TaxTMI 
TaxTMI 
1988 (7) TMI 112
X X X X Extracts X X X X
X X X X Extracts X X X X
.... I Firm. In the course of the search, the Revenue came across a number of slips, loose sheets and note books. They pertained to both No. I Firm and No. II Firm, the latter being the appellant before us. 3. The ITO noticed in the case of No. I firm that as per its books of accounts the firm purported to allow rebate of Rs. 10 per bale when it charged Rs. 35 per bale towards pressing charges. But, this rebate of Rs. 10 was never passed on to the parties and the firm had thus set up a bogus claim of rebate thereby reducing its income. However according to the ITO, the modus operandi had undergone a change in the case of No. II firm the appellant before us. Instead of charging the customers with higher rates, it started to show the cotton pressing charges at Rs. 25 per bale and collected outside its books anything ranging from Rs. 5 to Rs. 7 per bale. He also noticed that in certain cases it charged pressing charges at Rs. 35 up to Aug., 1976 and from about Sept., 1976 the rate has been brought down to Rs. 25. He also felt that this rate of Rs. 25 was charged only in the case of obliging customers-obliging in the sense that the customers would pay the assessee extra monies outside t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d considering the past history of the case, the ITO made an addition of Rs. 2,03,186 as representing monies collected outside the books towards pressing charges. Thus, the additions made towards suppression of receipts is one of the issues common for all these assessment years. There are other issues also but we propose to deal with each one of them independently. 6. The assessee carried the matter in appeal and tried to explain the entries in the diary and also the F-3 note book stating that these notings were made by the accountant on the directions of the managing partner Sri Kollipara Subba Rao to find out the probable loss incurred or likely to be incurred by allowing a rebate or discount at certain estimated rates. The CIT(A) did not accept this explanation and concurred with the view of the ITO that if the explanation were true, the note books would not contain the account balances of the parties concerned which reduced or increased depending upon the incomings or outgoings. On an examination of the F-3 note book, he found that in almost all the cases the number of bales shown in F-3 note book tallied with the number of bales pressed for the customer by the assessee as pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....timated understatement of pressing charges in respect of parties not found in F-3 note book, he found that the ITO had adopted the suppression at Rs. 5 per bale whereas the average suppression worked out to Rs. 3.25 per bale and on that basis he sustained the addition at Rs. 1,38,388 thus granting a relief of Rs. 1,19,655. For the asst. yr. 1979-80, for similar reasons, the CIT(A) confirmed the addition at Rs. 1,47,134 in respect of parties figuring in F-3 note book and sustained the addition at Rs. 61,246 in respect of the parties not found in F-3 note book. Though F-3 note book was not relevant for the asst. yr. 1980-81, considering the entries in another seized document, A-11 and the past history of the case, the CIT(A) estimated the understatement of pressing charges at Rs. 3.25 per bale as adopted in the preceding years and thus sustained the addition at Rs. 1,67,472. 8. Before us, Sri A. Satyanarayana, learned counsel for the assessee, submitted that up to Aug., 1976, the assessee was charging at the rate of Rs. 35 per bale pressed and allowed a rebate of Rs. 10 per bale. From Sept., 1976 onwards, the assessee used to charge only the net rate at Rs. 25 per bale. The noting....
