These two cross-appeals one by the assessee and other by the department, are directed against the order of the learned Commissioner (Appeals), Nasik, dated 7-4-1995, relating to assessment year 1991-92.
"The addition of Rs. 50,000 confirmed by the Commissioner (Appeals), Nasik, on account of the mistakes in the maintenance of the Supply Act, stock register should be deleted fully as there are no mistakes in the, ledger accounts maintained by the appellant. " In ITA No. 696/Pn/1995, the department has raised the following grounds : "1. On the facts and in the circumstances of the case, the Commissioner (Appeals) erred in deleting the addition of Rs. 5,50,177 made by the assessing officer on account of closing stock difference.
2. On the facts and in the circumstances of the case, Commissioner (Appeals) erred in deleting the addition of Rs. 51,013 made by the assessing officer on account of estimated unrecorded purchases/sales.
3. On the facts and in the circumstances of the case, Commissioner (Appeals) erred in deleting the addition made by the assessing officer on account of capital investment of Rs. 45,000.
4. On the facts and in the circumstances of the case, Commissioner (Appeals) is not justified in ignoring specific discrepancies detected by the assessing officer and ultimately in the statement on oath recorded by the assessing officer the partner confessed the same assuring that difference in closing stock will be reconciled but the assessee failed to do so.
5. On the facts and in the circumstances of the case, the Commissioner (Appeals) is not justified on one side upholding the assessing officer's action of invoking provisions of section 145(2) for the reason that the assessee has not been able to bring on record or produce before him in the course of appellate proceedings any positive or conclusive evidence and simultaneously restricting addition of Rs. 50,000 only and thereby granting substantial relief out of the additions made by the assessing officer on account of closing stock difference unrecorded purchases/sales and capital investment.
6. On the facts and in the circumstances of the case, Commissioner (Appeals) further erred in deleting the addition of Rs. 2,35,032 made by the assessing officer on account of GP on regular turnover.
7. On the facts and in the circumstances of the case, Commissioner (Appeals) was not justified in deleting the addition of Rs. 40,000 made on account of household expenses.
8. The order of the Commissioner (Appeals) may be vacated and that of the assessing officer be restored".
We will first dispose of ground No. 1 of assessee's appeal and ground Nos. 1 to 5 of departmental appeal. The assessing officer made an addition of As. 5,50,117 on account of closing stock difference and addition of Rs. 51,013 on account of estimated unrecorded purchases/sales. Similarly, he made addition of Rs. 45,000 on account of estimated capital investments in the estimated unrecorded transactions. The assessee-firm filed its return of income on 25-10-1991 declaring total income at Rs. 1,22,040. The method of accounting employed by the assessee is mixed system. The main business of the assessee was sale and purchase of various commodities, viz., Rice, Moth Dal, Udat Dal, ChavIi Dal, Tuwar Dal, Chana Dal, Oil, etc.
