Madan Lal Vs. Income Tax Officer - Court Judgment

Excerpt:
1. these three appeals relate to the same assessee and almost common facts and issues are involved therein, therefore, these can be conveniently disposed of by a common order.ita no. 23/jp/1998 (asst. yr. 1993-94) & ita no. 38/jp/1998 asst. yr.1993-94 2. these are cross-appeals arising out of the order of cit(a), dt. 27th nov., 1997 pertaining to asst. yr. 1993-94. some of the issues in both these appeals are common, which shall be discussed while dealing with respective grounds.3. it would be worthwhile to narrate brief facts before we decide respective grounds of these appeals. the assessee deals in poplin and filed his return of income on 28th dec., 1993 declaring total income of rs. 68,740. this return was subsequently scrutinized by the department.as desired, the assessee produced books of account consisting of cash book, ledger, jama nakal bahi, bills and vouchers which were examined by the ao on test-check basis. the ao made various additions, some of them were either deleted in full or part by the learned cit(a). that is why both the parties are aggrieved and have filed these appeals.4. ground no. (i) of the assessee's appeal and ground no. (iii) of departmental appeal relate to the same issue, so these are discussed and decided together. the relevant facts of this issue are that the assessee after purchasing the grey cloth and got it processed from outside parties. the grey cloth usually has to pass through a series of processes, i.e., mercerising, dyeing, padding and finishing, before it can be sold. the finished goods is known as 'poplin' in the market. the total turnover in this year, i.e., 1993-94 was rs. 1,03,98,892 on which a gp rate of 10.35 per cent was declared. in asst. yr. 1992-93, i.e., the immediately preceding year, gp rate was 12.30 per cent on total sales of rs. 39,00,706. the auditors had mentioned in the audit report that the assessee had not maintained quantitative stock details which fact impelled the ao to invoke section 145(2) because according to him the gp rate in this year was poor as compared to last year. the assessee fairly conceded that the maintenance of quantitative stock details is not feasible in this line of business but according to him this fact cannot be made a basis to invoke the provisions of section 145(2), particularly when the quantitative details of grey cloth and finished goods were maintained and all the process expenses were fully vouched and verifiable. it was also explained that the steep rise in the turnover in this year, which is around 2.5 times, has resulted in a small fall in the gp rate. the ao rejected all the arguments of the assessee including the legal plea that simply non-maintenance of stock register did not attract the provisions of section 145 of the act. the ao simply mentioned all these decisions relied by the assessee, on page no. 5 of his order but nonetheless without distinguishing the same, he invoked section 145(2) and estimated the trading receipts by applying the rate of gp of 12.30 per cent relating to preceding year and thus made a trading addition of rs. 2,02,350.5. on appeal, the first appellate authority upheld the application of section 145(2) but reduced the gp to 11 per cent on the reasoning that since the turnover of the assessee has tremendously increased in this year, the application of last year's gp is not justified. the assessee is aggrieved against the sustained addition and the department is aggrieved against the deletion.6. we have heard the rival submission and have perused the evidence on record.7. admittedly, the assessee has maintained quantitative details of grey cloth and finished goods and also the process expenses are fully vouched and verifiable. the turnover of the assessee in this year, ostensibly, has increased 2.5 times (approximately). the assessee has also paid more dalali as compared to last year. it is true that the assessee did not maintain quantitative details of main items of raw materials and the same seems to be justified in view of practical difficulties as explained by the learned authorised representative shri anil bhansali to us at the time of hearing. the learned authorised representative submitted before us that every increase in the turnover does not necessarily lead to fall in the gp rate but the other attending circumstances do lead to decrease in the gp rate. to further elaborate his point, learned authorised representative submitted that the assessee could achieve such a quantum growth in the turnover of this year by reducing the selling prices, which lead to fall in gp rate but enhancing the profits in absolute rupee terms as the net profit in this year was rs. 77,198 whereas in the immediately preceding assessment year, it was only rs. 44,467. he also explained that the cases of vimal industries, mohan mills and champalal nemichand, which were compared by the ao with the assessee's case, in fact, are not at all comparable as mohan mills and champalal nemichand are in printing business, vimal industries deals in rubiya and saree falls, maharaja umaid textile and m.r. textiles have their own complete in-house process. it was also mentioned that during the year under appeal, the assessee allowed total discount of rs. 2,39,242 on sales of rs. 1 crore plus, whereas in the asst. yr. 1992-93 he allowed only rs. 1,12,448 on sales of 39 lakhs plus, which led to fall in gp rate on account of net pricing policy. he also attributed the fall in the gp rate to the increase in purchase price and corresponding increase in the sale price, which ultimately decreased the gp rate, though the profit per unit remained the same. he cited an example to explain this that if the assessee made a profit of rs. 1 per metre of cloth and the sale price, say was rs. 9 per metre and cost price rs. 8 per metre, the gp rate would come to 11.11 per cent. if the purchase price increased to rs. 10 that is by rs. 2 and the corresponding sales also increased by rs. 2, it will give a sale price of rs. 11 but the profit per metre to the assessee still remained rs. 1 but the gp rate would be only 9.9 per cent. on the other hand, learned departmental