Rahuljee & Company Pvt. Ltd v. Income Tax Appellatetribunal

t # *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA NO. 157/2011 % Judgment Reserved On: 21.4.2011Judgment Delivered On: 08.8.2011 RAHULJEE & COMPANY PVT. LTD. . . . APPELLANT Through: Mr. P.L. Juneja, Advocate VERSUS INCOME TAX APPELLATETRIBUNAL. ..RESPONDENT Through: Ms. Prem Lata Bansal, Sr.Advocatewith Mr. RuchirBhatia, Advocate. CORAMHON'BLEMR. JUSTICE A.K. SIKRIHON'BLEMR. JUSTICEM.L. MEHTA 1.Whether Reportersof Local newspapersmay be allowed to see the Judgment?2.To be referred to the Reporter or not?3.Whether the Judgment should be reportedin the Digest?3.Whether the Judgment should be reportedin the Digest? A.K. SIKRI.I. 1.This appealpertains to the assessmentyear 1988-89.TheAssessingOfficer in the assessmentyear disallowedthe following claims/expensespreferredby the assessee:- (i)Claim for damages by the customer:^=14,04,483/-(ii)Payment made to Mr. Sunil Kumar:?2,00,000/-(iii)Expenses estimated to have been incurred:?80,000/-^(iv)Foreign Travel of 5h. Pawan Goel : til ,1221-Signature Not Verified(v)Disallowanceof ?16,088/-u/s 40A (3)Digitally Signed By:AMULYA(vi)Interest u/s 217 be consequentlyreduced.Certify that the digital file andphysical file have been compared andthe digital data is as per the physicalfile and no page is missing. The matter went upto the Income-TaxAppellateTribunal.The Tribunalallowed the appealof the assesseeonly qua itemno. (iii) abovei.e. the claimof the assesseeon accountofexpensesincurredto the tuneof t 80,000/-.The assesseemovedrectificationapplicationwhich kept pendingfor almost15 years and was dismissed only vide orders dated24^^February,2006.Theassesseemovedsecondrecitifcationapplication on 10^^ March, 2006 which was again dismissed videorders datedSeptember,2006.At this stage, the assesseepreferred Civil Writ challenging the original order of the Tribunalpassed on 17^^ September, 1990as well as orders dated 24^^February,2006and15^^ September,2006dismissingtherectificationapplicationspreferredby the assessee.Vide ordersdated14'^'^ January,2011, this writ was allowed to be convertedinto appeal. *• 2.Wemaymentionattheoutsetthatatthetimeofarguments,the learnedcounselfor the assesseeconfinedtheassessee'sgrievanceonly to disallowanceof payment of ? 2 lacsmade to oneMr. SunilKumar and consequentialreductionofinterestthereuponunder Section217 of the Act.The appeal c i ^ wasadmittedon the followingquestionof law anddetailedargumentswereheardon thisquestionbeforereservingthejudgment:- Whetherthe orderof the Tribunalthat theassesseehasnot beenableto provetheexpenseof Rs. 2 lakhpaid for gettingthecassettesassemble/manufactures,perverseand illegal? However,we findthatinadvertently,in theordersheet,admissionon this questionof law is no specificallyrecorded.We,therefore,reiteratethat appealwas admittedon the aforesaidquestionof law. 3.Insofar as theaforesaidclaim of ? 2 lacs is concerned,theassesseehad shown the same as manufacturingexpenses.Theassesseeis in the business of manufacturingof cassettes.As perthe assessee,it had paid ? 2 lacs for manufacturingof 40,000piecesof cassettes.This amountwas paidby the assesseetoone Mr. Sunil Kumarand the amountwas paid by chequeto him.However,the AssessingOfficerdisallowedthe amounton theground that the entire amount was paidon the same day andthere was no periodicpayment from time to time. On this basis,this findingof the AssessingOfficer was confirmedby the CIT (A) as well as the Tribunal.The Tribunalwhile rejectingthe clainnobservedas under:- 3.Insofar as theaforesaidclaim of ? 2 lacs is concerned,theassesseehad shown the same as manufacturingexpenses.Theassesseeis in the business of manufacturingof cassettes.As perthe assessee,it had paid ? 2 lacs for manufacturingof 40,000piecesof cassettes.This amountwas paidby the assesseetoone Mr. Sunil Kumarand the amountwas paid by chequeto him.However,the AssessingOfficerdisallowedthe amounton theground that the entire amount was paidon the same day andthere was no periodicpayment from time to time. On this basis,this findingof the AssessingOfficer was confirmedby the CIT (A) as well as the Tribunal.The Tribunalwhile rejectingthe clainnobservedas under:- "The entire payment was made on one dayandalmosttheentireamountwaswithdrawnon oneday.Thesituationisagainstnormalhumanconduct.If ShriSunilKumarhadactuallyrenderedhisservicesthroughhislabourershewouldhaveneededthemoneydaytodaytomake the payment to the labourers.This isnosointhiscase.Theentiresetofcircumstancescastashadowofdoubtabout the genuinenessof paymentof ? 