K. Jagannatha Shetty, J.
1. Under s. 256(2) of the IT Act, 1961, the Tribunal has referred to the following two questions :
'1. Whether the Tribunal had any material to hold that the assessee had an income of Rs. 21,970 by way of interest in the asst. yr. 1964-65
2. Whether the Tribunal had any material for making an addition of Rs. 17,935 towards income from lorry hire in computing the income of the assessee for the asst. yr. 1964-65 ?'
2. The assessee firm is running a rice mill at Ponnampet and also deals in rice and paddy. Admittedly, it owned two lorries during the year of account. There is some dispute as regards the other two lorries used by the assessee. The assessee used to purchase paddy from growers either on cash or on suspense account on the understanding that the rate of purchase would be settled at later date. It is said that most of the persons from whom the assessee effected purchases were either his own kinsmen or people in his sphere of influence. They did not maintain any accounts of their transactions.
3. The ITO appears to have made an enquiry into the matter from the growers and found that the assessee charged interest on the amounts advanced to the growers. He was also informed that the assessee used to charge lorry hire for the paddy brought from the growers.
4. In regard to the disputed two lorries, the ITO also made some enquiry and held that the assessee owned those two lorries also standing in the names of C. S. Achaiya and K. K. Kuttappa during the accounting year and they were used in the business of transporting paddy to Kerala and selling it there. For the asst. yr. 1964-65, the ITO added Rs. 21,970 as the difference of interest received on the amount advanced to the growers and added the same to the total income of the assessee. So far as the income from the two disputed lorries is concerned, the ITO made an addition of Rs. 17,395 to the net income of the assessee and the assessment was accordingly made.
5. Challenging the validity of the assessment, the assessee preferred an appeal to the AAC. Before the AAC, there was further evidence recorded in regard to the ownership of the two disputed lorries. After considering the additional evidence, the AAC held that those two lorries did not belong to the assessee. So far as the interest assessed by the ITO was concerned, the AAC found that it was quite reasonable. So far as the lorry hire charges of Rs. 17,395 were concerned, the AAC held that though the lorries were mainly used for assessee's own purposes, it could not be said that the assessee had not used it altogether on hire to others.
6. Aggrieved by the order made by the AAC, the Department preferred an appeal to the Tribunal (sic). The assessee also filed cross-objection (sic). The Tribunal dismissed the cross-objection of the assessee while allowing the appeal of the Department. The Tribunal has confirmed the order of the ITO both in respect of the interest assessed and also on the income representing the lorry hire charges.
7. Counsel on both sides took us through the entire records in respect of the two disputed items of income. After perusing the records and hearing the arguments of ld. counsel, we are of the opinion that there is absolutely no material in support of the findings recorded by the Tribunal. We will take up the first question first for consideration.
8. This is what the ITO has found in regard to interest income :
'Now coming to the total income of the assessee during the year, it is seen that every year there are quite a lot of sundry creditors and sundry debtors. This year the total amount due to the assessee at the end of the year was Rs. 1,24,672 and the amount owned by the assessee was Rs. 87,980. It has been gathered from local enquiry and the assessee has accepted that he does charge interest on the amounts advanced by him. But it is strange to note that during the year, the assessee has paid a sum of Rs. 16,053 as interest, whereas on a large sum due to him he has shown only a small amount of Rs. 2,108 as interest received. Considering the total amount due to and owned by the assessee, I will adopt a sum of Rs. 24,078 as the interest due and the difference will be added to the total income.'
9. It will be seen from the above observations that the ITO was completely guided by the interest paid by the assessee to his sundry creditors, although there was no acceptable evidence before him in regard to the interest recovered on the amount advanced to the growers. It seems to us that the interest paid by the assessee to his sundry creditors cannot be a yardstick for measuring the interest alleged to have been recovered by the assessee from the growers. It must be noted that the assessee is not a money-lender. He might have borrowed from his creditors for the purpose of business. He did not lend money to the growers. His advance payment to growers represented part of the price which he was required to pay upon delivery of the paddy. The two transaction are thus quite different and one has no relation to the other. The basis upon which the ITO has estimated the interest said to have been recovered from the growers, cannot, therefore, be sustained at all.
