ORDER
A.K. Garodia, A.M.
1. This is an assessee’s appeal directed against the order of learned CIT (A) XXIII, Mumbai, dt. 5th Dec., 2000 for block period 1st April, 1987 to 16th Sept., 1997. Ground No. 1 of the appeal is not pressed; and hence, dismissed as not pressed.
2. Ground No. 2 of the appeal reads as under:
The learned CIT(A) has erred in confirming the disallowance of the debit of the net representative liability amounting to Rs. 9,81,512 in parties’ suspense account; thus increasing the total income for the block period by this amount. He has done this despite the fact that the AO had clearly admitted about the correctness of the liability and about the same having been worked out from the seized material itself (please refer line 11 of the last para of page No. 8 and line 4 on the first para of p. 9 of the AO in this regard.)
3. Briefly stated, the facts of the case are that the assessee is engaged in the business of brokerage of iron and steel scrap and the assessee procures materials from various consignors i.e., ship-breakers for and on behalf of the consignees. The assessee also renders additional services in procuring the trucks for transportation of the materials and also arrange for subsequent collection of moneys for onward disbursement to the respective consignors. The assessee is entitled to brokerage for rendering these services. There was a search at the office premises of the assessee at Bhavnagar on 17th Sept., 1997 and some books of account were seized. From seized books of account, it was found that no regular party wise ledger account has been maintained, The seized books contain cash book from 10th Oct., 1995 till the date of search and consignor and consignee books i.e., sales book for the period from 1st Jan., 1995 to the date of search, in which there are cash entries also in the remarks column. But, the income of the block period was calculated by recasting these books of account and in such calculation of income of the block period, the assessee has debited the net liability of Rs. 13,60,464. This amount of Rs. 13,60,464 represents a sum of Rs. 20,85,428, which is as per the assessee payable to the third party in its representative capacity and out of the above, a sum of Rs. 7,24,784 is receivable from Udyani Ship Breakers (P) Ltd. Out of the total 23 parties, to whom this amount of Rs. 20,85,428 is payable as per claim of the assessee, the details of which is appearing on page No. 25 of the paper book, the assessee produced VDIS declaration of three parties for a sum of Rs. 3,78,952 and after deducting this amount from the net amount of Rs. 13,60,464, the AO has added back a sum of Rs. 9,81,512 by rejecting the claim of the assessee that this amount is payable by the assessee to the third parties because the assessee could not produce any confirmation from these parties or any other evidence in this regard that this sum is payable by the assessee. On appeal, learned CIT(A) upheld the action of the AO by holding that the transactions contain traces of actual purchase and sale also because in some cases, the assessee has made payment to the seller from his own fund, Learned CIT(A) also stressed upon absence of any corroborative evidence in this regard, and upheld the action of the AO. Now, the assessee is in further appeal before us.
4. Learned Authorised Representative of the assessee contended that the AO accepted on page No. 8 of the assessment order as per line No. 11 of the last para that it is a fact that on the basis of seized materials, the figures of the liability claimed as payable has been worked out. Our attention was drawn to the first para on page No. 9 of the assessment order where, the AO admits again that the liability as claimed has been worked out as per available seized materials, but the same is not accepted by the AO, because as per the AO, there is every possibility that there would be opening debit and credit for these accounts also with the broker; and hence, it cannot be accepted that this amount of liability claimed by the assessee is true. Our attention was drawn to page Nos. 46 to 94 of the paper book, which contain the party wise detailed calculation in respect of representative liability, which is the subject-matter of this ground. It was also contended that even if it is assumed that the assessee was acting as buyer and seller also, then the liability payable to the parties has to be allowed as liability in respect of purchases if not in representative capacity.
5. As against this it was contended by the learned Departmental Representative of the Revenue that books of account seized do not contain regular party-wise ledger and in absence thereof, the claim of the liability payable by the assessee is not acceptable. It was also contended that no confirmation from the parties or any corroborative evidence has been brought by the assessee with regard to this claim of liability; and hence, the same is not allowable.
6. We have considered the rival submissions and perused the materials on record. We find that there is debit balance of Rs. 14,50,441 as per page No. 49 of the paper book for the party M/s N.C.K. & Sons; but the balance of this party i.e., N.C.K. & Sons is considered on page No. 46 of the paper book as credit balance of Rs. 2,33,783. We find that on page No. 50 of the paper book, the amount of Rs. 16,84,224 claimed to be payable by Devsaria Steels to N.C.K. & Sons has been adjusted from the debit balance of Rs. 14,50,441 and thereby this credit balance of Rs. 2,33,783 has been calculated. Similarly, we find that on page No. 80 of the paper book, there is debit balance of Rs. 52,895 for Rajiv Ship Breakers; but on page No. 46 of the paper book, a credit balance of Rs. 20,894 is considered on account of Rajiv Ship Breakers. As per page No, 81 of the paper book, some adjustments of Rs. 1,29,577 and Rs. 55,788 has been considered and thereby the debit balance of Rs. 52,895 was converted into credit balance of Rs. 20,894. Under these facts and circumstances, we are of the considered opinion that since the AO has admitted that the liability has been calculated/worked out as per available seized materials, the same cannot be rejected on the presumption that there may be opening debit and credit entries for these parties because either the AO has to accept the seized materials as a whole or he has to reject the seized materials as a whole; and he cannot go by pick and choose method in accepting a part of seized materials for calculating undisclosed income and rejecting the other part of the seized materials; but in view of the above instances of some debit balances, which have been converted by the assessee in credit balance by making some adjustments, we do not find any basis on which, any amount payable by Devsaria Steels to NCK & Sons can be considered to convert debit balance of NCK & Sons in the books of the assessee into credit balance. Same is the case about page Nos. 80 and 81 of the paper book and hence, we are of the view that in the interest of justice, this matter should go back to the AO to examine the seized records in detail and then decide the issue afresh by either accepting it as a whole or by rejecting it as a whole; and accordingly, we set aside the order of the learned CIT(A) and restore the matter back to the file of the AO with the direction to examine the claim of liability of the assessee with seized materials and decide the issue afresh by either accepting it as a whole or by rejecting it as a whole and then pass necessary order as per law. The AO should provide adequate opportunity of being heard to the assessee.