X X X X Extracts X X X X
X X X X Extracts X X X X
....note book which were discussed by the ITO and supported the orders of the authorities below. As for the addition sustained in respect of the bales of parties not figuring in F-3 note book, Sri Radhakrishna Murty submitted that such an addition was called for considering the fact that the assessee was in the habit of collecting extra money. As a matter of fact, though technically No. I firm and No. II firm are different and distinct entities in the eyes of Income-tax law, the brain behind these two firms is Sri Kollipara Subba Rao. In No. I firm, the books purported to show a rebate of Rs. 10 on each bale when Rs. 35 was charged from the customers as pressing charges. Out of this alleged rebate of Rs. 10, actually only a rebate of Rs. 2 to Rs. 3 was allowed and the balance was never intended to be passed on to the customer. Now, in the case of the No. II firm, the pattern only has changed. Instead of withholding the rebate by not passing it on to the customer, the assessee had charged a lower rate per bale towards pressing charges and collected the extra amount outside the books from the obliging customers. There is no reason why when other similar firms were charging at the rate of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ooks. In case of collections outside the books, there are two points that require consideration. One is evidence from the person who is said to have paid the extra amount to the assessee and two, the point of time at which, or at least the year in which, the amount was received. As far as the first point is concerned, it can be said that the Revenue has not brought on record any deposition or any statement from the concerned party regarding alleged payment made by him to the assessee. On the other hand, parties examined by the ITO have denied such payments. Even if such proof was not to be given by the Revenue, it is for the Revenue to establish the point of time of receipt of such payment. This has not been established in a large number of cases except a surmise based on the entry in F-3 note book. In the case of on-money collections, the addition can be sustained only on the basis of the actual receipt of the on-money and it could not be on accrual basis in the absence of complete set of secret accounts such as secret cash book and secret ledger etc. Even if the on-money is to be taxed on accrual basis, evidence has to surface in the form of an agreement between the parties and s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 12/11 paid 2,000 . .. . 3,100" The account of this party in the Ledger of the assessee has a debit balance of Rs. 1,257.50 for the first year and credit balance of Rs. 1,347 each for the next two years and was settled only in the year 1979. The F-3 entry deals with only the first two years and the remark "12/11 paid Rs. 2,000" cannot refer to 1976. On the premise that the assessee will not hold itself liable in its books of accounts while insisting on spot settlement of on-money transaction, we delete the addition and consider the same for the asst. yr. 1980-81. (5) Kalpana Cotton Traders, Guntur: (p. 34 of F 3 r/w LF 172) The entry in the F 3 note book is as under:- "1976 Bales 713 x 7 4991.00 . Credit in a/c 1961.10 . . 3029.90 . Less 1426.00 . . 1603.90 . 19/10/78 Credit 1603.90" The assessee's Ledger shows a credit balance of Rs. 1,961.10 for the first two years and the amount was settled in 1978 by payment of Rs. 1,961.10 This is referred to in F-3 note book also. From the entries in F-3 note book, it would appear that the assessee had given a rebate of Rs. 2 out of Rs. 7 per bale. There is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntry in F-3 note book is as under:- "1976 50 x 7 350.00 1977 751 x 5 3755.00 . . 4105.00 9/11 2000/- . 16/12 1500/- 3500.00 . . 605.00 . A/c due 1145.15 . . 