TIRUPATI TRADING CO VS COMMISSIONER OF INCOME TAX
2002 P T D 1310
[242 I T R 13]
[Calcutta High Court (India)]
Before Y.R. Meena and Ranjan Kumar Mazumdar, JJ
TIRUPATI TRADING CO
Versus
COMMISSIONER OF INCOME‑TAX
Income‑tax References Nos.119 and 121 of 1992 and Matter No.2324 of 1992, decided on 17/08/1999.
(a) Income‑tax‑‑‑
‑‑‑‑Business expenditure‑‑‑Disallowance of expenditure‑‑‑Amounts paid in cash in excess of specified limit‑‑‑Amount paid in cash for disbursement among Lorry drivers‑‑‑Payments reflected in account books‑‑‑Amounts could not be disallowed‑‑‑Indian Income Tax Act, 1961, S.40A(3)‑‑‑Indian Income Tax Rules, 1962, R.6DD,
(b) Income‑tax‑‑‑
‑‑‑‑Interest on borrowed capital‑‑‑No evidence that amounts had been borrowed for purposes of business‑‑‑Interest was not deductible‑‑‑Indian Income Tax Act, 1961, S.36.
(c) Income‑tax‑‑‑
‑‑‑‑Business expenditure‑‑‑Travel expenses‑‑‑No finding on question whether travel was for purposes of business‑‑‑Matter remanded‑‑‑Indian Income Tax Act, 1961, S.37.
The assessee‑firm carried on the business of manufacturing, trading and export of cast iron. The assessee claimed deduction of payment of Rs.1,49,902 on transport. During the scrutiny, the Income tax Officer found that out of that expenditure, the assessee had paid Rs.95,000 and the payments were in cash exceeding Rs.2,500 on different dates, and that therefore, that was hit by the provisions of section 40A(3) of the Income Tax Act, 1961. The case of the assessee was that this cash had been collected from the assessee in Calcutta and it was for the payment to drivers. The Tribunal confirmed the disallowance.
The assessee had claimed deduction of interest on a loan of Rs.8,60,000. The loan had been advanced immediately to a sister concern free of interest. The case of the assessee was that it was not in fact an interest free loan to P but an advance against a flat booked by the assessee in a building. The Income‑tax Officer disallowed the interest. The Tribunal found that the assessee had not produced any terms of the contract between the assessee firm and P. No construction had been undertaken by P. The entire story of the assessee that the money was advanced for booking flats was not supported by any material. The Tribunal upheld the disallowance.
The assessee had also claimed deduction of Rs.1,08,381 as travel expenses for purposes of the business. The Income‑tax Officer did not allow the deduction and the Tribunal confirmed the disallowance. On a reference:
Held, (i) that the assessment proceedings commenced in the month of September, 1985, and the assessment was completed by the middle of October, 1985. The assessee had its head office in Calcutta and the transporters, were in Jamshedpur. Therefore, it might not be possible to obtain the affidavit from those persons within such a short period. In para, 4 of the affidavit‑ of the transporters filed before the Commissioner (Appeals) they stated that they had to collect money in cash only since the same was required to be disbursed amongst different lorry owners. The break‑up of the amount had been given. The payments were reflected in the account books of the assessee. Hence, the amount of Rs.94,506 representing; payment made to the transporters could not be disallowed.
(ii) That the assessee had failed to prove that the flat was booked for the office. There was no evidence except the oral claim that the flat was booked for the purpose of the assessee‑firm. In the absence of any supporting evidence that the flat was booked for the purpose of the office and considering the finding of the Income‑tax Officer, Commissioner of Income‑tax (Appeals) as well as the Tribunal, there was no justification to interfere with the view taken by the Tribunal that the advance was not for the purpose of the business. The disallowance of interest was valid.
