NASIM SlKANDAR, JUDICIAL MEMBER -- These cross appeals arise out of an order recorded by the CIT
(A) Zone- 1, Lahore on 1.8.1995.
2. The assessee is a private limited company and is engaged in running a flour. Mill at Lahore. For the Assessm ent Year 1989-90 a return was filed to declare loss of Rs. 466,653/-. Instead ex parte assessm ent under Section 63 of the Ordinance was framed at Rs. 350,000 on 26.2.1992. The order so made was, however, was set aside by the CIT (A) on 9.6.1992 for fresh to law. After remand the assessing officer discarded declared sales of Rs. 923,031/- and the gross profit rate at 2.65%. it was, inter alia, noted that no purchase vouchers were produced nor cash memos, in respect of sales were made. Further that no stock register or production record had been maintained and that the expenses debited to the trading and profit and loss account were partly unvouched and unverifiable. The assessee had shown electricity consumption at 15808 units for milling 347776 kgs. of wheat. The emerging average consumption of 5 unit per 100 kg. was found excessive which in the opinion of the assessing officer ought to have been 22 kgs. per unit. Lastly it was found that the assessee had obtained a loan of Rs. 6,849,669/- from M/s. Grindlays Bank Limited, Lahore and that interest expenses on this loan at Rs. 275,453/- had also been claimed in profit and loss account, it was further noted that the assessee had shown cash in hand at Rs. 6,550,882/-. in the view of the assessing officer maintenance of such a huge cash and its non-user of employment in business of the assessee was not properly explained. He was rather of the opinion that an adverse inference should be drawn to the effect that the assessee company had conducted business with these funds but the same had not been reflected in the books of account. For these reasons he proceeded to estimate sales at Rs. 23,0, Qp0/-, and subjected them to a rate of 2.75%. After making profit and loss account disallowances of paltry sums including a sum of Rs. 15,540/- under the head salaries claimed at Rs. 29,335/- taxable income for the year was computed at Rs. 158,136/-.
3. The assessm ent so framed on 20.4.1994 was assailed before the first appellate authority with partial success only. By way of the impugned order learned first appellate authority maintained not only the rejection of accounts but also approved the basis of estimation of sales namely presence of huge cash in hand. However, the estimation was found slightly to be on the higher side and accordingly directed to be reduced to Rs. 2 crore. The applied rate at 2.75% was maintained but the disallowance of Rs. 15,540/- under the head staff salaries was found unjustified and, therefore, deleted.
4. The assessee is still not satisfied with the relief allowed while the Revenue considers the same to be excessive and unjustified.
5. Parties have been heard. Learned AR for the assessee strongly contends that in cases of similar nature the best possible guide or basis could only be consumption of electricity, in his view mere fact that the assessee had obtained a loan and was in possession of the same did not justify estimation of sales in Crores, it is further claimed that even if the formula of 22 kgs. per unit as opined by the assessing officer in the order is accepted the sales/production of the assessee could not be more than Rs. 1,391,104/-.
6. Learned D.R. however, supports the estimation of sales as made by the assessing officer on the basis of availability of huge cash in hand. The deletion of addition under the head staff salaries is also described as unjustified.
7. Having considered the submissions we entertain no doubt that the assessing officer totally failed to support his estimation of sales at Rs. 23,000,000/- as against disclosed by the assessee at Rs.
923,031/-. Learned AR for the assessee is correct in pointing out that in absence of any other basis the consumption of electricity ought to have been best guide for estimation of sales. On the basis of the alleged standard production in such cases as expressed by the assessing officer the production/sales of the assessee could be worked out at Rs. 1,391,104/- and not at Rs. 23,0, 000/- as made by the assessing officer. The factum that certain funds were available at the disposal of the assessee could not lead to an inference that these funds were actually used in the business of the assessee. An individual or a company may have many reasons for not employing all the funds available with it. The assessing officer therefore had to bring home some material to show that any of the funds were actually employed by the assessee in its business. He was not justified to ignore the electricity consumption. Even if his standard of production in such cases is accepted the estimation of sales could at best be made at Rs. 1,391,104/- as pointed out by the learned AR for the assessee. Since he failed to evolve any other basis and since more availability of funds with the assessee could not be taken to have been actually employed in the business of the assessee we will direct that the estimation of sales shall be restricted to Rs. 1,391,104/-.
8. Since we have allowed further relief in reducing the estimation of sales the departmental appeal against reduction of sales has become infructuous.
9. The relief allowed by the first appellate authority in case of deletion of addition under the head staff salaries is, however, unjustified. The assessing officer noted that no I. D. cards or salary register was produced to support the salaries at Rs. 29,335/-., Learned first appellate authority directed deletion of the addition by simply recording that it was unjustified. Instead of adjudicating upon the objection of the assessing officer learned first appellate authority wrongly allowed the impugned relief in deletion of addition under this head.
10. Therefore, the assessee will succeed only to the extent of restriction of estimation of sales to Rs.
1,391,104/- while the department will succeed to extent of its support to the disallowance under the head salaries which shall stand revived. Rest of the relief claimed by the parties shall be refused.