representative, smt.swati joshi has supported the order of the learned ao and has further submitted that the application of last year gp is the best guide for making trading estimation.8. we have deeply mused over the rival submissions in the light of the available evidence, precedents and the legal provisions. we give our finding- in the following paragraphs.9. we agree with the learned authorised representative shri bhansali to the extent that even in case the provisions of s. 145 are invoked, the additions are not automatic. we are well aware of the decision in the case of cit v. gotan lime khani] udhyog rendered by hon'ble jurisdictional high court, wherein it has been held that even the best judgment has to be based on books and material supplied by the assessee and gathered by the ao. on the other hand, we also agree with learned departmental representative smt. swati joshi that after application of provisions of section 145 of the act, one of the best guides is the past history of the assessee. but both these legal dicta do not operate in vacuum and are gualified by certain other conditions.the reasons mentioned by learned ao, justify invoking provisions of section 145(2) of the act. when once the provisions of section 145(2) are pressed into service the estimation has to be done only on the basis of some logic, which is gathered from the available evidence on record and not on magic. yes, the past history is the best guide, but in case the assessee is able to explain away that the magical figure of the past year cannot be applied in this year, we are of the considered opinion that it is more judicious to consider all these factors and in that eventuality even the past history may not have much relevance. the facts and circumstances of this case fall under the above exception. in our opinion the assessee has been able to explain the fall in gp rate, by referring to steep increase in turnover, which he could achieve by reducing the selling price and paying more discount. he maintained quantitative details of grey cloth and finished goods. all the processes involved right from washing to finishing are got done from outside parties. the learned authorised representative demonstrated the whole series of process involved by referring to marked lot number to the thans, to demonstrate and explain that the cloth remained the same throughout. he also demonstrated the expenses involved for each process in a series. therefore, we are convinced that the gp rate declared by the assessee cannot be disturbed. the learned cit(a) has accepted the claim of the assessee in principle but he applied his own magic number of 11 per cent simply on ad hoc basis. therefore, we are of the considered opinion that no addition in this account can be made without any specific defects having been pointed out in the books of account of the assessee, which according to us gave a correct picture of his income. hence, we accept the ground taken by the assessee and reject the ground taken by the department in this respect. meaning thereby ground no. 1 of the assessee's appeal is accepted and ground no. (iii) of the department's appeal is dismissed.10. the next ground of assessee's appeal is in relation to disallowance of l/5th of total expenses of rs. 92,740 claimed under various heads that is travelling expenses, shop expenses, vehicle repairing and vehicle expenses, depreciation on vehicle and postages.11. the assessee claims that all these expense were incurred wholly and exclusively for the purposes of the business and no personal use of the above facilities by the assessee has been pointed out by learned ao. on the contrary, it has been contended that non-business user of the above facilities cannot be ruled out, as there is no evidence that the assessee has maintained all these facilities separately for personal use.12. we agree with learned authorised representative shri bhansali, that there is no evidence on record to print out any non-business user but at the same time we agree with learned departmental representative that the total non-user by the assessee for personal purposes other than business purposes cannot be ruled out in the given circumstances. so, to meet the ends of justice and to strike a balance, it would be fair and reasonable if the disallowance is further reduced to l/10th and thus the ground taken by the assessee stands partly allowed.13. ground no. 3 taken by the assessee relates to charging of interest under sections 234a, 234b, 234c of the act.14. the position of law for charging of interest under the above sections is almost settled. such charging is mandatory as per law but at the same time it is to be charged consequent to the further relief granted to the assessee. therefore, a consequential relief has to be allowed to the assessee.16. the first ground in department's appeal relates to deletion of rs. 2,16,521 out of processing charges.17. the relevant facts are that the assessee gets the grey cloth processed from other parties. in the balance sheet an amount of rs. 2,16,521 payable to m/s sangam enterprises had been recorded. on enquiries it was found that no such concern existed at the given address. the assessee showed his inability to produce the party before the ao. the payment in question was made during the financial year 1993-94 relevant to asst. yr. 1994-95 through account payee cheque. the statement of one shri mool chand, stated to be the main man behind the concern m/s sangam enterprises, was recorded. he accepted that no such work of dyeing was done by m/s sangam enterprises, but it was got done from other firms. the ao was not satisfied and disallowed the impugned amount. the learned cit(a), however, allowed this claim of the assessee with the reasoning that the assessee had paid this amount through account payee cheque and there is no evidence that this money was received back.18. it has been submitted by learned departmental representative that the payment of dyeing charges to m/s sangam enterprises has not been proved on record and, therefore, this expenditure cannot be allowed. on the other hand, learned authorised representative shri bhansali has supported the