TMI Blog1994 (3) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... was carried on by the firm M/s. S.B. Gowdaiah and Sons in which the assessee and his father were partners. On death of the said father however, sometime in April/May 1987, the entire business fell on the shoulders of the assessee and he carried it on for a small period of two to three months only as a proprietor in the immediately preceding year also. 2. The assessee did not file his return of income within the time prescribed under section 139(1). The Assessing Officer issued a notice under section 148 and also another notice under section 142(1) of the Act calling for the return of income, both on 21-1-1991. The assessee filed his return of income on 1-4-1991 declaring the net loss of Rs. 22,52,910. Thereafter, the assessee also filed another return on 13-1-1992 showing net loss of Rs. 15,88,300. The assessment order shows that the assessment was finally made by the Assessing Officer on 27-3-1992 at the total figure of income of Rs. 2,02,38,600 under section 143(3) of the Act. 3. Before the CIT(A) and before us also, the assessee challenged the validity of the proceeding taken pursuant to the issue of notice under section 148. It has been pointed out that the notice under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a notice allowing less period than the statutorily allowed time, does not mean waiver on the part of the assessee and the notice would still remain invalid. 5. There is no doubt in the instant case that the notice issued by the Assessing Officer under section 148 allowed the assessee less period of time than allowed under the law for filing the return of income by the assessee and hence, the notice must be considered to be invalid, in accordance with the abovementioned decision of the Karnataka High Court in the case of Winter Care (P.) Ltd. Any proceeding started pursuant to the issue of such notice under section 148 would also become invalid. However, we pay due attention to the contention of the learned DR Sri Puniha that in this particular case both notices under sections 148 and 142(1) were issued on the same day and, therefore, if the notice under section 148 becomes invalid and bad in law, the other notice under section 142(1), also calling for the return would still remain valid and the proceeding taken by the Assessing Officer on the basis of the return filed by the assessee can be considered to be one pursuant to the valid notice under section 142(1). Sri Prasad argue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be made by considering the return to be one filed under section 139. In the instant case again, whereas the notice under section 148 had been issued on 21-1-1991, but return of income was filed not within the time limit as mentioned in the said notice but after about two months and ten days from the date of service of the notice. Since we do not have any access to the assessment records, it is not known whether the notice under section 142(1) was also actually issued by the Assessing officer calling for the return of income or asking for certain other particulars along with the notice issued under section 148 which actually called for the return. Hence, it is not possible for us to say that the return of income in this case was filed pursuant to the notice under section 142(1). 6. Sri Prasad, on behalf of the assessee argued at this stage that the return was filed by the assessee claiming huge quantity of loss and in accordance with the provisions of sub-section (10) of section 139, as it existed at the relevant time, the return of loss filed beyond the time limit prescribed under section 139(3), would have to be considered as an invalid return and the Assessing Officer coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 139, then assessment of the income under section 143 would not become possible and the assessment as actually made by the Assessing Officer would also become invalid. We do not find much substance in this argument of the learned counsel for the assessee. It is not that the return in this case has been filed under section 237, but that a claim for refund has only been made under that section. The return on the other hand can be considered to have been filed under section 139(4) only and because of the return having been furnished by the assessee in support of a claim for refund under section 237, the return although showing loss would have to be considered as a valid return notwithstanding the provisions of sub-section (10) of section 139. We would like to refer to the decision of the Andhra Pradesh High Court in the case of CIT v. Trustees of H.E.H. The Nizam's Second Supplemental Family Trust [1985] 151 ITR 562 in which the Andhra Pradesh High Court has held at page 567 of the reported case as follows : "It is true that the return filed alongwith there fund application under sub-rule (1) of rule 41 of the Rules is for the purpose of refund, but that does not make any d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm or in substance between a return filed under section 139 (1) or (2) for the purpose of assessment and a return filed under sub-rule (2) of rule 41 of the Rules along with a refund application." Keeping in mind the above decision of the Andhra Pradesh High Court, we hold that in the instant case, the return of income filed by the assessee may be considered as one filed under section 139(4) and the assessment proceeding pursued by the Assessing Officer on the basis of such return is a valid proceeding irrespective of and notwithstanding the invalidity of the notice issued by him under section 148. 8. We will now examine the merits of the departmental case about the additions made in the assessment and subsequently confirmed by the CIT(A). We have heard both Sri Puniha the DR and Sri Prasad, the counsel for the assessee in great detail on each of the issues concerned. We are not going to reproduce their arguments separately at the outset. On the other hand, we will refer to them and take our own decisions thereon as and when the requirement arises. 9. As discussed earlier, the assessee is mainly engaged in toddy business. The addition with regard to this business has been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the line taken up in the last year. As regards the fall in the rate of yield in the Hyderabad region, which after the rectification works out to 1.302 litres (in place of 1.3774 litres in the preceding year), it is the contention of the assessee that whereas in the last year, results for the entire year had been taken into consideration, the period considered in the present year, however, constituted three months only from 1-7-1987 to 30-9-1987. It has been argued by the learned counsel for the assessee that in the monsoon months, the yield of the trees is bound to be less than the other seasons and that mainly accounts for the decline in the yield rate in this year. It has furthermore been argued that in any case, there is no certainty about a particular result being obtained from year to year and hence the slight decline in the margin of yield in this year should have been accepted. The learned DR on the other hand contends that there is no evidence on record to show that during the monsoon months, the trees would yield lesser quantities of toddy. We would take due note of the fact that essentially this is a case of estimation of the results albeit on a reasonable basis. