COMMISSIONER OF INCOME TAX Vs. RAMESH SINGH

JUDGEMENT

(1.) THIS appeal against the order dated 16.3.2004 passed in ITA No.30/JAB/2002 by the Income Tax Appellate Tribunal, Jabalpur Bench (in short "the Tribunal") has been admitted on the following substantial questions of law :

(2.) THE facts in brief are these. The respondent assessee is an individual. He is an authorized dealer of car manufacturer. The name and style of his proprietary business is M/s Star Line Automobiles. He is also a partner in the partnership firm named as M/s Star Automobiles. For the assessment year 1997-1998 he filed his return of income declaring total income of Rs.13,02,090.00 along with audit certificate under section 44AB of the Income Tax Act (in short "the Act"). The Assessing Officer (in short, "AO") selected the case of respondent for scrutiny and issued notice under section 143(2) to him. In response to the notice, respondent explained the facts of the case to the AO through his counsel and accountant. The books of accounts produced by the respondent were examined by test check and during the course of proceedings he filed written reply along with other details. The AO in his assessment order dated 1.10.1999 observed that the expenses debited in the profit and loss account were on the higher side compared to last year. He also under facts and circumstances of the case and for want of evidence and vouchers added lump sum of Rs.25,000.00 to the total income to cover up possible leakages. The AO thus computed the total income of respondent at Rs.13,27,090.00.

(3.) THE respondent responded to the show cause notice by submitting a detailed reply. But the CIT did not agree with the same and held that there were no details before the AO as to whether the respondent was an authorized dealer of Hindustan Motors in the matter of selling cars or whether the sales were done in any other capacity and also whether the respondent was dealing in sales of cars produced by other manufacturers. The CIT observed that the terms and conditions between the manufacturers of cars and the respondent were not furnished which was a very vital information necessary to ascertain the correctness of the profit earned by the respondent. He also observed that while authorized dealer carries out free services, free replacement and free repair within the warranty period, the manufacturer reimburses all these cost to the dealer and likewise the manufacturer generally pay all the expenses that are incurred in transporting vehicles from the place of manufacture to the sales-offices of the dealer. According to the CIT valuation of closing stock of stores and spare parts and tax paid goods were based on respondent's estimate after applying a pre-determined gross profit at his whims and fancies and that the account of expenses claimed at Satna and Jabalpur offices ought to have scrutinized by the AO especially the labour charges incurred in respect of these two establishments. The CIT has even referred to some excessive expenses which the respondent claimed to have incurred at Satna office when there was no business transaction there. As regard to unsecured loan of Rs.6,70,000.00 appearing in the balance sheet of respondent, the CIT held that though the same did not relate to previous year but was a old balance, the AO should have examined the genuineness of these credits and if it was not found to be genuine then the question of making addition in the year in which it was availed should have been considered by the AO. The CIT, therefore, held that the AO should have conducted an enquiry. For these reasons, the CIT set aside the assessment order dated 1.10.1999 and remanded the matter to the AO to make a fresh assessment after holding detailed enquiry/investigation.