order of the learned cit(a) and has submitted that the assessee had really made the impugned payment in the name of the said concern and had also got the processing from it. .19. we have carefully considered the rival submissions in the light of the available record. we had directed learned authorised representative to prepare the complete chart of thans with lot number, etc., which according to him are allotted a lot number and which remains imprinted on this than throughout the process. the particular lot number comprised of a particular number of thans along with batch numbers are allotted to that lot and the same remains intact when the cloth undergoes all the process of washing to finishing and this lot number is allotted on the purchase bills of the grey cloth. the learned authorised representative produced before us complete compilation of all the lot numbers and the same were test-checked in the presence of both the parties in the open courts and it was established beyond any doubts that the records were complete and correct. the learned departmental representative could not point out any mistake therein even when these were ascertained according as the date(s) mentioned on the relevant receipts/vouchers. we are convinced with the arguments of learned authorised representative that the statements of shri mool chand have to be read in its entirety. when the statement of shri mool chand is read in its entirety, a clear inkling is given that the assessee has got processed in the name of m/s sangam enterprises and also paid by cheque, to said concern. if the other party had manipulated and the assessee is not involved therein and there is no evidence that this money travelled back to the assessee, the claim of the assessee cannot be rejected. in our opinion, the assessee has clearly established that he paid the money to m/s sangam enterprises.the statement of shri mool chand has to be viewed with the pinch of salt as he may have stated something adverse to the assessee for his personal gains. therefore, in view of the uncontroverted facts that the assessee has got the processing by dealing with m/s sangam enterprises, who may have got the dyeing done from any other entity be it punith or nitesh or sangam, we confirm the finding of learned cit(a) and do not allow this ground of appeal.20. in ground no. (ii) the department has challenged the finding of the learned cit(a) that the shrinkage of cloth declared by assessee is reasonable and thereby deleted the addition of rs. 93,000.21. it was observed by learned ao that the assessee had claimed shortage of 33,127.5 metres in total cloth processed of 11,22,279 metres. this shortage comes to 2.95 per cent of total processed cloth.this shortage was considered by learned ao to be excessive. when the assessee was confronted, he claimed that he received 2,443 metres less from the sellers, 2,500 metres was utilized in making samples, shade cards, cutting, etc. and that if these are also considered the shortage would actually be only 28,185 metres which will give 2.60 per cent of shortage. the ao accepted the claim of the assessee with regard to 2,443 metres of cloth but did not accept the claim of 2,500 metres. the ao relied on various other cases wherein shortage ranged between 1.34 per cent to 1.86 per cent. however, the ao applied (rate) of 2 per cent to calculate the shortage and made an addition of rs. 93,000. the learned cit(a), in his turn, deleted this addition by considering the declared shortage in cloth by way of shrinkage as reasonable. the department is aggrieved.23. smt. swati joshi, the learned departmental representative, has relied on the assessment order and has further submitted that the cases relied upon by learned ao are comparable cases with the case of the assessee, because all these concerns operate from the same area. on the other hand, learned authorised representative shri bhansali, in addition to relying on the appellate order, has also submitted that the shortage in cloth depends on various factors including quality of grey cloth, quality of mercerizing and dyeing, and the shortage occurs at various stages. he has vehemently argued that the five examples cited by learned ao were not shown to be comparable because it was not made known whether they dealt in poplin, rubiya synthetic or voile and what was the grade of grey cloth used by them, what was the quality of manufactured cloth, what was their trade policy and whether all the process involved were done in-house or on job basis. in addition to the above it was also argued that when the ao had rejected the books of account and applied the profit rate, it was not open to him to rely on the books of the assessee. he also invited our attention to cases where the jodhpur bench has held 4.3 per cent shortage in poplin as reasonable.24. having considered the rival submissions in the light of available evidence on record, we are convinced that the claim of the assessee is quite justified. the ao has not pointed out any inflation of purchases and suppression of sales. the learned authorised representative had demonstrated before us that four corners of trading accounts, namely, opening stock, purchases, sales and closing stocks had no discrepancy whatsoever. when the comparable cases have not been shown to be really comparable, the only aspect that these cases operated from the same area could not justify the action of the ao to term them as comparable.from the decision of the tribunal in the case of dy. cit v. k.c.jhanwar (1995) 53 ttj (jp) 157 and the others relied by learned authorised representative, it is clear that the shortage can be allowed at even 5.25 per cent as reasonable in the given facts of a case. the assessee measures lot to lot when the goods finally arrive at the assessee's premises after undergoing the entire processes. the sum total of all the above reasoning go to prove the claim of the assessee.therefore, in our view the learned cit(a) has correctly deleted the addition of rs. 93,300. this ground of appeal also fails.25. the ground no. (iii) of department's appeal already stands decided along with the ground of the assessee's appeal. this ground has been