As regards the stock difference, the assessing officer observed that originally he had found difference at Rs. 94,950 on the basis of prima facie observations of the figures of stock of various items as shown in the audit report and that as shown in the stock register maintained for the purpose of supply department. The assessing officer required the assessee to explain the above difference. The assessee, vide its letter dated 16-3-1994 submitted that the quantity disclosed in the books of account and auditors' report are true and correct to the best of its knowledge. It was also stated that the quantity detail of various material compared to stock register were also correct. It was specifically stated that the stock register was maintained in order to comply with the directions of the Tahsildar, Dhule. The purchases and sales were shown properly and correct. No suppression was made. The assessing officer further required the assessee to furnish item-wise position of the stock for and from the period 20-12-1990 to 31-3-1991 for which said stock register was maintained. In response to the said query, the assessee produced cash book, Jama-nond, ledger before the assessing officer. The assessing officer, after verification of the stock register, maintained for the purpose of civil supply department worked out the difference at Rs. 5,50,117 and asked the assessee as to why said difference may not be added to its total income. The assessing officer has also mentioned summary of closing stock position as on 31-3-1991, which reads as under : The assessee, vide its letter dated 31-3-1994 objected to above proposed addition on the Rs. 5,50,117 stating that there was no justification in making the addition on the basis of so called discrepancies in the supply register and audit report. It was specifically stated that earlier the assessing officer had mentioned the difference in closing stock as per the supply stock register at Rs. 94,950 and now the assessing officer worked out the difference at Rs. 5,50,117. Accordingly, it was submitted that the alleged discrepancies are changing from time to time, day by day. It was also contended that these figures have been arrived at on the 29th and 30th March, that too after impounding the books of account on 25-3-1994. It was also submitted that the assessing officer has not afforded opportunity of being heard to the assessee. It was claimed that the stock register was maintained only for the sake of its maintenance being compulsory under the Essential Commodities Act. It was also brought to the notice of the assessing officer by the assessee that there were chances of mistake in respect of inward and outward commodity due to the fact that the said register was maintained only in respect of 12 commodities while there were 38 commodities dealt in by the firm. The assessing officer rejected the above contentions of the assessee also stating that there was no force in the assessee's submission that there was a variation in the differences pointed out by him from time to time, because it had been already pointed out that the said verification was carried out at the instance of the assessee to find out the correct figure and as such, the assessee's contention on this point is not acceptable. He also rejected the claim of the assessee that no proper opportunity was given to it. The assessing officer also observed that the assessee had not maintained the said stock register seriously, though it was an essential compliance under the Essential Commodity Act. He further observed that there was no force in this contention of the assessee that the said register was not treated as the record of purchases, and sales effected by the firm. According to the assessing officer, the said register was the contemporary record showing the transactions of purchases and sales and the position of opening and closing stock of each day as per statutory implications under the Essential Commodities Act. The assessing officer opined that the assessee could not explain the above said differences of closing stock with any concrete evidence.
Accordingly, he concluded that there was an excess stock of Rs. 5,50,117 which was not accounted for by the assessee in the regular books of account and, therefore, the same was added to the total income of the assessee as income from undisclosed sources.
Ad regards the addition of Rs. 51,013 on account of estimated unrecorded purchases and sales, the assessing officer observed that the difference was found in the figures of purchases as well as recorded in the regular cash book, ledger and Jama-nond and that as recorded in the stock register maintained for the supply department purpose in respect of period from 20-12-1990 to 31-3-1991. He therefore estimated the said sales on pro rata basis. The working is given in Annex. 1 to the assessment order. As per Annex. 1, the assessing officer worked out unrecorded turnover at Rs. 20,40,521 and applying GP rate of 2.5 per cent, the assessing officer worked out the income at Rs. 51,013.
As regards the addition of Rs. 45,000 on account of estimated capital investment in the estimated unrecorded transactions, the assessing officer observed that value of unrecorded purchases/sales has been determined at Rs. 20,40,521 vide Annex. 1. He further observed that no businessman would make a turnover for earning profit without the help of capital investment. Therefore, it is essential to invest certain capital share not shown by the assessee in its regular books of account and balance sheet. He also pointed out that transactions of purchases and sales as recorded in the stock register do not also appear in the regular books of account. In these circumstances, the assessing officer estimated capital investment of the assessee at Rs. 45,000 as per working given in Annex. 1 part II to the assessment order. The assessing officer treated the amount of Rs. 45,000 as income from undisclosed sources and was added to the total income of the assessee.
Aggrieved by the above additions, the assessee carried the matter in appeal before the Commissioner (Appeals). Before him, the assessee reiterated the submissions made before the assessing officer. Further, it was submitted by the assessee that the assessing officer had taken a wrong view that excess quantities in respect of various iterris as per the entries appearing in the closing stock, when compared with the entries of the same items in the books of account represented the business of the assessee carried on outside the books of account. It was admitted by the assessee that the closing stock as on 31-3-1991, as disclosed by the trading account written in the ledger account on the one hand and the closing stock shown in the Supply Act register did not tally with each other. The assessee also filed a chart before the Commissioner (Appeals) which shows the following picture : In view of the above chart, it was submitted that the difference in stock was only to the extent of Rs. 18,383. It was specifically stated that the assessing officer, while arriving at the difference of Rs. 5,50,117 had committed a mistake and worked out the actual closing stock as on 31-3-1991. It was stated that the assessing officer has only taken into consideration those items in which there was excess stock of commodities as per supply stock register. At the same time, the assessing officer has not taken into consideration those items of stock as per the books which were more than the corresponding stock shown in the supply register. It was vehemently argued that the stock register did not reflect the true position of the actual excess stock.
