Commissioner Of Income-Taxcoimbatore v. The Official Liquidatorhigh Courtmadras

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22.10.2007 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN AND THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) No.79 of 2004 Commissioner of Income-taxCoimbatore.... Appellant Vs. The Official LiquidatorHigh CourtMadras. ...Respondent. Respondent is substituted as above from "South India Viscose Limited,Coimbatore" as per order of Court dated 7.8.2007 made in T.C.M.P.No.48of 2007. Tax Case Appeal No.79 of 2004 is filed under Section 260-A ofthe Income-tax Act, 1961 against the orders of the Income-taxAppellateTribunal,'A'Bench,ChennaimadeinI.T.A.No.1130/Nds/1989 dated 29.7.2002 for the assessment year 1975-76 against the order of the Commissioner of Income-Tax (Appeals),Coimbatore dated 8.2.1989 and made in I.T.Appeal No.226-C/88-89against the order of the Inspecting Assistant Commissioner ofIncome Tax (Assessment) Range-1,Coimbatore, dated 28.3.1988 and madein PA No.CN-0158/75-76 IAC(A) R.I. For Appellant : Mr.Muralikumaran, Sr.Standing Counsel for Income-tax.For Respondent : Mr.A.Thiagarajan JUDGMENT (Judgment of the Court was made by K.RAVIRAJA PANDIAN,J.)The assessee's assessment order in respect of the assessmentyear 1975-76 has been revised more than once in order to give effectto the order of the Commissioner of Income-tax (Appeals) andAppellate Tribunal and also further modified on rectification of themistakes. The amount claimed as a deduction in a sum ofrs.3,00,034/- on account of commission paid to one P.M.Traders wasrejected. The assessee claimed that the commissions were paid forsale of wood pulp and purchase of caustic soda from National RayonCorporation Limited. The Assessing Officer verified the assessmentrecords of both recipients of the commission and also made enquiriesthrough National Rayon Corporation Limited, who denied having anymiddle man to the business. The assessing officer accordinglydisallowed the payment of commission treating it as bogus. Onappeal, the Commissioner of Income-tax (Appeals) upheld disallowancewith respect to the payment to P.M.Traders. The assessee filed anappeal against the order of the Commissioner of Income-tax (Appeals)to the Income-tax Appellate Tribunal. The Tribunal has allowed theappeal on the ground that the receipt of commission has beenaccepted by the recipient by its letter and in the absence of anymethod to discard the admission the deduction should have beengranted. Aggrieved by the said order of the Appellate Tribunal, therevenue filed this appeal and the appeal was admitted on thefollowing substantial questions of law: "1. Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right in law inallowing deduction of the commission payment by theassessee on the ground that the commission agents werenot examined, in spite of the fact that National RayonCorporation had clearly said that no middlemen wereengaged in the transaction? 2. Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right in law inallowing deduction of the commission payment by theassessee, when it was clearly a colourable device to fundextra commercial considerations? 2. The learned counsel appearing for the revenue vehementlycontended that the reasoning given by the assessing officer, whichis confirmed by the Commissioner of Income-tax (Appeals) areunassailable reasons. The other fact that the National RayonCorporation has given a statement that no middle men were engaged bythem in the transaction would also go to prove the bogus claim ofthe assessee that finding would not have been reversed by theTribunal. https://hcservices.ecourts.gov.in/hcservices/ 2. Whether on the facts and in the circumstances ofthe case, the Appellate Tribunal was right in law inallowing deduction of the commission payment by theassessee, when it was clearly a colourable device to fundextra commercial considerations? 2. The learned counsel appearing for the revenue vehementlycontended that the reasoning given by the assessing officer, whichis confirmed by the Commissioner of Income-tax (Appeals) areunassailable reasons. The other fact that the National RayonCorporation has given a statement that no middle men were engaged bythem in the transaction would also go to prove the bogus claim ofthe assessee that finding would not have been reversed by theTribunal. https://hcservices.ecourts.gov.in/hcservices/ 3. On the contrary, the learned counsel appearing for therespondent Company, which is under liquidation, has submitted thatthe Tribunal has passed an order after taking note of the statementgiven by the person to whom the commission has been given. TheTribunal further taken into consideration of the fact that earlierthe Tribunal has passed an order of remittal with a direction to theassessing officer to enquire the person i.e., P.M.Traders to whomthe commission has been paid. That direction has not been compliedwith by the assessing officer. On the contrary, the assessingofficer has enquired some of the officers of the National RayonCorporation, which is not a direction given by the Tribunal. Hefurther contended that in respect of the subsequent assessmentyears, the Tribunal has taken the same view as taken in the presentcase, which has not been agitated by the Department, rather it isaccepted by the Department. When that being the position, for thepresent assessment year, they cannot take a different view. 4. We heard the argument of the learned counsel on either sideand perused the materials on record. 