dismissed.26. ground no. (iv) of this appeal relates to deletion of disallowance of rs. 51,460 from out of expenditure on the "dalali".27. the assessee had debited a sum of rs. 2,48,561 on account of 'dalali' payment under the head selling and distribution expenses. this dalali amount included two amounts of rs. 25,730 each which were shown to have been paid to shri roshan lal and shri om prakash at the rate of 0.25 per cent on sales of rs. 1,02,91,792. the ao wanted to know the nature and genuineness of these payments. the assessee explained that these two persons helped in boosting the sales. these persons were not employed on fix salary but were paid a commission to give them incentive for the work assigned to them. the ao did not accept the explanation and made an addition of rs. 51,460. on appeal, the learned cit(a) accepted the claim of the assessee because the sales of the assessee has increased manifold in this year and this amount was really paid to these persons.28. we have heard the rival submissions and perused the evidence on record.29. the claim of the assessee seems to be justified as the assessee adduced evidences in support of the payment made to the two persons.shri roshan kumar was produced before the ao, his statement was also recorded. the it returns of these two persons along with final accounts were submitted before the ao. copies of these papers are placed at pp.77 to 81 of the paper book. the fact that sales have increased manifold in this year, speaks in favour of the assessee's claims that these two persons really gave a boost to the sales. sometimes it is neither possible nor advisable to disclose intangible benefits, which accrue to the assessee by carrying out business activities in a particular manner. it is the assessee only who knows how to manage its affairs in a better way. the learned authorised representative shri bhansali has correctly placed reliance on the decision of the hon'ble delhi bench of tribunal in the case of survir enterprises (p) ltd. v. ito (1995) 51 ttj (del) 197 wherein it has been held that although detailed evidences in respect of services rendered were not available, nonetheless services can be rendered when payments have been made and assessed in the hands of the recipients. therefore, in our considered opinion, when there is no personal relationship with these payees and the payment has been made by the assessee for business consideration, the same is allowable. the findings of the learned cit(a) is thus upheld. the ground of appeal fails.30. the last ground (v) relates to deletion of an addition of rs. 13,000 added on account of unexplained excess credit in the name of one shri ashok kumar.31. the assessee had paid salary of rs. 36,000 to one shri ashok kumar which was credited to his account. shri ashok kumar was examined by the ao and he stated that he had been paid rs. 3,000 per month as a salary and he withdrew rs. 1,500 per month and the balance amount remained credited in his account with the assessee. on the other hand, the assessee explained that out of rs. 36,000, the assessee (sic-ashok kumar) had withdrawn only rs. 5,000 and the balance remained as credit in his account, which is not covered under section 68 of the act.32. having considered the rival submissions, we opine that the identity of the payee and the payment of salary @ 3,000 per mensum to him is not in dispute. the assessee says that only rs. 5,000 was withdrawn by shri ashok kumar whereas in his statement he stated to have withdrawn rs. 18,000. this issue could have been resolved by learned ao by referring this statement to assessee and by allowing the assessee to cross-examine him. it appears that nothing of that sort was done by learned ao. therefore, the claim of the assessee has been rightly allowed by the learned cit(a). there is no scope for our interference in this finding.33. in the result, the appeal of the department stands dismissed. ita no. 532/jp/1998; asst. yr. 1995-96 34. this is an appeal of the department against the order of the cit(a), dt. 23rd july, 1998, for asst. yr. 1995-96.35. the assessee had shown a gp rate 9.6 per cent on a turnover of rs. 1,74,53,112.36. the first ground of appeal relates to deletion of the trading addition of rs. 4,18,800.37. the facts relating to this issue remain identical in this year also. admittedly, the impugned addition was made on similar reasoning as that of asst. yr. 1993-94, mutatis mutandis. therefore, on the basis of similar reasoning we uphold the finding of learned cit(a). this ground of appeal cannot be allowed and the same is dismissed.38. ground no. (ii) of the departmental appeal relates to deletion of an addition of rs. 70,000 added on account of bogus expenditure. the ao has dealt (with) this issue in para 8 of his order. during the course of survey, it was allegedly admitted by the assessee that a sum of rs. 35,000 was only debited in the books of account and no actual money was paid. likewise, other expenses of rs. 35,000 were also stated to be ingenuine. therefore, the ao added rs. 70,000 as bogus expenses. but the fact remained that these payments did not relate to the year under consideration and the vouchers did not contain any expenses debited to the p&l ale for the year under consideration. these vouchers related to the outstanding liabilities for the expenses incurred in the earlier years.39. after hearing both the parties we are convinced that these expenses do not relate to the year under consideration. this fact has been fairly conceded by learned departmental representative. on these facts we are inclined to agree with the learned authorised representative that this surrender was made under wrong facts. we have seen the reply dt. 26th march, 1998 which was sent in response to the letter of the department dt. 23rd march, 1998 wherein the alleged statement have been explained to be not true and voluntary. the copies of these letters are placed at pp. 22 to 24 of the paper book. therefore, this addition cannot be sustained and has been correctly deleted by the learned cit(a).41. in the result, the appeal ita nos. 38 and 532 stand dismissed and appeal ita no. 23 is partly allowed.