1750.15" The ITO observed as follows:- "I was by mistake written in this page as "Sri Venkataswara" instead of "Shri Venkataramana". This is actually Shri Venkataraman Cotton Traders, Guntur. The Assessee pressed 50 bales of cotton of this party and accounted for at Rs. 25 per bale. Here in the above note book worked out the outside collections at Rs. 7 per bale and drawn an amount of Rs. 1,750,15 as outstanding amount due from this dealer. Thus the assessee collected Rs. 350 from this party outside its books of the year which escaped assessment. Rs. 350" The entry in F-3 note book relates only to Sri Venkateswara Cotton Traders, Gunter (LF 128 for 1976; LF 89 for 1977; LF 81 for 1978; and LF 38 for 1979). The amount remains outstanding. However, from the F-3 note book entry, the assessee seems to have received Rs. 3,500 in the months of November and Dec., (year not noted) which are not found in the regular books of accounts. But then it could not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... all the years under appeal. For the reasons stated in respect of item 1, the addition is deleted. (14) Perumalla Nagayya, Yechuri Venkateswarlu, Gurajala: (p. 93 of F-3 r/w LF 182) The entry in F-3 note book is as under: "1976 150 x 7 1050 1977 1154 x 5 5770 1978 751 x 5 3755 . 2055 10575 A/c debit 18775.00 . Credit 18704.40 . . 71.40 71.40 . . 10646.40" The account of this party in the Ledger shows a debit balance of Rs. 3,772.50 for 1976 and credit balance in the subsequent years. F-3 entries are up to and including 1978. At page 110 of the Ledger for 1978, the total of the debit comes to Rs. 18,775 which is in agreement with the entry in F-3 note book. The credit side total seems to have been taken as on 6th June, 1978 in the F-3 note book. Subsequently, a sum of Rs. 6,000 was received on 26th Dec., 1978 taking the total of the credit to Rs. 24,704.40 leaving a balance of Rs. 5,929.40 in credit in the regular accounts. Therefore, it cannot be concluded that on-money would have been received on the date when the balance was struck in F-3 note book. As the regular account remains in credit for rea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r, since the receipt of cash was in 1978, addition, if at all, can be made only for the asst. yr. 1979-80. The addition for this year is thus deleted. (2) Sri Laxmi Cotton Traders, Dachepalli: (p. 21 of F-3 r/w LF 103) The entry in F-3 note book is as under: "1975 633 21,327.37 1977 1650 18,000.00 . 2283 3,327.37 . 5 . . 11415 . 1977 cash 8000 . . 3415 . 633 x 2 1266 . 1978 800 x 5 4681.00 . 4000.00 . 8681.00 24-8-78 cotton purchased 2409.60 . 6271.40 Phones 4 bales 120.00 . 6391.40 9-10-78 pressed bales 50 250.00 . 664140 Ledger 21-10-78 3327.37 . 9968.77 1978 Cr. Cash 3000.00 . 6968.77 Payment 5000.00 Cheque 2000 . Without cash 3000 . . 1968.77 Dachepalli Phone 31 76.00 . 2044.77" The party's account in the Ledger shows a credit balance of Rs. 105.94 for the calendar year 1976 and a debit balance of Rs. 77.37 for the calendar year 1977. From the F-3 entry, it would appear that the assessee admitted a receipt of Rs. 8,000 in the year 1977 which is releva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2742.50 Expenditure (debit) . 2250.00 Credit balance: . 492.50" The amount of Rs. 2,250 is found in A-3 on 30th April, 1979 (another seized record) but not reflected in the regular books of accounts. At any rate, it does not relate to the asst. yr. 1978-79 and can relate only to the asst. yr. 1980-81. For these reasons, the addition is deleted. (10) Varalakshmi Cotton Mill, Guntur: (p. 40 of F-3r/w LF 180) The entry in F-3 note book is as under: "1977 50 . 1978 450 . . 500 x 5 2500.00 . Ledger due receivable 257.50 . . 2757.50 KSR P athipadu firm- Public . 28.19 . . 2785.69 11th Nov., 1978 Credit without . 2500.00 . . 285.69" The party's account in the Ledger shows a debit balance in the years 1976,1977 and 1978. On 11th Nov., 1978, the assessee seeks to adjust a sum of Rs. 2,500 as "without". Even if it referred to the receipt of on-money, the receipt relates to 1978 and not to 1977. In the examination by the ITO, the party denied having paid the on-money. Therefore, the addition is deleted. (11) Dhanalakshmi Cotton Traders, Dachepalli: (p. 41 of F-3 r/w LF 190) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the asst. yr. 1978-79 wherein we have confirmed an addition of Rs. 8,000. The assessee, whenever it receives cash or