Therefore, the assessing officer was not justified in making the addition of Rs. 5,50,117 on this account.
As regards the additions of Rs. 50,013 and Rs. 45,000, it was contended by the assessee before the Commissioner (Appeals) that both these additions were made by the assessing officer on the basis of assuptions and presumptions. There was no evidence on record to justify both these additions. The assessing officer has not correctly appreciated the facts of the present case. The view taken by the assessing officer that each inward and outward entry in the Supply Act register represented purchase and sale was not a correct view. It was explained that there were various mistakes in the recording of entries in the register due to fact that the assessee was dealing in 38 commodities and out of these 38 commodities, the Supply Act register was required to be maintained only in respect of 12 commodities. It was stated that the total turnover of the assessee was about 1.89 crores and, therefore, these small mistakes should always be ignored. Furthermore, the assessee has to depend on the accountant, who was likely to commit such mistakes inadvertently also. It was also explained that in the rice account of Supply Act register, there was an entry of 999 bags made on 28-3-1991. However, the said entry was in fact a mistake on the part of the accountant to presume the inward of 999 bags on the basis of the bill for the commission on the total purchases of 999 bags made through the commission agent Shri Hari Siddhi Brokers of Ahmedabad. However, it was stated that the purchases and the inward of these 999 bags were actually recorded on earlier dates from time to time. The aforesaid wrong entry of 999 bags was discovered only after the verification of the vouchers and purchase bills for the year 1990-91 and also for the year 1991-92. It was stated that the above entry was made in the course of business on 17-4-1991 and the books of account for the period 1-4-1991 to 12-12-1991, which were impounded on 12-12-1991 in the action under section 133A, reflected this entry. The assessing officer was not justified in rejecting the above explanation of the assessee.
It was also stated that no business outside books of account was conducted by the assessee and there was no unrecorded purchases and sales as estimated by the assessing officer. It was also contended that in this line of business, credit supply is allowed by suppliers for one month in which period the goods are sold on cash terms by the assessee and the payment is made to the supplier out of that sale amount.
Further, the assessee-firm was having enough liquid funds from 20-12-1990 to 31-3-1991 as the cash balance was never below Rs. 1,00,000. In view of the above, it was submitted that the assessing officer was not justified in making the addition on account of estimated GP and estimated capital investment in the unrecorded business.
The learned Commissioner (Appeals) has discussed these issues vide paras 9 to 17 of the impugned order. For the detailed reasons given therein, the learned Commissioner (Appeals) estimated the addition at Rs. 50,000 as against three additions of Rs. 5,50,117, Rs. 51,013 and Rs. 45,000. In other words, the Commissioner (Appeals) allowed a relief of Rs. 5,96,130.
Now, the department is in appeal against the relief of Rs. 5,96,130 given by the Commissioner (Appeals) in respect of the three additions of Rs. 5,50,117, Rs. 51,013 and Rs. 45,000 made by the assessing officer. At the same time, the assessee is also in appeal against the addition of Rs. 50,000 sustained by the learned Commissioner (Appeals).
Before us, Smt. Kusum Ingale, the learned Departmental Representative strongly supported the order of the assessing officer. She further submitted that the assessing officer has discussed the above issues in detail in the assessment order dated 31-3-1994 passed under section 143(3) of the Act. She further submitted that the assessee could not give any satisfactory explanation regarding difference in stock pointed out by the assessing officer and, therefore, the Commissioner (Appeals) was not justified in sustaining the addition of Rs. 50,000 only out of the additions of Rs. 5,50,117, Rs. 51,013 and Rs. 45,000. She has also stated that the learned Commissioner (Appeals) has not assigned any cogent reasons, while modifying the assessment order. She, therefore, submitted that the order of the learned Commissioner (Appeals) on this point may be set aside and restore that of the assessing officer.