Judgment:
1. These three appeals relate to the same assessee and almost common facts and issues are involved therein, therefore, these can be conveniently disposed of by a common order.

ITA No. 23/Jp/1998 (Asst. yr. 1993-94) & ITA No. 38/Jp/1998 Asst. yr.

1993-94 2. These are cross-appeals arising out of the order of CIT(A), dt. 27th Nov., 1997 pertaining to asst. yr. 1993-94. Some of the issues in both these appeals are common, which shall be discussed while dealing with respective grounds.

3. It would be worthwhile to narrate brief facts before we decide respective grounds of these appeals. The assessee deals in poplin and filed his return of income on 28th Dec., 1993 declaring total income of Rs. 68,740. This return was subsequently scrutinized by the Department.

As desired, the assessee produced books of account consisting of cash book, ledger, Jama nakal bahi, bills and vouchers which were examined by the AO on test-check basis. The AO made various additions, some of them were either deleted in full or part by the learned CIT(A). That is why both the parties are aggrieved and have filed these appeals.

4. Ground No. (i) of the assessee's appeal and Ground No. (iii) of Departmental appeal relate to the same issue, so these are discussed and decided together. The relevant facts of this issue are that the assessee after purchasing the grey cloth and got it processed from outside parties. The grey cloth usually has to pass through a series of processes, i.e., mercerising, dyeing, padding and finishing, before it can be sold. The finished goods is known as 'Poplin' in the market. The total turnover in this year, i.e., 1993-94 was Rs. 1,03,98,892 on which a GP rate of 10.35 per cent was declared. In asst. yr. 1992-93, i.e., the immediately preceding year, GP rate was 12.30 per cent on total sales of Rs. 39,00,706. The auditors had mentioned in the audit report that the assessee had not maintained quantitative stock details which fact impelled the AO to invoke Section 145(2) because according to him the GP rate in this year was poor as compared to last year. The assessee fairly conceded that the maintenance of quantitative stock details is not feasible in this line of business but according to him this fact cannot be made a basis to invoke the provisions of Section 145(2), particularly when the quantitative details of grey cloth and finished goods were maintained and all the process expenses were fully vouched and verifiable. It was also explained that the steep rise in the turnover in this year, which is around 2.5 times, has resulted in a small fall in the GP rate. The AO rejected all the arguments of the assessee including the legal plea that simply non-maintenance of stock register did not attract the provisions of Section 145 of the Act. The AO simply mentioned all these decisions relied by the assessee, on page No. 5 of his order but nonetheless without distinguishing the same, he invoked Section 145(2) and estimated the trading receipts by applying the rate of GP of 12.30 per cent relating to preceding year and thus made a trading addition of Rs. 2,02,350.

5. On appeal, the first appellate authority upheld the application of Section 145(2) but reduced the GP to 11 per cent on the reasoning that since the turnover of the assessee has tremendously increased in this year, the application of last year's GP is not justified. The assessee is aggrieved against the sustained addition and the Department is aggrieved against the deletion.

6. We have heard the rival submission and have perused the evidence on record.

7. Admittedly, the assessee has maintained quantitative details of grey cloth and finished goods and also the process expenses are fully vouched and verifiable. The turnover of the assessee in this year, ostensibly, has increased 2.5 times (approximately). The assessee has also paid more Dalali as compared to last year. It is true that the assessee did not maintain quantitative details of main items of raw materials and the same seems to be justified in view of practical difficulties as explained by the learned Authorised Representative Shri Anil Bhansali to us at the time of hearing. The learned Authorised Representative submitted before us that every increase in the turnover does not necessarily lead to fall in the GP rate but the other attending circumstances do lead to decrease in the GP rate. To further elaborate his point, learned Authorised Representative submitted that the assessee could achieve such a quantum growth in the turnover of this year by reducing the selling prices, which lead to fall in GP rate but enhancing the profits in absolute rupee terms as the net profit in this year was Rs. 77,198 whereas in the immediately preceding assessment year, it was only Rs. 44,467. He also explained that the cases of Vimal Industries, Mohan Mills and Champalal Nemichand, which were compared by the AO with the assessee's case, in fact, are not at all comparable as Mohan Mills and Champalal Nemichand are in printing business, Vimal Industries deals in rubiya and saree falls, Maharaja Umaid Textile and M.R. Textiles have their own complete in-house process. It was also mentioned that during the year under appeal, the assessee allowed total discount of Rs. 2,39,242 on sales of Rs. 1 crore plus, whereas in the asst. yr. 1992-93 he allowed only Rs. 1,12,448 on sales of 39 lakhs plus, which led to fall in GP rate on account of net pricing policy. He also attributed the fall in the GP rate to the increase in purchase price and corresponding increase in the sale price, which ultimately decreased the GP rate, though the profit per unit remained the same. He cited an example to explain this that if the assessee made a profit of Rs. 1 per metre of cloth and the sale price, say was Rs. 9 per metre and cost price Rs. 8 per metre, the GP rate would come to 11.11 per cent. If the purchase price increased to Rs. 10 that is by Rs. 2 and the corresponding sales also increased by Rs. 2, it will give a sale price of Rs. 11 but the profit per metre to the assessee still remained Rs. 1 but the GP rate would be only 9.9 per cent. On the other hand, learned Departmental Representative, Smt.

Swati Joshi has supported the order of the learned AO and has further submitted that the application of last year GP is the best guide for making trading estimation.