5. The learned counsel appearing for the revenue has fairlysubmitted that in respect of the subsequent assessment years, he isnot in a position to place before this Court any material as towhether the matters have been taken on appeal, as he was also notsure whether appeals have been filed or not. However, the learnedcounsel appearing for the Company under liquidation submits thattill date, no notice has been received by the Company underliquidation in any case in respect of the subsequent assessmentyears. From that, it is clear that for the subsequent assessmentyears, the revenue has accepted the finding arrived at by theTribunal. 6. In addition to that, one more factor needs to be stated isthat in respect of the assessment year, when the matter wasoriginally carried to the Income-tax Appellate Tribunal, theTribunal after taking into consideration of the submission formedan opinion that the matter requires fresh investigation on theground that as per the records, the partnership deed of theP.M.Traders executed in April 1986 was to take effect from1.1.1984, which was not taken into account by the Income TaxOfficer, who had seen the document. In addition to that, theassessing officer has not considered the letter dated 31.12.1975submitted by the P.M.Traders to the effect that they did receive thecommission from the assessee and verified the same with theP.M.Traders. The assessing officer also failed to verify whether thepartnership was for the purpose of exploiting the agreement withthe assessee for the purpose of business. The Tribunal ultimatelyhttps://hcservices.ecourts.gov.in/hcservices/ set aside all orders of the authorities below and remitted thematter to the Income-tax Officer for making fresh assessment after aproper investigation by examining the agent – the P.M.Traders aftergiving the assessee an opportunity of being heard. set aside all orders of the authorities below and remitted thematter to the Income-tax Officer for making fresh assessment after aproper investigation by examining the agent – the P.M.Traders aftergiving the assessee an opportunity of being heard. 7. On remittal also, from the records, it could be seen thatthe assessing officer has not even taken the pain of verifying theletter dated 31.12.1975 issued by P.M.Traders accepting the receiptof the commission from the assessee. However, the assessing officerthought it fit enough to inquire with one of the Officers of theNational Rayon Corporation. The assessing officer on the basis ofthe statement recorded from one of the officers of the NationalRayon Commission has rejected the claim for payment of commissionto P.M.Traders. 8. It is well established legal principle that in the hierarchyof the statutory authorities, when the higher fact finding authorityremitted the matter with a direction to the lower authority tofollow certain procedure, so as to be within the statutoryprovision, the lower authority has to make that exercise as directedby the Tribunal. In this case, as rightly pointed out by the counselfor the assessee as well as in the order of the Tribunal, theIncome-tax Officer has totally flouted the direction to verify withthe letter dated 31.12.1975 by which the P.M.Traders has acceptedthat they did receive the commission from the assessee. On the otherhand, much reliance has been placed by the authorities below on thestatement given by one of the officers of the National RayonCommission. 9. Having regard to the totality of the circumstances of thecase, and with particular reference to the Tribunal Order, which hasextracted the orders made by the Tribunal in respect of theassessee's case in the subsequent years to the effect that theclaim of the assessee in regard to payment of commission toP.M.Traders deserves to be upheld, the further factual position asto the non-verification of the letter dated 13.12.1975 issued byP.M.Traders, who by that letter accepted the receipt of commission,we do not find any irregularity in the order of the Tribunal. 10. After perusal of the records, we are of the view that theorder of the Tribunal requires no modification and the questions oflaw framed were answered in affirmative against the revenue andthe appeal is dismissed. Sd/Asst.Registrar /true copy/ Sub Asst.Registrar uskTo1. The Asst.Registrar,Income-tax Appellate TribunalIII Floor, Rajaji Bhavan, Besant Nagar,Chennai.2. The Commissioner ofIncome-tax Coimbatore.3. The Inspecting Asst.Commissioner ofIncometax (Assessment) Range-ICoimbatore 4. The Commissioner of Income-tax (Appeals,)Coimbatore5.The Official Liquidator,High Court, Chennai. +1cc to Mr.N.Muralikumaran SSC for IT Sr 63644 CU (CO)km/1.11. Tax Case (Appeal) No.79 of 2004