Shri K.A. Sathe, the learned counsel for the assessee reiterated the submissions made before the lower authorities. He further submitted that the assessing officer has not correctly appreciated the explanation of the assessee put forth before him. According to the learned counsel, all the sales and purchases are supported by bills and vouchers. The assessee was dealing in 38 commodities and no defect in respect of 26 commodities was pointed out by the assessing officer. He further submitted that the findings given by the Commissioner (Appeals) in paras 18 and 11 of the order are contradictory. He, therefore, submitted that the addition of Rs. 50,000 sustained by the Commissioner (Appeals) may be deleted. Alternatively, it was submitted that the Commissioner (Appeals) himself has admitted that the difference in various stock came at Rs. 44,865 as against Rs. 18,383 worked out by the assessee and Rs. 5,50,117 determined by the assessing officer. He therefore, urged that as suitable relief may be given to the assessee.
We have carefully considered the rival submissions and have also gone through the orders of the authorities below. In this case, the assessee's main contention was that the entries appearing in the 'supply register' did not reflect the purchases and sales as such. The said register was meant for showing the record of inward and outward movement of goods. Furthermore, the said register was maintained in order to comply with the directions of Tahsildar, Dhule. From the records as well as from the observations of the Commissioner (Appeals), it would be clear that all the sales and purchases were supported by bills and vouchers. Therefore, the purchases and sales were being shown properly. It is also true that the assessee was dealing in 38 commodities and no defect was noticed in respect of 26 commodities. As regard the stock register, it was explained by the assessee that the same was never maintained seriously because it was maintained under the Essential Commodities Act. It was also explained before the assessing officer by the partner Shri Abbasbhai Adambhai in his statement on oath that there were chances of mistakes in respect of inward and outward entries due to the fact that the said register was maintained only in respect of 12 commodities, while there were 38 commodities dealt in by the firm. The other explanation of the assessee was that bifurcation of the goods traded was made by the staff of the assessee and there was a chance of mistake due to wrong classification of goods of which no verification was done by the partner. It is observed that the assessing officer has not brought out any material on record to controvert the above explanation of the assessee. It is also noticed that the assessing officer has pointed out some discrepancy in rice account.
However, the assessee explained the true position with regard to this discrepancy before the assessing officer as well as the Commissioner (Appeals). The contention of the assessee has been accepted by the assessing officer after verification, vide its report dated 20-2-1995.
It seems that during the course of appellate proceedings, the Commissioner (Appeals) has asked the assessing officer to forward his comments on the written submissions filed by the assessee. The Commissioner (Appeals) has also admitted that the assessee had successfully explained the discrepancy in rice account. It is also noticed that at one time the assessing officer proposed to make an addition of Rs. 94,950. Subsequently, he has changed his mind and made an addition of Rs. 5,50,117. This fact alone shows that the assessing officer himself was not sure about the alleged discrepancy. It is worthwhile to mention here that the order of the assessing officer is not tenable on this score that while working out the difference in stock at Rs. 5,50,117, he has taken into consideration only those accounts in which stock as per supply stock register was more than corresponding stock as per books. At the same time, the assessing officer has totally ignored commodities in whose case stock as per books was more than stock as per supply stock register. In our view, the Commissioner (Appeals) has rightly observed that the said approach of the assessing officer was not correct. The Commissioner (Appeals) further observed that entries appearing in the supply stock register had to be either accepted or rejected in totality. There was no justification to exclude items of excess stock as per books. We fully agree with the above observations of the Commissioner (Appeals). The assessing officer has also made additions of Rs. 5,12,013 and Rs. 45,000 stating that entries appearing in the supply stock register represented unrecorded purchases and sales. It seems that the assessing officer has not correctly appreciated the facts as we have already observed hereinabove that stock register was maintained in respect of 12 commodities for showing the same to the other department of the Government. The said register was never seriously maintained. We have also observed that the said register was maintained only for the sake of its maintenance being compulsory under the Essential Commodities Act. The assessing officer has made these two additions merely on the basis of surmises and conjectures.