8. We have deeply mused over the rival submissions in the light of the available evidence, precedents and the legal provisions. We give our finding- in the following paragraphs.

9. We agree with the learned Authorised Representative Shri Bhansali to the extent that even in case the provisions of s. 145 are invoked, the additions are not automatic. We are well aware of the decision in the case of CIT v. Gotan Lime Khani] Udhyog rendered by Hon'ble jurisdictional High Court, wherein it has been held that even the best judgment has to be based on books and material supplied by the assessee and gathered by the AO. On the other hand, we also agree with learned Departmental Representative Smt. Swati Joshi that after application of provisions of Section 145 of the Act, one of the best guides is the past history of the assessee. But both these legal dicta do not operate in vacuum and are gualified by certain other conditions.

The reasons mentioned by learned AO, justify invoking provisions of Section 145(2) of the Act. When once the provisions of Section 145(2) are pressed into service the estimation has to be done only on the basis of some logic, which is gathered from the available evidence on record and not on magic. Yes, the past history is the best guide, but in case the assessee is able to explain away that the magical figure of the past year cannot be applied in this year, we are of the considered opinion that it is more judicious to consider all these factors and in that eventuality even the past history may not have much relevance. The facts and circumstances of this case fall under the above exception. In our opinion the assessee has been able to explain the fall in GP rate, by referring to steep increase in turnover, which he could achieve by reducing the selling price and paying more discount. He maintained quantitative details of grey cloth and finished goods. All the processes involved right from washing to finishing are got done from outside parties. The learned Authorised Representative demonstrated the whole series of process involved by referring to marked lot number to the Thans, to demonstrate and explain that the cloth remained the same throughout. He also demonstrated the expenses involved for each process in a series. Therefore, we are convinced that the GP rate declared by the assessee cannot be disturbed. The learned CIT(A) has accepted the claim of the assessee in principle but he applied his own magic number of 11 per cent simply on ad hoc basis. Therefore, we are of the considered opinion that no addition in this account can be made without any specific defects having been pointed out in the books of account of the assessee, which according to us gave a correct picture of his income. Hence, we accept the ground taken by the assessee and reject the ground taken by the Department in this respect. Meaning thereby Ground No. 1 of the assessee's appeal is accepted and Ground No. (iii) of the Department's appeal is dismissed.

10. The next ground of assessee's appeal is in relation to disallowance of l/5th of total expenses of Rs. 92,740 claimed under various heads that is travelling expenses, shop expenses, vehicle repairing and vehicle expenses, depreciation on vehicle and postages.

11. The assessee claims that all these expense were incurred wholly and exclusively for the purposes of the business and no personal use of the above facilities by the assessee has been pointed out by learned AO. On the contrary, it has been contended that non-business user of the above facilities cannot be ruled out, as there is no evidence that the assessee has maintained all these facilities separately for personal use.

12. We agree with learned Authorised Representative Shri Bhansali, that there is no evidence on record to print out any non-business user but at the same time we agree with learned Departmental Representative that the total non-user by the assessee for personal purposes other than business purposes cannot be ruled out in the given circumstances. So, to meet the ends of justice and to strike a balance, it would be fair and reasonable if the disallowance is further reduced to l/10th and thus the ground taken by the assessee stands partly allowed.

13. Ground No. 3 taken by the assessee relates to charging of interest under Sections 234A, 234B, 234C of the Act.

14. The position of law for charging of interest under the above sections is almost settled. Such charging is mandatory as per law but at the same time it is to be charged consequent to the further relief granted to the assessee. Therefore, a consequential relief has to be allowed to the assessee.

16. The first ground in Department's appeal relates to deletion of Rs. 2,16,521 out of processing charges.

17. The relevant facts are that the assessee gets the grey cloth processed from other parties. In the balance sheet an amount of Rs. 2,16,521 payable to M/s Sangam Enterprises had been recorded. On enquiries it was found that no such concern existed at the given address. The assessee showed his inability to produce the party before the AO. The payment in question was made during the financial year 1993-94 relevant to asst. yr. 1994-95 through account payee cheque. The statement of one Shri Mool Chand, stated to be the main man behind the concern M/s Sangam Enterprises, was recorded. He accepted that no such work of dyeing was done by M/s Sangam Enterprises, but it was got done from other firms. The AO was not satisfied and disallowed the impugned amount. The learned CIT(A), however, allowed this claim of the assessee with the reasoning that the assessee had paid this amount through account payee cheque and there is no evidence that this money was received back.

18. It has been submitted by learned Departmental Representative that the payment of dyeing charges to M/s Sangam Enterprises has not been proved on record and, therefore, this expenditure cannot be allowed. On the other hand, learned Authorised Representative Shri Bhansali has supported the order of the learned CIT(A) and has submitted that the assessee had really made the impugned payment in the name of the said concern and had also got the processing from it. .

