Om Prakash, C. J. The Tribunal was directed under section 256(2) of the Income Tax Act, 1961, to draw up a statement of the case and refer the following questions for the opinion of this court :
"(i) Whether, on the facts and in the circumstances of the case, was the Tribunal correct in law and fact in directing the Income Tax Officer to allow the expenditure?
(ii) Whether, on the facts and in the circumstances of the case, did the Tribunal have any material before it to come to the conclusion that the expenditure had been incurred?"
The Tribunal, in compliance with the directions given by the High Court, referred the above disputed questions for the opinion of this court.
2. The facts, as stated in the statement of the case by the Tribunal are that, the assessee a registered firm engaged in the business of transportation, undertook contracts with Kerala State Civil Supplies Corporation for transporting sugar. The assessee executed the contract by using its own lorries and also vehicles taken on hire. Every month, the assessee submitted the bills to the Corporation. As per the information furnished by the Corporation, the assessee had presented a bill for January, 1982 for Rs. 5,34,635 and another bill for Rs. 2,06,112 for March 1982. The assessing officer found that the Corporation had paid full amount due to the assessee under the January Bill in February itself. Similarly, in respect of the bill for March, 1982, the Corporation had paid Rs. 1,69,495 in March itself. Thus, the assessing officer concluded that a sum of Rs. 7,40,747 aggregating the amounts received from the Corporation in respect of the bills presented in January and February, 1982, were not accounted for in the year ended 31-3-1982, relevant to the assessment year 1982-83. Since the assessee was following mercantile system of accounting, the assessing officer added the sum of Rs. 7,40,747 to the income of the assessee for the assessment year 1982-83.
2. The facts, as stated in the statement of the case by the Tribunal are that, the assessee a registered firm engaged in the business of transportation, undertook contracts with Kerala State Civil Supplies Corporation for transporting sugar. The assessee executed the contract by using its own lorries and also vehicles taken on hire. Every month, the assessee submitted the bills to the Corporation. As per the information furnished by the Corporation, the assessee had presented a bill for January, 1982 for Rs. 5,34,635 and another bill for Rs. 2,06,112 for March 1982. The assessing officer found that the Corporation had paid full amount due to the assessee under the January Bill in February itself. Similarly, in respect of the bill for March, 1982, the Corporation had paid Rs. 1,69,495 in March itself. Thus, the assessing officer concluded that a sum of Rs. 7,40,747 aggregating the amounts received from the Corporation in respect of the bills presented in January and February, 1982, were not accounted for in the year ended 31-3-1982, relevant to the assessment year 1982-83. Since the assessee was following mercantile system of accounting, the assessing officer added the sum of Rs. 7,40,747 to the income of the assessee for the assessment year 1982-83.
3. The assessee claimed that for earning gross income of Rs. 7,40,747, it had incurred expenditure by way of hire charges, payable for vehicles taken on hire for transportation work at Rs. 9,31,920, the break-up of which is as under :
3. The assessee claimed that for earning gross income of Rs. 7,40,747, it had incurred expenditure by way of hire charges, payable for vehicles taken on hire for transportation work at Rs. 9,31,920, the break-up of which is as under :
Rs.
Rs.
January 1982 5,03,935.00 March, 1982 4,27,985.00 9,31,920.00 The assessee claimed that the said expenditure be allowed as revenue expenditure under section 37(1) of the Act. The assessee urged that the assessing officer has allowed lorry hire expenses incurred in respect of the bills for the earlier months and, therefore, the lorry hire expenses incurred during January and March, 1982 be also allowed. The assessing officer, however, took the view that no evidence, in support of the expenditure of Rs. 9,31,920 was adduced by the assessee and, therefore, he declined to allow deduction in respect of the expenditure of Rs. 9,31,920.
4. On appeal, the Commissioner(Appeals) has stated as follows:
4. On appeal, the Commissioner(Appeals) has stated as follows:
".....At the time of hearing of the appeal, I put a specific question to the learned representative of the appellant as to what evidence was available with the assessee to prove that these expenses amounting to Rs. 9,31,920 were actually incurred by the appellant as hire charges against the two bills amounting to Rs. 7,40,747. The appellant and the learned representative vehemently stated that no independent evidence in the form of acquittance from the lorry drivers or receipts from the payees were actually available with the assessee. It is now well settled that the onus to prove that expenditure has been actually incurred for the purpose of earning income is on the assessee.