The assessing officer has not substantiated by bringing on record some reliable material while estimating the figure of unrecorded purchases at Rs. 4,03,461 and unrecorded sales of Rs. 1,56,522. At the same time, the assessing officer has stated that the unrecorded purchases and sales covered the period from 20-12-1990 to 31-3-1991, then on pro rata basis, he has worked out the purchases and sales for a period of 365 days at Rs. 14,43,757 (purchases) and Rs. 20,40,521 (sales). In our view, the Commissioner (Appeals) was fully justified in holding that these estimates made by the assessing officer were based on assumptions and presumptions. In fact, there is no material on record to justify these additions. There is also no material on record to show that inward and outward entries in the stock register were actual purchases and sales. At the same time, there is no convincing evidence on record to show that the assessee was dealing in goods outside the books of account for the whole year. In our considered view, there was no justificatfon in making the addition of Rs. 51,013 by applying GP rate of 2.5 per cent on the estimated sales of Rs. 20,40,521. As regards the addition of Rs. 45,000, the Commissioner (Appeals) has correctly observed that the assessing officer was not justified in making the calculation on pro rata basis with reference to the hypothetical sales of Rs. 20,40,521. We do not find any concrete material on record to support this addition. In view of the above discussion, we do not see any merit in ground Nos. 1 to 5 of the departmental appeal. However, we find substance in this contention of the learned counsel for the assessee that the Commissioner (Appeals) has without any basis worked out difference in value of stock at Rs. 44,865. The accounts of the assessee were being audited under section 44AB of the Act. The Commissioner (Appeals) himself has admitted that the stock supply register maintained by the assessee was being maintained under the Essential Commodities Act. Furthermore, all the commodities dealt in by the assessee were not mentioned in the said register. In our view, the Commissioner (Appeals) has correctly observed to this extent that the entries appearing in the supply stock register had to be either accepted or rejected in totality. Thus, the Commissioner (Appeals) was not justified in sustaining the addition of Rs. 50,000. It is also noticed that the difference in stock as per the audited accounts and in the supply stock register was only to the extent of Rs. 18,383 as per the assessee. As we have already observed hereinabove that the assessing officer has not pointed out any defects in the audited accounts. Even the Commissioner (Appeals) has also not pointed out any discrepancy in the audited accounts. All the purchases and sales were supported by bills and vouchers. It is further noticed that the assessing officer has only taken into consideration those items in which there was excess stock of commodities as per supply stock register. However, he has not taken into consideration those items of stock as per the books which were more than corresponding stock shown in the supply register. In view of the explanation of the assessee mentioned hereinabove, the said supply stock register cannot be considered as reliable record of stock. In our view, the Commissioner (Appeals) should have deleted the entire addition, particularly when in para 17 of the impugned order it was observed by him that "all the three additions referred to above are not based on sound, factual or legal footing. In these circumstances, it is not possible to sustain them as such". In our view, there was no justification in sustaining the addition of Rs. 50,000 in lieu of all the three additions of Rs. 5,50,117, Rs. 51,013 and Rs. 45,000, particularly when the Commissioner (Appeals) himself has admitted that the additions were not based on sound, factual or legal footing. In fact, the Commissioner (Appeals) has given contradictory findings. If he was satisfied that there was no justification in making the three additions, then he should have deleted these additions instead of sustaining an estimated addition of Rs. 50,000. In fact, he has not assigned any cogent reason in support of his action. We accordingly delete the same.
Ground No. 6 of the departmental appeal is against the action of the Commissioner (Appeals) in deleting the addition of Rs. 2,35,032 made by the assessing officer on account of GP on regular turnover. The assessing officer observed that difference was found in the figure of purchases as well as sales as recorded in the regular cash book, ledger and Jama-nond and that as recorded in the stock register maintained for the supply department purpose in respect of period from 20-12-1990 to 31-3-1991 which was initially worked out at Rs. 5,82,575 in respect of purchases and Rs. 4,65,955 in respect of sales. However, the assessing officer revised the figures of abovesaid difference at the instance of the assessee. He found that in the stock book maintained by the assessee, Rs. 4,03,461 was shown in respect of purchases and Rs. 1,56,422 in respect of sales. The assessee vide its letter dt.
