TIRUPATI TRADING CO. vs COMMISSIONER OF INCOME TAXS

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 finding of the Tribunal to the effect that there was no material in support of the assessee''s claim of having advanced monies to Puspak Commercial Co. Ltd. towards booking of office flat for commercial purposes is against the evidence on record and/or otherwise unreasonable and perverse ?

(c) Whether, on the facts and in the circumstances of the case, and in view of provision of section 40A(3) read with rule 6D 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 and 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 ?

(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 u/s 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 is otherwise unreasonable and perverse ?"

The assessee-firm carries on business of manufacturing, trading and export of C.I. casting goods made of caste iron as in the preceding year. The material used in the business are pig iron, inter alia, assessee claimed deduction of payment of Rs. 1,49,902 on transport. During the scrutiny, 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 Income Tax Act, 1961 (hereinafter referred to as "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 payment to drivers. The Income Tax Officer disallowed the claim as the payment was cash payment which is hit by the provisions of section 40A(3), read with rule 6(a).

In appeal before the Commissioner (Appeals), the Commissioner (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 (Appeals) is contrary to the provisions of rule 46A. Before admitting the additional evidence in the form of affidavit, no case was made 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). He reversed the order of the Commissioner (Appeals) and restored the order of the Income Tax Officer on this point.

The learned counsel for the assessee submits that under rule 46A the Commissioner (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 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 the 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.

The learned counsel for the revenue submits that in this case the Commissioner (Appeals) has not directed the assessee to produce the evidence in support of the claim nor there were compelling circumstances to make the payment in cash.

Considering the submissions of the learned counsel and the facts on record that the assessment proceeding commenced in the month of September, 1985 and assessment was completed by 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 die affidavit from those persons within such a short period. In para 4 of the affidavit the deponents state that they had to collect the money in cash only since the same was required to be disbursed amongst different lorry owners at their ends. At page 2 of the affidavit, the break-up of the amount has been given. How Rs. 94,506 was paid in cash to these transporters, the relevant dues and the amounts paid on those dates read as under :-

Date

Received (Rs.)

11-5-1981

6,249.10

10-6-1981

4,070.50

12-8-1981

40,291.90

31-10-1981

28,359.65

21-10-1981

1,345.60

5-12-1981

12,827.65

18-12-1981

1,462.45

Total

94,506.85

The payments are reflected in the account books of the assessee.

Considering these facts we found no justification to disallow this amount attracting the provisions of section 40A(3).

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 scrutiny the Income Tax Officer found that the assessee has claimed interest on a borrowed cash loan of Rs. 8,60,000 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. This 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. The learned counsel for the assessee submits that the flat was booked for the purpose of office. The Income Tax Officer found the loan was advanced only to accommodate the party Puspak Commercial Co. Ltd. as the assessee and Puspak Commercial Co. Ltd. had intimate connections. Even two partners of the assessee-firm are directors in Puspak Commercial Co. Ltd. Income Tax Officer held that the advance of Rs. 8,60,000 to Puspak Commercial Co. Ltd. was not for the purpose of business. Therefore, he disallowed interest on the borrowed amount of Rs. 8,60,000 which covers Rs. 1,01,250. In appeal, the Commissioner (Appeals) also found that the advance of Rs, 8,60,000 to Puspak Commercial Co. Ltd. was not for the purpose of 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 flat was in air unsupported by any material and it is difficult to swallow the argument of the counsel for the assessee that the flat was booked for commercial purpose, that is, for the use of the assessee-firm.

Considering the submissions of the learned counsels 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 absence of any supporting evidence that the flat was booked for the purpose of office and considering the finding of the Income Tax Officer, the Commissioner (Appeal) 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 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 business.

The assessee claimed before the Income Tax Officer that three partners of the assessee-firm travelled abroad for exploring the market and for that purpose they undertook the business tour to 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 u/s 37 nor allowed weighted deductions u/s 35B on these expenses.

According to the Income Tax Officer, though the expenses were claimed to be for sales promotion, no evidence on record or correspondence with foreign parties was produced before the Income Tax Officer to substantiate the claim that the tour was for the purpose of business and for sales promotion.

In appeal before the Commissioner (Appeal), the assessee has furnished the list of persons who were contacted and with whom other sister concern already had some transactions.