TaxTMI 
TaxTMI 
1995 (7) TMI 104
X X X X Extracts X X X X
X X X X Extracts X X X X
....f record of receipts. 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 2-3-1992. The relevant part of that letter reads thus: "On the basis of statement details as per letter 2-3-1992" vide letter dated 5-3-1992 assessee admitted that books of account are not properly kept and all the transactions except with "SUMUL" are not properly recorded. 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:" 3. On appeal, the learned Dy. CIT(A) confirmed the additions made by the Assessing Officer. 4. Shri I.J. Desai, the 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 addit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eplied to the enhancement notice and the assessee's reply has been recorded by the First Appellate Authority in para 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 10 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 deduction on account of milk in P&L A/c. Thus, his income was enhanced by Rs. 11,55,287 + Rs. 1,04,964 = Rs. 12,60,251. 7. Shri I.J. Desai, the 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 worked outside inasmuch as the trucks run for SUMUL DAIRY were Mazda trucks which were light vehicles consuming less diesel as compared wi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cordingly submitted that the application of multiplier of 10 becomes absolutely irrelevant and without any reference to the facts. 8. Regarding the claim of deduction on account of milk in the P&L A/c., the 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 account. In this regard he drew our attention to the xerox copies of vouchers in respect of deductions made by SUMUL DAIRY. The 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 assessment years 1983-84 to 1989-90 (assessment year under appeal) and submitted that the assessee had shown a g.p. rate of 29.90% as against 18.37% in the immediate preceding year. 9. The learned DR strongly relying upon the order of the First Appellate Authority submitted that the enhancement was fully justified. 10. We have considered the rival submissions and perused the facts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ordingly, 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. 12,60,25.1. We accordingly delete the same. 12. In the result, the appeal is allowed in part. Per Shri Phool Singh (Judicial Member) -- I have privilege to go through the order passed by my learned Brother Shri B.L. Chhibber, A.M. 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 reasons for the same are given in the following paragraphs 2. Before giving out the reasons, the grounds of appeal filed by the assessee are as under :--- 1. "The learned Dy. CIT(A), Surat has erred in confirming the order of the learned ACIT, Cir. 1(3), Surat in --- (i) disallowing 1/3rd diesel expenses of Rs. 60,396 (ii) disallowing 1/3rd other expenses of Rs. 56,397 (iii) making lumpsum addition of Rs. 50,000 on account of, alleged gap in receipts. 2. The learned Dy. CIT(A), Surat has erred in enhancing the income by' Rs. 12,60,251 by applying multiplier of 10.23 to diesel consumption." 3. The fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d of as A.O.) observed that books of account produced by the assessee were prepared recently. Accordingly, he recorded the statement of the assessee under section 131 of the I.T.Act, 1961 (hereinafter referred to as the Act) and the assessee admitted that books of account had been prepared only after filing the return and receipt & 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) 1/3 of diesel expenses of Rs. 1,81,189 (ii) 1/3 of other expenses of Rs. 1,69,191 (iii) Rs. 50,000 on account of lack of record of receipts. The assessee was given an opportunity by the Assessing Officer as to why these additions be not made. The assessee submitted a letter dated 2-3-1992 and in that letter the assessee allegedly admitted that books of account are not properly kept and all the transactions except with Sumul are not properly recorded. The assessee requested the AO to make a lump sum addition instead of making the proposed additions. After considering the submissions of the assessee, the AO did not find force in the same and added Rs. 1,66,793 as propose....
X X X X Extracts X X X X
X X X X Extracts X X X X
....planation vide letter dated 30-12-1992 in which the proposed receipts by Dy. CIT(A) on the basis of multiplier of 10 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 old truck and asserted that truck no. GTT 6542 also used for Sumul Dairy for a small period and diesel consumption of Tata truck is 4.5 Kms./per litre as per report of expert; while the consumption average of diesel of Mazda trucks is 13 Kms/per litre. He also mentioned that as per the proposed addition, the net profit would come to 73.60% which will be unbelievable. The assessee also pleaded that the Dy. CIT(A), to point out a single case of such a nature in which 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 appropriate level. 6. The assessee also tried to explain that deduction on account of milk in the profit & 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 the business expenditure. 7. The le....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n his guess-work and he was of the opinion that 1/3rd of diesel expenses and 1/3rd of other expenses should be added back to the total income along with lumpsum amount of Rs. 50,000 on account of receipts. It was expected from 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 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 the expert to conclude as to what will be the average consumption of diesel for each of the vehicle in relation to Kilometres. It has not been done and he simply made the addition. 10. So far as the approach of the Dy.CIT(A) is concerned, he was of the opinion that there is scope of enhancement and for that, he proceeded to make additions after treating the heavy trucks of the assessee on the pattern of newly purchased Mazda trucks of the assessee in respect of 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... learned Asstt. CIT Circle- 1(3), Surat in :--- (i) disallowing 1/3rd diesel expenses of Rs. 60,396; (ii) disallowing 1/3rd other expenses of Rs. 56,397; and (iii) making lump sum addition of Rs. 50,000 on account of alleged gap in receipts? (2) Whether on the facts and circumstances of the case, the learned Dy.CIT (Appeals) is justified in enhancing the income of the assessee by Rs. 12,60,251 by applying multiplier of 10.23 diesel consumption ?" These are the differences of opinion forwarded to me by my learned brothers who heard the appeal originally. 