19. We have carefully considered the rival submissions in the light of the available record. We had directed learned Authorised Representative to prepare the complete chart of Thans with lot number, etc., which according to him are allotted a lot number and which remains imprinted on this Than throughout the process. The particular lot number comprised of a particular number of Thans along with batch numbers are allotted to that lot and the same remains intact when the cloth undergoes all the process of washing to finishing and this lot number is allotted on the purchase bills of the grey cloth. The learned Authorised Representative produced before us complete compilation of all the lot numbers and the same were test-checked in the presence of both the parties in the open Courts and it was established beyond any doubts that the records were complete and correct. The learned Departmental Representative could not point out any mistake therein even when these were ascertained according as the date(s) mentioned on the relevant receipts/vouchers. We are convinced with the arguments of learned Authorised Representative that the statements of Shri Mool Chand have to be read in its entirety. When the statement of Shri Mool Chand is read in its entirety, a clear inkling is given that the assessee has got processed in the name of M/s Sangam Enterprises and also paid by cheque, to said concern. If the other party had manipulated and the assessee is not involved therein and there is no evidence that this money travelled back to the assessee, the claim of the assessee cannot be rejected. In our opinion, the assessee has clearly established that he paid the money to M/s Sangam Enterprises.

The statement of Shri Mool Chand has to be viewed with the pinch of salt as he may have stated something adverse to the assessee for his personal gains. Therefore, in view of the uncontroverted facts that the assessee has got the processing by dealing with M/s Sangam Enterprises, who may have got the dyeing done from any other entity be it Punith or Nitesh or Sangam, we confirm the finding of learned CIT(A) and do not allow this ground of appeal.

20. In Ground No. (ii) the Department has challenged the finding of the learned CIT(A) that the shrinkage of cloth declared by assessee is reasonable and thereby deleted the addition of Rs. 93,000.

21. It was observed by learned AO that the assessee had claimed shortage of 33,127.5 metres in total cloth processed of 11,22,279 metres. This shortage comes to 2.95 per cent of total processed cloth.

This shortage was considered by learned AO to be excessive. When the assessee was confronted, he claimed that he received 2,443 metres less from the sellers, 2,500 metres was utilized in making samples, shade cards, cutting, etc. and that if these are also considered the shortage would actually be only 28,185 metres which will give 2.60 per cent of shortage. The AO accepted the claim of the assessee with regard to 2,443 metres of cloth but did not accept the claim of 2,500 metres. The AO relied on various other cases wherein shortage ranged between 1.34 per cent to 1.86 per cent. However, the AO applied (rate) of 2 per cent to calculate the shortage and made an addition of Rs. 93,000. The learned CIT(A), in his turn, deleted this addition by considering the declared shortage in cloth by way of shrinkage as reasonable. The Department is aggrieved.

23. Smt. Swati Joshi, the learned Departmental Representative, has relied on the assessment order and has further submitted that the cases relied upon by learned AO are comparable cases with the case of the assessee, because all these concerns operate from the same area. On the other hand, learned Authorised Representative Shri Bhansali, in addition to relying on the appellate order, has also submitted that the shortage in cloth depends on various factors including quality of grey cloth, quality of mercerizing and dyeing, and the shortage occurs at various stages. He has vehemently argued that the five examples cited by learned AO were not shown to be comparable because it was not made known whether they dealt in poplin, rubiya synthetic or voile and what was the grade of grey cloth used by them, what was the quality of manufactured cloth, what was their trade policy and whether all the process involved were done in-house or on job basis. In addition to the above it was also argued that when the AO had rejected the books of account and applied the profit rate, it was not open to him to rely on the books of the assessee. He also invited our attention to cases where the Jodhpur Bench has held 4.3 per cent shortage in poplin as reasonable.

24. Having considered the rival submissions in the light of available evidence on record, we are convinced that the claim of the assessee is quite justified. The AO has not pointed out any inflation of purchases and suppression of sales. The learned Authorised Representative had demonstrated before us that four corners of trading accounts, namely, opening stock, purchases, sales and closing stocks had no discrepancy whatsoever. When the comparable cases have not been shown to be really comparable, the only aspect that these cases operated from the same area could not justify the action of the AO to term them as comparable.

From the decision of the Tribunal in the case of Dy. CIT v. K.C.Jhanwar (1995) 53 TTJ (Jp) 157 and the others relied by learned Authorised Representative, it is clear that the shortage can be allowed at even 5.25 per cent as reasonable in the given facts of a case. The assessee measures lot to lot when the goods finally arrive at the assessee's premises after undergoing the entire processes. The sum total of all the above reasoning go to prove the claim of the assessee.

Therefore, in our view the learned CIT(A) has correctly deleted the addition of Rs. 93,300. This ground of appeal also fails.

25. The ground No. (iii) of Department's appeal already stands decided along with the ground of the assessee's appeal. This ground has been dismissed.

26. Ground No. (iv) of this appeal relates to deletion of disallowance of Rs. 51,460 from out of expenditure on the "Dalali".

