Jonnalagadda Yedukondala Rao v. Commissioner Of Income-Tax, Hyderabad

Jaganmohan Reddy, J.:— In compliance with our directions the Tribunal has referred a case on the following question:

“Whether on the facts and in the circumstances of the case, there are any materials to estimate the gross income of the assessee from the bus service at Rs. 1,20,000?”

2. The assessee is a bus owner in the West Godavary District, in the year of assessment 1947-48, for which the income of the previous year taken into account was the year ending March 1947. During this year he ran 27 buses, 17 out of which were plying with Eluru as the headquarters and 10 from Narsapur. The assessee maintained separate accounts for each of these headquarters.

3. But he returned a gross income of Rs. 56,458 for his entire business and after deducting a depreciation of Rs. 38,875 and certain inadmissible expenditure of Rs. 1000, declared a net income of Rs. 16,583. The Income-Tax Officer rejected the results to be derived from the books of account and made an aA hoc addition of Rs. 80,000 to the gross income thus determining it at Rs. 1,36,458. After deducting Rs. 32,803 on account of depreciation, he determined the net income at Rs. 1,03,655. The Appellate Assistant Commissioner on appeal determined the gross income at Rs. 96,000 and computed the net income of Rs. 53,406 after deduction of depreciation. Both the assessee and the Department appealed to the Tribunal, where, however, neither of them questioned the quantum of the depreciation allowed by the Appellate Assistant Commissioner. The Tribunal held that the proviso to section 13 of the Act was rightly applied in the circumstances of the case in rejecting the books of account and in so far as the assessment was concerned it found that the total collections recorded by the assessee were not verifiable and there were no counterfoils for the tickets and so it was not possible to check the collections as entered in the books. That apart, it held that the expenditure claimed was extraordinarily high and most of it was unvouched for and compared unfavourably with that incurred by the other bus owners. The Tribunal further found that the borrowings of Rs. 57,000 in the account of the Narsapur branch and the remittance of that amount to the Eluru branch were not satisfactorily explained. In the circumstances it computed the gross income at Rs. 5,000 for each effective bus and arrived at the figure of Rs. 1,20,000 for 24 buses.

4. The whole question is whether the Tribunal had any material or basis for arriving at this conclusion. After discarding the results derived from the books of account, the Tribunal had, on the admission of the assessee, one basis on which it could arrive at the gross income, but it appears to us that even that basis has not been adopted. At any rate, the order of the Tribunal is so cryptic, vague and ambiguous that we are not able to ascertain that it has adopted the aforesaid basis. The Tribunal had before it the amount of fuel used in the running of the buses as found by the Officer and the admitted number of miles which each bus could run on that amount of fuel and, therefore, could compute the total mileage covered by these buses during the year; The Income-Tax Officer had found that the petrol and charcoal purchased during the year was 17,300 gallons and 4,252 bags respectively. The assessee admitted that it would be possible to run 28 miles per bag of charcoal, whereas one gallon of petrol would give about 11 miles only. Thus according to the fuel consumed and the number of miles the buses could run on both the categories of fuel was 3,09,356 as against 2,29,814 admitted by the assessee. The Tribunal observed that even giving 10 per cent, margin which is very wide for the mileage run without carrying the passengers, there would still be a very wide disparity between the mileage that should have been run, and this discrepancy according to it was only confined to the Narsapur branch and not to Eluru where no such discrepancy was noticed. Having thus stated, the Tribunal does not indicate the rate per mile for each bus, on which gross profit could be computed, nor does it give any basis. All that it says is indicated in the following passage:

“… We are, therefore, convinced that the assessee's accounts did not account for the full journeys made by the buses particularly in the Narsapur branch. This, together with the defects pointed out by the Income-Tax Officer vitiate the accounts produced by the assessee. There is also no knowing whether the repair expenditure had been really incurred and the spare parts said to have been purchased were really ‘purchased and utilised for the buses. There is no account to show which buses required which spare parts and how they were supplied. Taking all these into consideration we would fix the gross income before depreciation at Rs. 1,20,000 or at an average rate of Rs. 5,000 per effective bus as against Rs. 1,36,458 adopted by the Officer and Rs. 96,000 adopted by the Appellate Assistant Commissioner. The assessment should be re-worked on this basis.”

5. In so far as the depreciation allowed and the initial depreciation was concerned, neither party has any objection to the Tribunal's order. The passage cited above, in our view, indicates the reasons more for discarding the accounts than the basis for computing the gross income. We have ourselves tried to ascertain from the orders of the Income-Tax Officer and the Appellate Assistant Commissioner whether there was any possible basis for the computation of Rs. 1,20,000 as the gross income on the materials on record. But even that does not appear to be possible. From the Income-Tax Officer's order, it appears that the assessee charged half an anna per mile and the statement furnished by him shows that the average seating capacity of the ten buses used from Narsapur headquarters is 23 seats which work Out to 0-11-6 per mile per seat. Calculating on the basis the amount of collection on 3,09,356 miles would be roughly Rs. 2,29,000. Deducting therefrom the cost of petrol at Rs. 1-11-0 per gallon and of charcoal at Rs. 3 per bag, (which is indicated to be the correct rate by the Income-Tax Officer and the Tribunal), viz., Rs. 41,949-12-0 or roughly Rs. 42,000, the amount of collections would be Rs. 1,87,000. From this amount the assessee would be entitled to a deduction of expenditure towards the salaries of the drivers and the cleaners etc. and also the 10%x margin which the Tribunal thought ought to be allowed on the mileage. In the Tribunal's order there is no indication of what these figures would amount to. It is clear that this method of computation would result in figures only for one branch, viz., Narsapur, which do not accord with the additions by which the total gross income of both the Eluru and Narsapur branches could be computed at Rs. 1,20,000. As we have already stated, the average rate of Rs. 5,000 for each bus on the fleets operating from Narsapur and Eluru, when particularly the results from the books of Eluru have been admitted to be without defect, would amount to a capricious fixation without any basis.

6. In our view, the order of the Tribunal is not sustainable in law and our answer to the question is, therefore, in the negative.

7. While thus answering the reference, we would like to point out that in disposing of the appeals, the order on the face of it should indicate the basis on which the taxable income of the assessee was computed, so that it is possible for the High Court in such reference to ascertain with certainty the correctness and soundness of the basis adopted by the Tribunal.

8. Let the reference be answered accordingly with costs of the assessee. Advocate's fee Rs. 250.

Reference answered, accordingly.