31-3-1994 stated that the figures of discrepancies were changing from time to time. It was also submitted that the assessee had not maintained the said stock register seriously; however, the same was maintained under the Essential Commodities Act. The assessee also reiterated the submission that there was a chance of mistake in entering inward and outward of each commodity as the said register was maintained by the staff which included as many as 12 commodities against total 38 commodities dealt in by the assessee.
The assessee also submitted that no proper verification of the goods was done as the register was not treated as a record of purchases and sales effected by the firm. The assessing officer did not find any merit in the above submissions of the assessee. He therefore worked out the quantum of unrecorded sales as per Annex. 1 to the assessment order and also estimated the GP at the rate of 2.5 per cent. The assessing officer further observed that the assessee could not produce the stock register for the earlier period. He, therefore, took the view that definitely there were differences in purchases/sales. He therefore worked out the difference for the period 20-12-1990 to 31-3-1991 in terms of the said value on the basis of transactions recorded in the stock register but not recorded in the regular books of accounts. The assessing officer pointed out that the above transactions were not - found recorded in the regular books of account and, therefore, books of account cannot be held reliable. Consequently, he invoked the provisions of section 145(2) of the Act. The assessing officer required the assessee to explain these discrepancies. In response to the above, the assessee submitted that there were some mistakes in calculations of purchases and sales of quantities in Mugdal, Chanadal, Tur dal, Math-dal, Oil etc. It was specifically stated that the stock register maintained by it was in the form of record of inward and outward only maintained for the purpose of Essential Commodities Act. It was stated that the said register was not authentic record of purchases and sales effected by the assessee-firm. Books of account were completed without any reference to the said register. The assessing officer has also rejected the above contentions of the assessee stating that the books as maintained by the assessee were not correct and complete. He therefore worked out the purchases which were converted into sales on pro rata basis for the entire period at Rs. 20,40,521. The assessing officer also observed that the assessee had shown a GP ratio for assessment year 1990-91 at the rate of 1 per cent and for assessment year 1991-92 at the rate of 1.25 per cent. He further noted that the GP disclosed by the assessee was comparatively low with reference to some other cases in respect of preceding year as well as current year.
According to the assessing officer, in the cases M/s Mahesh Trading Co., Dhule and Shri G.R. Wani,, Dhule, the GP ratios ranged between 2 per cent to 2.5 per cent while in the assessee's case it was only from 1 per cent to 1.25 per cent. He, therefore, rejected the book version of the assessee and applied GP rate of 2.5 per cent. In the above background, the assessing officer has worked out GP at the rate of 2.5 per cent on regular turnover of Rs. 1,89,28,228 at Rs. 4,73,205. After deducting the GP shown by the assessee at Rs, 2,38,273, the assessing officer added the balance of Rs. 2,35,032 to the total income of the assessee.
Before the Commissioner (Appeals), the assessee reiterated the submissions made before the assessing officer. Further, it was submitted that the GP addition made by the assessing officer was totally unwarranted and unjustified. The assessee was maintaining regular books of account and the trading accounts were supported by bills and vouchers. The assessee was also maintaining quantitative details. The assessing officer has not pointed out any defects in quantities maintained by the assessee in respect of various items. It was also brought to the notice of the commissioner by the assessee that book results had been accepted in assessment year 1990-91 and assessment was made under section 143(3) of the Act. The assessee also submitted that the trading results declared by it were also better as compared to the earlier years. The turnover disclosed by the assessee for the assessment year under consideration was at Rs. 1,89,28,224 as against turnover of Rs. 1,58,79,548 shown in the immediate preceding year. It was also submitted that the assessing officer was not justified in comparing the trading results of the assessee with those of Mahesh Trading Co., Dhule and Shri G.R. Wani, Dhule. It was brought to the notice of the Commissioner (Appeals) that the assessee has started its business from 2-5-1988 and the other two concerns were well established and the comparison of the assessee's results with the results disclosed by these two established concerns was totally unfair.
