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TMI Blog1995 (7) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 additi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e replied 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 compare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich he declared a gross profit of Rs. 3,27,305 before claiming depreciation, thus giving a g.p. rate of 29.90% as against 18.37% in the immediate preceding year on gross profit of Rs. 6,74,798. Thus, during the year under appeal both the gross profit and the g.p. rate are on the higher side. Over all there is a net loss of Rs. 2,57,490 but that is because of 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 g.p. rate will work out to 73.60% 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged 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 Sept.,1983 GTT 6542 Nov., 1982 GQC 5426 Jan., 1987 These trucks were heavy Tata trucks and consuming diesel. The assessee was using these three trucks on hire to 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 3-11-1988 to March 1989 GOC 7152 15-11-1988 to March 1989 GQC 7190 6-12-1988 to March 1989 GOC 7235 20-12-1988 to March 1989 GQC 7245 26-12-1988 to March 1989 All these Mazda trucks were deployed by the assessee for transportation of milk, etc., of Sumul Dairy. 4. During the year under consideration, the assessee filed return of income declaring a loss of Rs. 2,57,490. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied to these three Tata trucks and calculated the receipt to 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 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 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. 5. The assessee gave reply on 22nd December, 1992 and mentioned that all the six Mazda trucks were purchased in the year under consideration and working for Sumul Dairy. These Mazda trucks are light vehicles and consuming less diesel; while the other trucks are heavy vehicles and old one consumes more diesel. The other plea of the assessee was the routes of Mazda trucks were fixed as they were working for a particular contract with Sumul Dairy; while Tata heavy trucks were meant for general public and going to different places and on different routes. The average output per litre diesel/per kilometre of Tata trucks is quite low than the average of Mazda tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, there was no basis for making the addition of Rs. 12,60,251. Contrary to it, the learned D.R. has placed reliance on the order of the learned Dy. CIT(A) and submitted further that undisputedly, the assessee was not maintaining proper books of account of these three Tata trucks and himself offered before the AO for addition of a lumpsum in his total income. If the AO 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 proposed additions and after considering all the submissions put forward by the assessee, reached at the appropriate conclusion, which requires no interference as the same is based on facts, as ratio of receipts and fuel consumption of those Tata heavy trucks is taken on the ratio of other vehicles of the assessee himself. 9. 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 a right perspective from the very beginning. So far as the assessment order is concerned, the AO did not scrutinise that details of the assessee not scrutinised the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the observation that the matter is restored back to the file of the AO, who shall decide the matter afresh as per observations made above. ORDER UNDER SECTION 255(4) OF THE I.T. ACT, 1961 Per Shri B.L. Chhibber (Accountant Member) --- As we have difference of opinion on the following points, we refer the case to the Hon'ble President as provided under section 255(4) of the I.T. Act, 1961 : (1) Whether, on the facts and circumstances of the case, the learned Dy. CIT (Appeals) is justified in confirming the order of the 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 lumpsum 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 ?" THIRD MEMBER ORDER Per Satyanarayana, VP.--- 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business income, he added Rs. 60,396 (1/3rd of Rs. 1,89,189) out of truck diesel expenses, Rs. 56,397 (1/3rd of Rs. 1,69,191) out of other expenses and Rs. 50,000 on account of receipts. He allowed depreciation as per statement. Aggrieved by the said additions the assessee preferred an appeal before the DC IT (Appeals) (DC for short). 3. in the course of hearing of the appeal, the DC noticed that it was a case of making an enhancement in the assessed income. In that view he issued 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 assessment year 1989-90. It is seen that your Truck Numbers GTT 6542, GQC 7106, GQC 7132, GQC 7190, GQC 7335 GQC 7245 worked for SUMUL DAIRY on hire basis and earned receipts of Rs. 3,60,120 against which total diesel consumption by these trucks was of Rs. 35,202 as is clear from the P L A/c. filed by you. This means that 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 GQC 5426 earned receipts of Rs. 7,24,520 and consumed diesel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was entitled only to the net amount. Copies of the vouchers in respect of such deduction were attached. Subsequently, the assessee filed before the DC another letter dated 30-12-1992. In the said letter it was stated that truck No. GTT 6542 was not a MAZDA truck and that it was a TATA heavy truck. It was also pointed out that the DC in the enhancement notice bad excluded the consumption of diesel in respect of truck No. GTT 6542 which was of Rs. 33,585 and that receipts in respect of the said truck 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 other trucks outside (other than SUMUL work) were shown monthwise in the statement attached. The trucks which actually worked for SUMUL DAIRY (except truck No. GTT 6542) were having loading capacity of about 3 tonnes. As per expert's certificate attached, the specific fuel consumption average of this model is 13 KMs/litre under standard test condition. On the other hand, trucks which ran for outside business were having a loading capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceipts of Rs. 7,24,520 where the multiplier of receipts to diesel comes to only 3.00 whereas the other trucks which did carting of Sumul Dairy yielded receipt to diesel ratio of 10.23. The stops and spend limits involved in carting for Sumul Dairy in the city of Surat imply greater diesel consumption whereas in carting in outer area by other trucks involved more speed and lesser stops thus enabling the trucks operation to economize 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 7.7% 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 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 busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tement given at page 81 of the paper book filed originally shows truckwise receipts from outside business. The total receipts from Sumul were Rs. 4,66,412 as against diesel consumption of Rs. 68,787. The DC 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 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 thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. 10. In reply, the assessee's counsel urged that the observations of the learned AM on the comparable case quoted by the DC 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. 11. 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 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king 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 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 AO for disallowing 1/3rd of diesel expenses and 1/3rd 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. 14. The learned JM opined that the matter had not been processed in a right perspective from the very b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession 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 and is liable to be quashed. The court held that all the mills cannot be said to be similarly circumstanced in all respects. The Hon'ble Kerala High Court in the case of St. Teresa's Oil Mills. v. State of Kerala [1970] 76 ITR 365 also depreciated 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 DC to es ..... X X X X Extracts X X X X X X X X Extracts X X X X
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