2lakhsto ShriSunilKumar.Thisclaimofexpenditureof ? 2 lakhsis not compatiblewith the statementmade before the Exciseauthoritiesthatthe workwas done by theassessee company at its premises for whichregularexciseregisterwas maintainedbythe assesseecompany.For thereasonsgivenby the ITO in the assessmentorder,forthereasonsdiscussedbytheCommissionerof Appealsin the appellateorderandfor thereasonsgivenhereinbeforewe agree with the authoritiesbelowthattheclaimof ?2lakhssaidtohavebeenpaidtoShriSunilKumarwasnotdeductible.No taxeswere deductedfromthepaymentof ? 2lakhstoShriSunilKumaralthoughit wasobligatoryon thepart of the prayer to have done so.Thisunderlinesthesuspicionaboutthegenuinenessof the payment". 4.Challengingthe aforesaidfindingas perverse,Mr. Juneja,learnedcounsel for the assessee contendedthat merely becausepaymentwasmadeononedaycouldnotbeareasonto disbelievetheassesseeor to disallowtheexpenditure.Hesubmittedthattheseriousmistakewascommittedbytheauthoritiesbelowindisallowingtheentiremanufacturingexpenseson the aforesaidground as there could not have beenthe manufacturingof 40,000cassetteswithoutsome expenses.His further submissionwas that this has resultedinto the taxingthegross-incomeinsteadofnetincomeafterallowingtheexpenditureincurredon the manufacturingof the goods.Hesubmittedthatthemanufacturingexpensesweredisallowedmerely on doubt and suspicionignoring the recordsincludingthesalaryrecordwhich was producedevidencingthe payment.Healso pointed out that even Mr. Sunil Kumar was producedbeforethe AssessingOfficerwho had deposedon oathhaving receivedthe payment. 5.LearnedCounselfor therespondent,on the otherhand,reliedupon thereasoninggivenby the authoritiesbelowandsubmittedthat thesewere findingsof the factsand, therefore,shouldnot be interferedwith.It was additionallysubmittedthatMr. Sunil Kumar was an employeeof the assesseeand Mr. SunilKumarinhisstatementhascategoricallydeposedthattheassesseehad openedthe bank accountin his name and he was made to sign the blanl< chequebook under the threat that hewouldnot be paid the salaryunlesshe signs the blank chequeand papers.It was further revealed that a cheque of2 lacs wasdepositedon 19.11.1987in the said bank accountandon thesame day two chequeswere issuedwithdrawing? 1 lakh and ?90,000/- and balance amount of? 10,000/- was withdrawnon 17^^and19'^'^ June,1988.Thereliancewasalsoplacedon thestatementof Mr. S.P.Garg,Directorof the assesseecompanywhich was recordedby the Departmentof Customsand CentralExciseon1986whenthepremisesoftheassesseeweresearchedby the said department.In that statementMr. Gargstatedthattheyhadfull-fledgedfactorytoassemblethecassettes for which regular excise register have been maintained. made to sign the blanl< chequebook under the threat that hewouldnot be paid the salaryunlesshe signs the blank chequeand papers.It was further revealed that a cheque of2 lacs wasdepositedon 19.11.1987in the said bank accountandon thesame day two chequeswere issuedwithdrawing? 1 lakh and ?90,000/- and balance amount of? 10,000/- was withdrawnon 17^^and19'^'^ June,1988.Thereliancewasalsoplacedon thestatementof Mr. S.P.Garg,Directorof the assesseecompanywhich was recordedby the Departmentof Customsand CentralExciseon1986whenthepremisesoftheassesseeweresearchedby the said department.In that statementMr. Gargstatedthattheyhadfull-fledgedfactorytoassemblethecassettes for which regular excise register have been maintained. 6.Afterconsideringtherespectivesubmissionsandgoingthroughthe records,we are of the opinionthat the authoritiesbelow have taken a myopic and harsh view in the matter.In theprocess,the irrelevantconsiderationand extraneousmaterialhas been considered.At the same time, therelevantevidenceon recordhas been discarded.This has led to the perversityinthe findings.In the firstplace,it may be mentionedthat thestatementof Mr. S.P.Garg,Directorof the assesseecompany could not be reliedupon.This statement was made in the year1986.Whereas, the assessmentyear in questionis 1988-89.Itwas clearly of no relevance in this year.Moreover, this allegedadmissionwas even not confrontedwith the assesseewhich wasused at its back and thusviolates the principle of natural justice.It could not be presumedthat the position which existed in the 1986 would remain valid in future as well.year 7.Themainissuebeforetheauthoritiesbelowwasas towhether the expenditure of ? 