2. The assessee is an individual. According to the Assessing Officer (A.O. for short) who passed the assessment order under section 143(3) of the Income-tax Act, 1961 on 5-3-1992, the assessee is engaged in the business of transportation on hire basis. Return of income was filed on 29-8-1989 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 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ame proportion in which receipts for the trucks exclusively transporting for SUMUL DAIRY are. Therefore, there is a case for estimating the transport receipts in respect of trucks Nos. GTT 7208, GTT 6542 & GQC 5426, by applying 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 claim deduction on account of MILK in the P&L A/c 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 requried to be made. Thus, net enhancement will be Rs. 12,60,25 1. 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 23-12-1992 at 11.30 A.M. situated at Yatimkhana Building, Opp. I & T.V. Sarvajanik High School, Timaliwad, Nanpura, Surat." 4. In response to the said notice of e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 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 its expenses. It was brought to the notice of the DC that as per the enhancement notice issued by the DC, the net profit rate comes to 73.6% and a request was made to the DC 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 addition of Rs. 1,66,793. 5. However, the DC made the enhancement of Rs. 12,60,251 by observing as under :--- "3. In his letter dated 5-3-1992 to the Assessing Officer, the appellant's authorised representative has submitted that the assessee had not maintained proper records and evidence for various expenses including diesel. I have no objection if reasonable estimate is made by applying an appropriate N.P. percentage rate. He requested that the appellant's N.P. be estimated at 3590 of gross carting receipts. 4. I have quoted a comparable case, the fact that appellant's own trucks earned 10.23 times the diesel expendi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omize by diesel and oil consumption. I have considered the above replies and do not find in them the answer to question raised in the enhancement notice. 5. The second point necessitating 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." Aggrieved by the order of the DC, the assessee preferred the appeal before the Tribunal. 6. According to the learned AM, the assessee's counsel urged before the Tribunal that there is no justification for the impugned additions because the assessee had maintained the 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 A.O. But there was no justification for disallowing 1/3rd of diesel expenses and 1/3rd of other expenses when an overall lump sum addition....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on for enhancement on this account. For the reasons discussed by him, the learned AM 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. 7. The learned JM opined that the matter has not been processed in a right perspective from the beginning. The AO did not scrutinise the details of the assessee. He has not given the basis as to how the addition of Rs. 50,000 was arrived at. Learned A.M. observed that it was expected from AO 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 addition to be made. The AO 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 vehicle in relation to kilometres. It has not been done by the AO. He simply made the addition. The DC proceeded to make additions after treating the heavy trucks of the assessee on the pattern of newly purchased Mazda trucks of the assessee in respect of' ratio of receipts and consumption of diesel. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 DC and not by the AO. Then how can the learned JM can observe that it was expected from the AO to find out the multiplier of receipts and consumption of diesel. The learned JM has noted that "the DCIT(A) mentioned that Mazda trucks of the assessee and one Tata truck 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". The learned JM has taken the figures from the DC's order who has taken the figures wrongly. In the assessee's letter dated 30-12-1992 addressed to the DC it was clearly mentioned that total receipts from SUMUL and diesel consumption in respect of the same amounted to Rs. 4,66,402 and Rs. 68,787 respectively. This can be seen from page 80 of the paper book f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erused the file and papers filed before me. The assessee is an individual. He filed the return on 29-8-1989 declaring a loss of Rs. 2,57,490. He has filed a profit and loss account for the year ended 31-3-1989 in support of the loss declared in the return. On going through the books of account, it appeared to the AO 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 27-9-1991. In the said statement under section 131, according to the AO, 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 AO proposed rejection of books of account and certain additions. Vide his letter dated 2-3-1992, the assessee was asked to file his objections, if any. In the said letter dated 2-3-1992, the AO proposed to disallow 1/3rd out of diesel expenses of Rs. 1,81,189 and 1/3rd 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 vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee preferred the appeal before the Tribunal. 13. The learned AM observed in his order that if the enhancement of Rs. 12,60,251 was taken into consideration, the g.p. rate would work out to 73.6% 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 lesser 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and the diesel consumed for SUMUL Dairy work was purchased from Raj Kumar Petroleum and which he got 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 complete record. He further admitted that the expenditure of loading and unloading of SUMUL work was not based in any record. This clearly shows that several expenses have been recorded by him on estimate basis only. The learned AM has taken into consideration the addition made by the AO of Rs. 50,000 and deleted the disallowances of Rs. 60,396 and Rs. 56,397. He held that no basis had been given by the AO for disallowing the same. I agree with him in this regard. 16. The Hon'ble 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 results of tests conducted in other mills was arbitrary an....