cheque, gives sufficient indications. The ITO had made an addition of Rs. 4,250 towards on-money receipt and Rs. 1,250 towards pressing charges for 50 bales pressed outside the books. On 9th Oct., 1978, the assessee pressed 50 bales at the rate of Rs. 25 per bale and debited the account of the party for Rs. 1,250 at page 94 of the Ledger. Therefore, there is no need for making an addition of Rs. 1,250 as being without bills. there is reference in the F-3 note book to a sum of Rs. 3,000 as "without cash" which is not reflected in the Ledger and, therefore, the addition is sustained to the extent of Rs. 3,000. The balance of the additions is deleted. (3) Saptagirisa Cotton Traders, Guntur: (p. 22 of F-3 r/w LF 8) This is the same as item 3 for the asst. yr. 1977-78 and for the reasons stated against this item for 1977-78, the addition is deleted. (4) Veeranjaneya Ginning Mill, Pulladigunda: (p. 24 F-3 r/w LF 82) The entries in the F-3 note book are the same as against item 10 for the asst. yr. 1977-78 considered by us. For the reasons stated therein,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies with the Ledger account balance for 1978. The addition is deleted. (9) Gopalakrishna & Co., Guntur: (p. 63 of F-3 r/w LF 236) "1978 bales 100 x 5 500.00 A/c due 2516.24 . 3016.24 Cr. Cash 500.00 . 2516.24" The party's account in the Ledger of the assessee starts with nil balance for the year 1978. On 24th April, 1978, it showed a balance of Rs. 2,516.24 which was settled on 29th Nov., 1978 bringing the balance in the account to nil. In addition, there is an entry in the F-3 note book towards probable receipt of cash of Rs. 500 under the heading "by cash". Hence the addition of Rs. 500 is confirmed. (10) Perumalla Koteswararao Guntur; (p. 64 of F-3 r/w LF 226) The entry in F-3 note book is as under: "pressed 746 x 5 3730 A/c due . 650 . . 4380 27/10 public . 4400 . excess cr. 20" On 25th Sept., 1978, the account of this party in the Ledger shows a debit balance of Rs. 650 which tallies with the entry in the F-3 note book. Again, on 27th Oct., 1978, the assessee received Rs. 4,400 as per regular accounts, page 56 of the Ledger for 1978, which is carried in the F-3 note book. Moreover, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....being the on-money for 2661 bales at the rate of Rs. 5 per bale. To this it has added the account balance of Rs. 5,579.12 which the assessee received on 13th Nov., 1978 by the cheque No. 142069 dt. 11th Nov., 1979. Thus, what is left is the sum of Rs. 13,305 referred to above. There is no indication that this amount was received. The other entries in the F-3 note book regarding the receipt of Rs. 20,000 are also found in the Ledger. The assessee has worked out the probable on-money on 2661 bales as on 1st Nov., 1978, though subsequent to 1st Nov., 1978, the assessee had also pressed more bales for the party. The ITO took the bales pressed outside the books at 4066 which is not supported by the F-3 entry. Even in respect of 2661 bales which are found in the F-3 note book, in the absence of any indication as to receipt of on-money, the addition cannot be sustained. Hence, the addition of Rs. 20,330 is deleted. (14) Javvaji Jagannadharao, Sattanapalli: (p. 69 of F-3 r/w LF 104 & 277) The entry in the F-3 note book relates to the position in the account of the party in the Ledger as on 27th Oct., 1978 and there is no case for addition. The addition is deleted. (15) Sri Bala....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ore, the addition is deleted. (20) Srinivasa Cotton Traders. Rentachintala: (p. 75 of F-3 r/w LF 299) The entry in F-3 note book is only an exercise in estimate. The credit of Rs. 1,000 found in the F-3 entry is also reflected as a balance in the party's account in the Ledger. Hence, the addition is deleted. (21) Nookala Rama Koteswararao, Guntur: (p. 76 of F-3 r/w LF 303) The entry in F-3 note book is as under:- "1331 x 5 6655 Account due 8775 . 15430 4/11/78 5000 . 