In Case Of Additional Commissioner Of Income Tax v. Rajasthan Spinning And Weav

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. D.B. Income Tax Appeal No.208/2005 Bhura Mal Raj Mal SuranaVs.Assistant Commissioner of Income Tax, Jaipur & Anr. DATE OF ORDER ::: 23.11.2016 HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE MAHENDRA MAHESHWARI Mr. T.C. Jain, for the appellant.Mr. Anuroop Singhi, for the respondent. BY THE COURT:- (Per Hon'ble Jhaveri, J.) 1.By way of this appeal, the assessee has challenged thejudgment and order of the Tribunal whereby Tribunal hasdismissed the appeal preferred by the assessee. He hasconfirmed the order of CIT(A). 2.The facts of the case are that during the year underconsideration the assessee had claimed payment ofcommission to the following persons. 2.1After examination of the above five persons, the AOcame to the conclusion that the claim of the payment ofcommission was not genuine. Therefore, he disallowed the payment of commission to these persons. The Id. CIT(A)after having discussed the issue in detail in her order hadalso confirmed the action of the AO.) 3. This Court while admitting the appeal framed thefollowing substantial questions of law vide order dated2.9.2005:- “1. Whether in the facts and circumstances ofthe case the Hon'ble ITAT was legally correct inits conclusion that factum of rendering service isnot proved, despite evidence on record that allthe parties had duly confirmed on oath instatements record by A.O. that they had in factintroduced the customers to whom sales weremade and further payment of commission tothem was made through Account payee chequesand they were existing Income Tax assessee? 2.Whether in the facts and circumstances ofthe case, the Hon'ble ITAT was legally correct insustaining order of Id. CIT (A) as regardsdisallowance of commission on sales?3. Whether in the facts and circumstances of thecase the finding arrived at by Hon'ble ITAT arenot sustainable being contrary to evidence onrecord and based on irrelevant considerationslike they first time acted as commission agentand they are not persons who are taxi drivers,travel agents or tourist guide, as commissionwas payable as per trade practice to any onewho introduces the customer to whom sales areeffected? 4.Whether in the facts and circumstances ofthe case, the findings arrived at by Hon'ble ITATare perverse and contrary to evidence availableon record on the basis of which no reasonableperson could have come to the conclusionarrived at by the Tribunal?” 4.Counsel for the appellant has contended that paymentof Rs.5,00,000/- was made out of which only Rs.1,19,300/- was legal for the persons namely Mr. P.C. Kothari Rs.21,000/-, Smt. Asha Dhadda Rs. 29,800/-, Smt. SushilaJain Rs. 48,000/-, Smt. Sushma Jain Rs. 8,500/- and Smt.Vimla Kothari Rs.12,000/-. 5.Hence, for the commission which was paid by accountpayee, no income tax is payable and therefore both theauthorities have committed serious error in disallowing theexpenses which are incurred. It has also been contendedthat it is enough to show that the money is expended, notof necessity and with a view to direct and immediatebenefit, but voluntarily and on grounds of commercialexpediency and in order to indirectly facilitate the carryingon the business the authorities were bound to look into thepoint of view of businessman and cannot substitute theirpoint of view. 6.To substantiate submissions Mr. Jain relied upon thedecision of Supreme Court in S.A. Builders Ltd. vs.Commissioner of Income Tax (Appeal) & Anr.reported in (2007) 288 ITR 1 (SC) wherein it has beenheld as under:- 6.To substantiate submissions Mr. Jain relied upon thedecision of Supreme Court in S.A. Builders Ltd. vs.Commissioner of Income Tax (Appeal) & Anr.reported in (2007) 288 ITR 1 (SC) wherein it has beenheld as under:- “It has been consistently held in decisions relating toSection 37that the expression "for the purpose ofbusiness" includes expenditure voluntarily incurred forcommercial expediency, and it is immaterial if a thirdparty also benefits thereby. It is enough to show thatthe money is expended, not of necessity and with aview to direct and immediate benefit, but voluntarilyand on grounds of commercial expediency and in orderSection 37that the expression "for the purpose ofbusiness" includes expenditure voluntarily incurred forcommercial expediency, and it is immaterial if a thirdparty also benefits thereby. It is enough to show thatthe money is expended, not of necessity and with aview to direct and immediate benefit, but voluntarilyand on grounds of commercial expediency and in order to indirectly to facilitate the carrying on the business.The expression "commercial expediency" is anexpression of wide import and includes suchexpenditure as a prudent businessman incurs for thepurpose of business. The expenditure may not havebeen incurred under any legal obligation, but yet it isallowable as a business expenditure if it was incurredon grounds of commercial expediency.” 