Since the appellant has stated that no evidence was available to prove that this expenditure of Rs. 9,31,920 was actually incurred to earn the income of Rs. 7,40,747 I am of the opinion that in the absence of evidence, no deduction can be allowed against the receipt of Rs. 7,40,747".
On further appeal, the Tribunal has found as follows:
".....The assessee has to utilise the lorries either belonging to them or to others for transporting sugar. The fact that they have transported sugar must be accepted because the Corporation had paid the bills presented by them. The Corporation, therefore, is satisfied that service was done. Therefore, it would be futile to say that no expenditure could be allowed against the addition.... Now this expenditure is on lorry hires. The assessee's books show lorry numbers and the amounts paid. This expenditure on these lorries is in no way different from the expenditure incurred by the assessee under identical circumstances for 10 months in the year. The Department does not have any difficulty in accepting the expenditure for these months. If the rate at which the expenditure is claimed is excessive compared to the other ten months, then, perhaps the Department might say that the claim is excessive. There is no such case made out. Thus we do not see why the assessee should not be allowed a deduction on account of the expenditure. Income-tax is only a tax on income. It is not a tax on gross receipts. We would, therefore, direct the Income Tax Officer to allow the expenditure".
5. We agree with the broad approach of the Tribunal that when gross receipt of Rs. 7,40,747 is brought to tax, then the corresponding expenditure should be allowed. It is difficult to accept that the gross income of Rs. 7,40,747 was earned without incurring any expenditure. If that be so, the expenditure can be assessed by best judgment assessment, if the assessee failed to adduce convincing evidence in support of the expenditure. There is no good reason to disallow the expenditure claimed by the assessee in full. It is noteworthy that claim for expenditure was disallowed simply because the assessee failed to produce evidence. It is not the case of the assessing authority that the gross amount of Rs. 7,40,747 came to the hands of the assessee without incurring any expenditure. If income was not received without incurring expenditure, then it was the duty of the assessing authority to assess expenditure by best judgment assessment, if the assessee failed to produce cogent evidence in support of his claim. However, it is not denied that the assessee failed to produce cogent evidence to prove the expenditure. Therefore, the Tribunal was not justified in allowing the full expenditure of Rs. 9,31,920 as claimed by the assessee, especially in the absence of good reasons therefor.
5. We agree with the broad approach of the Tribunal that when gross receipt of Rs. 7,40,747 is brought to tax, then the corresponding expenditure should be allowed. It is difficult to accept that the gross income of Rs. 7,40,747 was earned without incurring any expenditure. If that be so, the expenditure can be assessed by best judgment assessment, if the assessee failed to adduce convincing evidence in support of the expenditure. There is no good reason to disallow the expenditure claimed by the assessee in full. It is noteworthy that claim for expenditure was disallowed simply because the assessee failed to produce evidence. It is not the case of the assessing authority that the gross amount of Rs. 7,40,747 came to the hands of the assessee without incurring any expenditure. If income was not received without incurring expenditure, then it was the duty of the assessing authority to assess expenditure by best judgment assessment, if the assessee failed to produce cogent evidence in support of his claim. However, it is not denied that the assessee failed to produce cogent evidence to prove the expenditure. Therefore, the Tribunal was not justified in allowing the full expenditure of Rs. 9,31,920 as claimed by the assessee, especially in the absence of good reasons therefor.
6. Therefore, we are of the view that the order of the Tribunal to the extent it allowed the entire expenditure claimed by the assessee in the absence of any supportive material, is not sustainable.
6. Therefore, we are of the view that the order of the Tribunal to the extent it allowed the entire expenditure claimed by the assessee in the absence of any supportive material, is not sustainable.
7. As already pointed out, in the absence of cogent evidence, it was the duty of the assessing officer to assess the expenditure by best judgment assessment and the case deserves to the remitted to the Tribunal.
7. As already pointed out, in the absence of cogent evidence, it was the duty of the assessing officer to assess the expenditure by best judgment assessment and the case deserves to the remitted to the Tribunal.
8. In the result, both the questionsQuestion 1 and 2 are answered in the negative, that is, in favour of the revenue and against the assessee and the case is remitted to the Tribunal to assess the expenditure claimed by the assessee by best judgment assessment. The Tribunal, if deemed proper, may remand the case to the assessing authority to assess the expenditure by best judgment assessment.
8. In the result, both the questionsQuestion 1 and 2 are answered in the negative, that is, in favour of the revenue and against the assessee and the case is remitted to the Tribunal to assess the expenditure claimed by the assessee by best judgment assessment. The Tribunal, if deemed proper, may remand the case to the assessing authority to assess the expenditure by best judgment assessment.