10430" As per the F-3 entry, the assessee had received Rs. 5,000 on 4th Nov., 1978. This is reflected in the account of this party in the Ledger. The account debt also tallies with the difference of opening credit balance of Rs. 117. There is no indication of on-money receipt. Hence, the addition is deleted. (22) New Sivakesava Ginning, Rice & Oil Mill, Kandulaparam: (p. 77 of F-3 r/w LF 305) The entry in F-3 is as under: "100 bales x 5 500.00 Account debt 2500.00 . 3000.00 28/10 Cr. Draft on State Bank 2100.00 . 900.00" The entry appears to be an exercise in estimate. The account debt of Rs. 2,500 and also the receipt of Rs. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....18 Purchase of Guddikaya cotton 28154.40 Due 6108.78" As per the F-3 note book, the sum of Rs. 6,108.78 is termed as "(receivable)". In other words, it has not been received. This is also an instance of exercise in estimate. The amount of Rs. 37,063.18 and the deduction of Rs. 10,000 are reflected in the Ledger at page 323. Hence, the addition is deleted. (29) Tadepalli Chenchu Subbarao, Yeluri Venkata Subbaiah & Co.: (p. 84 of F-3 r/w LF 80) The entry in F-3 note book is as under: "1977 upto November debt 719.25 1977 Dec., pressing 100 . 3000.00 . . 15.00 . . 3734.25 . 500 x 30 15000.00 . . 18734.25 . credit 15000.00 . . 3734.25 . . 1868.25 . due 1866.00" The account of this party in the Ledger has a credit balance of Rs. 1,979 for 1978 and 1979. The receipt of Rs. 15,000 found in F-3 note book is also reflected in the Ledger account. It is unreasonable to hold that the assessee would insist on spot settlement of on-money while holding itself liable to the customer for certain sums in the regular books of accounts. There is no indication of receipt of on-money. F....
X X X X Extracts X X X X
X X X X Extracts X X X X
....: "1978 650 x 5 3250 1977 50 250 700 3750 . 7250 26/10/78 Credit 3750 . 3500 . 3500 . 0000" In F-3 note book, the balance against this party is drawn to nil by deducting Rs. 3,500 which is an indication of receipt of on-money. However, the addition was made only in a sum of Rs. 3,250. Hence, it is confirmed. (37) Sri Dhanalakshmi Fertilisers & Cotton Traders, Amaravathi: (p. 97 of F-3 r/w LF 103) The receipt of Rs. 1,021.22 in F-3 note book is reflected in the Ledger on 23rd Sept., 1978. There is no indication of receipt of on-money. The addition is deleted. (38) Krishna Cotton Traders, Dachepalli: (p. 98 of F-3 r/w LF 129) There is no indication of receipt of on-money. The figures represent total credit and total debit in the Ledger account. Reference is also made to item 9 for the asst. yr. 1978-79. The addition is deleted. (39) Varalakshmi Cotton Mill, Guntur: (p. 99 of F-3 r/w LF 130, 131) The balance of Rs. 257.50 in F-3 note book is on 3rd Oct., 1978 as per Ledger. There is no indication of receipt of on-money in F-3 note book. The addition is deleted. (40) M/s Lakshmi Ginning Mills, Kondrupadu: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee paid Rs. 4,750 in cash. All these transactions are found in F-3 note book against this item. There is absolutely no case for making any addition as has been made by the ITO. This is yet another instance to point out that the assessee was only making estimates or indulging in rough calculations of the balance in F-3 note book in a number of cases in the hope of garnering extra money. Hence, the addition is deleted. (47) Sri Tirumala Cotton Traders, Guntur: (p. 49 of F-3 r/w LF 140) The entry in F-3 note book is as under: "1977 312 x 5 1560 1978 50 x 5 250 .. 1810.00 A/c debit 918.52 .. 2728.52 1978 cash 1000.00 . 1728.52" There is a receipt of Rs. 1,000 noted in F-3 note book which is not reflected in the Ledger for 1978 thus representing receipt of on-money. However, the addition was made only in a sum of Rs. 250 and the same is confirmed. (48) Sri Srinivasa Cotton Traders, Ankireddypalem: (p. 50 of F-3 r/w LF 141) The entry in F-3 note book is as under: "1977 150 . 1978 400 . 550 x 5 2750.00 A/c debit 2772.50 . 5522.50 18/8/78 Cr. reduction reg. sale of cotton 1631.00 . ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s are accordingly deleted. 