Tc/1035/2007 Of Commissioner Of Income Tax v. M/S Sapthagiri Traders Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 11.07.2007 THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA Commissioner of Income Tax.. Appellant inChennai. all the appeals Appeals under Section 260A of the Income Tax Act, 1961 againstthe common order of the Income Tax Appellate Tribunal, Madras 'A'Bench, dated 30.09.2005 in ITA Nos.2119, 2120, 2123, 2124, 2121,2122, 2126 and 2127/Mds/1998 for the assessment years 1993-94 and1994-95 respectively. against the order of the Commissioner of Income Tax (Appeals)Ichennai in I.T.A.No.76,96-97 and 54/97-98 order dated 7.9.98against the order of the Assistant Commissioner of Income taxCentral Circle III (3) Madras in P.A.No.(G.I.No.47-096-CT-2979, 47-096-CT-2976 respectively date of order 29.3.1996 and 27.3.1997respectively (Prayer in TC(A)No.1035, 1036/07) against the order of the Commissioner of Income Tax (Appeals)Ichennai in I.T.A.No.79/96-97 55/97-98 and 73/98-99 order dated7.9.98 against the order of the Assistant Commissioner of Incometax Central Circle III (3) Madras in P.A.No.(G.I.No.47-096-CQ-2980dated 27.3.1997, 29.3.1996 respectively (Prayer in TC(A)No.1037,1038/07) https://hcservices.ecourts.gov.in/hcservices/ against the order of the Commissioner of Income Tax (Appeals)Chennai in I.T.A.No.74/96-97 and 70/97-98 order dated 7.9.98against the order of the Assistant Commissioner of Income taxCentral Circle III (3) Madras in P.A.No.(G.I.No.47-095-CN-5799,order dated 29.3.1996 and 27.3.1997 respectively (T.C.(A) 1065,1066/07) against the order of the Commissioner of Income Tax (Appeals)Ichennai in I.T.A.No.77,96-97, 53/97-98 and 72/98-99 order dated7.9.98 and 29.4.98 against the order of the Assistant Commissionerof Income tax Central Circle III (3) Madras in P.A.No.(G.I.No.47-092-CY-0523, order dated 29.3.1996 and 27.3.1997 respectively(Prayer in T(A)No.1072, 1073/07) The above tax case appeals are directed against the commonorder of the Income-tax Appellate Tribunal dated dated 30.09.2005in ITA Nos.2119, 2120, 2123, 2124, 2121, 2122, 2126 and2127/Mds/1998 for the assessment years 1993-94 and 1994-95respectively. 2. The Revenue is the appellant. The relevant assessmentyears are 1993-94 and 1994-95. The assessees are in the businessof purchase and sale of IMFL products. The assessees had shown asif they had purchased the packing materials biz bottles etc., hadgiven it to M/s. Mcdowell and Company, got the liquor filled andthen sold them. For the assessment years 1993-94 and 1994-95, theassessees claimed deduction of the cost towards the packingmaterials for IMFL. The Assessing Officer, finding that thepacking materials were readily available in the market at a farlower prices, the principal of the assessee companies had purchasedthe packing materials at a far lower price, the cost of packingmaterial claimed by the group company Balaji Distilleries was farlower than the claim of the assessees, the assessee companies haddeliberately routed its purchases of packing materials through theintermediary companies with the intention to inflate the purchaseprice and thereby reduced the income liable to tax and that theintermediary companies were not in the business of dealing with thepacking materials for the IMFL, by assessment orders dated29.3.1996 and 27.3.1997, disallowed the claim of the assessees.Against the said assessment orders, the assessees preferred appealsbefore the Commissioner of Income-Tax (Appeals), who by commonorder dated 7.9.1998, following the decision of the Tribunal dated18.3.1997 made in I.T.A.No.2189/Mds/1995 and holding that there isno doubt as to the reality of purchasing of the packing materialsas the payments were made to the parties only by way of cheques,allowed the appeals and directed the Assessing Officer to allow theclaim of the assessees for both the assessment years. Against that order, the Revenue preferred further appeals before theIncome-tax Appellate Tribunal. The Appellate Tribunal followingits earlier order in the assessee's own case, which remainunchallenged and therefore become final, dismissed the appeals. 3. Aggrieved by the same, the Revenue has preferred the aboveappeals raising the following substantial question of law: "Whether in the facts and circumstances of thecase, the Tribunal was right in holding thatthe assessee had not inflated the cost of thepacking materials for the IMFL and allowing theinflated expenditure as a deduction?" 