BHILAI MOTORS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee the Tribunal Nagpur Bench, Nagpur, has referred the following question of law of opinion of this Court under S. 256(1) of the INCOME TAX ACT, 1961 :

(2.) THE assessee, Bhilai Motors, is a partnership firm, dealing in Tata Mercedes Benz Chassis vehicles and spare parts, having its head office at Tatibandh, Raipur and spare parts shop at K.K. Road, Raipur. It has also a branch at Jagdalpur dealing in spare parts and a petrol pump at Tatibandh. The assessee showed income of Rs. 52,626 for the asst. year 1975 -76 for the accounting year 1974. IT Act consisting of certain purchases on cash payments on bill exceeding Rs. 2,500. The only explanation was that sellers were insisting on cash payment which was not accepted. The ITO disallowed Rs. 15,621 towards motor car expenses. The ITO out of a totals claim amounting to Rs. 58,116 towards car expenses found only Rs. 27,524 could be considered to be expenditure out of which Rs. 9,175 was deducted as personal expenditure of the partners not incidental to the business of the firm and a sum of Rs. 6,086 did not pertain to the business of the assessee, The ITO also added 50,000 in the income on account of on money for out of turn supplies of Tata Mercedes Benz Chassis, which was on short supply. The ITO found certain irregularities in the books of account which supported his findings that the assessee was taking on money and accounting the same. He found that the assessee sold 30 vehicles out of turn in the year in question and earned Rs. 2,000 per vehicle as no money. The assessee had in all sold 187 vehicles he seles memos were not in serial order. All thoush The assessee had in all sold 187 vehicles during the year it was numbered upto 158 only making up the other sales memos by adding 1A, 2A etc., the assessee did not produce the booking register and in original order forms. The ITO found that in some cases the office copy of sales memos did not tally with the sale memos of the customers pertaining to a particulars sale. It was also notice that some of the vehicles were registered with the RTO before the date of their sale no account books were maintained for the branches : in the assessee's cash books balances were not drawn days but on alternate days and in pencil which has been finalised sometimes in ink. The ITO assessee income at Rs. 1,89,237.

(3.) IN further appeal by the assessee to the Tribunal a cross -objection was preferred by the Department regarding deletion of income of Rs. 50,000 by the CIT on account of on money received by sale of chassis out of turn to the customers. The addition of Rs. 24,119 under S. 40A (3) of the Act because the bills bore consecutive number, being purchases of the same date. Regarding disallowance of Rs. 15,621 in the matter of car expenses account it has been found that the motor car was also used for personal use of the partners and there was no material to controvert this finding. However, the Tribunal set aside the of income of Rs. 50,000 on account of on money received b y assessee by sale of chassis out of turn to the customers. The ITO found several defectors in the books of account of the assessee. The main piece of evidence which would establish whether the assessee was indulging in malpractices in supplying chassis to the customers is the booking register supported by the original order form of the customers. These documents were not produced before the ITO and the CIT and were for the first time produced before the Tribunal. On scrutiny of documents it was found that the assessee indulged in malpractices in supplying chassis to the customers and so the ITO was fully justified in making addition on this ground. The observation of the CIT that the ITO had undertaken an impossible task is not justified. In the circumstances, the ITO was directed to ascertain the actual dates of the booking of the order for various vehicles and whether the chassis were supplied to the customers in that chronological sequence. If it is found on scrutiny, that the assessee had indulged in irregularity in the sales to the customers, which will be conclusive proof that the assessee had indulged in malpractices of charging on money on out of turn deliveries. In respect of these sales, if the assessee has shown even one dass favour to a customer over the previous customer, the ITO would be justified in estimating suppressed profits. In the result the appeal filed by the assessee was dismissed and the cross -objection of the Department was allowed. On an application being made for reference, the aforesaid questions have been referred to this Court by the Tribunal.