Accordingly, it was submitted that the trading results declared by the assessee may be accepted and the addition of Rs. 2,35,032 made by the assessing officer be deleted.
The Commissioner (Appeals) has discussed this issue vide para 18 of the impugned order. For the detailed reasons given therein, the Commissioner (Appeals) deleted the addition. The Commissioner (Appeals) observed that quantity tally maintained by the assessee in respect of various trading accounts was not proved to be defective by the assessing officer with the help of any supporting evidence. He further observed that keeping in view the past history of the assessee's case, the assessing officer was not justified in making the addition. In the immediate preceding year, the book results shown by the assessee were accepted under section 143(3) of the Act and no addition was made on account of trading results. The Commissioner (Appeals) further pointed out that there was no justification for making any addition to the trading results on the ground that the results shown by the assessee were better as compared to the earlier years' results. He has also observed that the turnover in the case of the assessee has increased to the extent of 19.19 per cent as compared to the turnover of the immediate preceding year and there was also increase in GP from Rs. 1,59,971 to Rs. 2,30,117. Even the percentage of GP has increased this year at 1.25 per cent as against 1 per cent disclosed in the assessment year 1990-91.
In view of the above, the Commissioner (Appeals) held that the assessing officer was not justified in applying a GP rate of 2.5 per cent on the basis of GP disclosed by other two concerns. He, therefore deleted the addition.
After considering rival submissions, we do not find any infirmity in the findings of the Commissioner (Appeals) on this issue. It is true that the GP shown by the assessee during the assessment year under consideration was better than the GP disclosed in the immediate preceding year. The turnover of the assessee has also increased substantially during the year under consideration, even then it had shown better results as compared with the results of immediate preceding year. It is true that the assessing officer has not pointed out any material defects in the books of account of the assessee regularly maintained by it on day to day basis. At the same time, the assessing officer was not justified in relying upon the trading results of abovementioned two concerns, particularly when the said concerns were engaged in the business since long, while the assessee had started its business only from 2-5-1988. Therefore, there was no justification in comparing the book results of the assessee with those of M/s. Mahesh Trading Co. and Shri G.R. Wani of Dhule. In view of the above, we decline to interfere with the findings of the learned Commissioner (Appeals) on this issue.
Ground No. 7 is against the action of the Commissioner (Appeals) in deleting the addition of Rs. 40,000 made on account of household expenses. The assessing officer has observed that withdrawals by the partners in respect of house-hold expenses were too low. According to him, Abbasbhai Adambhai had withdrawn only Rs. 4,600. Similarly, Shri Sabbirbhai Abbasbhai had withdrawn only Rs. 4,500. However, Smt. Sakina Zalfikar had not withdrawn any amount. According to the assessing officer, the withdrawals made by the partners of the assessee-firm were low and he therefore estimated the house-hold expenses of the family at Rs. 7,500 per month and made addition of Rs. 50,000. On appeal, the Commissioner (Appeals) took the view that an addition of Rs. 10,000 on account of low household expenses would be reasonable in this case. He therefore, allowed a relief of Rs. 40,000 to the assessee.
After considering the rival submissions, we do not see any valid ground for interfering with the findings of the Commissioner (Appeals) on this issue. In our view, no addition could be made in the hands of the assessee-firm on account of low withdrawal of house-hold expenses by its partners. It is trite law that firm and partners are separate entities under the Income Tax Act. Therefore, both the entities are being assessed to tax separately. If the assessing officer was of the opinion that there were low withdrawals by the partners, he could have made the addition in the hands of partners and not in the hands of the firm. We may add here that the assessee is not in appeal on this issue; otherwise, we would have deleted the addition of Rs. 10,000 also sustained by the Commissioner (Appeals) keeping in view the settled principles of law. Thus, we do not see any merit in this ground of appeal raised by the department.
In the result, the assessee's appeal is allowed, while the departmental appeal is dismissed.