(iii) That no details were furnished before the Income‑tax Officer as to whom the partners of the firm had contacted abroad for the purpose of sales promotion, but there was evidence on record that the tour was for the purpose of the business, as per the permission of the Reserve Bank of India. If no sufficient evidence was produced to connect the foreign tour with the business, when the assessment was completed within one and half months, the Income‑tax Officer should give reasonable opportunity to bring sufficient material on record to give a finding whether the foreign tour was for the purposes of the business‑ or for sales promotion. (Matter remitted to Tribunal to give fresh finding and permit the assessee to adduce the evidence and bring on record the relevant materials to justify the claim of the assessee that the foreign tour was for the purpose of the business and sales promotion).
JUDGMENT
On three reference applications, the Tribunal has referred the following questions in Reference No.119 of 1992, Reference No.121 of 1992 and Matter No.2324 of 1992, for the opinion of this Court:
"(1)(a) Whether, on the facts and in the circumstances of the case, and the materials available on record, the Tribunal was justified in upholding the disallowance of interest of Rs.1,01,250 in computing taxable income of the assessee?
(b)Whether, on the facts and in the circumstances of the case, the findings of the Tribunal to the effect that there was no material in support of the assessee's claim of having advanced monies to Pushpak Commercial Co. Ltd., towards booking of office flat for commercial purposes is against the evidence on record and/or otherwise unreasonable and perverse?
(2)(c) Whether, on the facts and in the circumstances of the case and in view of the provisions of section 40A(3) read with rule 6DD of the Income‑tax Rules, the Tribunal was justified in confirming the addition of Rs.94,506 representing payment made by the assessee‑firm to Dharam Roadways?
(d)Whether on the facts in the circumstances of the case, the finding recorded by the Tribunal to the effect that genuineness of payment of Rs.94,026 made by the assessee‑firm to Dharam Roadways has not been established and/or the exceptional or unavoidable circumstances leading to cash payments have not been established is based on no evidence and/or is otherwise unreasonable and perverse?
(e)Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in rejecting the evidence in the form of affidavit jointly sworn .by Sri Prakash Singh and Sri Bedi Singh of Dharam Roadways, Jamshedpur, in regard to the payment of Rs.94,026 received by them in cash from the assessee‑firm?
(3)(f) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the disallowance including claim for weighted deduction in respect of foreign travel expenses of Rs.1,08,381 incurred under blanket permits for export promotion issued by the Reserve Bank of India and claimed as deductible under section 37 read with section 35B and rule 6D(1)(i) of the Income‑tax Rules, 1962?
(g)Whether, on the facts and in the circumstances of the case, the finding recorded by the Tribunal to the effect that no attempt was made by the assessee to establish that the foreign tours were undertaken for business purposes including export promotion is based on no evidence and/or otherwise unreasonable and perverse?"
The assessee‑firm carries on business of Manufacturing, trading and export of C.I. casting goods made of cast iron as in the preceding year. The materials used in the business are pig iron. Inter alia, the assessee claimed deduction of payment of Rs.1,49,902 on transport. During the scrutiny, the Income‑tax Officer found that out of that expenditure, the assessee has paid Rs.95,000 and the payments were in cash exceeding Rs.2,500 on different dates. Therefore, that is hit by the provisions of section 40A(3) of the Act. The case of the assessee was that this cash has been collected by Shri P.K. Sureka from the assessee in Calcutta and it was for the payment to drivers. The Income‑tax Officer disallowed the claim as the payment was in cash which is hit by the provisions of section 40A(3) of the Act read with rule 6DD.
In appeal before the Commissioner of Income‑tax (Appeals), the Commissioner of Income‑tax (Appeals) has admitted the additional evidence in the form of affidavit of Prakash Singh and Bedi Singh, who are the transporters and transport agents.
While admitting the affidavit it is observed that the hearing of the case was commenced from September, 1985, and the assessment was completed by the middle of October, 1985. Therefore, the assessee had no reasonable opportunity to obtain the affidavit from the transporters DRN, Jamshedpur.
