M/S.padmaja Financial Services P. Ltd v. The Asst. Commissioner Of Income Tax,Company Circle-Iv(3),Chennai – 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN TCA.No.263 of 2009 M/s.Padmaja Financial Services P. Ltd.,No.187 (Old No.107) Peters Road, Chennai – 600 086... Appellant/Appellant Vs. The Asst. Commissioner of Income Tax,Company Circle-IV(3),Chennai – 600 034. .. Respondent/Respondent Prayer :Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunal Madras 'B' Bench, Chennai dated 31.05.2007 inI.T.A.No.1534/Mds/1995 for the assessment year 1990-91, andagainst the order of the Commissioner of Income Tax(Appelas)-IV,Chennai-600 034 made in ITA.NO.181/93-94 order dated 28/02/1995and against the order of the Assistant Commissioner of IncomeTax, Company circle-IV(3), Chennai, made in PAN/GIR.NO.139P/47-081-CN-6149, order dated 22.03.1993 in the Assessment year of1990-1991. For Appellant: Mr. Venkat Narayanan for M/s.Subbaraya Aiyar Padmanabhan & Ramamani For Respondent : Mr.S.Rajesh, for Mr.Karthik Ranganathan Standing CounselJ U D G M E N T [Judgment of the Court was delivered by T.S.Sivagnanam, J.] This appeal by the Revenue under Section 260 A of the IncomeTax Act, 1961 (hereinafter referred to as "the Act") is directed https://hcservices.ecourts.gov.in/hcservices/ against the order dated 31.05.2007 in ITA.No.1534/Mds/1995passed by the Income Tax Appellate Tribunal Madras, 'B' Bench inthe assessment year 1990-91. 2.The appeal has been admitted on the following substantialquestion of law :“Whether on the facts and in thecircumstances of the case, the Tribunal failedto appreciate that the expenditure was incurredwholly and exclusively for the purpose ofbusiness and hence allowable u/s. 37 of theAct?” 3.We have heard Mr.Venkat Narayanan, learned counsel for theappellant/assessee and Mr.S.Rajesh, learned Standing Counsel forthe respondent/revenue. 4.The assessee filed its return of income for the assessmentyear 1990-91 declaring total income of Rs.82,390/- on11.01.1991. The case was selected for scrutiny, in response towhich the assessee's authorized representative and the Directorappeared before the Assessing Officer and answered the queriesraised by the Assessing Officer. The Assessing Officer notedthat the main source of income of the assessee Company is by wayof service charges received from its clients mainly fromCorporate Sector for providing financial services like arrangingcredits investment advise, etc. For the previous year relatingto the assessment year 1990-91, the assessee had admitted agross receipt of service charges amounting to Rs.17,69,638.65.It also claimed payment of service charges amounting toRs.5,02,077.70 and the net amount of Rs.12,67,560.95 was shownin the Profit and Loss Account. The assessee claimed payment ofservice charges to ten persons/firms. The Assessing Officerdisbelieved the payment of such service charges and for whichpurpose, the assessee was called upon to furnish the names ofthose ten persons. Upon the names being furnished, the saidpersons were summoned and statement under Section 131 wasrecorded. After going through the statements given by those tenpersons, the Assessing Officer found that none of the partieshave rendered any worthwhile service to the assessee Company andmost of them did not have any knowledge about their own businessand did not know for what purpose they received money from theassessee. Accordingly the stand taken by the assessee wasrejected and the assessment was completed by order dated22.03.1993. The assessee carried the matter by way of an appealto the Commissioner of Appeals-IV (CITA), Madras, who by orderdated 28.02.1995 confirmed the factual finding recorded by theAssessing Officer and on further appeal before the Tribunal, theorder passed by the Assessing Officer and the CIT(A) was confirmed by the impugned order. confirmed by the impugned order. 5.Mr.Venkat Narayanan, learned counsel for the assesseesubmitted that the names of the persons who have renderedservices were provided to the Assessing Officer and they weresummoned and statement was recorded and all of them havereceived service charges and shown them in their books ofaccounts and also disclosed it in the Income Tax Returns filedand therefore, the Assessing Officer committed an error indisbelieving the stand taken by the assessee. Reliance wasplaced on the decision of the Hon'ble Supreme Court in the caseof Sassoon J.David & Co. P. Ltd vs. Commissioner of Income Tax[(1979) 118 ITR 0261(SC)]. In the said decision, it was pointedout that an attempt was made in the IT Bill of 1961 to lay downthe "necessity" of the expenditure as a condition for claimingdeduction under Section 37. Section 37(1) in the Bill read "anyexpenditure ..... laid out of expended wholly, necessarily andexclusively for the purposes of the business for professionshall be allowed...." It was further pointed out that theintroduction of the word "necessarily" in the section resultedin public protest. Consequently, when Section 37 was finallyenacted into law, the word "necessarily" came to be dropped.Further, it was pointed out that the fact that somebody otherthan the assessee is also benefited by the expenditure shouldnot come in the way of an expenditure being allowed by way ofdeduction under Section 10(2)(xv) of the Act if it satisfies thetests laid down by law. It needs to be pointed out that theabove decision can render no assistance to the case of theassessee. The said decision points out the effect of Section 37of the Act. Nevertheless, unless and until the other test laiddown by law are satisfied, the question of claiming the same asa deduction does not arise. In the instant case two authoritiesand the Tribunal concurrently disbelieved the case of theassessee and to say the least, the stand of the assessee wasutterly false. Therefore, the question of claiming deductiondoes not arise. 