4.1. It is not in dispute that both the assessees and theRevenue agreed before the Income-tax Appellate Tribunal that theissue involved in these appeals had already been decided againstthe Revenue and in favour of the assessees by the Tribunal by orderdated 18.3.1997 made in I.T.A.No.2189/Mds/1995 and the same alsohad reached finality. Unfortunately, Mr.J.Narayanasamy, learnedstanding counsel appearing for the Revenue even today is not in aposition to state whether the earlier order of the Tribunal hadbeen reversed. 4.2. That apart, on facts, we find that it was not for theRevenue to question the decision of the assessee to purchase thegoods from a particular concern unless it is established that thetransaction involved pushing back of part of the profit to theassessee itself. 4.3. Our attention was also brought to the ratio laid down bythe Apex Court in Sassoon J. David & Co. P. Ltd. v. Commissioner ofIncome-tax (118 ITR 261), wherein it is held that it is for theassessee to decide whether any expenditure should be incurred inthe course of his or its business. Such expenditure may beincurred voluntarily and without any necessity and if it isincurred for promoting the business and to earn profits, theassessee can claim deduction under section 10(2)(xv) of the Acteven though there was no compelling necessity to incur suchexpenditure. The fact that somebody other than the assessee isalso benefitted by the expenditure should not come in the way of anexpenditure being allowed by way of deduction under section 10(2)(xv) of the Act if it satisfies otherwise the tests laid down bylaw. 4.4. The decision of this Court in Commissioner of Income taxv. Gopald Motors Service (P) Ltd., 100 ITR 240 was also brought toour notice, wherein it was held that in order to entitle adeduction under Section 37 of the Income-tax Act, two conditionsmust be satisfied viz., (a) the expenditure should have beenincurred wholly and exclusively for the purpose of the business and(b) such expenditure shall not be in the nature of a capitalexpenditure." 4.5. In our considered opinion, both the conditions aresatisfied by the assessees in the instant case. Once such a conclusion is reached in favour of the assessees, we do not see anyreason to deny the deduction which should have been followed as amatter of course. 4.6. That apart, the Tribunal held that the transaction orpurchase of packing materials were not proved to be sham or thatthe price paid was different from those shown in the books ofaccount of the appellant and therefore, there is no doubt as to thereality of the purchasing of the packing materials as the paymentswere made to the parties only by way of cheques. 4.7. In view of the above factual findings, we do not see anyreason to deny the deduction under Section 37 of the Act, asrightly allowed by the Commissioner of Income-tax (Appeals) and theIncome-tax Appellate Tribunal, following its earlier decisionreferred to above, as fairly agreed by the learned Standing Counselfor the department. Finding, therefore, no substantial question of law that arisesfor our consideration, these appeals are dismissed. No costs.Consequently, M.P.Nos.2 of 2007 are also dismissed. Sd/-Asst. Registrar./true copy/ Sub Asst. Registrar. ATR To 4.7. In view of the above factual findings, we do not see anyreason to deny the deduction under Section 37 of the Act, asrightly allowed by the Commissioner of Income-tax (Appeals) and theIncome-tax Appellate Tribunal, following its earlier decisionreferred to above, as fairly agreed by the learned Standing Counselfor the department. Finding, therefore, no substantial question of law that arisesfor our consideration, these appeals are dismissed. No costs.Consequently, M.P.Nos.2 of 2007 are also dismissed. Sd/-Asst. Registrar./true copy/ Sub Asst. Registrar. ATR To 1.The Assistant Registrar,Income Tax Appellate TribunalMadras Bench, Rajaji Bhavan, Besant Nagar, Chennai-20. 2.The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3.The Commissioner of IncomeTax (Appeals)-I, Chennai.34Tax (Appeals)-I, Chennai.34 4.The Assistant Commissioner of Income-taxCentral Circle III(3), Chennai.Central Circle III(3), Chennai. 3 ccs to MRs. Pushya Sitaraman, SR. 42048, 42050, 42049 MRD (CO)kk 23/7