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sults in two different ways. First of all, he took into consideration the figures of yield mentioned in excise permits issued to transport toddy at the rate of two litres per date tree per day and 1.4 litres per coco tree per day. Working out the total yield on that basis, he came out with a figure of Rs. 1,84,96,247, as the amount of suppression of sales made by the assessee. The Assessing Officer also took report to an alternative method by relying on a decision of the Sales Tax Tribunal of Karnataka in the case of M/s. M.K. Papaiah Co., in some earlier year, in which it had been held that a reasonable turnover in the toddy business should be one and half times the kist payment made by the Excise contractor. On that basis, he arrived at the figure of suppressed sales at Rs. 93,73,568. After taking into consideration the objections put forward by the assessee against resorting to such estimation, and giving his own reasons, he ultimately made an addition of Rs. 93,73,568 towards suppression of sales in areas other than Hyderabad region. In first appeal, the CIT(A) also confirmed this addition. The assessee has taken strong objection to this addition, before us also, as was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of 1.505 litres. The Assessing Officer himself has accepted the yield rate of 1.3774 litres for the Hyderabad region even in this year also and the CIT(A) has also approved of the same. There is no reason why a much higher rate of yield should be taken into consideration for the regions other than Hyderabad. If the norms taken recourse to by the Assessing Officer, viz., the turnover being one and half times of the kist payment be taken into consideration for the Hyderabad region, it would lead to a very absurd result of yield of 1.8555 litres per tree for the Hyderabad region. Furthermore, we also find much substance in the argument of Sri Prasad that the actual kist payment may not always be having any direct bearing on the finally determined figure of turnover. When auctions are held, bids are made on the spur of the moment by keeping in mind various factors like ousting the competitor and keeping hold over certain area even in spite of probable loss arising in that area etc. Therefore, for the purpose of income-tax assessments, estimation of turnover at the rate of one and half times the kist payment is not at all to be considered to be a reasonable process. Furthermore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to that extent. 11. The next ground of appeal relates to the addition of Rs. 2,60,570 made on account of suppression of sale of arrack business conducted by the assessee in Hassan area. The Assessing Officer arrived at this figure by taking into consideration the quantity of arrack purchased and the actual quantity of sale disclosed and evaluating the shortfall therein. It is true that in the initial stages, the assessee had come up with some other versions in his attempt to provide explanation regarding the discrepancy. Finally, however, it was claimed before the CIT(A) and has also been contended before us that the discrepancy is mainly on account of breakage of bottles. It has been claimed that in a business of dealing in liquids in glass bottles, breakage is an usual feature and some margin of up to 2% is required to be allowed on account of such breakages. We do not pay much attention to the contention of the CIT(A) that this particular explanation was not tried to be put forward at the assessment stage. Shortage in the figure of sale of arrack was noted by the Assessing Officer in comparison with the calculated figure of purchase. The assessee would surely be initiall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the detailed discussions as made in both the assessment as well as the first appellate order on this issue. An amount of Rs. 5 lakhs has been disallowed in the assessment out of lorry hire expenses claimed at Rs. 18,62,720. This year, the expenses claimed in this regard works out to 1.244% of the total turnover as against similar figure of 4.93% in assessment year 1987-88 and 3.789% in assessment year 1988-89. However, a higher claim has been made on account of expenses on High-speed diesel in this year. The reason is that whereas till the last year, the owners of the lorries used to defray the diesel expenses also themselves, this year, however, the assessee took the lorries on hire and started making payment for the diesel by himself. The total amount of expenses claimed on lorry hire and diesel this year is Rs. 60,88,106 as against the similar claim of Rs. 67,93,886 in the immediately preceding year out of which Rs. 64,68,505 only was allowed (percentage of allowance being 5.581). Since the overall percentage in this year is much less than the overall percentage of both these items in the preceding year, we are of the opinion that no disallowance is called for on this ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due note of the submission of Sri Prasad in this regard that whereas the addition was made by the Assessing Officer on the ground that part of the assessee's claim towards expense under this head was unverifiable, the CIT(A) on the other hand sustained a bigger amount of addition on the ground that the assessee must have made payment of even a higher amount. He thus argued that the genuineness of the original claim of Rs. 1,38,84,276 has thus been accepted by the CIT(A). We find that the total claim towards tappers' salary Including even their maintenance charges in this year comes to 9.400% only as against 9.707% allowed in the immediately preceding year. We also feel that the addition as made by either the Assessing Officer or by the CIT(A) is merely based on surmise and not on good grounds. Following the norm already considered by us viz., consideration of allowance of the percentage of turnover in the last year, we find that nothing is disallowable in this year. Hence, we delete the entire disallowance as made by the CIT(A) for this year. 14. The next ground relates to disallowance of Rs. 10,04,332 out of tree rent. So far as this item is concerned, we find that not only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ats in Gulbarga area were no longer required as the business in that area was discontinued w.e.f. dated 1-7-1988. The vats must have, therefore, been sold away locally instead of carrying them to other areas and incurring transport cost thereby. It is an admitted fact that the assessee has not maintained his books and records in a neat way. However, the facts of the case, like the WDV was taken to nil and the balance amount was shown as profit on sale of assets, strongly suggest that the assessee's version must be correct. In any case, the assessee did not claim any depreciation on the assets in respect of which the WDV was brought to nil. Therefore, in our opinion, there is no case for making the addition. The entire addition of Rs. 2,04,610 is therefore being deleted. 18. The last issue in this appeal relates to disallowance of Rs. 2,44,852 out of claim towards interest payment. The Assessing Officer discussed that no interest has been charged by the assessee on the loans given by the assessee to his wife and a sister concern M/s. Insat Chemicals. Interest at the rate of 15% has been calculated on these loans to be Rs. 2,44,852 and has been added back in the assessment. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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