7. Ground No. 3 of the appeal is not pressed; and hence, dismissed as not pressed.
8. Ground Nos. 4 to 8 are related with claim of the assessee regarding expenses for the period from 1st Jan., 1995 to 9th Oct., 1995, which has been partly allowed by the AO i.e., disallowance of vehicle expenses to the extent of Rs. 34,619 out of total claim of Rs. 1,69,952; disallowance of travelling expenses to the extent of Rs. 28,000 out of total expenses of Rs. 93,665 disallowance of office expenses/miscellaneous expenses to the extent of Rs. 67,311 out of total expenses of Rs. 2,72,305; disallowance of telephone expenses to the extent of Rs. 15,153 out of the total expenses of Rs. 59,616 and disallowance of car finance expenses of Rs. 17,851, business expenses of Rs. 90,990, car depreciation of Rs. 47,902 and scooter depreciation of Rs. 2,695.
9. It was submitted by the learned Authorised Representative of the assessee that no cash book was found in course of search for the period from 1st Jan., 1995 to 9th Oct., 1995 but the assessee has disclosed gross unaccounted income of Rs. 18,37,472 for this period also and out of this, a claim of Rs. 7,96,764 was made on account of expenses for this period under various heads as appearing on page Nos. 32 and 33 of the paper book. It was contended that the ratio of expenses to gross income for the subsequent period 10th Oct., 1995 to 17th Oct., 1997, for which seized books are found is 47.82 per cent, whereas, the percentage of claim by the assessee for 1st Jan., 1995 to 9th Oct., 1995 is only 43.36 per cent as per details available on page Nos. 32 and 33 of the paper book; but. the same was disallowed in part by the AO.
10. It was submitted by the learned Authorised Representative of the assessee that the AO has allowed the deduction of expenses in proportion to period of time, whereas, the assessee has claimed the same in proportion to value of gross income. It was submitted that expenses should be allowed in proportion to value of gross income; and hence, the disallowance made by the AO should be deleted.
11. As against this, it was submitted by the learned Departmental Representative of the Revenue that expenses in the nature of fixed expenses do not increase by increase in gross income; and therefore, the AO has rightly allowed the expenses in proportion to period of time and no interference is called for on this account in the order of the learned CIT(A). Regarding the claim of the assessee for car finance expenses of Rs. 17,851, car depreciation of Rs. 47,902 and scooter depreciation of Rs. 2,695, it was submitted by the learned Departmental Representative of the Revenue that disallowance has been made by the AO for the reason that the claim of the assessee does not arise from the seized books and is not supported by evidence; and, therefore, it was submitted by the learned Departmental Representative of the Revenue that no part of these expenses can be allowed.
12. We have considered the rival submissions and perused the materials on record. We find that the claim of the assessee of expenses is on estimate basis and disallowance made by the AO is also on estimate basis. The basic difference is that the assessee is going by proportion of gross income in claiming the expenses, whereas, the AO is going by proportion of time, period in allowing the expenses, Regarding the disallowance on account of car finance expenses, business expenses, depreciation on motor-car and scooter, the disallowance has been made by the AO for the reason that claim does not arise from the seized books and is not supported by evidence. Under these facts and circumstances, we are of the considered opinion that some expenses, which are of fixed nature such as miscellaneous expenses, salary expenses, taxi rent expenses should be allowed on the basis of pro rata time period; whereas the other expenses, which are of variable nature should be allowed on the basis of pro rata of gross income. Regarding the total disallowance made by the AO for the expenses on account of car finance expenses, business expenses, depreciation on car and scooter, we are of the considered opinion that in the interest of justice, the assessee should be given one more opportunity to produce evidence in support of the claim. In this view of the matter, we set aside, the order of the learned CIT(A) on this issue and restore the matter back to the file of the AO with the direction to allow expenses on the basis of pro rata of time period in respect of fixed expenses and on the basis of pro rate of gross income in respect of variable expenses and to allow the claim of the assessee with regard to car finance business expenses and depreciation if the assessee can produce sufficient evidence. The AO is further directed to provide adequate opportunity of being heard to the assessee.
13. In the result, this appeal of the assessee is partly allowed for statistical purposes.