10. There is no independent consideration by the AAC in regard to this aspect of the matter. All that he has stated is as follows :
'Another point raised in the appeal is that the ITO should not have added the interest income of Rs. 21,970, since he was not doing any money lending business.
I find that the facts stated by the ITO are quite reasonable and it is quite clear that though the amount of sundry debtors is large, the appellant has not charged much interest, while strangely, to sundry creditors he paid a huge amount of Rs. 16,053 by way of interest. Under these circumstances, I uphold the addition of Rs. 21,970 made by the ITO on this account.'
11. The order of the Tribunal is no better. The Tribunal has stated thus :
'As regards the addition made for interest income, since there is evidence to show that the assessee did charge interest on the amounts advanced to the paddy growers in suspense account, he had to account for all the interest which was chargeable on the amount outstanding particularly when he claims to have paid interest on amounts due by him. The ITO's and Appellate Assistant Commissioner's orders in this regard are correct and call for no interference.'
12. The Tribunal has proceeded on the ground that the ITO had evidence before him to assess the interest amount. We have already observed that the ITO has proceeded arbitrarily and there was no acceptable evidence before him.
13. In the circumstances, we have to answer the first question in the negative and in favour of the assessee.
14. This takes us to question No. 2 which relates to the addition of Rs. 17,395 towards the income from lorry hire in computing the income of the assessee. The ITO has estimated the collection of lorry hire from the growers in addition to the accounts maintained by the assessee. The arbitrary manner in which the ITO has proceeded is writ large in the following portion of his order :
'Regarding the collection of lorry hire from the growers, the assessee said that it was collected in some cases and that this has been disclosed. He said that sometimes the paddy was brought in the cart of the grower also. But he could not give a break-up of his purchases keeping these two factors in mind. Even assuming that the cart loads account for 40% of the purchases, the lorry hire shown as recovered is Rs. 2,483 only and is negligible. During this year, the assessee has disclosed the purchases at 23,929 quintals. But as already stated, this has to be increased by 100% and the purchases would come to about 47,500 quintals or roughly 4,750 cart loads. If 40% of this is deducted as the paddy brought by the growers themselves in their carts, the balance would be 2,850. As the local enquiry regarding the collection of lorry hire was made at T. Sheetegeri and Nemmale and as there are many more places which are nearer to Ponnampet from where the assessee makes his purchases, I adopt the average rate of Rs. 7.50 per cart load and add back the difference of Rs. 17,395 to the net income of the assessee.'
15. The AAC has just blessed the finding of the ITO in slating thus :
'Another point raised in appeal is that the Income-tax Officer should not have made the addition of Rs. 17,395 on account of lorry hire.
Though the lorries were mainly used for its own purposes, it cannot be said that the appellant would not have used it altogether for collecting lorry hire from others. In this case, the Income-tax Officer in his assessment order has made specific mention about such lorry hire collections. I shall, therefore, uphold the addition of Rs. 17,395 made by the Income-tax Officer on this account.'
16. The Tribunal did not go into the question in detail. This is what the Tribunal has stated :
'The last item in the cross-objections challenges the addition of Rs. 17,395 to lorry hire. Since we have held that one lorry was being used entirely by the assessee, the addition made for the income from that lorry has to be sustained. The authorities below have taken a very reasonable view about the income from lorry hire and this order calls for no interference. The cross-objection is dismissed.'
17. It will be seen from these observations that there is hardly any material on record for upholding the addition of Rs. 17,395 towards the income from lorry hire. The second question in the circumstances must also be answered in the negative and in favour of the assessee.
18. In the result, we answer both the question in the negative and in favour of the assessee.
19. In the circumstances, the parties are to bear their own costs.