6.1In case of Additional Commissioner of Income Tax vs. Rajasthan Spinning and Weaving Mills Ltd. reported in 274 ITR 465, it has beenheld as under:- “It is well-settled that expression 'wholly andexclusively' does not denote 'necessarily'. The word'wholly' refers to quantum of expenditure. Theword 'exclusively' refers to motive, objective orpurpose with which the particular expense hasbeen incurred. Ordinarily, it is for the assessee todecide whether any expenditure should be incurredin the course of its or his business. Such expensescan be incurred voluntarily and without necessity.If it is incurred for promoting the business and toearn the profits, the assessee can claim thededuction.” 6.2Decision of Madras High Court in Commissioner ofIncome Tax vs. Madras Refineries Ltd. reported in 266ITR 170 holding as under:- “The concept of business is not static. It has evolvedover a period of time to include within its fold theconcrete expression of care and concern for the societyat large and the people of the locality in which thebusiness is located in particular. Being known as agood corporate citizen brings goodwill of the localcommunity, as also with the regulatory agencies andthe society at large, thereby creating an atmosphere inwhich the business can succeed in a greater measurewith the aid of such goodwill. Monies spent for bringingdrinking water as also for establishing or improving theschool meant for the residents of the locality in whichthe business is situated cannot be regarded as beingwholly outside the ambit of the business concerns of the assessee, especially where the undertaking ownedby the assessee is one which is to some extent apolluting industry.” 6.3Decision of Rajasthan High Court in Commissioner of Income Tax vs. Rajasthan Spinning and Weaving MillsLtd. reported in (2006) 281 ITR 408 (Raj.) wherein it has been held as under:- “It is well-settled that expression 'wholly andexclusively' does not denote 'necessarily'. Theword 'wholly' refers to quantum of expenditure.The word 'exclusively' refers to motive, objectiveor purpose with which the particular expense hasbeen incurred. Ordinarily, it is for the assessee todecide whether any expenditure should be incurredin the course of its or his business. Such expensescan be incurred voluntarily and without necessity.If it is incurred for promoting the business and toearn the profits, the assessee can claim thededuction.” 6.3Decision of Rajasthan High Court in Commissioner of Income Tax vs. Rajasthan Spinning and Weaving MillsLtd. reported in (2006) 281 ITR 408 (Raj.) wherein it has been held as under:- “It is well-settled that expression 'wholly andexclusively' does not denote 'necessarily'. Theword 'wholly' refers to quantum of expenditure.The word 'exclusively' refers to motive, objectiveor purpose with which the particular expense hasbeen incurred. Ordinarily, it is for the assessee todecide whether any expenditure should be incurredin the course of its or his business. Such expensescan be incurred voluntarily and without necessity.If it is incurred for promoting the business and toearn the profits, the assessee can claim thededuction.” 6.4He relied upon the decision of Delhi High Court in Commissioner of Income Tax vs. Dalmia Cement (B.)Ltd. reported in 254 ITR 377 which was confirmed by the Supreme Court wherein it has been held as under:- “The reasonableness of the expenditure could be goneinto only for the purpose of determining whether, infact, the amount was spent. Once it is established thatthere was a nexus between the expenditure and thepurpose of the business, the Revenue cannotjustifiably claim to put itself in the armchair of abusinessman or in the position of the board ofdirectors and assume the said role to decide howmuch is a reasonable expenditure having regard to thecircumstances of the case.