Income-tax---

----Business expenditure---Expenditure on repair and renovation---Burden on assessee to prove such repair and renovation---Finding that there had been no repair and renovation- Finding of fact---Tribunal finding that there had been no violation of principles of natural justice---Disallowance of expenditure was justified---Indian Income Tax Act, 1961, S.37.

The assessee-company had filed its returns for the assessment year 1985-86. On going through the accounts, the Assessing Officer noticed a sum of Rs.9,98,200 under the head "machinery and electrical repairs". The assessee produced sixteen bills of various dates from, December 2, 1984 to December 31, 1984, in support of the claim, issued by E. The assessee company was a company promoted by the directors of E and at the material time one of the directors of the assessee-company was the managing director of E, and both companies had a good business relationship. On perusing the records of E, the Assessing Officer found that the sixteen bills supplied to the assessee did not figure in the ledger maintained by them. The assessee was asked to reconcile the difference in trade balance and the assessee by letter, dated February 24, 1988, confirmed that the bills produced were genuine and bona fide. The sales executive engineer of E when summoned on March 8, 1988, under section 131 of the Income Tax Act, 1961, submitted in writing that the sixteen bills were given to show work involvement in reconditioning machines but the work was not carried out and as agreed subsequently a new machine was manufactured and supplied. The Assessing Officer carried out an inspection of the-factory premises and found that new equipment was cleared on July 30, 1985, at 10-45 p.m. under a gate pass issued by the Central Excise Department. Lorry weigh bridge receipts and despatch charges receipt showed that the unit was despatched on July 30, 1985. Evidence was collected from the labour contractor that from 1985 onwards labour charges were incurred for dismantling the old plant and for erection work of the new plant. Considering all these facts, the Assessing Officer concluded that no repairing work was carried out during 1984 as alleged, and disallowed the claim of the assessee for Rs.9,98,200. The Commissioner of Income-tax (Appeals) after considering the evidence and materials available in the case agreed with the Assessing Officer. The Tribunal also came to the conclusion that no repairing work was carried out during the year 1984. The Tribunal noticed that even for repairs and renovation work materials have to be transported. But, no such gate passes were available with the assessee and no supporting documents were there to show that repairs were carried out during the assessment year 1985-86. The Tribunal also found that there was no denial of natural justice before the Assessing Officer or before the appellate authority. The Tribunal confirmed the disallowance of the expenditure. On a reference:

Held, that in respect of the deduction claimed as revenue expenditure for repairs and renovation, it was for the assessee to prove the same and the assessee did not prove the same. The question whether the assessee carried out repairs and renovation work of the existing plant is a question of fact and there was a concurrent finding by the three authorities including the final fact-finding authority, the Appellate Tribunal. The Tribunal also found that there was no violation of the principles of natural justice by the Income-tax Authorities. Hence the disallowance of the expenditure was justified.

C. Kochunni Nair for the Assessee.

P. K. Ravindranatha Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

JUDGMENT

J. B. KOSHY, J.---The Income-tax Appellate Tribunal, Cochin Bench,, referred the following questions of law for our opinion under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the assessee:

"(i)

Whether, the finding of the Tribunal 'that the payment to Elgi Equipments Ltd., was for erection of a new Pasteuriser plant and not for repairs and renovation' is sustainable in law and whether it is not based on inadmissible materials collected behind the back of the assessee and not made available to it?

(ii) Whether the Tribunal was right in law to holding that the lapse on the part of the Commissioner of Income-tax (Appeals) is not admitting materials placed before him was venial and did not go into the root of the matter?

(iii) Whether the Tribunal was right in law in taking into account the additional evidence produced before it by the Revenue at the time of arguments without giving reasonable opportunity to the assessee to produce rebutting evidence?

(iv) Whether the Tribunal was right in law in holding that there has been no violation of natural justice, even when the authorities have used against the assessee, evidences given by witnesses and materials taken from records which were not made available to the assessee?

(v) Whether the Tribunal was justified in law in relying on the evidence tendered by Elgi Equipments Ltd., without getting its authenticity tested by cross-examination and whether it was justified in law in not taking into account the documents on record which prove the unreliability of the case of Elgi Equipments Ltd.?

(vi) Whether, on the facts and circumstances the mere showing of certain correspondences and documents to the chief executive at the time of his examination on February 17, 1988, amounted to reasonable opportunity and is not the finding of the Tribunal that there has been no violation of natural justice consequently vitiated in law?"

