go before the regular Bench for decision according to majority opinion.
ORDER B.L. Chhibber, (Accountant Member)
52. The learned Vice-President sitting as Third Member by his opinion dated April 28, 1995, has concurred with the view of the Accountant Member and in accordance with the majority view it is held as under :
(a) The Deputy Commissioner of Income-tax (Appeals) is not justified in disallowing Rs. 60,396 and Rs. 56,397.
(b) The Deputy Commissioner of Income-tax (Appeals) is justified in confirming the addition of Rs. 50,000.
(c) The Deputy Commissioner of Income-tax (Appeals) is not justified in enhancing the income by Rs. 12,60,251 by applying a multiplier of 10.23 diesel consumption.
53. In the result, the appeal is allowed in part.