15. Now we deal with the additions made by the CIT(A) by way of enhancement, as follows: Asst. yr. 1977-78 (1) Sri Lakshmi Cotton Traders, Dachepalli: (p. 21 of F-3) the CIT(A) has added a sum of Rs. 3,165 based on the entries in F-3 note book. These entries have already borne our scrutiny at item 2 for the asst. yrs. 1978-79 and 1979-80 and, in view of the same, the addition of Rs. 3,165 is deleted. (2) Sri Jayalakshmi Cotton Ginning Mills, Piduguralla: (p. 23 of F-3) The entry in F-3 note book is as under:- "1976 pressed 1850 bales x 7 12950 Cr. Cash a/c balance 6914 .. 6036 1975 rebate 1300 bales 2600 Privately receivable 3436" We have sufficiently indicated that the test for taxing the on-money is at the point of time of receipt and this is an instance of the assessee hoping to receive a sum of Rs. 3,436. On this basis, the addition of Rs. 12,950 cannot be sustained and, therefore, it is deleted. (3) KMS Brothers, Warangal: (p. 25 of F-3) This item has been discussed by us against item 5 for the asst. yr. 1979-80. The addition of Rs. 2,450 is deleted for the reasons stated thereunder. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is only of the order of Rs. 3,000 and it is confirmed. (8) Sri Lakshmi Padmavathi Traders, Guntur: (p. 48 of F-3) The balance in the account of this party in the Ledger is only a sum of Rs. 2,103.15 which was written off in 1978. There is no indication of receipt of on-money. The addition of Rs. 2,605 is, therefore, deleted. (9) Sri Tirumala Cotton Traders, Guntur: (p. 49 of F-3) This case has been discussed by us against item 47 for the asst. yr. 1979-80. For the reasons stated there, the addition of Rs. 1,560 is deleted. (10) Sri Srinivasa Cotton Traders, Ankireddypalem: (p. 50 of F-3) This has been discussed by us against item 48 for 1979-80. For the reasons stated thereunder, the addition of Rs. 750 is deleted. (11) Srinivasa Cotton Traders, Piduguralla: (p. 51 of F-3) This party figured at item 49 for 1979-80. For the reasons stated thereunder, the addition of Rs. 500 is deleted. (12) Venkateswara Cotton Traders, Atchampeta: (p. 59 of F-3) This party has figured at item 8 for 1979-80. For the reasons stated thereunder, the addition of Rs. 500 is deleted. (13) Srinivasa Cotton Traders, Dachepalli: (p. 65 of F-3) This party h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....kateswarlu, Gurajala: (p. 93 of F-3) This party has figured at item 14 for 1977-78. For the reasons stated thereunder the addition of Rs. 5,770 is deleted. (24) Yeluri Venkata Subbaiah & Co., Piduguralla: (p. 95 of F-3) This party has figured at item 16 for 1977-78. For the reasons stated thereunder the addition of Rs. 4,835 is deleted. (25) Yeluri Venkata Subbaiah & Co., Piduguralla: (p. 96 of F-3) This party has figured at item 35 for 1979-80. For the reasons stated thereunder the addition of Rs. 500 is deleted. (26) Lakshmi Cotton Mill, Guntur/Sri Dhanalakshmi Fertilisers & Cotton Traders Amaravathi: Both these parties have figured for the asst. yr. 1979-80 at items 36 and 37 respectively. It is not known as to in respect of which case the addition has been made by the CIT(A). In any case, for the reason stated against items 36 and 37 referred to above, the addition cannot be sustained. The addition of Rs. 250 is, therefore, deleted. (27) Polisetti Somasundaram, Guntur: (p. 38 and 98 of F-3) This party has figured at item 45 for 1979-80. For the reasons stated thereunder, the addition of Rs. 100 is deleted. (28) Chittiprolu Venkata Subra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....no reason why the names of all such parties did not figure in the F-3 note book. The pencil entries in the diaries or loose sheets to which the learned CIT(A) has referred, can at best indicate only the hope of the assessee to garner extra receipts and unless and until the point of time of receipt of on-money or at least the year of receipt of on-money, or the fact of payment of on-money by the obliging parties, has been brought on record or established by the Revenue, it would be difficult for us to sustain any addition by travelling into the realm of conjectures or surmises. We have already held that the addition towards on-money receipt can be sustained only on receipt basis and not on accrual basis in the absence of agreement between the parties and/or in the absence of complete set of secret books of accounts. The parties examined by the ITO have denied having paid anything outside the books. Looked at from this angle, the case relied on by the learned CIT(A) viz., Rossette Franks (Kings Street) vs. Dick, 36 Tax Cases 100, is of no assistance in the particular facts and circumstances of the case. 20. The CIT(A) has referred to page 51 of F-1 note book, i.e., Krishna Rice an....