ORDER
I. S. VERMA, J.M. :
This appeal by the assessee is directed against the order of the CIT(A), dt. 23rd March, 1990, wherein various grounds have been taken which we proceed to decide one by one.
2. Ground No. 1 : Addition made on account of gross profit sustained by the CIT(A). The assessees counsel has submitted that the lower authorities had made the addition in the trading account by rejecting the gross profit rate declared without pointing any specific mistake in the assessees accounts. The learned Departmental Representative, on the other hand, has relied on the orders of the lower authorities.
3. We have considered the rival submissions. Under the IT Act assessment of a person can be framed under s. 143(3) or under s. 144 or under s. 147 or under s. 145 r/w s. 144. An assessment under s. 143(3) is to be completed on the basis of materials available with the AO whereas an assessment under s. 144 is an ex parte assessment but the AO has power to estimate the assessees income to the best of knowledge. An assessment under s. 147 is the assessment of income which has escaped assessment whereas an assessment under s. 145 r/w s. 144 in an assessment which the AO can estimate the assessees income after rejecting the books of account and for rejecting the books of account it is the Revenues onus to prove that either the books of account maintained by the assessee are not correct and complete or the method of accounting adopted is such that true profits cannot be deduced therefrom. From these legal provisions what follows is that if the Revenue doubts the correctness of GP declared by the assessee, then, it first of all should reject the assessees books of account after specifying mandatory requirement of s. 145 which, according to us, can be done only after pointing out specific defects in the books of account. As the onus to make out a case for rejection of books of account is on the Revenue, so the assessee cannot be burdened with the responsibility of proving a negative aspect of the matter meaning thereby the assessee cannot be held responsible for not having earned the profit at a particular rate.
4. As per the IT Law the assessee has to substantiate his return and if he furnishes or produces necessary evidence, which in the normal course of things is known as books of account, in support of his return, then, in order to rebut the assessees reliance/submissions when the return is substantiated by such books of accounts, it is the Revenues duty to carry on proper investigation and verification from such books of accounts and must call for any other explanation or evidence if so required. After production of books of account and submissions of the explanation by the assessee if any asked for with respect to the contents of the return and books of account, the Revenue may accept the same or after pointing out the specific defects may reject the books of account and proceed to determine the assessees income as per the provisions of s. 145.
5. Income-tax provisions nowhere either authorise the AO or cast an obligation on the assessee to prove a negative result, i.e., to prove as to why he failed to make the profit at a particular rate.
6. In business world it is a well-known anticipated fact that the profit or loss depends upon so many factors-some hidden, one, some man-made, some to be assumed hypothetical assumptions such as ones luck or destiny meaning thereby that it is quite impossible for a person to know the reasons for earning a higher or a low profit or for suffering loss. To ask a person to explain the reasons for earning less profit as compared to other businessmen or as compared to previous year is nothing but to place the person concerned in the place of an astrologer which is not the requirement of the law and, therefore, to ask the person to explain the reasons for not earning a higher profit is to ask for absolutely impracticable job – not permissible in law.
7. Even in the world of economics it is well-settled proposition that “diversity is the rule and uniformity is the exception” meaning thereby that the business results of a particular assessee or different assessees are bound to differ from time to time and if some one is declaring the same results then the accounts instead of being correct are doubtful and cannot be considered to be genuine because uniform results can be achieved only after “white washing” the accounts. In view of our above discussion, we are of the opinion that the Revenue has no jurisdiction to ask the assessee to explain for not earning certain rate of profit and consequently the Revenue cannot reject the assessees books of account on this basis. As far as the assessees case is concerned it is noticed that the assessees books of accounts have been rejected absolutely on the basis of low profit rate without pointing out any specific defect in the assessees books of account which is contrary to the legal and settled principles of law. The action of the lower authorities is held to be bad in law and the addition in this account is deleted.
8. Ground No. 2 : Addition made on account of rejected rough diamond – Rs. 6,038. We have heard the learned counsel for the assessee as well as the learned Departmental Representative in the matter. After going through the orders of lower authorities it is noticed that the AO has added a sum of Rs. 60,386 which the assessee had challenged before the CIT(A) on the ground that the addition @ Rs. 10 per carat comes to Rs. 6,038 and not Rs. 60,386 as computed by the AO. The CIT(A) decided the issue in the assessees favour as per para-6 of his order which is reproduced as under :
“Addition on account of rejected rough diamonds : The appellant observes that the ITO has estimated stock of rejected diamonds at the rate of Rs. 10 per carat and addition has thus been wrongly calculated at Rs. 60,386 instead of Rs. 6,039. This is correct. The ITO is directed to carry out rectification in this regard.”
From the order of the CIT(A) it is seen that the assessee had challenged only the quantum and not the addition under this head and as the assessee has not filed copy of grounds of appeal taken before the CIT(A) we, in the light of order of the CIT(A), are of the opinion that before the CIT(A) the assessee had not challenged the addition as a whole, and, therefore, this ground of appeal does not arise out of the order of the CIT(A). This ground is rejected.
9. Ground Nos. 3, 4 and 5 : Addition of Rs. 2,000 on account of disallowance out of tea, coffee to staff and others/addition of Rs. 3,000 on account of disallowance out of conveyance charges/addition of Rs. 3,000 on account of disallowance out of telephone and telex expenses. We have heard the learned counsel for the assessee as well as the learned Departmental Representative in the matter. The assessees counsel has submitted that the disallowances on account of tea and coffee expenses, conveyance charges and out of telephone and telex expenses have been made on ad hoc basis on conjunctures and surmises as nothing has been brought against the assessee to prove that there was some personal use of those expenses. The learned Departmental Representative on the other hand, has supported the order of the AO. We have considered the rival submissions and have gone through the order of the CIT(A). The CIT(A) in para 7 of his order has upheld the disallowances made by the AO by observing as under :
“Keeping this table in mind and the fact that the sales in the year 1984-85 amounted to Rs. 1,62,57,206 and the sales in this year are Rs. 32,94,198, the expenses are much higher than in the previous year relevant to asst. yr. 1984-85. Keeping in view this history, I see no reason to interfere for this much of reasonable additions. These are upheld.”
A perusal of the order of CIT(A) it is noticed that the disallowance have been made only on hypothetical assumptions such as fall in sales, increase in expenses, etc. which is nothing but reliance on conjunctures and surmises only. In view of these facts, we are of the opinion that the disallowance is liable to be deleted on legal grounds itself as well as for want of proper investigation on the part of lower authorities. The assessees these grounds of appeal are allowed.
10. Ground No. 6 : Addition of Rs. 3,000 and Rs. 6,079 on account of disallowance out of motor-car expenses and depreciation respectively. The CIT(A) dismissed the ground relating to issue of disallowance out of motor-car expenses and depreciation on car on the ground that the issue was not pressed before him. As the assessee has not refuted the finding of the CIT(A) either in his pleadings or by way of evidence, we are of the opinion that this ground do not arise out of the order of the CIT(A) and consequently the same is rejected.
11. In the result, the appeal is partly allowed.