The assessee is a public limited company (Premier Breweries Limited) engaged in the manufacture and sale of beer. For the assessment year 1985-86 (calendar year 1984 is the relevant previous assessment year), the assessee filed a return. On going through the accounts, the Assessing Officer noticed a sum of Rs.9,98,200 under the head "Machinery and electrical repairs". The assessee produced 16 bills of various dates from December 2, 1984, to December 31, 1984, in support of the claim, issued by Elgi Equipments Limited, Coimbatore. The assessed-company was a company promoted by the directors of Elgi Equipments Limited and at the material time one of the directors of assessed-company was the managing director of Elgi Equipments Limited and both companies had good business relationship payments against the bills issued by Elgi Equipments Limited were made only in December 1985, and, this aroused the suspicion of the Assessing Officer. On perusing the records of Elgi Equipments Limited, the Assessing Officer found that the 16 bills supplied to the assessed did not figure in the ledger maintained by them and the trade balance with Premier Breweries Limited, as per their books of account was only Fs.5,583,20 as on December 31, 1984, as against Rs.9,98,200 appearing to their credit in the books of the assessee. The assessee was asked to reconcile the difference in the trade balance and the assessee by letter, dated February 24, 1988, confirmed that the bills produced . were genuine and bone fide. The sales executive engineer of Elgi Equipments Limited when summoned on March 8, 1988, under section 131 of the act submitted in writing as follows:

"The 16 works estimate bills given to Premier Breweries Limited, are only bills of estimates to detail the expenditure of work involved if the machine was to undergo conversion and reconditioning. The conversion and reconditioning was never undertaken and the bills were not accounted for and hence they did not find a place in our books of account. These 16 bills were given to them to show the work involvement in reconditioning the machines. Our engineers on inspection found that none of the components of the existing Pasteuriser could be used during reconditioning and conversion work. This would involve immense man power, time and unending work which according to us would have cost more. At this juncture we suggested for supply of a new machine instead of converting and reconditioning the old one. As agreed subsequently, the new machine was manufactured at our plant and the machine was despatched after arising Rs.9,50,251 in a single invoice."

It is also stated that Elgi Equipments Limited supplied a new machine on July 30, 1985, to the assessee. The Assessing Officer carried out an inspection of the factory premises and found that new equipment was cleared on July 30, 1985, at 10.45 p.m. under a gate pass issued by the Central Excise Department. Lorry weigh bridge receipts, despatch charges receipt were also found out to show that the unit was despatched on July 30, 1985. Evidence was collected from the labour contractor that from 1985 onwards labour charges were incurred for dismantling the old plant and for erection work of the new plant. Considering all these facts, the Assessing Officer concluded that no repairing work was carried out during 1984 as alleged and disallowed the claim of the assessee of Rs.9,98,200 and also found that the new Pasteuriser was purchased under an invoice, dated July 30, 1985, for the same amount.

In the appeal, the assessee contended that the evidence was collected behind his back as he was not given copies of the statement of witnesses, etc., and principles of natural justice were violated while passing the assessment order. He also produced certain Annexures along-with the appeal memo. The Commissioner of Income-tax (Appeals) after considering the evidence and materials available in the case agreed with the Assessing Officer that no repairing work was carried out during the calendar year 1984. Additional documents produced in the appeal petition were not fully relied on by the, Appellate Commissioner as those documents were not produced before the assessee authority. However, the report was called for from the assessing authority on these documents: In the second appeal before the Appellate Tribunal, the Tribunal also came .to the conclusion that no repairing work was carried out during the year 1984 relating to the assessment year 1985-86. After holding so, the Tribunal also notice a letter, dated June 10, 1988, filed by Elgi Equipments Limited in the course of penalty proceedings in which it was alleged that the assessee wanted that party to make 16 bills to match exactly with the amount raised in the invoice. The Tribunal also noticed that even for repairs and renovation work materials have to be transported. But, no such gate passes were available with the assessee or no supporting documents were there to show that repairs were carried out during the assessment year 1985-86: The Tribunal also found that there was. no denial of natural justice before the Assessing Officer or before the appellate authority.

The question whether the assessee carried out repairs and renovation work of the existing plant is a question of fact and since there is a concurrent finding by three authorities including the final fact-finding authority, the Appellate Tribunal, no question of law will arise. It is alleged that the above findings were based on materials collected behind the back of the assessee by the Assessing Officer and in not admitting the additional documents placed before the Commissioner of Income-tax (Appeals) and also the Tribunal

relying on an additional document while confirming the orders of the authorities, there is violation of principles of natural justice and hence the findings are vitiated, etc., are the sum and substance of the six questions referred for our opinion.

The contention that the Assessing Officer did not give an opportunity for cross-examination and materials were gathered being the back of the assessee without disclosing it to him can be considered first. Admittedly, the assessee did not ask for cross-examining or summoning any person before the Assessing Officer. All the evidence put forward by the assessee was considered by the Assessing Officer. Entire contentions raised by the assessee were considered by the Assessing Officer. The assessee was asked to reconcile the difference in the trade balance with Elgi Equipments Limited and the number of bills based on which the charges were raised. The assessee was also asked to explain regarding the cost of machinery and why the cost of such machinery was put as revenue expenditure. The explanation offered by the assessee was considered by the Assessing Officer. The Tribunal considered the contention that the Assessing Officer has not relied on materials behind the back of the assessee and found as follows:

"The material collected was all placed before the assessee and the same was material for the enquiry."