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., an addition of Rs. 10,000 is sustained on estimate basis and the balance of the addition is deleted. 24. In ground No. 3 for the asst. yr. 1979-80, the assessee objects to the confirmation of an addition of Rs. 25.225 as probable inflation of Muster charge. The CIT(A) in para 7 of his order has confirmed the addition for the reasons elaborately discussed in his order for the asst. yr. 1977-78. On going through the appellate order for the asst. yr. 1977-78, we notice that the CIT(A) had in fact deleted the addition made towards inflation in Muster charges for the asst. yr. 1977-78. In para 9(i) of his order, the CIT(A) has stated as follows: "I have carefully considered the submissions. I agree with the assessee that the ITO was not correct in extending his presumption arrived at on the basis of the papers reflecting transactions for the year 1979, for the earlier years such as 1976, 1977 and 1978. Any presumption in this regard, in my opinion, should be limited to the year in respect of which incriminating documents were found. Unless the ITO have some evidence directly or indirectly indicating that there was inflation of muster charges in the year 1976, the addition on thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....because the accountant was not in a position to throw light on the nature of the entries. The jottings were made at the instance of Sri. K. Subba Rao who has not been examined by the ITO. He is also dead and, therefore, the accountant was unable to throw much light on the entries, but that does not mean that addition is called for. In fact, on a comparison of the year-wise ginning charges, incurred by the assessee, and also the year-wise payment of Pala Muster charges, it would be evident that the payment under this head was only reasonable. The CIT(A) did not consider this aspect of the matter. Hence, the addition should be deleted. Sri Radhakrishna Murty, the learned departmental representative, on the other hand, relied on the orders of the authorities below. He submitted that in the absence of adequate explanation on the part of the assessee or at least on the part of the person who has written the accounts, the addition should be sustained. 28. We have heard rival submissions and perused the materials on record. There is difference between the amount shown in the seized materials and the amount booked in the regular books of accounts in a few cases. From this an adverse inf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i charges were paid by the firm at the close of every day to his people working in the factory (or once in 3 days or 2 days) and the balance would be kept with Sri Subba Rao until he returned and that as and when he returned from his place, the accumulated amount would be received by him for distribution to the mazdoors working in Kollipara Subbrao's factory. When a question was put to him that when Sri K. Subbarao was hospitalised for nearly two years, how it was possible for him to receive the accumulated amount, he had replied that he used to get the amount from Sri. K. Rajeshwara Rao, brother of Sri. K. Subba Rao. He had also described the nature of the job expected of him. Thus, the examination of Sri Abdul Hamid Khan had really established that 25 per cent of the cooli charges would be retained by Sri. K. Subba Rao for payment subsequently when he returned from his place. In fact, the CIT(A) himself had at para 8 of his order for the asst. yr. 1977-78 held that in the face of the statement given by Sri Abdul Hamid Khan that he was receiving Rs. 2 per bale as pressing charges, the addition made for the asst. yr. 1977-78 cannot be sustained. He had also indicated that as the se....