2 lacs was in fact incurred and theassessee was able to prove the same or not.It should have beenexamined.This was the only issuewhichshouldhavebeenfocused.In ordertothistheexclusivelyproveexpenditure,assessee hadrelied uponthe following material/documents:-whether the expenditure of ? 2 lacs was in fact incurred and theassessee was able to prove the same or not.It should have beenexamined.This was the only issuewhichshouldhavebeenfocused.In ordertothistheexclusivelyproveexpenditure,assessee hadrelied uponthe following material/documents:- (1)The payment wasmadeto Mr. SunilKumarbyaccountpayeecheque.Thischequewas encashedby Mr. Sunil Kumarand the amountwas creditedinhisbankaccount. (ii)Copiesofalltherelevantchequeswere collectedby the authoritiesfrom theBankshowingthatthosechequeswerepresentedand encashedpersonallyby Mr.SunilKumar.Theseaspectswere totallyignoredandglossedoverandnotevenadverted to by the authoritiesbelow. ^ k. )"••' (1)The payment wasmadeto Mr. SunilKumarbyaccountpayeecheque.Thischequewas encashedby Mr. Sunil Kumarand the amountwas creditedinhisbankaccount. (ii)Copiesofalltherelevantchequeswere collectedby the authoritiesfrom theBankshowingthatthosechequeswerepresentedand encashedpersonallyby Mr.SunilKumar.Theseaspectswere totallyignoredandglossedoverandnotevenadverted to by the authoritiesbelow. ^ k. )"••' (iii)Theassesseehadproducedsixaffidavitsof personswho had statedthatthey had worl<ed for ivir. Sunil Kumar. Theseaffidavitsare discardedonly on the groundthat five out of sixpersonshave signed onthe request of Mr. S.P. Garg, Director of the the assesseehadcompany.Naturally whento prove the paymentas genuineand hehadapproachedthesepersonswhohadworkedfor Mr. Sunil Kumar to demonstratethatMr. SunilKumarhadundertakentheworkandmanufacturingof40,000cassettesforwhichhewasmadethepayment.These personsnever statedthattheydid not work for Mr. Sunil Kumar orwhat was statedin the affidavit was wrong.(iv)Inaddition,theassesseehadalsofurnisheddocumentsin the shapeof copiesof purchase order from Aartie Foreign TradeCorporation, copy of letter dated 21^*^ March,1988and27^^May,1988fromCzechoslovakianEmbassy,copyofapplication to RBI for grant of permission forremittancedated29^^December,1988,copy of RBI permission for release of foreignexchange,copy of revisedprofit-and-lossaccountfor the year ending31^' March,1988,copyofcertificateofM/sOregonElectronics&components,copyofcertificateofM/sKollahpurRoadAssociation.Allthesedocumentsreadcumulativelyshowthattheworkofmanufacturingofthesecassetteswasundertakenby theassesseeforwhichitearned money and offered to tax.In such asituationit is not possibleto comprehendthatno expenseswere incurredin gettingthosecassettesmanufactured.Theassesseekept onemphasingthis fact andrepeatedlypleadedthattherecannotbemanufacturingwithoutexpensesand,therefore,someexpensesshouldbeallowed.However,thispleawasnot accepted.This forceful plea was rejectedwithout any basis. 8.In this scenario,the assesseemay be justifiedin explainingthe statementof Mr. SunilKumarwhohadallegedthathissignatures were taken on blank papers. The explanation given bythe assesseewas that since Mr. Sunil Kumar had not paid taxeson the amount received,he was trying to riggle out.If we weighthe circumstancesand materialplaced on record by the assesseeand the material possessedby the AO then scale would tilt infavour of the assessee.Whenever an explanationor defence ofan assesseebasedon numberof factssupportedby evidenceand circumstances,required considered, whether the explanationis soundor notmustbe determinednotby consideringtheweight to be attached to each single fact in isolation but byassessing the cumulative effect of all the facts in their setting aswhole. r"a 9.We are,thus,of theopinionthattherewassufficientevidence to prove the expenditureof ? 2 lacs by the assessee. 10.The questionis, thus, answeredin favour of the assesseeand against the Revenue and this appeal is partly allowed holding If 'T that the assesseewill be entitledto claim the deductionof ? 2lacs as expenses,asa consequence,the assessee shall also beentitled to the reductionof interestunder Section 217 of the Act. {tCK. SIKRI)JUDGE (M.L. MEHTA)JUDGE AUGUST 8, 2011skb