27. The assessee had debited a sum of Rs. 2,48,561 on account of 'Dalali' payment under the head selling and distribution expenses. This Dalali amount included two amounts of Rs. 25,730 each which were shown to have been paid to Shri Roshan Lal and Shri Om Prakash at the rate of 0.25 per cent on sales of Rs. 1,02,91,792. The AO wanted to know the nature and genuineness of these payments. The assessee explained that these two persons helped in boosting the sales. These persons were not employed on fix salary but were paid a commission to give them incentive for the work assigned to them. The AO did not accept the explanation and made an addition of Rs. 51,460. On appeal, the learned CIT(A) accepted the claim of the assessee because the sales of the assessee has increased manifold in this year and this amount was really paid to these persons.

28. We have heard the rival submissions and perused the evidence on record.

29. The claim of the assessee seems to be justified as the assessee adduced evidences in support of the payment made to the two persons.

Shri Roshan Kumar was produced before the AO, his statement was also recorded. The IT returns of these two persons along with final accounts were submitted before the AO. Copies of these papers are placed at pp.

77 to 81 of the paper book. The fact that sales have increased manifold in this year, speaks in favour of the assessee's claims that these two persons really gave a boost to the sales. Sometimes it is neither possible nor advisable to disclose intangible benefits, which accrue to the assessee by carrying out business activities in a particular manner. It is the assessee only who knows how to manage its affairs in a better way. The learned Authorised Representative Shri Bhansali has correctly placed reliance on the decision of the Hon'ble Delhi Bench of Tribunal in the case of Survir Enterprises (P) Ltd. v. ITO (1995) 51 TTJ (Del) 197 wherein it has been held that although detailed evidences in respect of services rendered were not available, nonetheless services can be rendered when payments have been made and assessed in the hands of the recipients. Therefore, in our considered opinion, when there is no personal relationship with these payees and the payment has been made by the assessee for business consideration, the same is allowable. The findings of the learned CIT(A) is thus upheld. The ground of appeal fails.

30. The last ground (v) relates to deletion of an addition of Rs. 13,000 added on account of unexplained excess credit in the name of one Shri Ashok Kumar.

31. The assessee had paid salary of Rs. 36,000 to one Shri Ashok Kumar which was credited to his account. Shri Ashok Kumar was examined by the AO and he stated that he had been paid Rs. 3,000 per month as a salary and he withdrew Rs. 1,500 per month and the balance amount remained credited in his account with the assessee. On the other hand, the assessee explained that out of Rs. 36,000, the assessee (sic-Ashok Kumar) had withdrawn only Rs. 5,000 and the balance remained as credit in his account, which is not covered under Section 68 of the Act.

32. Having considered the rival submissions, we opine that the identity of the payee and the payment of salary @ 3,000 per mensum to him is not in dispute. The assessee says that only Rs. 5,000 was withdrawn by Shri Ashok Kumar whereas in his statement he stated to have withdrawn Rs. 18,000. This issue could have been resolved by learned AO by referring this statement to assessee and by allowing the assessee to cross-examine him. It appears that nothing of that sort was done by learned AO. Therefore, the claim of the assessee has been rightly allowed by the learned CIT(A). There is no scope for our interference in this finding.

33. In the result, the appeal of the Department stands dismissed. ITA No. 532/Jp/1998; Asst. yr. 1995-96 34. This is an appeal of the Department against the order of the CIT(A), dt. 23rd July, 1998, for asst. yr. 1995-96.

35. The assessee had shown a GP rate 9.6 per cent on a turnover of Rs. 1,74,53,112.

36. The first ground of appeal relates to deletion of the trading addition of Rs. 4,18,800.

37. The facts relating to this issue remain identical in this year also. Admittedly, the impugned addition was made on similar reasoning as that of asst. yr. 1993-94, mutatis mutandis. Therefore, on the basis of similar reasoning we uphold the finding of learned CIT(A). This ground of appeal cannot be allowed and the same is dismissed.

38. Ground No. (ii) of the Departmental appeal relates to deletion of an addition of Rs. 70,000 added on account of bogus expenditure. The AO has dealt (with) this issue in para 8 of his order. During the course of survey, it was allegedly admitted by the assessee that a sum of Rs. 35,000 was only debited in the books of account and no actual money was paid. Likewise, other expenses of Rs. 35,000 were also stated to be ingenuine. Therefore, the AO added Rs. 70,000 as bogus expenses. But the fact remained that these payments did not relate to the year under consideration and the vouchers did not contain any expenses debited to the P&L ale for the year under consideration. These vouchers related to the outstanding liabilities for the expenses incurred in the earlier years.

39. After hearing both the parties we are convinced that these expenses do not relate to the year under consideration. This fact has been fairly conceded by learned Departmental Representative. On these facts we are inclined to agree with the learned Authorised Representative that this surrender was made under wrong facts. We have seen the reply dt. 26th March, 1998 which was sent in response to the letter of the Department dt. 23rd March, 1998 wherein the alleged statement have been explained to be not true and voluntary. The copies of these letters are placed at pp. 22 to 24 of the paper book. Therefore, this addition cannot be sustained and has been correctly deleted by the learned CIT(A).

41. In the result, the appeal ITA Nos. 38 and 532 stand dismissed and appeal ITA No. 23 is partly allowed.