WARDEX PHARMACEUTICALS (PVT.) LTD. VS COMMISSIONER OF INCOME-TAX
2001 P T D 3292
[240 I T R 406]
[Madras High Court (India)]
Before R. Jayasimha Babu and N. V. Balasubramanian, JJ
WARDEX PHARMACEUTICALS (PVT.) LTD.
Versus
COMMISSIONER OF INCOME‑TAX
Tax Case No.86 of 1991 (Reference No.28 of 1991), decided on 23/04/1998.
Income‑tax‑‑
‑‑‑‑Appeal to Appellate Tribunal‑‑‑Powers of Tribunal‑‑‑Power to remand‑‑ Amounts paid by way of compensation for breach of contracts‑‑‑Deduction claimed for such amounts‑‑‑Tribunal justified in remitting matter to ITO to find out whether payments were genuine‑‑‑Indian Income Tax Act, 1961, S.254.
The assessee‑company paid two substantial amounts towards compensation for breach of contracts and claimed this expenditure as deduction. On a statement given by Z to the Assistant Director of Inspection, the Income‑tax Officer concluded that the payments were not genuine and rejected the claim. The Tribunal was of .the view that the question whether the transactions were genuine or not had to be decided and hence remanded the matter to the Income‑tax Officer for fresh disposal. On a reference: '
Held, that since the question whether the payments made by the assessee were genuine or not and certain other aspects of the question regarding the payments were required to be examined, there was no error in the order of the Tribunal in remitting the matter back to the Income‑tax Officer.
P.P.S. Janarthana Raja for Subbaraya Aiyar and Padmanaghan for the Assessee.
C.V. Rajan for the Commissioner.
JUDGMENT
N.V. BALASUBRAMANIAN, J.‑‑‑The assessee is a company. In the previous year ended March 31, 1979, relevant to the assessment year 1979‑80, the assessee had placed an order on April 6, 1978, with one Kodiyar Chemical Corporation of Bombay for a supply of 10 kgs. of vitamin B‑12 crystals at Rs.85 per gram to be supplied during the month of November and December, 1978, and in January, 1979. The offer was also accepted on April 11, 1978. However, this contract was cancelled on October 30, 1978, on the ground that the assessee did not require the material at that time. By a letter, dated November 4, 1978, the supplier protested against the cancellation and on January 10, 1979, an agreement was reached, wherein, the assessee agreed to pay a compensation towards the breach at the rate of Rs.20 per gram and there was a debit of Rs.2 lakhs which was sent by a demand draft on March 31, 1979, and the supplier acknowledged it on May 9, 1979. It is also stated that there was another transaction by which the assessee agreed for purchase of goods on import entitlement of the value of Rs.10 lakhs for a premium of Rs.8 lakhs under an agreement, dated August 7, 1978, with one Ashwin Trading Company. On November 29, 1978, the assessee stated that it was arranging for funds and on December 19, 1978, this agreement was repudiated. This transaction was also settled by payment of Rs.3 lakhs on February 2, 1979, the amount being sent by a telegraphic transfer to the credit of Ashwin Trading Company and acknowledged by it on May 15, 1979. It is relevant to note that the company is a proprietary concern of one Mr. Zatakia and when he was examined by the Assistant Director of Inspection, he stated that the money was immediately drawn from the bank and handed over back to Mr. Mohanchand Dada, ,the. director of the assessee‑company, and that he had received only a sum of Rs.10,000 as commission. The Income-tax Officer, on the basis of the material came to the conclusion that the payments were not genuine and he rejected the assessee's claim for deduction of the amount on the ground that the assessee had not established that the transactions were true and genuine. The Commissioner of Income‑tax (Appeals) was of the view that the statement of Zatakia could not be believed as it was a self‑serving statement, but however, he held that the deduction could not be allowed as the transaction was to be regarded as a speculative transaction.
The assessee filed an appeal against the order of the Commissioner and has produced documentary evidence in support of the two transactions to show the transmission of money through banking channels and that the assessee had incurred expenditure and there was no evidence contra to the statement of one Zatakia that he withdrew the money from the bank and gave it back to a director of the assessee‑company. The Appellate Tribunal found that this issue was not properly considered by marshalling the necessary evidence to test the veracity of the charge because the Commissioner of Income‑tax (Appeals) had brushed aside the statement of Zatakia as a self serving statement repudiating the receipt of money. Mr. Zatakia stood to gain as he need not pay tax on it. The Tribunal felt that the statement of Zatakia requires close scrutiny as there were contradictions in his statement and his income‑tax returns and the manner in which he had received the amount were not clarified. There was also no clarification from the assessee. The Tribunal also felt that the question whether the alleged suppliers were actually in the trade of supplying chemicals and the Appellate Tribunal, therefore, remitted the ‑ matter to the Income‑tax Officer for fresh consideration in accordance with law.
The assessee filed an application to state a case to this Court and the Appellate Tribunal has stated a case and the following question of law has been referred to us for our consideration at the instance of the assessee:
"Whether, on the facts and in the circumstances of the case the Tribunal was right in setting aside the order of the Commissioner of Income‑tax (Appeals) and remitting the matter back to the Income‑tax Officer for fresh disposal in respect of payments made by the applicant to Ashwin Trading Company and Kodiyar Chemicals Corporation, Bombay, when the question of genuineness of the transactions had become final and accepted by the Department and admittedly the Department has neither filed appeal or any cross objections?"
Learned counsel for the assessee submitted that the payments to Ashwin Trading Company and Kodiyar Chemical Corporation Ltd., has been accepted as genuine and the Tribunal was not correct in remitting the matter back to the Income‑tax Officer for fresh disposal. We are of the view that the Tribunal is correct in directing the matter back to the Income‑tax Officer for fresh disposal as the question whether the payments made by the assessee were genuine and certain aspects on the question regarding the payments were required to be examined. The Tribunal came to the conclusion that the evidence of Mr. Zatakia required close scrutiny as the statement made by Mr. Zatakia was conflicting. The Tribunal also felt that the transactions between the assessee and Ashwin Ti:ading Company and Kodiyar Chemicals Corporation Ltd., Bombay, have not been looked into as to whether they received the commission or not. Therefore, according to the Tribunal, the question as to whether the transactions were genuine or not has to be decided and in this view, directed the Income‑tax Officer to verify the question as to whether the transactions were genuine or not. In our opinion, the Tribunal has exercised its discretion properly and directed the Income‑tax Officer to consider the question afresh. The Tribunal had before it the entire assessment and it is well‑settled that it has the jurisdiction and powers to pass such orders thereon as the circumstances of the case would warrant. The question whether the payments should be allowed or not was the issue before it and the Tribunal has the necessary jurisdiction to remit the matter to consider the question whether the payments can be regarded as genuine or not. In the circumstances of the case, the view of the Tribunal that the entire transactions should be looked into including the question of genuineness cannot be faulted as it felt that there was no full and proper investigation of the facts. We find that there is no error in the order of the Tribunal in remitting the matter back to the Income‑tax Officer to consider the question afresh as to whether the transactions were genuine or not.
Accordingly, we answer the question of law referred to us in the affirmative and against the assessee. The Revenue shall be entitled to costs in the sum of Rs.750 (rupees seven hundred and fifty only).
M.B.A./333/FCReference answered.