6.Reliance was also placed on the decision in the case ofCommissioner of Income Tax vs. Sapthagiri Traders Ltd. andothers [(2008) 305 ITR 0438 (Madras)]. In the said case, theTribunal found that the transaction of purchase of packingmaterial was not proved to be sham nor the price paid was provedto be different than that shown in the books and the paymentswere made through Cheques, there was no reason to deny deductionunder Section 37(1) of the Act. In the preceding paragraphs ofthis judgment, we have pointed out about the various persons whowere summoned by the Assessing Officer and statement wasrecorded. Those persons though admitted that they have receivedmoney from the petitioner were not aware for what purpose thesame was paid and most surprisingly many of them did not know what is their line of business. Therefore, the assessee had setup a false case with a view to avoid the tax liability. 7.Reliance was also placed on the decision in the case ofCommissioner of Income Tax vs. Devayhi Beverages Ltd. [(2008)2896 ITR 0041 (Del)]. We find that the decision can hardly helpthe assessee on account of the factual position therein wherethe Court found that the assessee therein engaged in manufactureand sale of soft drinks is entitled to full deduction allowed byit to dealers for breakage and leakage of bottles irrespectiveof percentage of similar discount allowed by it in the earlieryear. On facts, the Tribunal held in favour of the assesseewhich was confirmed by the High Court of Delhi. This decisioncannot be applied to the facts of the present case. what is their line of business. Therefore, the assessee had setup a false case with a view to avoid the tax liability. 7.Reliance was also placed on the decision in the case ofCommissioner of Income Tax vs. Devayhi Beverages Ltd. [(2008)2896 ITR 0041 (Del)]. We find that the decision can hardly helpthe assessee on account of the factual position therein wherethe Court found that the assessee therein engaged in manufactureand sale of soft drinks is entitled to full deduction allowed byit to dealers for breakage and leakage of bottles irrespectiveof percentage of similar discount allowed by it in the earlieryear. On facts, the Tribunal held in favour of the assesseewhich was confirmed by the High Court of Delhi. This decisioncannot be applied to the facts of the present case. 8.Mr.S.Rajesh, learned Standing Counsel for the respondentrightly placed reliance on the decision of the High Court ofKerala in the case of Ram Bahadur Thakur Ltd. vs. Commissionerof Income Tax [(2003) 130 Taxman 275 (KER.)] which refused tointerfere with the concurrent finding of the fact arrived at bythe Appellate Authority and the Tribunal. He has also relied onthe decision of the High Court of Punjab and Haryana in the caseof Liberty Footwear Co. vs. Commissioner of Income Tax [(2014)51 taxmann.com 87 (P&H)]. 9.Reliance was also placed on the decision of the Hon'bleApex Court in the case of Commissioner of Income Tax vs.P.Mohanakala [(2007) 161 Taxman 169(SC)], wherein the Apex Courtpointed out that when the finding of fact arrived by theauthorities below were based on proper appreciation of facts,material available on record and surrounding circumstances, itwould not call for any interference. In the said case, the ApexCourt pointed out that the doubtful nature of transaction andthe manner in which the sums were found credited in the books ofaccounts maintained by the assessee had been duly taken intoconsideration by the authorities below and the transactionthough apparent were held to be not real one. It was furtherpointed out that it may be the money came by way of bank chequesand paid through the process of banking transaction but thatitself is of no consequence. This decision applies on all foursto the assessee's case where also the assessee pleaded that theamounts paid as service charges to those third parties shoulddisclose the same in their income tax return. This can hardlyvalidate such invalid and doubtful transactions. 10.In the light of the above discussion and noting that thetwo authorities and the Tribunal concurrently on facts held thatthe assessee had miserably failed to establish his case. Thus,the Court finds that there is no substantial question of lawarising for consideration in this appeal. 11.In the result, the tax case appeal fails and is dismissedand the Substantial Question of law is answered in favour of therespondent/revenue. No costs. Sd/- Assistant Registrar(CS VIII) //True Copy// Sub Assistant RegistrarcseTo1.The Commissioner of Income Tax Appeals-IV,Chennai-600 034.2.The Asst. Commissioner of Income Tax, Company Circle-IV(3), Chennai – 600 034.3.The Income Tax Appellate Tribunal, 'B' Bench, Chennai.4. The Section Officer,V.R Section,High Court, Madras+1cc to M/s.Subbaraya Aiyar Padmanabhan, Advocate sr.59036+2cc to to Mr.Karthik Ranganathan, Advocate sr.59169TCA.No.263 of 2009nrjk(co)nr 28/08/2019