The Tribunal found that the additional evidence admitted by the Commissioner of Income‑tax (Appeals) is contrary to the provisions of rule 46A. Before admitting the additional evidence in the form of affidavit, no case was made out by the assessee to establish the exceptional or unavoidable circumstances to produce the evidence before the Income‑tax Officer. The Tribunal also observed that it is not known who out of Prakash Singh and Bedi Singh verified the contents of the affidavit. According to the Tribunal, such affidavit has no evidentiary value. Therefore, the Tribunal finally held that the payment in cash in excess of Rs.2,500 is hit by the provisions of section 40A(3). It reversed the order of the Commissioner of Income‑tax (Appeals) and restored the order of the Income‑tax Officer on this point.
Learned counsel for the assessee submits that under rule 46A, the Commissioner of Income‑tax (Appeals) has power to admit the additional evidence where the appellant was prevented by sufficient cause from producing the evidence before the Assessing Officer or in a case where the Assessing Officer has made the order appealed against without giving sufficient, opportunity to the appellant to adduce evidence relevant to any ground of appeal. He further submits that in view of sub‑rule. (4) of rule 46A, the Deputy Commissioner (Appeals) or the Commissioner (Appeals), as the case may be, may direct the assessee to produce any document or ask for examination of any witness to enable him to dispose of the appeal.
Learned counsel for the Revenue submits that in this case the Commissioner of Income‑tax (Appeals) has not directed the assessee to produce the evidence in support of the claim nor were there compelling circumstances to make the payment in cash.
Considering the submissions of learned counsel and the facts on record that the assessment proceedings commenced in the month of September, 1985, and the assessment was completed by the middle of October, 1985. The assessee has its head office in Calcutta and the transporters, Prakash Singh and Bedi Singh, are in Jamshedpur. Therefore, it may not be possible to obtain the affidavit from those persons within such a short period. In para. 4 of the affidavit, the deponent states that we had to collect the money in cash only, since the same was required to disburse amongst different lorry owners at our end. At page 2 of the affidavit, the break‑up of the amount has been given. How Rs:94,506 are paid in cash to these transporters, the relevant dues and the amount paid on those dates reads as under:‑‑
DateAmount
Received (Rs.)
11‑5‑19816,249.10
10‑6‑19814,070.50
12‑8‑198140,291.90
31‑10‑198128,359.65
21‑10‑19811,345.60
5‑12‑198112,827.65
18‑12‑198114,62.45
Total94,506,85
The payments are reflected in the accounts books of the assessee.
Considering these facts we found no justification to disallow this amount attracting the provisions of section 40A(3) of the Act.
The next issue raised in these questions for our consideration is whether the Tribunal was justified in disallowing the interest of Rs.1,01,250. During the scrutiny, the Income‑tax Officer found that the assessee has claimed interest on a borrowed cash loan of Rs.8,60,000 and on the same date that has been advanced to Puspak Commercial Co. Ltd. free of interest.
The case of the assessee is that this is not in fact an interest free loan to Puspak Commercial Co. Ltd., but it is an advance against a flat booked by the assessee in a building which was proposed to be constructed by Puspak Commercial Co. Ltd. But that building did not come up and the assessee thereafter withdrew that amount ‑from Puspak Commercial Co. Ltd. Learned counsel for the assessee submits that the flat was booked for the purpose of an office. The Income‑tax Officer found that the loan was advanced only to accommodate the party, Puspak Commercial ‑Co. Ltd. as the assessee and Puspak Commercial Co. Ltd. had intimate connection. Even the two partners of the assessee‑firm are Directors in Puspak Commercial Co. Ltd. The Income‑tax Officer treated that the advance of Rs.8,60,000 to Puspak Commercial Co. Ltd., was not. for the purpose of the business. Therefore, he disallowed interest on the borrowed amount of Rs.8,60,000 which covers Rs.1,01,250. In appeal the Commissioner of Income‑tax (Appeals) also found that the advance of Rs.8,60,000 to Puspak Commercial Co. Ltd. was not for the purpose of the business. The Tribunal observed at para. 28 that the assessee has not produced any terms of the contract between the assessee‑firm and Puspak Commercial Co. Ltd. No construction has been undertaken by Puspak Commercial Co. Ltd. The entire story of the assessee that the money was advanced for booking flats was in air unsupported by any material and it is difficult to swallow the argument of counsel of the assessee that the flat was booked for commercial purpose, that is, for the use of the assessee‑firm.