The Tribunal further held as follows:

"We would like to state that in the deposition made by Mr. Amritalingam before the Assessing Officer he had stated only that which was conveyed to the Assessing Officer in the earlier correspondence and this correspondence was shown to Shri Venkitaraman, the chief executive of the assessee. In such circumstances, it is difficult to conceive how the assessee could claim that there has been violation of natural justice."

After perusing the records we also agree that three was no violation of the principles of natural justice by the assessing authority. No material was collected behind the back of the assessee and the assessee was aware of the materials and no opportunity was asked for by the assessee for cross examining any of the persons from Elgi Equipment Limited or production of any documents. Therefore, there is no basis for the contentions of the assessee that the Assessing Officer has violated the principles of natural justice.

The Commissioner of Income-tax (Appeals) did not admit some of the documents filed in the appeal proceedings as they were not produced before the Assessing Authority. It cannot be called a violation of the principles of natural justice. The assessee was having these documents before the Assessing Officer passed the order and nothing prevented the assessee from producing the same before the assessing authority. In any event, the Tribunal also considered these documents and found as follows:

"The papers which formed part of the paper book giving the minutes of the various meetings held by the members of the top management do not throw any light which could go to decide the issue one way or the other. The one thing that is evident is that the management was aware that the repair and renovation cost could exceed the cost of a new plant. In the light of these discussions, it would appear that either the assessee or Elgi Equipments Ltd., have a lot to hide but if the materials as culled out above are properly marshalled there could be no other inference except that the payment to Elgi Equipments Ltd., was for erection of a new Pasteuriser plant and not for repairs and renovation. "

In any event, the deduction claimed as revenue expenditure for repairs and renovation, it was for the assessee to prove the same and the assessee did not prove the same. The Tribunal also has considered the entire matter and agreed with the Assessing Officer and the appellate authority and also further found that there was no violation of the principles of natural justice by these authorities. After holding that no repair work was carried out in support of the contentions, the Tribunal referred to the letter, dated June 10, 1988 of Elgi Equipments Limited filed in the course of penalty proceedings. With regard to the letter, according to the Tribunal:

....once again clarified that the plant was completed and cleared from the central excise despatched to Premier Breweries Ltd., supported by a single sale bill No. 1183. It was also alleged in the letter that the assessee wanted this party to make 16 bills to match exactly with the amount raised in their invoice. Elgi Equipments Ltd., it was claimed, was closely advised and guided by the assessee in preparing the substitute sixteen bills and their accounts manager even specified the wordings to be Assessing Officer after the completion of the assessment its relevance cannot be lost sight of."

But the finding was arrived at by the Tribunal on other materials itself. The Tribunal also pointed out that:

"We may further point out that the gate passes showing transportation of material were with the assessee and it is an admitted fact that along-with the challans there was a copy of the invoice. Yet the assessee could not give any details regarding the materials that were brought into the assessee's factory premises and why there was an invoice attached to the challans. We, in the circumstances have no hesitation in rejecting the feeble explanation that Elgi Equipments Ltd., was under a warranty and that the materials brought in by the lorries probably was to replace some components which Elgi Equipments Ltd., was required to do during the warranty period. If it required seven lorries to transport material to keep the plant functioning after it was set right as claimed by the assessee, there would be similar transportation of material when the repair and renovation work was carried out. The procedure followed for the transportation of material necessary for alleged repair and renovation work had to be the same and in such circumstances the transportation has to be supported by gate passes. No such passes were available - with the assessee. At any rate, none was produced. Thus, it is evident that the assessee had no worthwhile material to support its claim. As has been rightly contended by the learned Departmental representative, where a deduction is claimed, the onus is squarely on the assessee to, prove its claim. Apart from the 16 bills which Elgi Equipments Ltd., claimed to be estimate or advance bills submitted at the request of the assessee and an entry in the store register showing issue of a conveyor chain there is no other evidence to support the claim."

Therefore, the Tribunal independently considered the evidence and agreed with the findings of the earlier authorities that no repairing work was carried out by the assessee during the calendar year 1984 so as to claim deduction for the assessment year 1985-86. While arriving at the conclusions, the Tribunal has also considered all the points put forward by the assessee and the finding that no repairing work was carried out in the year 1984 is a finding of fact concurrently found by the Assessing Officer, Commissioner (Appeals) and the Appellate Tribunal. We are not sitting in appeal in advisory jurisdiction while answering the reference under section 256(1). There is no violation of the principles of natural justice as contended by the assessee. The findings are not perverse and are not based on inadmissible evidence. There is also no denial of reasonable opportunity as contended by the assessee. Therefore, we are of the opinion that the- order of the Tribunal is sustainable in law and there is no legal infirmity as contended by the assessee.

In the above circumstances we, answer all the questions in favour of the Department arid against the assessee.

M.B.A./4162/FCReference answered.