TMI Blog1979 (5) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... four questions that arise in this appeal of the assessee are dealt with as follows: 3. Cement: The assessee deals only in cement manufactured by India Cements Ltd. The assessee showed a purchase figure of 11,640 bags of cement. But as per purchase invoice obtained from India Cement by the Department it was seen that the assessee had purchased only 10,280 bags of cement. So the ITO brought this deficit of 1360 bags to the notice of the assessee by letter dt. 11th March, 1975 as well as by the letter dt. 16th May, 1975 and called for his explanation. The assessee explained that the accounts maintained by him are defective and, therefore, the income may be estimated. The ITO did not make any estimates of income as such. He only made a specific disallowance. He held that there is inflation in purchase to the extent of 1360 bags. So he added back the purchase price of Rs. 14,851 for 1360 bags. 4. In appeal, the AAC found that there are actual sales on physical terms but there are not corresponding verifiable purchases. He held that it is a physical impossibility to sell without there being purchases. He also observed that the addition by the ITO for inflation in purchase would ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sical quantity tally. Hence no inflation in purchases. But the AAC is suspicious about the qualitative tally. A bag of cement can be opened and its contents filled into two bags. So two bags can be shown as sold whereas actually the purchase is only of one bag. In the trading account he can show purchase of two bags and sale of two bags. This is physical quantity tally. But quality wise it is only one bag. So he has inflated the purchase by one bag. It is only on this line of reasoning that the AAC has sustained Rs. 10,000. And we may add that when there is physical quantity tally one can, if one wants to make an addition, make it only on the basis of the absence of qualitative tally or other reasons like low gross profit. The question is how far it is warranted the facts and circumstances of the case. The method indicated by the AAC may be possible in other commodities but not in cement. It was then a controlled and scarce commodity. The consumers are not mere rustic, timid villagers but persons who know what is what. The will not tolerate any such mischief. The cement is purchased in bags by the assessee and sold in bags. It cannot easily be opened and filled in bags more than on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition only on the basis of the inflation. The amount added was Rs. 46,396, that being the value of 49 K. Ltrs. of diesel. The AAC reduced it to Rs. 10,000. The reasoning was just like the one given for cement. 8. Here also what we think is that no addition is permissible. Our reasoning are similar to the one given for cement. The assessee has in his paper book furnished just like for cement, the details of invoices collected after the order of the AAC and which details cover all purchases except for 25 K. Ltrs. which 25 K. Ltrs. we will also discuss in the context of s. 40A and payment by cheques for such purchases covered by invoices. But we need not go into the proof of purchase because the AAC has categorically ruled out as in cement, the case of inflation in purchase. He has only gone by qualitative tally as in cement. In diesel, just like in cement, we find it is not possible to dilute it with some other adulterant, so that say after purchase of 10 K. Ltrs. it can be sold as 12 K. Ltrs. with trading account cast for purchase of 12 K. Ltrs. and sale of 12 K. Ltrs. As this is sold through the mechanical pumps either in short measures of unaccounted sales may not be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be generally sold only outside the accounts without proper bills. Under such circumstances, no body will ordinarily resort to inflection in purchase. So in Kerosene the qualitative tally will not fit in at all when the case is purchase inflation. 10. s. 40A(3) Disallowance made by the AAC : The ITO did not make any such disallowance. In the diesel purchase account of the assessee there were three entries: (i) 20-1-1973 Rs. 3,029/- (3200 Ltrs.) (ii) 31-3-1973 Rs. 10,415/-06 (11000 Ltrs.) (iii) 31-3-1973 Rs. 10,415/-06 (11000 Ltrs.) So, the AAC disallowed these three payments already referred to in discussion under diesel. 11. We doubt very much whether the AAC by himself has the power to initiate for the first time a disallowance like this, which was not done by the ITO. But we are not going into that question. The disallowance cannot be upheld for another reason. S. 40A(3) is for disallowance of specific items of expenditure exceeding Rs. 2,500 when such items are claimed as deductions. This is not a case where accounts of the assessee are accepted as true and correct. This is a case where the accounts are r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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