“ 7.To establish that the challenge to the concurrent finding which are perverse, it is also substantial question oflaw and it can be reversed, he relied upon the decision of Supreme Court in Vijay Kumar Talwar vs. Commissionerof Income Tax reported in (2011) 330 ITR 1 (SC) holding as under:- “The general rule is that High Court will notinterfere with the concurrent findings of the Courtsbelow. But it is not an absolute rule. Some of thewell-recognised exceptions are where (i) theCourts be low have ignored material evidence oracted on no evidence; (ii) the Courts have drawnwrong inferences from proved facts by applyingthe law erroneously; or (iii) the Courts havewrongly cast the burden of proof. When we referto 'decision based on no evidence', it not onlyrefers to cases where there is a total dearth ofevidence, but also refers to any case, where theevidence, taken as a whole, is not reasonablycapable of supporting the finding." 7.1He relied upon the decision of the Punjab and Haryana High Court in Commissioner of Income Tax vs. VikasChemi Gum India reported in 276 ITR 32 which reads as under:- “The requirement of recording of reasons andcommunication thereof has been read as anintegral part of the concept of fair procedure. Thenecessity of giving reasons flows from the conceptof rule of law which constitutes one of thecornerstones of our constitutional set up. Theadministrative authorities charged with the duty toact judicially cannot decide the matters onconsiderations of policy or expediency. Therequirement of recording of reasons by suchauthorities is an important safeguard to ensureobservance of the rule of law. It introduces clarity,checks the introduction of extraneous or irrelevantconsiderations and minimises arbitrariness in thedecision-making process. Another reason whichmakes it imperative for the quasi-judicialauthorities to give reasons is that their orders arenot only subject to the right of the aggrievedpersons to challenge the same by filing statutory appeal and revision but also by filing writ petitionunder Article 226of the Constitution. Suchdecisions can also be challenged by way of appealunder Article 136of the Constitution of India. TheHigh Courts have the power to issue writ ofcertiorari to quash the orders passed by a quasi-judicial authority/Tribunal. Likewise, in appeal, theapex Court can nullify such order/decision. Thesepowers can be effectively exercised by thesuperior Courts only if the order under challengecontains reasons. 7.2Decision of Supreme Court in Commissioner of Income Tax, Bombay vs. Gannon Dunkerley and Co. Ltd. & other connected cases reported in 167 ITR 637 (SC) wherein it has been held as under:- “Since we are directing a statement to be calledfor and the question to be referred, we refrainfrom expressing any opinion which might prejudiceeither of the parties before the High Court. Weallow the appeals, vacate the orders of theTribunal as also of the High Court confined to thequestion of reference and direct the followingquestion to be referred by the Tribunal to the HighCourt for its opinion: Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that theexpenditure by way of secret commission was deductible under Section 37(1) of the Act in computing the business income of the assessee?” 8.We have heard counsel for the parties. 9.Mr. Singhi has taken us to the cross-examinationwherein it has come on record that they were knowing sothat they were not introduced and recommended for anycommission. It has also come on record that some of thepersons who are known to Mr. P.C. Kothari, he is one of theperson but not relative but in that view of the facts on record, we are of the opinion that finding of both theauthorities are just and proper. The expenses which areincurred are doubtful payment made only with a view to getrid of hassles of higher tax slab. 10. In our opinion, the transaction is not based onexpenses which are disallowed but it is not for the businessexigency and purpose is to get rid of the hassles. In thatview of the matter, the view taken by the tribunal is just andproper. The issues are required to be answered in favour ofthe department and against the assessee. 11.The appeal stands dismissed. (Mahendra Maheshwari), J. (K.S. Jhaveri), J.Brijesh106.