Considering the submissions of learned counsel for the parties and going into the evidence whether the assessee has paid this amount for booking the flat or not? The fact remains that the assessee has failed to prove that the flat was booked for the office. There is no evidence except the oral claim that the flat was booked for the purpose of the assessee firm. In the absence of any supporting evidence that the flat was booked for the purpose of the office and considering the finding of the Income tax Officer, Commissioner of Income‑tax (Appeals) as well as the Tribunal, we find no justification to interfere with the view taken by the Tribunal that the advance, was not for the purpose of the business.
The last issue for our consideration is whether the expenditure to the tune of Rs.1,08,381 on travelling expenses abroad was for the purpose of the business?
The assessee claimed before the Income‑tax Officer that the three partners of the assessee‑firm travelled abroad for exploring the market and for that purpose they undertook the business tour to the USA and Canada and the partners of the firm contacted about ten foreign traders for the purpose of the assessee's business. The Income‑tax Officer did not allow these expenses under section 37 nor allowed weighted deduction under section 35B, on these expenses.
According to the Income‑tax Officer, though the expenses were claimed to be for sales promotion but no evidence on record or correspondence with the foreign parties are produced before the Income tax Officer to substantiate the claim that the tour was for the purpose of the. business and for sales promotion.
In appeal before the Commissioner of Income‑tax (Appeals), the assessee has furnished the list of persons who were contacted and with whom the other sister concern already had some transactions.
Considering the submission, the Commissioner of Income‑tax (Appeals) has deleted the addition of Rs.1,08,381 and also allowed the weighted deduction on that amount. In appeal before the Tribunal, the Tribunal has taken the view that the Commissioner of Income‑tax (Appeals) has admitted the additional evidence in violation of rule 46A and he did not properly understand the claim of the assessee, that mere permit for export promotion issued by the Reserve Bank of India is not enough to accept the claim of the assessee that the foreign tour was for the purpose of the business. Finally, it confirmed the view taken by the Income‑tax Officer that the Income‑tax Officer has rightly disallowed the travelling expenses under sections 37 and 35B of the Income‑tax Act.
Learned counsel for the assessee submits that if sufficient material is not there before the Tribunal, the Tribunal should set aside the matter and ask for further enquiry whether the foreign tour was for the purpose of sales promotion. Learned counsel for the Revenue also has not seriously controverted this submission that in a case where proper, enquiries are not made or sufficient material is not made available on record to give a finding whether the foreign tour was for the purpose of the business or for the purpose of sales promotion, the Tribunal should remit the matter to the Income‑tax Officer for further evidence.
It is true that no details were furnished before the Income‑tax Officer as to whom, the partners of the firm has contacted abroad for the purpose of sales promotion, but there is evidence on record that the tow was for the purpose of the business, as per the permission of the Reserve Bank of India. If no sufficient evidence was produced to connect the foreign tour with the business, in that case when the assessment was completed within one and a half months, the Income‑tax Officer should give reasonable opportunity to bring sufficient material on record to give a finding whether the foreign tour was for the purpose of the business of for sales promotion.
In view of these facts, we remit the matter back to the Tribunal on this issue 'to give a fresh finding and permit the assessee to adduce the evidence and bring on record the relevant materials to justify the claim of the assessee that the foreign tour was for the purpose of the business and sales promotion.
In the result, in the light of the above discussions, we answer Questions Nos.1 (a) and 1(b) in the affirmative, i.e., in favour of the Revenue and against the assessee.‑ We answer Questions Nos.2(c), (d) and (e) in the negative, i.e., in favour of the assessee and against the Revenue. Questions Nos. 3(f) and (g), we declined to answer as there is no sufficient material to answer the question and we remand the matter back to the Tribunal for fresh finding on the fact whether the foreign tour was or the purpose of the business?
All the three matters are disposed of accordingly.
M.B.A./661/FCOrder accordingly.